Publications

2019

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.

 

2018

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.

 

2017

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).

Working Papers

A Tale of (Almost) 1001 Coefficients: Deep and Heterogeneous Effects ofthe EU-Turkey Customs Union (with Mario Larch and Aiko Schmeißer), CESifo Working Paper No. 7498, resubmitted after revision at the Journal of Common Market Studies.

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.

The Consequences of Unilateral Withdrawals from the Paris Agreement (with Mario Larch), CESifo Working Paper No. 7804, under review.

Abstract: We develop a multi-sector structural trade model with emissions from production and a con- stant 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.

Persistent Zeros: The Extensive Margin of Trade (with Julian Hinz and Amrei Stammann), Kiel Working Paper No. 2139, under review.

Abstract: The extensive margin of bilateral trade exhibits a high level of persistence that cannot be explained by geography or trade policy. We combine a heterogeneous firms model of international trade with bounded productivity with features from the firm dynamics literature to derive expressions for an exporting country’s participation in a specific destination market in a given period. The model framework asks for a dynamic binary choice estimator with two or three sets of high-dimensional fixed effects. To mitigate the incidental parameter problem associated with nonlinear fixed effects models, we characterize and implement suitable bias corrections. Extensive simulation experiments confirm the desirable statistical properties of the bias-corrected estimators. Empirically, taking two sources of persistence — true state dependence and unobserved heterogeneity — into account using a dynamic specification, along with appropriate fixed effects and bias corrections, changes the estimated effects considerably: out of the most commonly studied potential determinants (joint WTO membership, common regional trade agreement, and shared currency), only sharing a common currency retains a significant effect on whether two countries trade with each other at all in our preferred estimation.

Work in Progress

Worth the Pain? Firms’ Exporting Behaviour to Countries under Sanctions (with Matthieu Crozet, Julian Hinz, and Amrei Stammann), under review.

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 drawing on recent econometric advances in bias-corrected dynamic high-dimensional fixed effects binary choice estimators and monthly data on the universe of French exporting firms to all destinations. We find large heterogeneity in the sanctions effect on the firm-level extensive margin of trade, both for different sanctions episodes and for firms with different characteristics. Prior experience in the sanctioned country considerably softens the blow of sanctions. In some cases, firms also appear to be able to benefit from experience in other “crisis countries” in coping with the difficult conditions. Finally, we find some suggestive evidence for sanction avoidance by exporting indirectly via neighboring countries.

Trade Effects of Environmental Provisions in FTAs (with Miriam Frey and Elisa Rottner), in progress.

Separating the Wheat from the Chaff: Fast Estimation of GLMs with High-Dimensional Fixed Effects (with Julian Hinz and Alexander Hudlet), in progress.

The Determinants of International Environmental Cooperation (with Mario Larch), in progress.

Heteroskedasticity, Zeroes, Incidental Parameters, Weighting, and Model Misspecification: What Drives the Differences in Gravity Estimates? (with Julian Hinz, Mario Larch, and Yoto V. Yotov), in progress.

The Treatment Effect of Regional Trade Agreements (with Steffen Sirries), in progress.

Software

glmhdfe (with Julian Hinz and Alexander Hudlet), R package.

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.