Dennis Novy

Bio: Dennis Novy is an academic researcher from University of Warwick. The author has contributed to research in topics: Trade barrier & Bilateral trade. The author has an hindex of 26, co-authored 67 publications receiving 3356 citations. Previous affiliations of Dennis Novy include Economic Policy Institute & Centre for Economic Performance.

Gravity Redux: Measuring International Trade Costs with Panel Data

Abstract: Barriers to international trade are known to be large but due to data limitations it is hard to measure them directly for a large number of countries over many years. To address this problem I derive a micro-founded measure of bilateral trade costs that indirectly infers trade frictions from observable trade data. I show that this trade cost measure is consistent with a broad range of leading trade theories including Ricardian and heterogeneous firms models. In an application I show that U.S. trade costs with major trading partners declined on average by about 40 percent between 1970 and 2000, with Mexico and Canada experiencing the biggest reductions.

Who Voted for Brexit? A Comprehensive District-Level Analysis

Abstract: On 23 June 2016, the British electorate voted to leave the European Union. We analyze vote and turnout shares across 380 local authority areas in the United Kingdom. We find that exposure to the EU in terms of immigration and trade provides relatively little explanatory power for the referendum vote. Instead, we find that fundamental characteristics of the voting population were key drivers of the Vote Leave share, in particular their education profiles, their historical dependence on manufacturing employment as well as low income and high unemployment. At the much finer level of wards within cities, we find that areas with deprivation in terms of education, income and employment were more likely to vote Leave. Our results indicate that a higher turnout of younger voters, who were more likely to vote Remain, would not have overturned the referendum result.

Gravity redux: measuring international trade costs with panel data

Abstract: Barriers to international trade are known to be large. But have they become smaller over time? Building on the gravity framework by Anderson and van Wincoop (2003), I derive an analytical solution for time-varying and observable multilateral resistance variables. This solution gives rise to a micro-founded gravity equation from which bilateral trade costs can be directly inferred. This approach is easy to implement and obviates the need to impose arbitrary trade cost functions. As an illustration, I show that U.S. trade costs with major trading partners declined on average by about 40 percent between 1970 and 2000, with Mexico and Canada experiencing the biggest reductions.

Trade Booms, Trade Busts and Trade Costs

Abstract: What has driven trade booms and trade busts in the past and present? We derive a micro-founded measure of trade frictions from leading trade theories and use it to gauge the importance of bilateral trade costs in determining international trade flows We construct a new balanced sample of bilateral trade flows for 130 country pairs across the Americas, Asia, Europe, and Oceania for the period from 1870 to 2000 and demonstrate an overriding role for declining trade costs in the pre-World War I trade boom In contrast, for the post-World War II trade boom we identify changes in output as the dominant force Finally, the entirety of the interwar trade bust is explained by increases in trade costs

Trade Costs, 1870-2000

Abstract: What has driven trade booms and trade busts in the past century and a half? Was it changes in global output or in the costs of international trade? To address this question, we derive a micro-founded measure of aggregate bilateral trade costs based on a standard model of trade in differentiated goods. These trade costs gauge the difference between observed bilateral trade and frictionless trade in terms of an implied markup on retail prices of foreign goods. Thus, we are able to estimate the combined magnitude of tariffs, transportation costs, and all other macroeconomic frictions that impede interna tional trade but that are inherently difficult to observe. We use this measure to examine the growth of global trade between 1870 and 1913, its retreat from 1921 to 1939, and its subsequent rise from 1950 to 2000. We find that trade cost declines explain roughly 55 percent of the pre– World War I trade boom and 33 percent of the post–World War II trade boom, while a precipi tous rise in trade costs explains the entire inter

Gravity Equations: Workhorse,Toolkit, and Cookbook

Abstract: This chapter focuses on the estimation and interpretation of gravity equations for bilateral trade. This necessarily involves a careful consideration of the theoretical underpinnings since it has become clear that naive approaches to estimation lead to biased and frequently misinterpreted results. There are now several theory-consistent estimation methods and we argue against sole reliance on any one method and instead advocate a toolkit approach. One estimator may be preferred for certain types of data or research questions but more often the methods should be used in concert to establish robustness. In recent years, estimation has become just a first step before a deeper analysis of the implications of the results, notably in terms of welfare. We try to facilitate diffusion of best-practice methods by illustrating their application in a step-by-step cookbook mode of exposition.

Transportation Costs and International Trade in the Second Era of Globalization

Abstract: While the precise causes of postwar trade growth are not well understood, declines in transport costs top the lists of usual suspects. However, there is remarkably little systematic evidence documenting the decline. This paper brings to bear an eclectic mix of data in order to provide a detailed accounting of the time-series pattern of shipping costs. The ad-valorem impact of ocean shipping costs is not much lower today than in the 1950s, with technological advances largely trumped by adverse cost shocks. In contrast, air shipping costs have dropped an order of magnitude, and airborne trade has grown rapidly as a result. As a result, international trade has also experienced a significant rise in speed.

Fluctuations in Uncertainty

Abstract: This review article tries to answer four questions: (i) what are the stylized facts about uncertainty over time; (ii) why does uncertainty vary; (iii) do fluctuations in uncertainty matter; and (iv) did higher uncertainty worsen the Great Recession of 2007-2009? On the first question both macro and micro uncertainty appears to rise sharply in recessions. On the second question the types of exogenous shocks like wars, financial panics and oil price jumps that cause recessions appear to directly increase uncertainty, and uncertainty also appears to endogenously rise further during recessions. On the third question, the evidence suggests uncertainty is damaging for short-run investment and hiring, but there is some evidence it may stimulate longer-run innovation. Finally, in terms of the Great Recession, the large jump in uncertainty in 2008 potentially accounted for about one third of the drop in GDP.

The Unprecedented Stock Market Reaction to COVID-19

Abstract: No previous infectious disease outbreak, including the Spanish Flu, has affected the stock market as forcefully as the COVID-19 pandemic In fact, previous pandemics left only mild traces on the U S stock market We use text-based methods to develop these points with respect to large daily stock market moves back to 1900 and with respect to overall stock market volatility back to 1985 We also evaluate potential explanations for the unprecedented stock market reaction to the COVID-19 pandemic The evidence we amass suggests that government restrictions on commercial activity and voluntary social distancing, operating with powerful effects in a service-oriented economy, are the main reasons the U S stock market reacted so much more forcefully to COVID-19 than to previous pandemics in 1918–1919, 1957–1958, and 1968

Lab Experiments are a Major Source of Knowledge in the Social Sciences

Abstract: Laboratory experiments are a widely used methodology for advancing causal knowledge in the physical and life sciences. With the exception of psychology, the adoption of laboratory experiments has been much slower in the social sciences, although during the last two decades, the use of lab experiments has accelerated. Nonetheless, there remains considerable resistance among social scientists who argue that lab experiments lack "realism" and "generalizability". In this article we discuss the advantages and limitations of laboratory social science experiments by comparing them to research based on nonexperimental data and to field experiments. We argue that many recent objections against lab experiments are misguided and that even more lab experiments should be conducted.