Political distortions are prevalent in many developing countries and can imply substantial productivity losses. Theory is ambiguous as to whether greater 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 firm connections stemming from political turnover, we identify that political connections increased firm performance by 10-20%. Second, we evaluate how the value of political connections changed after India's externally imposed tariff reductions, using a triple-difference and difference-in-discontinuities design. We find that political connections became substantially less valuable when tariffs on input goods were reduced. Our findings imply that access to international markets reduces firms' dependence on political connections to source inputs, thus reducing the distortionary effect of such connections. The effects appear stronger when firms face more corruption, more regulation, and lower access to credit, that is, in settings where baseline political distortions are expected to be higher. The results suggest a new margin for gains from trade in the presence of political distortions through a direct effect of trade liberalization on the implications of such distortions.
“Importing Gender Equality”
Gender equality remains low in many developing countries and can partly be explained by social norms. In this paper, I investigate whether trade and, in particular import, can shift gender norms. Specifically, I study whether trading and interacting with firms in countries with higher gender equality can affect firms' gender composition in India. I construct a global industry-level index of gender equality and exploit India's trade liberalization in the 1990s to study the trade-induced increased exposure to other countries' gender norms. I find that tariff reductions increased the probability of having a female worker only for firms in industries with higher exposure to gender equality. The effect is stronger for firms in industries with higher exposure to gender equality that, to a greater extent, use relationship-specific input goods. Taken together, the results suggest that trade-induced increased exposure to other countries' gender equality can influence firms' gender composition among workers.
“Trade-Induced Protests: Evidence from the Brazilian Trade Liberalization”
This paper examines whether trade liberalization can induce shifts in citizens' willingness to mobilize and participate in protests. Specifically, I study the regional effects of Brazil's trade liberalization in the 1990s. I show that regions that were exposed to larger tariff reductions experienced a relative increase in protests. Protests increased in harder-hit regions almost immediately after the liberalization, and the effect is amplified over time. By studying potential mechanisms, I show that the surge in protests follows the pattern of the trade-induced increase in income inequality and reductions in government spending.
Kühne Impact Series 02-22, Kühne Center for Sustainable Trade and Logistics, University of Zurich Kühne Impact Series 06-21, Kühne Center for Sustainable Trade and Logistics, University of Zurich
Ekonomistas blog post (in Swedish)
“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.