Abstract: Do investment disputes reduce foreign direct investment (FDI)? Investors may perceive host governments involved in arbitration as riskier. Yet a dispute may also signal new economic opportunities for firms hoping to enter the same industry as the disputant firm. These competing pressures mean the impact of disputes on FDI is ex ante unclear. However, the balance of risk and opportunity varies across industry fixed asset intensity (FAI). FAI is associated with both the irreversibility of investment, which influences risk, as well as the structure of the market, which shapes competitive opportunities arising from a dispute. We expect the rewards from investment to exceed risk as industry FAI increases. Using new data on industry-level greenfield FDI between countries from 2003 to 2015, we find that a co-industrial dispute reduces investment in industries with low FAI but increases FDI in those with high FAI. These results highlight the importance of heterogeneous investors.
"A command to estimate and interpret models of dynamic compositional dependent variables: New features for dynsimpie." with Flavio Souza, Andrew Q. Philips, Amanda Rutherford, and Guy D. Whitten. 2020. The Stata Journal. 20 (3). 584-603.
Abstract: Philips, Rutherford, and Whitten (2016, Stata Journal 16: 662–677) introduced dynsimpie, a command to examine dynamic compositional dependent variables. In this article, we present an update to dynsimpie and three new adofiles: cfbplot, effectsplot, and dynsimpiecoef. These updates greatly enhance the range of models that can be estimated and the ways in which model results can now be presented. The command dynsimpie has been updated so that users can obtain both prediction plots and change-from-baseline plots using postestimation commands. With the new command dynsimpiecoef, various types of coefficient plots can also be obtained. We illustrate these improvements using monthly data on support for political parties in the United Kingdom.
"Distinguishing territorial structure from electoral adventurism: The distinct sources of static and dynamic nationalization." with Thomas Mustillo. 2016. Electoral Studies 44. 341-350.
Abstract: Estimates of static nationalization do not always reflect stark qualitative differences between parties. We use a research design oriented around a comparison of sharply different parties - the unstable Democratic Left in Ecuador and the stable Broad Front in Uruguay - to develop the distinctiveness of static and dynamic nationalization. Snapshot measures that only consider a single election suggest that both parties are poorly statically nationalized; but we show that the former case is highly statically nationalized, and that the observed territorial differences arise because it is poorly dynamically nationalized. We adopt the linear mixed modeling approach to reduce the bias in extant estimators. The approach is also informative about the sources of variance in a party's territorial support: relatively stable district attributes account for static nationalization, while features unique to the electoral cycle account for dynamic nationalization. Substantively, our study alters conclusions about parties operating in highly unstable electoral contexts.
"Bargaining in the Shadow of a Dispute Settlement Mechanism: GATT vs. WTO Adjudication."
Abstract: Many international organizations and multilateral negotiations are criticized as being driven by power politics, which disadvantages less powerful members. Does legalization of international institutions mitigate or magnify power asymmetries? I answer this question in the context of the dispute settlement mechanism (DSM) of the World Trade Organization (WTO). I argue that the legal power of the WTO DSM helps level the playing field and mitigate problems of power politics better than its predecessor, the General Agreement on Tariffs and Trade (GATT). Using a game theoretic analysis, I find that complainants are more likely to benefit from bilateral bargaining under the WTO than the GATT due to structural advantages of the WTO DSM granted to complainants. Nevertheless, fair adjudication which supports specific and firm rules of the WTO DSM is necessary for complainants to insulate themselves from power politics. These finding suggests that the sheer existence of legalized international arbitration alone is not an effective means of empowering weak members.
"An Empirical Analysis of Delegation and Settlement at the GATT vs. the WTO, 1980-2018."
