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Abstract:
Debates over the desirability a preferential trading area (PTA) begin with the supposition that it will have two effects on the volume of trade: it will increase trade between PTA members, and decrease trade between members and non-members. This paper demonstrates, however, that at the regional level the effects of NAFTA have been much more complicated than what is normally supposed. Specifically, I find that NAFTA has meant (i) less trade between Eastern Canada and the United States and Mexico, (ii) more trade between Central Canada and the United States and Mexico, and (iii) more trade between Western Canada and Mexico, but no change in the volume of trade between Western Canada and the United States. I also find that NAFTA has decreased trade between Canadian regions and both Europe and Asia, while increasing Mexico's trade with Asia.

NAFTA, Geography, Trade diversion, trade creation

Abstract:
This paper argues that it is necessary to allow for country-pair heterogeneity when using the gravity model to estimate international trade flows. We propose and estimate a fixed-effects model that eliminates the heterogeneity bias inherent in standard methods. Further, we show that there is no statistical support for the restrictions necessary to obtain existing empirical models, which are special cases of our model. Because the gravity model has become the 'workhorse' baseline model for estimating the effects of international integration, this has important empirical implications. In particular, our results suggest that standard gravity estimates of the effects of integration can differ a great deal from what is obtained when heterogeneity is accounted for.

Gravity Model, Bilateral Trade

Abstract:
There is a well-established literature finding that the Canada-U.S. border has a large dampening effect on trade, is asymmetric, and differs across provinces. In this paper, I demonstrate that the standard gravity model used to obtain these results provides biased estimates of the volume of trade. I attribute this to heterogeneity bias and reestimate the effects of the border using a gravity model that allows for heterogeneous gravity equations. Doing so does not alter the general results of existing studies, although it does yield a border effect that is 40 percent larger, reverses the border's asymmetry, and indicates very different provincial effects.

border effect, home bias

Abstract:
This study finds that NAFTA has increased U.S. merchandise exports to Mexico and Canada by just over 15 percent, and has increased total U.S. merchandise exports by nearly 8 percent. We also find that although many states have seen large increases in exports to both Mexico and Canada, others have seen large decreases. NAFTA has also affected states' exports to non-NAFTA regions of the world, tending to decrease exports to Europe and Latin America, and increase exports to Asia. States in the northeast regions of the United States have seen the smallest increases in exports in the wake of NAFTA.

NAFTA, State Exports, Gravity Model

Abstract:
This paper demonstrates that levels of entrepreneurship can be greatly affected by the general policy environment. Using a state-level panel, we estimate the effects of several policy variables on rates of entrepreneurship and find that bankruptcy exemptions, corporate tax rates, and the level of the minimum wage all affect a state's rate of entrepreneurship. For the median state, these policies reduced the level of entrepreneurship by 10.5 percent. Much of the geographic pattern of entrepreneurship can be explained by policy differences: The low-entrepreneurship states of the Great Lakes and the South tend to have relatively unfriendly policy environments, and the high-entrepreneurship states of the West tend to have relatively friendly policies. On the other hand, although New England states tend to have relatively unfriendly policy environments, they also tend to have high rates of entrepreneurship.

entrepreneurship, government policy

Abstract:
This paper analyzes immigration and outsourcing in a general-equilibrium model of international factor mobility. In our model, legal immigration of skilled labor is controlled through a quota, while outsourcing is determined both by the firms in response to market conditions and through policy-imposed barriers. A loosening of the immigration quota reduces outsourcing, enriches capitalists, leads to losses for native workers, and raises national income. If the nation targets an exogenously determined immigration level, the second-best outsourcing tax can be either positive or negative. If in addition to the immigration target there is a wage target arising out of income distribution concerns, an outsourcing subsidy is required. We extend the analysis to consider illegal immigration of unskilled labor. A higher legal immigration quota will lead to more (less) illegal immigration if skilled and unskilled labor are complements (substitutes) in production.

