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Working Papers

This paper studies whether fiscal rules can signal fiscal responsibility and compress borrowing costs for emerging economies during periods of global crisis. Using daily data on sovereign spreads for 58 emerging market economies from 2019-2022 and 26 countries from 2007-2009, this paper shows that the compressing effect of fiscal rules on sovereign spreads is stronger during global crises. We find that the existence of a fiscal rule reduces sovereign spreads with a high degree of statistical significance, regardless of the extent to which enforcement of the rule occurred during the global crisis. In our baseline test covering the COVID-19 timeframe, estimates of the average spread compressing effect of fiscal rules range from 319 to 378 basis points. We also find that for countries that deviated from a fiscal rule during a global crisis, the median duration to return to the baseline fiscal balance is 3.5 years. This fact explains why the spread compressing effect is independent of the enforcement of the rule during a global crisis, as lenders expect countries to return to compliance with the fiscal rule in the aftermath of a crisis. Our results suggest that second-generation rules have increased not only the flexibility but also the credibility of fiscal rules, even during crisis periods.

This paper examines the impact of changing trade costs on structural change and skill premium growth in India from 1995-2005. I build a model featuring asymmetric trade costs, multistage production, tradable services, tariffs, and two types of labor. In my model, service export cost reductions bolster India’s comparative advantage in services while goods import cost reductions increase the domestic expenditure share on services through a relative price effect. Both of these channels drive growth in the value added share of services and the skill premium, and multistage production contributes to these outcomes through an amplified elasticity of relative wages to changes in trade costs. I calibrate the model for three countries in the baseline year, then simulate trade cost reductions over time. I find that changing trade costs, including both tariffs and icebergs, explain 46% of India’s service sector growth, 56% of its manufacturing sector decline, 41% of its agricultural decline, and 74% of its skill premium growth from 1995-2005. Further, I find that reductions in consumer goods tariffs increase the skill premium in India, whereas producer goods tariff reductions decrease the skill premium. Finally, I show that the inclusion of two stages of production is quantitatively important in explaining structural change and skill premium growth in India, and allows for the flexibility needed to match important moments during calibration that cannot be matched in a one-stage model.

In this paper we utilize data capturing value-added linkages in global value chains (GVCs) to characterize the evolution of globalization from 2000 through 2021. Our analysis addresses the following three questions: 1) Did globalization decline during that period?  2) To what extent did North America and China decouple their supply chains? 3) Did regionalization (”nearshoring”) increase?  Our quantitative analysis provides strong evidence that value-added trade supporting the production of goods and services did not recede during 2000-2021, nor was there evidence of a global trend toward reshoring. Instead, the evidence suggests that 2021 was a high mark for the global exchange of goods and services as measured by international value-added production linkages. Regarding the question of whether there has been a decoupling between North America and China, our analysis finds no evidence of decoupling of value-added production linkages. In fact, we find that China and North America increased their value-added production linkages between 2017 and 2021, implying significantly greater linkages than those that could be estimated using gross trade statistics alone.

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