Work in Progress

Exchange Rates and Industry Demands for Trade Protection, with Seth Werfel. November 2011

Abstract: The recent confrontation between China and the United States over currency policy illustrates a broader phenomenon: exchange-rate misalignments tend to spill over into trade policy. While previous studies have shown that aggregate protectionist activity is positively related to the level of the real effective exchange rate, we explore this relationship at the industry level. We argue that several industry-specific characteristics determine the protectionist response to changes in the exchange rate, including the extent of exchange-rate pass-through, the level of import penetration, and the share of imported intermediate inputs in total industry inputs. We evaluate our conditional arguments by estimating a negative binomial model of industry-level anti-dumping petitions and find that greater exchange rate pass-through increases the marginal effect of currency appreciation on the demand for trade protection. We find weaker evidence that the protectionist response to real appreciations is positively conditioned by the level of import penetration in an industry and negatively conditioned by dependence on imported intermediate inputs. Lastly, we show that lobbying and congressional voting patterns on recent U.S. legislation to impose trade sanctions on China for maintaining an undervalued currency can be explained by these same industry-specific characteristics.

An earlier draft was presented at the fifth annual meeting of the International Political Economy Society (IPES), November 12-13, 2010, Weatherhead Center for International Affairs, Harvard University, Cambridge, MA. See comments on the Monkey Cage blog. We thank Jeffry Frieden, Jose Fernandez-Albertos and other participants for helpful comments.  The views expressed in this paper are those of the authors and do not necessarily reflect those of the Federal Reserve System.

Partisan Financial Cycles. This version: Feburary 21, 2012

Abstract: Scholars have paid little attention to the partisan character of government either as a cause or a consequence of financial crises. I argue that policies and regulations vary predictably with the partisan character of the government, creating a partisan-policy financial cycle in which right-wing, pro-market governments preside over financial booms while left-wing governments are elected to office after crashes. My sample consists of all bank-centered financial crises to hit advanced countries since the end of the Bretton Woods system in 1973, including the recent “subprime” crises—a total of 35 cases. I find that governments in power prior to major financial crises are more likely than the OECD average to be right-of-center in political orientation. I also find that these governments are more likely than average to be associated with policies that precipitate crises: large fiscal and current account deficits, heavy borrowing from abroad, and lax bank regulation. However, once a major financial crisis occurs, the causal arrow flips and government partisanship becomes a consequence of crises. I find that the electorate moves to the Left after a major financial crisis, and this leftward shift is associated with changes in government partisanship in that direction.

Malapportionment, Gasoline Taxes, and Climate Change (with Daniel Maliniak).  March 2011.

Abstract: Gasoline taxes vary widely among industrialized countries, as does support for the United Nations' effort to curtail the use of fossil fuels to address the climate change problem. We argue that malapportionment of the electoral system affects both the rate at which governments tax gasoline and the extent to which governments participate in global efforts to ameliorate climate change. Malapportionment results in a "rural bias" such that the political system disproportionately represents rural voters. Since rural voters in industrialized countries rely more heavily on fossil fuels than urban voters, our prediction is that malapportioned political systems will have lower gasoline taxes, and less commitment to climate change amelioration, than systems with equitable representation of constituents. Furthermore, it is unlikely that malapportionment is an endogenous variable, correlated with the error term in our models, because levels of malapportionment were established at the founding of nations in most cases--sometimes centuries before the introduction of gasoline taxes and awareness of global warming. We find that malapportionment is negatively related to both gasoline taxes and support for the Kyoto Protocol to the United Nations Framework Convention on Climate Change (where "support" is measured as the duration of the spell between the signing of the Protocol and ratification by the domestic legislature)..

*I'm grateful to Erik Voeten for  posting  these papers to Monkey Cage