Showing papers by "Robert C. Feenstra published in 1999"

The Impact of Outsourcing and High-Technology Capital on Wages: Estimates For the United States, 1979–1990

Abstract: We estimate the relative influence of trade versus technology on wages in a "large-country" setting, where technological change affects product prices. Trade is measured by the foreign outsourcing of intermediate inputs, while technological change is measured by expenditures on high-technology capital such as computers. The estimation procedure we develop, which modifies the conventional "price regression," is able to distinguish whether product price changes are due to factor-biased versus sector-biased technology shifts. In our base specification we find that computers explain about 35 percent of the increase in the relative wage of nonproduction workers, while outsourcing explains 15 percent; both of these effects are higher in other specifications.

The Role of Foreign Direct Investment in International Capital Flows

Abstract: Direct investment has accounted for about a quarter of total international capital outflows in the 1990s and appears to have grown, relative to other forms of international investment, since the 1970s. The United States was by far the major source of direct investment outflows in the early 1970s, but Europe caught up to the United States in the 1980s and Japan almost did, before fading in the 1990s. The United States shifted from being the largest net supplier of direct investment to absorbing much of the world's supply, especially in the late 1980s, and then reverted to its earlier net supplier role. Direct Investment flows have been the least volatile source of international investment for most countries, the chief exception being the United States, which has flipped back and forth from dominant net supplier to dominant net recipient, and back to dominant net supplier. Particularly for developing countries, direct investment has been the most dependable source of foreign investment.

Discrepancies in International Data: An Application to China-Hong Kong Entrepot Trade

Abstract: Before discussing discrepancies in international data, it is essential to talk about the sources of the data. The principal source for global trade statistics is the United Nations (UN). That agency relies on the trade statistics reported by its member countries. The obvious discrepancy in these reports is that what country A says it sends to country B is not the same as what country B says it receives from A. Such differences in what the exporting and importing countries report is not just a feature of developing countries: these discrepancies are pervasive in industrial countries, as well. For example, since 1989 the United States has abandoned its attempt to keep track of exports to Canada and now just relies on Canadian data on its imports from the United States (see Robert Feenstra, 1997 table 2). Prior to this action, the United States underreported its exports to Canada by more than 10 percent, as compared to the Canadian value. This illustrates the general principle that the information collected by the importer, which is often collecting tariff revenues and therefore has an incentive to record imports accurately, is usually viewed as more accurate than that collected by the exporter. There are, then, two problems with the UN data: it contains different information from the exporting and importing countries, and it is expensive, at least by the standards of lowbudget academic work. Progress on the first of these problems has been made by Statistics Canada, in the World Trade Database (WTDB). That agency obtains the UN trade data and then attempts to resolve the differences between the exporters and importers, providing a single number for the value of each disaggregate good sent from country A to B. These data are distributed on CD-ROM but are still fairly expensive by academic standards. To make progress on the second problem, the Statistics Canada data set for an early set of years (1970-1992) is distributed by the National Bureau of Economic Research (NBER) for a nominal fee, also in CD-ROM format (see Feenstra et al., 1997). In view of the widespread use of these data (distributed by the UN, Statistics Canada, or the NBER), it is worth asking how well the Statistics Canada database resolves the differing reports by the exporters and importers. To take a particularly important example, consider U.S. trade with China. In 1996, the United States reported a deficit with China of $39.5 billion, while the Chinese reported a value of the U.S. deficit of $10.5 billion; these two figures differ by $29 billion, or a factor of three times. At the heart of these differing values is the treatment of goods shipped through Hong Kong, which remains a separate entity from China for customs purposes. To what extent does Statistics Canada resolve the differences between these reported trade values, to arrive at some credible value of bilateral trade? Unfortunately, this issue is not resolved at all. The values given in the Statistics Canada WTDB for Chinese exports to the United States are very close to those reported by China, and are much less than those reported by the United States. This is contrary to the general principle, stated above, of treating the exporter's record of trade as less accurate than the importer's record. On the other hand, the U.S. official figures for imports from China are too high, because they include the * Feenstra: Department of Economnics, University of California, Davis, CA 95616, Haas School of Business, University of Califomia-Berkeley, and National Bureau of Economic Research; Hai: Department of Economics, Fort Lewis College, and China Centre for Economic Research, Beijing University; Woo and Yao: Department of Economics, University of Califomia-Davis. We thank Li Yan, Jin Hongman, and Jiang Xiaozhu from the Customs General Administration, People's Republic of China, for assisting with the study from which the results reported here are drawn.

Pricing to Market, Staggered Contracts, and Real Exchange Rate Persistence

Abstract: This paper offers an explanation for the persistence observed in real exchange rate movements. The model combines pricing to market behavior with sticky prices generated by staggered contracts. A translog preference structure is sued to enhance both features. The paper finds that openness limits the degree of endogenous persistence. Nevertheless, the model under reasonable parameter values can replicate the serial correlation of real exchange rate data. Further, significant exchange rate data. Further, significant exchange rate volatility can be generated, and this is amplified by the presence of endogenous persistence

Trade and Foreign Direct Investment in China: a Political Economy Approach

Abstract: We view the political process in China as trading off the social benefits of increased trade and foreign direct investment, against the losses incurred by state-owned enterprises due to such liberalization. A model drawing on Grossman and Helpman (1994, 1996) is used to derive an empirically estimable government objective function. The key structural parameters of this model are estimated using province-level data on foreign direct investment and trade flows in China, over the years 1984-1995. We find that the weight applied to consumer welfare is between one-fifth and one-twelfth of the weight applied to the output of state-owned enterprises. We find that governmental preferences have shifted over time, but even in recent periods the weight on consumer welfare is only one-half of the weight on state-owned enterprises. This suggests that China may find it politically difficult to follow through with liberalizing its trade and investment regimes, such as under its WTO accession proposal.

Trade and Foreign Direct Investment in China: A Political Economy Approach

Abstract: We view the political process in China as trading off the social benefits of increased trade and foreign direct investment, against the losses incurred by state-owned enterprises due to such liberalization. A model drawing on Grossman and Helpman (1994, 1996) is used to derive an empirically estimable government objective function. The key structural parameters of this model are estimated using province-level data on foreign direct investment and trade flows in China, over the years 1984-1995. We find that the weight applied to consumer welfare is between one-fifth and one-twelfth of the weight applied to the output of state-owned enterprises. We find that governmental preferences have shifted over time, but even in recent periods the weight on consumer welfare is only one-half of the weight on state-owned enterprises. This suggests that China may find it politically difficult to follow through with liberalizing its trade and investment regimes, such as under its WTO accession proposal.

The Role of Foreign Direct Investment in International Capital Flows

Abstract: Direct investment has accounted for about a quarter of total international capital outflows in the 1990s and appears to have grown, relative to other forms of international investment, since the 1970s. The United States was by far the major source of direct investment outflows in the early 1970s, but Europe caught up to the United States in the 1980s and Japan almost did, before fading in the 1990s. The United States shifted from being the largest net supplier of direct investment to absorbing much of the world's supply, especially in the late 1980s, and then reverted to its earlier net supplier role. Direct Investment flows have been the least volatile source of international investment for most countries, the chief exception being the United States, which has flipped back and forth from dominant net supplier to dominant net recipient, and back to dominant net supplier. Particularly for developing countries, direct investment has been the most dependable source of foreign investment.