Work in Progress
Political distortions are prevalent in many developing countries and can imply substantial productivity losses. Theory is ambiguous as to whether openness to trade amplifies or reduces the effects of such distortions. This paper shows that trade liberalization in India decreased the value of firms' political connections, suggesting a reduction in political distortions. First, using variation in firms' connections stemming from political turnover, we identify that political connections increase firms' performance by 10-20%. Second, we evaluate how the value of political connections changes after India's externally imposed tariff reductions, using a triple-difference and difference-in-discontinuities design. We find that political connections become substantially less valuable when tariffs on input goods are reduced. Our findings imply that access to international markets reduces firms' dependence on political connections to source input goods, thus reducing the distortionary effect of such connections. The effects are stronger in more corrupt states, where baseline political distortions are expected to be higher. Our results suggest a new margin for gains from trade in the presence of political distortions, through a direct effect of trade liberalization on the prevalence of such distortions.
“Importing Gender Equality”
“Demand for Political Change – What Role can Trade Play?”
Why do citizens in some regions start protesting and demand political change? Historical research suggests that the initiation of international trade, through its effect on the income distribution, played an important role in the emergence of demand for political change in some societies. However, little is known regarding whether more recent gradual trade liberalizations can also affect citizens' demand for political change. In this project, I empirically evaluate this question by examining Brazil's unilaterally imposed trade liberalization (1990-1995). Exploiting regional differences in industry mix and the cross-industry variation in tariff cuts, I demonstrate that trade plays a role in affecting the share of ``concerned citizens'' through its effect on the income distribution.
“Aid for Whom? – An Empirical Evaluation of the Impact of Aid for Trade”
This study evaluates the impact of the increasing engagement in the categories of aid that constitutes the concept called Aid for Trade. Due to the possibility that aid flows are influenced by recipient countries' characteristics, previous literature has faced difficulties in identifying the causal effect of Aid for Trade. To tackle this, I exploit plausibly exogenous variation in the distribution of Aid for Trade stemming from changes in the political ideology of the governments in donor countries before and after the official establishment of Aid for Trade. I find that Aid for Trade fulfills the stated objectives of helping developing countries to expand trade. Moreover, I show that Aid for Trade is an effective use of aid in terms of the more general goals of aid assistance.