We propose a novel theoretical framework to study how environmental regulation shapes economic development in a developing country such as China. We develop a dynamic tax competition model in which local governments, located in development zones, use variation in taxes to attract workers to their jurisdictions. Their objective is to maximize tax revenue less local health costs that are proportional to local pollution. Our main result is that competition generates a reallocation of productive factors when national regulation is introduced. Local governments in more productive regions set greater production taxes than in other regions. This makes workers and output to shift from more to less developed regions of the country.
Recent work suggests that non-financial firms have acted like financial intermediaries particularly in emerging economies. We corroborate these findings but then ask why? Our results indicate evidence for carry-trade activities but focused in countries with higher levels of capital controls, particular controls on inflows. We find little evidence for such activities given other potential motives. We posit that this phenomenon is due more to the reaction to low global interest rates and strong capital inflows than to incomplete markets or the retreat of global banks due to impaired balance-sheets or tighter regulations.
This paper provides evidence that learning about demand is an important driver of firms' dynamics. We present a simple model with Bayesian learning in which firms are uncertain about their idiosyncratic demand parameter in each of the markets they serve, and update their beliefs as noisy information arrives in each period. The model predicts that firms update more their beliefs following a new demand shock, the younger they are. To test this learning mechanism, we make use of a specific feature of exporter-level data which contains both the values and the quantities sold by a given firm for the same product in different destination markets. This allows us to derive a methodology that identifies separately the demand shocks faced by the firms and their beliefs about future demand. We find strong support for our main prediction: The updating process appears especially strong in the first years after entry. However, the bulk of accumulated knowledge is lost during short periods of exit. Second, we consider implications of this prediction for firm growth rates and survival. Consistent with the learning model, we find that: (i) the absolute value of the mean growth rate for firms' beliefs decreases with age, as does the variance within cohorts; (ii) exit probability decreases with firms' beliefs and the demand shock the firm faces. Further, demand shocks trigger more exit in younger cohorts.
We develop a theoretical model of international trade pricing in which individual exporters and importers bargain over the transaction price and exposure to exchange rate fluctuations. We find that the choice of price and invoicing currency respects the full market structure, including the extent of fragmentation and the degree of heterogeneity across importers and across exporters. Our study shows that a party has a higher effective bargaining weight when it is large or more risk tolerant. A higher effective bargaining weight of importers relative to exporters in turn translates into lower import prices and greater exchange rate passthrough into import prices. We show the range of price and invoicing outcomes that arise under alternative market structures. Such structures matter not only for the outcome of specific exporter-importer transactions, but also for aggregate variables such as the average price, the average choice of invoicing currency, and the correlation between invoicing currency and the size of trade transactions.
The use of different currencies in the invoicing of international trade transactions plays a major role in the international transmission of economic fluctuations. Existing studies argue that an exporter's invoicing choice reflects structural aspects of her industry, such as market share and the price-sensitivity of demand, the hedging of marginal costs, due for instance to the use of imported inputs, and macroeconomic volatility. We use a new highly disaggregated dataset to assess the roles of the various invoicing determinants. We find support for the factors identified in the literature, and document a new feature, in the form of a link between shipments size and invoicing. Specifically, larger transactions are more likely to be invoiced in the importer's currency. We offer a potential theoretical explanation for the empirical link between transaction size and invoicing by allowing invoicing to be set through a bargaining between exporters and importers, a feature that is absent from existing models despite its empirical relevance.
We combine original geo-referenced data on mining extraction of 15 minerals with information on conflict events at spatial resolution of 0.5o x 0.5o for all Africa over 1997-2010. Exploiting exogenous variations in world prices, we find a positive impact of mining on conflict at the local level. Quantitatively, the historical rise in prices (commodity super-cycle) explains 15-25 percent of average country-level violence in Africa. We then document how the appropriation of a mining area by a fighting group contributes to the escalation from local to global violence. Finally, we analyze the impact of corporate practices and transparency initiatives in the mining industry.
