Published Papers
Journal of International Economics 84(2), July 2011, 207-220.
(Formerly circulated as "Information Inputs and International Trade: Evidence from U.S. State Level Data on Business Air Travel")
Additional materials: Technical Appendix | Data Appendix
International trade has become increasingly dependent on the transmission of complex information, often realized via face-to-face communication. This paper provides novel evidence for the importance of in-person business meetings in international trade. Interactions among trade partners are modeled as a fixed cost of trade, however their outcome generates unique value to the traded products. Differences in the relationship intensity of traded goods, in travel costs and market size across foreign countries, determine the optimal amount of interaction between trade partners. Using U.S. state level data on international business-class air travel as a measure of in-person business meetings, I find robust evidence that the demand for business-class air travel is directly related to volume and composition of exports in differentiated products. The empirical strategy exploits the intra-national geography of exports and business travelers by foreign country and time period, circumventing any spurious correlation induced by cross-country differences driving both travel and trade patterns. I also find that trade in R&D intensive manufactures and goods facing contractual frictions is most dependent on face-to-face meetings.
Working Papers
Estimating the Gains from Liberalizing Services Trade: The Case of Air Passenger Transport (with David Hummels), September 2011
[slides]
The market access and trade potential of service industries have been much hindered by government policies. Yet this has been largely neglected in the empirical literature on trade agreements. Using data on international air passenger traffic along with information on the signing of Open Skies Agreements, we exploit this unique policy change to understand the effects of liberalizing services trade. Relying on within country-pair over time changes in the volume of air passenger traffic, we identify a significant positive impact of Open Skies Agreements. Air traffic decomposition into the extensive (number of aviation routes) and intensive (passengers per route) margins reveals that the differential growth post-liberalization is driven primarily by the introduction of new route services, with the increase in passengers per route becoming visible years after the policy change. Such industry-wide changes associated with opening air services trade translate into important consumer gains. We find that Open Skies Agreements generate significant price reductions and, conditional on airfare levels, to sizeable demand effects. These gains from air services liberalization 'spill over' also to consumers from more regulated markets whenever they connect via Open Skies airport hubs, providing evidence for third country effects. These results have policy implications that potentially extend beyond the service sector under investigation.
Trade and the Greenhouse Gas Emissions from International Freight Transport
(with D. Hummels, L. Puzzello and M. Avetisyan)
NBER working paper 17117. Updated: Feb 2012
We collect extensive data on worldwide trade by transportation mode and use this to provide detailed comparisons of the greenhouse gas emissions associated with output versus international transportation of traded goods. International transport is responsible for 33 percent of world-wide trade-related emissions, and over 75 percent of emissions for major manufacturing categories. Importantly, the inclusion of transport dramatically changes the ranking of countries by emission per dollar of trade. We then systematically investigate whether trade inclusive of transport can lower emissions. In one quarter of cases, the difference in output emissions is more than enough to compensate for the emissions cost of transport. Finally, we examine how likely patterns of trade growth will affect modal use and emissions. Full liberalization of tariffs and GDP growth concentrated in China and India lead to transport emissions growing much faster than the value of trade, due to trade shifting toward distant trading partners.
Work in Progress
Air Transport and Regional Growth: Evidence from a Major Policy Experiment
(with B. Blonigen)
While significant work has been done in examining the determinants of regional development, there is little evidence on the contribution that air services bring towards this outcome. This paper exploits the unexpected market changes induced by the 1978 airline deregulation to bring new evidence on the link between airline traffic and local economic growth. Using data for almost 300 MSAs over a two decade time period centered around the policy change, we apply a first difference in growth rates estimation method to identify the long-run effects of airline traffic on population, income and employment growth. Our results suggest that MSAs with above average growth in air passenger traffic witness more rapid economic development. The magnitude of the effects differs by MSA size and sector, but overall are much larger than previous findings.
Organizing Service Offshoring When Communication is Costly
Communication may be a real barrier to offshoring knowledge-intensive activities such as business services. Does the average skill level of the foreign workforce mitigate these transaction costs? Antras, Garicano and Rossi-Hansberg (2006) describe international production as a team effort, with the knowledge of heterogeneous agents organized so as to economize on communication costs. Applying this theoretical framework to service activities, this paper provides empirical evidence that multinational firms respond to communication barriers in a way that is systematically related to the skill level of the foreign workforce. In particular, when cross-border information transfer is relatively easy, service offshoring is more likely to take place in less skill abundant locations because coordination and problem solving is achieved at relatively low cost, while wage bill savings can be significant. However, when international communication costs are high, multinational firms adjust their activity by intensifying service offshoring in countries with highly educated workers, as they economize on the number of interventions from the headquarters.
