A Tale of (Almost) 1001 Coefficients: Deep and Heterogeneous Effects of the EU-Turkey Customs Union (with Mario Larch and Aiko Schmeißer), Journal of Common Market Studies, 59(2), pp. 242-260.
Abstract: In view of the deferred start of negotiations for the modernization of the Customs Union between the EU and Turkey (CU-EUT), we look back and analyse the ex post trade consequences of the CU-EUT. Employing up-to-date econometric best practices for regional integration agreements, we quantify both total and heterogeneous trade effects of the CU-EUT. In contrast to most previous studies, our results indicate a significantly positive, large, and robust impact of the CU-EUT, implying an additional increase in EU-Turkey manufacturing trade by 55-65% compared to the previously active Ankara Agreement. We also provide evidence that the CU-EUT significantly increased Turkey’s trade with third countries. Additionally, a substantial heterogeneity in the CUEUT effect is found across different industries as well as for each of its member countries and the direction of trade. We link the heterogeneity of our up to 911 coefficient estimates to differences in initial trade costs and show that it cannot be ascribed to reductions in bilateral tariff rates.
Worth the Pain? Firms’ Exporting Behaviour to Countries under Sanctions (with Matthieu Crozet, Julian Hinz, and Amrei Stammann), European Economic Review, 134, 103683.
Abstract: How do exporting firms react to sanctions? Specifically, which firms are willing — or capable— to serve the market of a sanctioned country? We investigate this question for four sanctions episodesusing monthly data on the universe of French exporting firms. We draw on recent econometric advances in the estimation of dynamic fixed effects binary choice models.We find that the introduction of new sanctions in Iran and Russia significantly lowered firm-level probabilities of serving these sanctioned markets, while the (temporary) lifting of the U.S.\ sanctions on Cuba and the removal of sanctions against Myanmar had no or only small trade-inducing effects, respectively.Additionally, the impact of sanctions is very heterogeneous along firm dimensions and by case particularities. Firms that depend more on trade finance instruments are more strongly affected, while prior experience in the sanctioned country considerably softens the blow of sanctions, and firms can be partly immune to the sanctions effect if they are specialized in serving ``crisis countries''. Finally, we find suggestive evidence for sanctions avoidance by exporting indirectly via neighboring countries.
Currency Unions and Trade: A PPML Re-assessment with High-Dimensional Fixed Effects (with Mario Larch, Yoto V. Yotov, and Thomas Zylkin), Oxford Bulletin of Economics and Statistics, 81(3), pp. 487–510.
Abstract: Recent work on the effects of currency unions (CUs) on trade stresses the importance of using many countries and years in order to obtain reliable estimates. However, for large samples, computational issues associated with the three-way (exporter-time, importer- time, and country pair) fixed effects currently recommended in the gravity literature have heretofore limited the choice of estimator, leaving an important methodological gap. To address this gap, we introduce an iterative poisson pseudo-maximum likelihood (PPML) estimation procedure that facilitates the inclusion of these fixed effects for large data sets and also allows for correlated errors across countries and time. When applied to a compre- hensive sample with more than 200 countries trading over 65 years, these innovations flip the conclusions of an otherwise rigorously specified linear model. Most importantly, our estimates for both the overall CU effect and the Euro effect specifically are economically small and statistically insignificant. We also document that linear and PPML estimates of the Euro effect increasingly diverge as the sample size grows.
Review of Thermophysical Property Data of Octadecane for Phase-Change Studies (with Moritz Faden, Stephan Höhlein, Andreas König-Haagen, and Dieter Brüggemann), Materials, 12(18), 2974.
Abstract: In this work we derive temperature-dependent functions for the most important material properties needed for phase change studies with octadecane. Over 80 references are reviewed in which at least one thermophysical property of octadecane is measured. The functions are valid ±40 K around the melting temperature and are surrounded by their confidence interval. It turns out that the values for the solid phase have much broader confidence intervals than the ones of the liquid phase. Hence, more accurate measurements are particularly desirable for the solid state material properties.