Legal Immigration, Illegal Immigration, Outsourcing, General Equilibrium

Abstract:
This paper estimates the responsiveness of aid to recipient countries' economic and physical needs, civil/political rights, and government effectiveness. We look exclusively at the post-Cold War era and control for the political, strategic, and other considerations of donors with fixed effects. In general, we find that aid and per capita income were negatively related, while aid was positively related with infant mortality, rights, and government effectiveness.

Foreign Aid

Abstract:
With outsourcing comes a perceived tension between the competitive pressures faced by domestic firms and the effect that outsourcing has on domestic workers. To address this tension, we present a general-equilibrium model with an oligopolistic export sector and a competitive import-competing sector. When there is a minimum wage, an outsourcing tax might be desirable and the usual profit-shifting objectives of an export subsidy are mitigated, perhaps completely, because it might lead to higher unemployment. Also, increased international competition has no affect on the level of outsourcing, but the direction of its effect on unemployment and national income depends on the relative factor intensities of the two sectors. Under wage flexibility, an outsourcing tax cannot be justified and the profit-shifting motive is the same as in a model without outsourcing. Further, if export subsidies are not possible due to WTO regulations, it is optimal to subsidize rather than to tax outsourcing. Finally, the effect of increased foreign competition on welfare depends on the relative factor intensities of the two sectors.

oligopoly, outsourcing

Abstract:
This paper demonstrates that recent results suggesting a positive relationship between banking deregulation and entrepreneurship are very sensitive to estimation assumptions. When heteroskedasticity and autocorrelation are corrected for, branching deregulation is shown to have no effect and the estimated effect of interstate banking deregulation is reduced by nearly two thirds. When the effects of deregulation are allowed to differ across regions, deregulation of either type is negatively associated with entrepreneurship in some regions, and positively associated in others.

Entrepreneurship, banking deregulation

Abstract:
This paper reconsiders recent empirical evidence found by Andrew Rose that countries adopting a common currency will triple their bilateral trade. We find that this large estimated effect is due to estimation bias arising from missing and/or misspecified time-invariant factors, rather than to the adoption of a common currency. Using the most general specification of time-invariant factors, our results indicate that a common currency actually leads to a small reduction in trade over a five-year period, although this result is not statistically different from zero. We also find that over ten- and twenty-year periods, trade volumes are more than halved by the adoption of a common currency.

Currency unions, gravity model

Abstract:
The U.S. aggregate business cycle is often characterized as a series of distinct recession and expansion phases. We apply a regime-switching model to state-level coincident indexes and conclude that state business cycles also can be characterized in this way. We find also that states differ a great deal in the levels of growth that they experience within each phase and that they do not necessarily experience the phases in tandem. Further, there are significant differences between states in the extent to which their business cycle phases are in sync with those of the aggregate economy.

Abstract:
This paper uses a Markov-switching model with structural breaks to characterize and compare regional business cycles in Japan for 1976-2005. An early 1990s structural break meant a reduction in national and regional growth rates in expansion and recession, usually resulting in an increase in the spread between the two phases. Although recessions tended to be experienced across a majority of regions throughout the sample period, the occurrence and lengths of recessions at the regional level have increased over time.

Markov-switching, regional business cycles, Japan

Abstract:
Using a regional VAR, we find large differences in the effects of monetary policy shocks across regions of the United States. We also find that the region-level effects of monetary policy differ a great deal between the pre-Volcker and Volcker-Greenspan periods in terms of their depth and length. The two sample periods also yield very different rankings of the regions in terms of the effects of monetary policy. We find that regional difference in the depths of recession are related to the banking concentration, whereas differences in the total cost of recession are related to industry mix. Finally, we demonstrate that the differences between the two sample periods are due to changes in the mechanism by which monetary policy shocks are propagated.

Regional monetary policy

Abstract:
Using a monetary VAR, we show how the depths and lengths of recessions generated by contractionary monetary policy differ a great deal across U.S. regions. Our results indicate that the Great Lakes and the Far West experience the largest output losses during a monetary-policy-induced recession, while the losses are smallest in the Mideast, New England, and the Plains. Regions with large manufacturing shares tend to have deep, but brief, recessions, whereas regions with many small firms tend to have long recessions.

