Working papers

Credit rating agencies and central banks: Does better central bank governance reduce the cost of capital? (Co-authored with Cristina Bodea)

Accepted at Economics and Politics

Credit rating agencies have been an important determinant of countries’ cost of capital in the last couple of decades. This paper studies the effect of the governance of modern central banks on the ratings assigned by the credit rating agencies Standard and Poor’s and Moody’s. The rating process is not public and we do not know precisely the factors or methodologies used by the agencies. Yet we argue that the independence and transparency of central banks are important to the overall risk of repayment. This is because both features are signals of high quality institutional governance, which credit rating agencies link to willingness and ability to repay. We suggest that both independence and transparency have the potential to improve economic and political stability, and, therefore improve countries’ credit rating. On the other hand, we argue that open conflict between the central bank and the government, reflected in loss of employment for top central bank officials should have the opposite effect.

Big Treaties, Small Effects: The RTAA Agreements (Co-authored with Joanne Gowa)

Accepted at World Politics

It seems obvious that agreements to cut tariffs will raise trade between their signatories. Yet, several studies show that treaties widely regarded as landmarks in economic history have had either remarkably small effects on aggregate trade between their members or none at all. Here, we examine the effects of a set of twentieth-century agreements that has not yet been subjected to systematic analysis. Using an original data set that includes information about tariffs and trade flows on more than 7000 product lines, we assess the impact of the accords the United States signed pursuant to the passage of the Reciprocal Trade Agreements Act (RTAA), a 1934 amendment to the Smoot-Hawley Tariff Act. Our analysis shows that the RTAA agreements produced spikes in U.S. imports of a specific product from a single country—that is, the state that had negotiated the concession on that good. Trade rose only in the particular type of product that was the subject of a tariff line in a particular treaty.

Trade and Economic Diplomacy (Co-authored with Matthew Connelly and Nathan Fabius)

Can the government influence trade flows? Most research in political science focuses on firm lobbying of the government, arguing that trade policy is largely a function of firm preferences. Import-competing firms want more protection while exporters want lower tariffs. We argue that the government can play a larger role in directing trade policy. Through export promotions, government agencies solve an information problem, linking foreign firms that might want to partner with U.S. firms and U.S. firms interested in exporting their goods. We test our argument using a new dataset, drawn from State Department cables. All cables were tagged with one or more subjects. We count the number of cables tagged with a trade subject by country for each year between 1974 and 1979 (the only dates for which the cables have been released electronically). We find strong evidence that more cables about trade lead to more exports with a country and that the findings are robust to different tests for endogeneity. Governments can lead trade policy rather than just react to firms' preferences.

The Politics of Globalizing Production: Why we See Investment Chapters in Preferential Trade Agreements (Co-authored with Kristina Johnson)

Trade and FDI are increasingly interconnected as MNCs expand vertical production networks around the globe. This paper investigates how the politics of trade and investment are related by examining international agreements that protect both. Comparing a hybrid form of PTA we coin the "investment-inclusive PTA" (IIPTA), which includes both investment and trade protections, to conventional PTAs and BITs, we argue that IIPTAs emerge where MNCs engage in vertical FDI and intra-firm trade. Further, due to higher asset specificity, IIPTAs are more likely where firms carry out their higher-value production. Statistical analysis of an original dataset that codes PTAs for investment provisions supports the arguments. We find a highly significant and positive relationship between intra-firm trade and IIPTAs. IIPTAs are also signed by countries with similar skill-wage ratios. Rather than substituting for other international agreements, IIPTAs are unique and increasingly important institutions that reflect the interconnectedness of trade and FDI.