Exporting and Offshoring with Monopsonistic Competition

We develop a model of international trade with heterogeneous firms and monopsonistically competitive labour markets. We show that due to monopsonistic competition our model makes sharply different predictions about the effects of the export of goods and the offshoring of tasks. Trade in goods is unambiguously welfare increasing since domestic resources are reallocated to large firms with high productivity, and firms with low productivities exit the market thereby reducing the monopsony distortion present in autarky. Offshoring on the other hand gives firms additional scope for exercising monopsony power by reducing their domestic size and therefore can lead to welfare losses.

How Property Rights Matter to Firm Resource Investment: Evidence from China’s Property Law Enactment

Although property-rights theory has long been used to explain firms’ ownership of resources, research on the channels through which property rights affect heterogeneous firms’ investment in building resources remains scarce. Leveraging a property-law enactment in China, we find that strengthening property-rights protection leads private firms to make greater intangible and tangible asset investment compared with state-owned firms and that these effects are mediated by external equity and debt financing. Further, we unpack resource heterogeneity by explicating key differences between intangible and tangible assets, and we document an alignment between asset intangibility and financing approaches such that for intangible asset investment, equity plays a larger mediation role, whereas for tangible asset investment, debt’s mediating effect is greater. We contribute to the strategy literature by using property-rights theory to link together asset intangibility and financing approaches and by showing that the strength of property-rights protection affects firms’ resource investment and shapes firm heterogeneity.

Does Cross-Border E-Commerce Contribute to the Growth Convergence?

The impact of cross-border e-commerce (CBEC) on international trade is prominent in recent years. The authors extend the international trade model with heterogeneous firms to include CBEC export and deduce that CBEC lowers the capability threshold for export. Firms and regions with different capabilities are affected differently, but the total regional export is increasing. In the empirical analysis section, they use panel data from 31 provinces in China from 2015 to 2018 and construct proxy variables for CBEC with CBEC comprehensive pilot zones and CBEC exporters. They find that CBEC contributes to economic growth and economic convergence. The underlying mechanisms include the convergence of regional exports and total factor productivity, while the convergence of capital isn't supported by the results.

Managerial overconfidence in capital structure decisions and its link to aggregate demand: An agent-based model perspective

Objective This study aims to connect two strands of the psychology and economics literature, i.e., behavioural finance and agent-based macroeconomics, to assess the impact of managerial overconfidence at the micro and macro levels of the economy as a whole. Method We build a macroeconomic stock-flow consistent agent-based model that is calibrated for the specific case of Poland to explore whether the overconfidence of top corporate managers in the context of their initial capital structure decisions is detrimental for the firms being managed in this way, the financial market dynamics, and the selected macroeconomic indicators. We model heterogeneous firms with different capital structure decision criteria depending on their degree of managerial overconfidence. Our model also includes a complete macroeconomic closure with aggregated households, capital producers, banking, and a public sector. Results We find that firms with overconfident managers outperform in terms of investment and size but are also more fragile, thereby making them more likely to default. Finally, we run policy shocks and show that while investors’ flight to liquidity creates financial turmoil and increases the probability of default. Conclusions This paper contributes to the knowledge base by linking behavioural corporate finance and agent-based macroeconomics. In general, the excess overconfidence on the micro level, either an increase in the proportion of overconfident firms or a higher degree of overconfidence among managers, has a strong destabilizing impact on the economy as a whole on the macro level.

Trade credit, trade income elasticity and the international transmission of shocks

The paper examines the impact of trade credit on cyclical fluctuations in international trade. It provides new empirical evidence based on firm-level UK and Irish data showing that exporters use trade credit more actively and intensively than non-exporters. The study introduces inter-firm lending into an open economy general equilibrium model with heterogeneous firms and endogenous entry into the exports market. It demonstrates that trade credit amplifies the impact of macroeconomic shocks on international trade both along the intensive and extensive margins and that it significantly contributes to the high trade income elasticity observed in the data.

Welfare Effects of Capital Controls

This paper studies the effect of capital controls on misallocation and welfare in an economy with financial constraints. We build a general equilibrium model with heterogeneous firms, financial constraints and international trade and calibrate it to the Chilean economy. Since high-productivity and exporting firms need to borrow more to reach their optimal scale, capital controls that tax international borrowing hit them harder. As a result, misallocation increases relatively more for this group of firms, and for young firms that are still trying to reach their optimal scale. In terms of welfare, the model predicts a sizable aggregate loss of 2.39 percent when capital controls are introduced, with welfare decreasing twice as much for high-productivity firms. We empirically corroborate the main insights in terms of misallocation obtained from the model using Chilean manufacturing firm data from 1990 to 2007.