Abstract:
Despite the ongoing worldwide trend toward regional integration, Japan has remained outside of all regional trading agreements. Because more than 60 percent of Japan's trade is with countries that are members of a major regional bloc, this reluctance may have had significant effects on its pattern and volume of trade. Indeed, I find that Japan's exports have been reduced by the integration of its trading partners, and that this effect has been fairly uniform across integration regimes. I also find that of regional trading agreements have tended to have a much more negative effect on Japanese trade than on the trade of other non-members.

regional integration, Japanese trade, gravity model

Abstract:
This paper provides new estimates of the effects of ethnic network on U.S. exports. In line with recent research, our dataset is a panel of exports from U.S. states to 29 foreign countries. Our analysis departs from the literature in two ways, both of which have noteworthy empirical consequences. Our main departure is to remove the restriction that the network effect is the same for all ethnicities. In addition, because our dataset contains a time dimension, we are able to control for unobserved heterogeneity with properly specified fixed effects. We find that ethnic-network effects are much larger than has been estimated previously, although they are important only for a subset of countries.

Ethnic networks, state exports

Abstract:
This paper presents a model of legal migration of temporary skilled workers from one source country to two host countries, both of which can control their levels of such immigration. Because of complementarities between capital and labor, the return on capital is positively related to the level of immigration. Consequently, when capital is immobile, host nations' optimal levels of immigration are positively related to their capital endowments. Further, when capital is mobile between the host nations, the common return on capital is a function of the levels of immigration in both countries, meaning that immigration is a public good. As a result, when immigration imposes costs on host countries, the Nash equilibrium results in free riding and less immigration than would occur in the cooperative equilibrium. These results are qualitatively unaltered when capital mobility extends to the source nation.

Skilled Immigration, Optimal Immigration, Capital Mobility, Externalities, Public Goods, Assimilation Costs

Abstract:
We find that the magnitudes of the regional effects of monetary policy were considerably dampened during the Volcker-Greenspan era. Further, regional differences in the depths of monetary-policy-induced recessions are related to the concentration of the banking sector, whereas differences in the total cost of these recessions are related to industry mix.

regional monetary policy

Abstract:
We model the U.S. business cycle using a dynamic factor model that identifies common factors underlying fluctuations in state-level income and employment growth. We find three such common factors, each of which is associated with a set of factor loadings that indicate the extent to which each state's economy is related to the national business cycle. According to the factor loadings, there is a great deal of heterogeneity in the nature of the links between state and national economies. In addition to exhibiting geographic patterns, the closeness of state economies to the national business cycle is related not only to differences in industry mix but also to non-industry variables such as agglomeration and neighbor effects. Finally, we find that the common factors tend to explain large proportions of the total variability in state-level business cycles, although, again, there is a great deal of cross-state heterogeneity.

State business cycles, Common factors

Abstract:
A number of studies have documented a reduction in aggregate macroeconomic volatility beginning in the early 1980s, i.e., the "Great Moderation." This paper documents the Great Moderation at the state level, finding significant heterogeneity in the timing and magnitude of states' structural breaks. For example, we find that 14 states had breaks that occurred at least three years before or after the aggregate break, while another 11 states did not experience any statistically important break during the period. Volatility reductions were positively related to the initial level of volatility, durable-goods share, and per capita energy consumption; and negatively related to average firm size, bank-branch deregulation, and increases in the share with a high school diploma. The probability of a state experiencing a break was associated with nondurable-goods share, energy consumption, and demographics. We use these results to examine the plausibility of several explanations of the Great Moderation.

