Job Market Paper
Effects of Trade Barriers on Foreign Direct Investment: Evidence From Chinese Solar Panels (link)
The recent comeback of protectionism and industrial policy will affect the international allocation of resources beyond the short run. Analyzing similar events from the past can help us envision their long-lasting effects. What are some unintended consequences of trade barriers in strategic economic sectors? I study the anti-dumping and countervailing Duties (AD-CVD) implemented by the Obama Administration in 2012 against the imports of solar panels from China. Leveraging the variation given by the policy's discriminatory nature, which assigns differential rates to Chinese firms in the same industry, I develop a difference-in-differences design. I estimate the effect on Foreign Direct Investment (FDI) decisions by Chinese firms using a Poisson Pseudo-Maximum Likelihood method and data on FDI announcements from 2009 to 2015. My findings show that in 2012, targeted firms increase FDI by 145 million dollars per year, from a previous average of 9 million dollars. These results for greenfield investment do not carry over to cross-border mergers and acquisitions. I find a reduction in the number of projects of 50% in 2013 and 2014. I use location choice models to test different hypotheses for FDI location. I find evidence of production fragmentation in Asia after the imposition of the duties, mostly to countries that end up becoming exporters of solar panels to the US, showing support for the export-platform hypothesis. These results document FDI diversion that modifies investment patterns in the short run and eludes the trade barriers in the medium run, weakening the intended effects of the protectionist policy.
Other Working Papers
Trade Wars and Solar Flares: The Unintended Consequences of Ray-dical Protectionist Policies
with João Albino-Pimentel
We use the Dunn and Bradstreet database of corporate conglomerates to examine how Chinese companies in the solar panel industry respond to trade policies by reorganizing their conglomerate structure and scope using a difference-in-differences approach. Using the shock of Anti-Dumping (ADD) and Countervailing Duties (CVD) implemented by the US on the import of solar panels from China in 2012, we find that treated firms react to the policy by increasing the geographic scope of their subsidiary portfolio. They also increase the width of their industrial activities (e.g., increasing the number of four-digit SIC industries in which they operate). Even though they do not have a significant change in the number of employees, their financial performance is negatively affected for several years after the policy. These results reflect how US industrial policy can indeed have a severe impact on Chinese conglomerates, but also how it does not undermine their preeminence in the international market.
Reputational Shocks and Commitment Devices: Differential Effects on Foreign Direct Investment in Developing Economies
This paper delves into the topic of institutional quality as a factor for Foreign Direct Investment (FDI) decisions. How do investors find out about the quality of a country's institutions? I posit that Investor-State Dispute Settlement (ISDS), an institutional arrangement present in Bilateral Investment Treaties (BIT), works as a mechanism for revealing a country's institutional quality. Having an ISDS case implies a negative reputational shock that should diminish the country's future FDI inflows. Meanwhile, BITs function as a commitment device between the two signing nations. Since most disputes occur in the context of a BIT, the overall result should also include their effect. I test this hypothesis and identify both the reputational and the commitment device effects by estimating a structural gravity equation using a Poisson Pseudo-maximum likelihood method. Results for my benchmark model show there is a small reputational shock that reduces FDI flows by USD 2.8 million 2 years after a dispute. This is more than compensated by the commitment device effect that increases these flows by USD 230 million. This shows that the reputational effects are small and that BITs promote FDI inflows in developing economies.
with G. De Melo, N. Castiñeiras, A. Ardente, B. Zelko, F. Araya. Revista Desarrollo y Sociedad, no. 83 (2019): 105-144.
We project the levels of eligibility and gross replacement rates of the pay-as-you-go and individual capitalization pillars in Uruguay. Based on a random sample of worker administrative records, we estimate years of contributions, formal income, and the evolution of the individual savings fund. Our results suggest that while 51% would be eligible for retirement at age 60, 28% would not be able to retire from the contributory system even at age seventy. We expect that 34% of those retiring at age 60 will receive a minimum pension while the replacement rate is estimated to be 52% relative to the previous year’s wage. We conclude that Uruguay still faces challenges regarding individuals’ density of contributions and amounts declared as both reduce eligibility levels and impose financial pressure on the pay-as-you-go pillar.