Bi- and Unilateral Trade Effects of Joining the Euro (with Mario Larch and Yoto V. Yotov), Economics Letters, 171, pp. 230–234.
Abstract: We propose a simple theoretically consistent adjustment for structural gravity estimations of the EMU impact on international trade. Our methods result in two contributions to the related literature. First, we show that proper control for intra-national trade flows leads to larger, positive, and statistically significant bilateral EMU effects. The intuition is that joining the EMU promotes trade among member countries at the expense of trade diversion from domestic sales. Second, the introduction of intra-national trade flows enables us to identify Unilateral effects of joining the Euro between members and non-member countries. The unilateral effects are also positive, sizable and statistically significant.
Can Degrowth Overcome the Leakage Problem of Unilateral Climate Policy? (with Mario Larch and Markus Löning), Ecological Economics, 152, pp.118–130.
Abstract: Unilateral climate policy suffers from carbon leakage, i.e. the (partial) offset of the initial emission reduction by increases in other countries. Different than most typically discussed climate policies, degrowth not only aims at reducing the fossil fuel use in an economy, but rather (besides other social and political goals) at a reduction of all factor inputs, which may lead to different leakage implications. We conduct the first investigation of de- growth in a multi-country setting in order to (i) compare the leakage effects of national pure emission reduction policies to degrowth scenarios, (ii) identify underlying channels by decomposing the implied emission changes into scale, composition, and technique effects, and (iii) investigate which country characteristics determine degrowth's relative effectiveness to overcome the leakage problem. Using a structural gravity model, we find that degrowth indeed significantly reduces leakage by keeping the sectoral composition of the country more stable and reducing uncommitted countries' incentives to shift towards more energy-intensive production techniques. The higher effectiveness of degrowth in reducing carbon emissions is most pronounced for small and trade-open economies with comparatively clean production technologies.
Carbon Tariffs: An Analysis of the Trade, Welfare and Emission Effects (with Mario Larch), Journal of International Economics, 109, pp.195–213.
Abstract: The potential of carbon tariffs to restore competitiveness, avoid carbon leakage, and reduce global carbon emissions has been prominently discussed. To analyze the effects of carbon tariffs on trade, welfare, and carbon emissions, we develop a multi-sector, multi-factor structural gravity model that allows an analytical and quantitative decomposition of the emission changes into scale, composition, and technique effects. Our analysis shows that carbon tariffs are able to reduce world emissions, mainly via altering the production composition within and across countries, hence reducing carbon leakage. This reduction comes at the cost of lower world trade flows and lower welfare, especially for developing countries. Applying our framework to investigate the effects of the emission reduction pledges made by the Annex I countries in the Copenhagen Accord, we find that combining national emission targets with carbon tariffs would increase the Accord's effectiveness by lowering the leakage rate from 13.4% to 4.1% (with bootstrapped 95% confidence intervals of [11.5, 15.8] and [3.3, 4.9], respectively).
Current Working Papers
The Consequences of Unilateral Withdrawals from the Paris Agreement (with Mario Larch), CESifo Working Paper No. 7804, resubmitted after revision at the European Economic Review
Abstract: We develop a multi-sector structural trade model with emissions from production and a constant elasticity of fossil fuel supply function to simulate the consequences of unilateral withdrawals from the Paris Agreement. Taking into account both direct and leakage effects, we find that a US withdrawal would eliminate a third of the world emissions reduction (25.7% direct effect and 7% leakage effect), while a potential Chinese withdrawal lowers the world emission reduction by 19.4% (8.2% direct effect and 11.2% leakage effect). The substantial leakage is primarily driven by technique effects induced by falling international fossil fuel prices.