volatility reduction, state business cycles

Abstract:
We analyze the effects of outsourcing in the presence of a minimum wage by presenting a general-equilibrium model with an oligopolistic export sector and a competitive import-competing sector. An outsourcing tax is politically popular because it switches jobs to unemployed natives. It is also economically sound because it raises national income. An export subsidy may or may not be justified on welfare grounds. Increased international competition has no effect on the level of outsourcing, but the direction of its effect on unemployment and national income depends on the relative factor intensities of the two sectors

immigration, outsourcing

Abstract:
This paper argues that estimation of the Phillips curve for Japan should take account of the geographic dispersion of labor-market conditions. We find evidence that the relationship between wage inflation and the unemployment rate is convex. With such convexity, wage inflation can occur when unemployment rates across regions become more disperse, even if the aggregate unemployment rate is unchanged. We show that controlling for the geographic dispersion of unemployment rates yields a flatter Phillips curve and a higher natural rate of unemployment.

Japanese Phillips curve

Abstract:
This paper reexamines the use of migration rates to estimate compensating differentials as measures of regional quality of life. Applying a model of interregional migration to the U.K., I estimate a migration regression, the results of which I use to measure regional quality of life and standard of living. The results suggest a North-South divide within England, and that Scotland and Wales have relatively high levels of both. The results also lead to a rejection of regional standard-of-living equivalence (regional equilibrium) in the U.K.

Abstract:
Nearly all journal rankings in economics use some weighted average of citations to calculate a journal's impact. These rankings are often used, formally or informally, to help assess the publication success of individual economists or institutions. Although ranking methods and opinions are legion, scant attention has been paid to the usefulness of any ranking as representative of the many articles published in a journal. First, because the distributions of citations across articles within a journal are seriously skewed, and the skewness differs across journals, the appropriate measure of central tendency is the median rather than the mean. Second, large shares of articles in the highest-ranked journals are cited less frequently than typical articles in much-lower-ranked journals. Finally, a ranking that uses the h-index is very similar to one that uses total citations, making it less than ideal for assessing the typical impact of articles within a journal.

Journal rankings

Abstract:
This paper presents a model of legal migration from one source country to two host countries, both of which can control their levels of immigration. Because of complementarities between capital and labor, the return on capital is positively related to the level of immigration. Consequently, when capital is immobile, host nations' optimal levels of immigration are positively related to their capital endowments. Further, when capital is mobile between the two host nations, the common return on capital is a function of the levels of immigration in both countries, meaning that immigration is a public good. As a result, when immigration imposes costs on host countries, the Nash equilibrium results in free riding and less immigration than would occur in the cooperative equilibrium. These results are qualitatively unaltered when capital mobility extends to the source nation.

Immigration

Abstract:
This paper provides new estimates of the effects of ethnic network on U.S. exports. In line with recent research, our dataset is a panel of exports from U.S. states to 29 foreign countries. Our analysis departs from the literature in two ways, both of which show that previous estimates of the ethnic-network elasticity of trade are sensitive to the restrictions imposed on the estimated models. Our first departure is to control for unobserved heterogeneity with properly specified fixed effects, which we can do because our dataset contains a time dimension absent from previous studies. Our second departure is to remove the restriction that the network effect is the same for all ethnicities. We find that ethnic-network effects are much larger than has been estimated previously, although they are important only for a subset of countries.

ethnic networks, state exports

Abstract:
This paper examines and compares the recent business cycle experiences of the seven states that lie partly or wholly within the Eighth Federal Reserve District (Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri, and Tennessee). For the period surrounding the 1990-91 NBER recession, six of the seven states had recessions that were much shorter than for the country as a whole. For the period surrounding the 2001 NBER recession, four states—Arkansas, Indiana, Kentucky, and Tennessee—entered and exited recession earlier than the country as a whole. Recessions in the other three states began earlier and ended later than for the country as a whole.

Markov-switching, business cycles

Abstract:
This paper examines the determinants of employment growth in metro areas. To obtain growth rates, we use a Markov-switching model that separates a city's growth path into two distinct phases (high and low), each with its own growth rate. The simple average growth rate over some period is, therefore, the weighted average of the high-phase and low-phase growth rates, with the weight being the frequency of the two phases. We estimate the effects of a variety of factors separately for the high-phase and low-phase growth rates, along with the frequency of the low phase. We find that growth in the high phase is related to human capital, industry mix, and average firm size. In contrast, we find that growth in the low phase is mostly related to industry mix, specifically, the relative importance of manufacturing. Finally, the frequency of the low phase appears to be related to the level of non-education human capital, but to none of the other variables. Overall, our results strongly reject the notion that city-level characteristics influence employment growth equally across the phases of the business cycle.

