Michigan International Economics Conference

The conference will take place at the Ross School of Business (701 Tappan Ave, Ann Arbor, MI 48109) in room R2220 on Friday, May 19, 2023. The conference is open to the public. There is no need to RSVP or sign up. The intended audience is faculty and PhD students interested in international economics.  The conference will feature presenters Treb Allen (Dartmouth), Vanessa Alviarez (IADB), Pablo Fajgelbaum (UCLA), Samuel Kortum (Yale), and Natalia Ramondo (Boston U). 

Treb Allen, Dartmouth

"The Topography of Nations"

Abstract: How does the interplay of geographic, political and economic forces together affect the shape of nations? This paper presents a quantitative framework for answering these questions by deriving and characterizing the equilibrium evolution of national boundaries in a world with a rich geography. The framework is based on simple conditions that are the equilibrium outcomes from multiple disparate political economic micro-foundations. I characterize the existence, uniqueness, and efficiency of the dynamic equilibrium, and I provide a simple algorithm for its calculation. The framework does a good job of matching the empirical distribution of nations in Europe c.1000AD. Finally, I illustrate the power of the framework by providing several stylized examples of how it can be applied to understand how changes in the spatial distribution of resources, the cost of transit, and the productivity of different governments each affects the equilibrium shape of nations.

Vanessa Alviarez, Inter-American Development Bank (IADB)

"Two-Sided Market Power in Firm-to-Firm Trade"

Abstract: We develop a quantitative theory of prices in firm-to-firm trade with bilateral negotiations and two-sided market power. Markups reflect oligopoly and oligopsony forces, with relative bargaining power as weight. Cost pass-through elasticities into import prices can be incomplete or complete, depending on the exporter's and importer's bargaining power and market shares. In U.S. import data, we find that U.S. importers have substantial market power and disproportionate leverage in price negotiations. The estimated model generates more accurate predictions of pair-level price changes following trade shocks than standard models, improving the estimated impact of the 2018 trade war on aggregate U.S.import prices by 40-60%.

Pablo Fajgelbaum, University of California, Los Angeles (UCLA)

"Political Preferences and the Spatial Distribution of Infrastructure: Evidence from California's High-Speed Rail"

Abstract: Transport networks are among the largest public investments. What determines the projects that get implemented? We study how constituents' political preferences and policymakers' preferences for redistribution or popular approval determined the implementation of California's High-Speed Rail. We combine detailed spatial data on votes for the project with a quantitative spatial model that captures its economic benefits. We first estimate the weight of economic and political components in people’s preferences. Then we estimate the preferences of a hypothetical social planner as revealed by the observed network design. In preliminary results, we find that votes are responsive to the expected real-income benefits of the high-speed rail; however, the economic benefits explain a small fraction of the aggregate vote and the variance in welfare across space is largely explained by political preferences. 

Sam Kortum, Yale University

"Optimal Unilateral Carbon Policy" with David Weisbach

Abstract: We derive the optimal unilateral policy in a general equilibrium modelof trade and climate change where one region of the world imposes a climatepolicy and the rest of the world does not. A climate policy in one regionshifts activities—extraction, production, and consumption—in the otherregion. The optimal policy trades off the costs of these distortions. Theoptimal policy can be implemented through: (i) a nominal tax on extractionat a rate equal to the global marginal harm from emissions, (ii) a tax onimports of energy and goods, and a rebate of taxes on exports of energybut not goods, both at a lower rate than the extraction tax rate, and (iii)a goods-specific export subsidy. The policy controls leakage by combiningsupply-side and demand-side taxes to control the price of energy in thenon-taxing region. It exploits international trade to expand the reach ofthe climate policy. We calibrate and simulate the model to illustrate howthe optimal policy compares to more traditional policies such as extraction,production, and consumption taxes and combinations of those taxes. Thesimulations show that combinations of supply-side and demand-side taxesare much better than simpler policies and can perform nearly as well as theoptimal policy. 

Natalia Ramondo, Boston University

"The Carbon Footprint of Multinational Production" joint with Garcia-Lembergman, Rodriguez-Clare, and Shapiro

Abstract: How does multinational production affect climate change? Global climate negotiations have set the goal of enormous transfers per year from rich to poor countries, including through private investment, to decrease greenhouse gas emissions. Two stylized facts motivate the analysis of multinational production as a mechanism for such transfers. First, carbon emissions per dollar of value added or output differ substantially across countries, even conditional on industrial composition. Second, the emissions rate of a foreign-owned plant increases with the emission rate of its home country, suggesting that firms bring green technology with them when operating abroad. We develop and quantify a multi-country general equilibrium model of multinational production, trade, and energy to assess how policies encouraging multinational production would affect global carbon emissions and welfare.