NCPA - National Center for Policy Analysis

Policy Suggestions Based on Research Using Microdata

March 9, 2015

Michael Sposi, a research economist at the Dallas Federal Reserve Bank, Piyusha Mutreja, and coauthors used microdata instead of aggregate-level data to show that international trade plays a much more important role in economic growth once trade in capital goods is carefully incorporated into models.

They argue trade barriers will hinder developing countries from importing capital goods and slow their economic growth. Their model predicts the cross-country income differences fall by more than 50 percent when distortions to capital goods trade are removed. This provides microeconomic evidence of the importance of free trade in promoting economic growth.

Heiwai Tang, an assistant professor of economics at Johns Hopkins University and his coauthor found policies that could reduce learning costs and help promote exports. While international trade and capital flow usually benefit overall economic growth and reduce cross-country income inequality, trade and capital market liberalization could induce an increase in income inequality within a country.  

Emily Blanchard, an assistant professor of business administration at Dartmouth College and her coauthor found industries and countries that have more foreign affiliate exports to the United States receive more preferential duty-free access to the United States. This suggests the pattern of international investment by U.S. firms may play a key role in shaping U.S. trade policy preference.

Source: Jian Wang, "Micro-Foundations of International Trade, Global Imbalances and Implications on Monetary Policy," Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute, 2014 Annual Report. 


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