Growth in cities, business cycle phases

Abstract:
We present a model of international market share rivalry where the domestic export subsidy is determined by lobbying. Greater domestic cost heterogeneity leads to a higher subsidy level and a larger domestic market share. However, the relationship between cost heterogeneity and welfare is ambiguous. Starting from a near-symmetric situation, an increase in heterogeneity reduces domestic welfare if the number of domestic firms exceeds some critical value. When starting farther from symmetry, the welfare effect is reversed. Our findings are in contrast with the results from the existing literature where lobbying is ignored.

Abstract:
No abstract available.

Abstract:
This paper uses county-level data to estimate the timing and magnitude of shifts in aggregate and regional British Beveridge curves. We find that these shifts coincide with the business cycle rather than with hysteresis effects or with changes in regional mismatch. This implies that the Beveridge curve is a flawed device for separating the effects of structural changes from those of the business cycle.

Abstract:
We analyze the effects of outsourcing in the presence of a minimum wage by presenting a general-equilibrium model with an oligopolistic export sector and a competitive import-competing sector. An outsourcing tax is politically popular because it switches jobs to unemployed natives. It is also economically sound because it raises national income. An export subsidy may or may not be justified on welfare grounds. Increased international competition has no effect on the level of outsourcing, but the direction of its effect on unemployment and national income depends on the relative factor intensities of the two sectors.

Abstract:
This paper provides new estimates of the effects of ethnic networks on US exports. In line with recent research, our dataset is a panel of exports from US states to 29 foreign countries. Our analysis departs from the literature in two ways, both of which show that previous estimates of the ethnic-network elasticity of trade are sensitive to the restrictions imposed on the estimated models. Our first departure is to control for unobserved heterogeneity with properly specified fixed effects, which we can do because our dataset contains a time dimension absent from previous studies. Our second departure is to remove the restriction that the network effect is the same for all ethnicities. We find that ethnic-network effects are much larger than has been estimated previously, although they are important only for a subset of countries.

Abstract:
We present a general equilibrium analysis of biofuel subsidies in an open-economy context. In the small-country case, when a Pigouvian tax on conventional fuels such as crude is in place, the optimal biofuel subsidy is zero. When the tax on crude is not available as a policy option, however, a second-best biofuel subsidy (or tax) is optimal. In the large-country case, the optimal tax on crude departs from its standard Pigouvian level and a biofuel subsidy is optimal. A biofuel subsidy spurs global demand for food and confers a terms-of-trade benefit to the food-exporting nation. This might encourage the food-exporting nation to use a subsidy even if it raises global crude use. The food importer has no such incentive for subsidization. Terms-of-trade effects wash out between trading nations; hence, any policy intervention by the two trading nations that raises crude use must be jointly suboptimal.

Optimal Biofuel Subsidy, Pigouvian Tax, Terms-of-Trade, Pollution Externality

Abstract:
The burdens of a recession are not spread evenly across demographic groups. The public and media, for example, noticed that, from the start of the current recession in December 2007 through June 2009, men accounted for more than three quarters of net job losses. Other differences have garnered less attention, but are just as interesting. During the same period, the employment of single people fell at more than twice the rate that it did for married people, while black employment fell at one-and-a-half times the rate that white employment did. To have a more complete understanding about what recessions mean for people, this paper examines the different effects of this and previous recessions on employment experiences across a range of demographic categories: sex, marital status, race, age, and education level.

