Economic Insecurity: Trade Dependencies and Their Weaponization in History (with Martin Bernstein, Josefin Meyer, and Moritz Schularick)
Do trade dependencies leave countries vulnerable to geopolitical coercion? We study the economic costs of trade and financial sanctions, from 1920 to the present. We first develop a continuous measure of sanction intensity, using bilateral commodity-level data to calculate the importance of specific flows that fall under sanctions. We find that sanctions inflict relatively small costs on average: sanctioning 1% of GDP worth of imports or exports leads to approximately 0.3 percentage points of lost GDP over a 5-year period and a 0.1 percentage point increase in unemployment. However, we show that sanctions are far more costly for countries whose trade is highly concentrated, and for countries that rely heavily on exporting primary commodities. Low income and developing countries appear most vulnerable to trade sanctions, while high income financial centers and some EU countries are among the most exposed to financial sanctions.
How Fixed are Global Exchange Rates? (with Roger H. Vicquéry).
We present a new global index indicating how fixed the world’s exchange rates are. Our index measures the probability of two units of GDP, randomly selected anywhere in the world, of being involved in a fixed exchange rate arrangement. This approach is invariant to alternative classifications of the Eurozone and is able to account for both direct and indirect exchange rate linkages between countries. In contrast to the “New Consensus” view, which posits a continuity in exchange rate arrangements from the Bretton Woods era to the present, our index restores the conventional account of international monetary history over the last 70 years. Our findings indicate that global exchange rate regimes are currently more than twice as flexible as they were prior to the 1971 Nixon shock. Furthermore, our measure partially puts into perspective the view that dollar dominance is now stronger than ever: we find that global anchoring to the US dollar was significantly more prevalent during Bretton Woods, particularly when accounting for indirect links.
Distance, Empire, and British Exports over Two Centuries (previous title: The Gravitational Constant?) (with David S. Jacks, Alan M. Taylor, and Yoto V. Yotov).
We introduce a new dataset on British exports at the bilateral, commodity-level from
1700 to 1899. We then pit two primary determinants of bilateral trade against one
another: the trade-diminishing effects of distance versus the trade-enhancing effects of
the British Empire. We find that the impact of gravity fell by a factor of roughly three
between the 1780s and 1850s. The impact of empire on British exports was extremely
large throughout, but the impact of 18th century mercantilism was much higher than
that of empire in the liberal late 19th century.distance would once again exert the same influence that it has today.
Trade, Technology, and the Great Divergence (with Ahmed S. Rahman and Alan M. Taylor).
Why did per capita income divergence occur so dramatically during the 19th century, rather than at the outset of the Industrial Revolution? How were some countries able to reverse this trend during the globalization of the late 20th century? To answer these questions, this paper develops a trade-and-growth model that captures the key features of the Industrial Revolution and Great Divergence between a core industrializing region and a peripheral and potentially lagging region. The model includes both endogenous biased technological change and intercontinental trade. An Industrial Revolution begins as a sequence of more unskilled-labor-intensive innovations in one or both regions. We show that the subsequent co-evolution of trade and directed technologies can create a delayed but inevitable divergence in demographics and living standards—the peripheral region increasingly specializes in production that worsens its terms of trade and spurs even greater fertility increases and educational declines. Allowing for eventual technological diffusion between regions can mitigate and even reverse divergence, spurring a reversal of fortune for peripheral regions.
Kevin Hjortshøj O'Rourke 