State Dependence and Unobserved Heterogeneity in the Extensive Margin of Trade (with Julian Hinz and Amrei Stammann, previously Persistent Zeros: The Extensive Margin of Trade, Kiel Working Paper No. 2139). (link to the latest version)
Abstract: We study the role and drivers of persistence in the extensive margin of bilateral trade. Motivated by a stylized heterogeneous firms model of international trade with market entry costs, we propose new bias-corrected dynamic binary choice estimators with three sets of high-dimensional fixed effects. Monte Carlo simulations confirm their desirable statistical properties. A reassessment of the most commonly studied determinants of the extensive margin of trade demonstrates that both true state dependence and unobserved heterogeneity contribute strongly to trade persistence and that taking this persistence into account matters significantly in identifying the effects of trade policies on the extensive margin.
The Impact of Trade and Trade Policy on the Environment and the Climate: A Review (with Gabriel Felbermayr and Sonja Peterson), Kiel Working Paper No. 2233, resubmitted after revision at the Journal of Economic Surveys
While international trade can offer gains from specialization and access to a wider range of products, it is also closely interlinked with global environmental problems, above all, anthropogenic climate change. This survey provides a structured overview of the economic literature on the interaction between environmental outcomes, trade, environmental policy and trade policy. In this endeavor, it covers approaches reaching from descriptive data analysis based on Input‐Output tables, over quantitative trade models and econometric studies to game‐theoretic analyses. Addressed issues are in particular the emission content of trade and emissions along value chains, the relocation of dirty firms and environmental impacts abroad, impacts of specific trade polices (such as trade agreements or tariffs) or environmental policy (such as Border Carbon Adjustment), transportation emissions, as well as the role of firms. Across the different topics covered, the paper also tries to identify avenues for future research, with a particular focus on extending quantitative trade and environment models.
Brothers in Arms: The Value of Coalitions in Sanctions Regimes (with Sonali Chowdry, Julian Hinz, and Katrin Kamin), Kiel Working Paper No. 2234, accepted for publication at Economic Policy
This paper examines the impact of coalitions on the economic costs of the 2012 Iran and 2014 Russia sanctions. By estimating and simulating a quantitative general equilibrium trade model under different coalition set-ups, we (i) dissect welfare losses for sanction-senders and target; (ii) compare prospective coalition partners and; (iii) provide bounds for the sanctions potential — the maximum welfare change attainable — when sanctions are scaled vertically, i.e. across sectors up to an embargo, or horizontally, i.e. across countries up to a global regime. To gauge the significance of simulation outcomes, we implement a Bayesian bootstrap procedure that generates confidence bands. We find that the implemented measures against Iran and Russia inflicted considerable economic harm, yielding 32 – 37% of the vertical sanctions potential. Our key finding is that coalitions lower the average welfare loss incurred from sanctions relative to unilateral implementation. They also increase the welfare loss imposed on Iran and Russia. Adding China to the coalition further amplifies the welfare loss by 79% for Iran and 22% for Russia. Finally, we quantify transfers that would equalize losses across coalition members. These hypothetical transfers can be seen as a sanctions-equivalent of NATO spending goals and provide a measure of the relative burden borne by coalition countries.
International trade is highly imbalanced both in terms of values and in terms of embodied carbon emissions. We show that the persistent current value trade imbalance patterns contribute to a higher level of global emissions compared to a world of balanced international trade. Specifically, we build a Ricardian quantitative trade model including sectoral input-output linkages, trade imbalances, fossil fuel extraction, and carbon emissions from fossil fuel combustion and use this framework to simulate counterfactual changes to countries' trade balances. For individual countries, the emission effects of removing their trade imbalances depend on the carbon intensities of their production and consumption patterns, as well as on their fossil resource abundance. Eliminating the Russian trade surplus and the US trade deficit would lead to the largest environmental benefits in terms of lower global emissions. Globally, the simultaneous removal of all trade imbalances would lower world carbon emissions by 0.9 percent or 295 million tons of carbon dioxide.
Selected Work in Progress
Multinational Production, Trade, and Carbon Emissions (with Yuta Watabe), in progress.
The R package glmhdfe implements a fast estimation procedure of generalized linear models with high dimensional fixed effects. The package makes use of a convenient property of some combinations of error term distributions and link functions, where the fixed effects have — conditional on all other estimated parameters — an explicit solution.
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