Recession Demographics

Abstract:
This paper examines the effect of cross-border lobbying on domestic lobbying and on external tariffs in both Customs Union (CU) and Free Trade Area (FTA). We do so by developing a two-stage game which endogenizes the tariff formation function in a political economic model of the directly unproductive rent-seeking activities type. We find that cross-border lobbying unambiguously increases both domestic lobbying and the equilibrium common external tariffs in a CU. The same result also holds for FTA provided tariffs for the member governments are strategic complements. We also develop a specific oligopolistic model of FTA and show that tariffs are indeed strategic complements in such a model.

free trade area, customs union, preferential trading agreements, domestic lobbying, cross-border lobbying, external tariffs

Abstract:
Investigates the effects of marginal income tax ratesand bankruptcy exemptions on entrepreneurship rates. After a discussion ofspatial and temporal trends in United States entrepreneurship, an empiricalmodel is used to estimate state rates of entrepreneurship. A state-level paneldata set that covers the period between 1991 and 1998 is used to evaluate themodel. This panel approach reveals a U-shaped relationship between marginal taxrates and entrepreneurship: at low initial tax levels, an increase in marginaltax rates reduces the number of entrepreneurs; at high initial tax levels, thenumber of entrepreneurs rises. Also, an S-shaped relationship exists betweenthe homestead exemption and entrepreneurship. In other words, an increase inthe homestead exemption from very low or very high levels acts to reduce thenumber of entrepreneurs, while an increase in the middle range acts to increasethe number of entrepreneurs. (SAA)

Tax exemptions, Tax rates, Tax policies, Startup rates, Public policies, Income taxes, Bankruptcy laws

Abstract:
This paper uses a spatial panel approach to examine the effect of the government-policy environment on the level of entrepreneurship. Specifically, we investigate whether marginal income tax rates and bankruptcy exemptions influence rates of entrepreneurship. Whereas previous work in the literature finds that both policies are positively related to entrepreneurship, we find non-monotonic relationships. Specifically, we find a U-shaped relationship between marginal tax rates and entrepreneurship and an S-shaped relationship between bankruptcy exemptions and entrepreneurship.

Entrepreneurship, self-employment

Abstract:
This paper argues that it is necessary to allow for country-pair heterogeneity when using the gravity model to estimate international trade flows. We propose and estimate a fixed-effects model that eliminates the heterogeneity bias inherent in standard methods. Further, we show that there is no statistical support for the restrictions necessary to obtain existing empirical models, which are special cases of our model. Because the gravity model has become the 'workhorse' baseline model for estimating the effects of international integration, this has important empirical implications. In particular, our results suggest that standard gravity estimates of the effects of integration can differ a great deal from what is obtained when heterogeneity is accounted for.

Gravity Model, Bilateral Trade

Abstract:
There is a great deal of variation in the levels of entrepreneurship, or rates of self-employment, across the regions of Britain. Over the period 1983-1995, average self-employment in the North, Scotland, and the West Midlands was respectively 25%, 15%, and 15% lower than the national average, whereas in the South West, East Anglia, and Wales it was respectively 28%, 23%, and 21% higher. We develop a theoretical model of regional self-employment, and estimate the roles of labour market conditions, labour force characteristics, industry composition, and region-specific factors such as entrepreneurial human capital. Our results suggest that all of these factors are important, and that regional heterogeneity and regionally correlated disturbances must be accounted for when estimating regional self-employment relationships.

Abstract:
This article reexamines and extends the literature on the use of migration rates to estimate compensating differentials as measures of regional quality of life. I estimate an interregional migration regression for the UK and use the results to measure regional quality of life and standard of living. The results suggest a North-South divide within England, and that Scotland and Wales have relatively high levels of both. The results also lead to a rejection of regional standard-of-living equivalence (long-run regional equilibrium) in the UK.

Interregional migration, standard of living, quality of life

Abstract:
When trade policy is endogenously determined by lobbying, it matters whether countries are arranged into a customs union or a free trade area. This paper compares the two regimes when the member governments are asymmetric in their susceptibilities to lobbying and in their bargaining power within a customs union. In our model, a customs union never leads to lower tariffs for both countries, whereas it can lead to higher tariffs for both.