Abstract: This study lays out and empirically tests circumstances where the WTO's legalized dispute settlement system helps small and poor countries insulate themselves from power politics in the multilateral trading system. I argue that (1) disputes filed in the WTO are more likely to reach litigation than those filed in the GATT, and (2) the odds of litigation increase in the number of third parties involved. I develop a theory about a conditional effect of WTO dispute settlement on post-dispute trade flows between disputing parties. I argue that the WTO helps poor states disproportionally. This leads to such a strong post-dispute distributional effect in the WTO that poor states restore trade over the disputed products after WTO disputes more than they could do after GATT disputes, while rich states are unlikely to experience such a trade impact from the WTO relative to the GATT. I test my arguments using original data on disputes at the GATT and the WTO from 1980 until 2018 and post-dispute trade flows for each GATT/WTO dispute filed between 1989 and 2015. Empirical evidence strongly supports my arguments. This study contributes to the literature on the GATT/WTO disputes and legalization of dispute settlement systems, and also speaks to a broader literature on the role of international institutions.
"Political Tensions and FDI in Developing Countries: Sectoral Heterogeneity and the Risk-Return Tradeoff." with Yohan Park
Abstract: Do deteriorating political relations between states deter foreign direct investment (FDI)? Political tensions between home and host countries increase the risk of expropriation of foreign assets. Increased risk may cause potential investors to reconsider investing and switch to an alternative market. However, giving up the best market available incurs costs such as loss of returns and market share. If the rewards still outweigh increased risks, firms have an incentive to enter the market. We argue that rewards for investing increase with industry fixed assets. As a result, increased risks from political tensions may not suffice to discourage FDI in high fixed asset industries. We expect that political tensions will lead to lower FDI in low fixed asset industries but not in fixed asset intensive industries. We test our theory using industry-level greenfield FDI data and event-level conflict data between 2003 and 2016.
"Dispute Settlement and Power Asymmetries in International Trade: Regional Trade Agreements and the WTO."
Abstract: Regional trade agreements (RTAs) have become increasingly common in the international trading system since the end of the Second World War. The number of RTAs has increased rapidly during the past two decades. In particular, it doubled to reach more than 400 RTAs in force from 2000 to 2016. Notwithstanding the recent surge in regionalism, dispute settlement mechanisms (DSMs) are much less in use in RTAs than in the World Trade Organization (WTO). I argue that the frequent use of the WTO-DSM results from its superiority in avoiding systemic breakdown and leveling the playing field for less powerful countries in disputes. The extension of Rosendorff (2005) model of the WTO to RTAs demonstrates that RTA-DSMs increase the power disparity by providing more flexibility to stronger countries at the expense of weaker countries. Therefore, DSMs generate a trade-off in gains between large and small countries in RTAs instead of the trade-off between "rigidity and stability" in the WTO. The significant loss sustained by weak countries in RTA-DSMs generate the loss in the stability of the regional trading system. The findings imply that less powerful members insulate power politics in the multilateral trading system under the WTO more efficiently than in regional trade agreements.
"Democracy and Protection: Estimating the Moderating Effect of Factor Endowments." with William Roberts Clark
Abstract: For decades, scholars have viewed the politics of trade though the factor based model of international trade, but empirical results have been inconsistent. The distributional consequences of trade depend on whether an economy is relatively abundant in labor or capital, but empirical tests frequently assume that all developing countries are labor abundant, while all developed economies are capital abundant. The fact that this is not true may be behind some of the instability in empirical results in this literature. We reanalyze the important work of Milner and Kubota (2005) on the effect of democratization on trade policy in developing countries. We argue that since the factor based model predicts that trade will benefit workers when labor is the abundant factor, we expect democratization to lead to a reduction in protectionism only when labor is the abundant factor. Using a direct measure of factor endowments, its interactive effect with democracy, and random effects modeling, our analysis shows that the effect of democracy on protectionism is indeed conditional on country-specific factor endowments. Specifically, protectionism is unaffected by the level of democracy when labor abundance is low. In contrast, democracy is associated with reduced protectionism when labor abundance is high.
"Firms, Contract Enforcement, and the Institutional Sources of Trade Openness." with Timm Betz
Abstract: Why are democracies more open to trade than non-democracies? Existing explanations, which focus on the political power of voters, are at odds with many empirical regularities. In contrast to dominant theories, which emphasize the role of institutions in aggregating preferences, we point to the role of institutions in shaping the domestic preference landscape. We offer a theory of trade openness that combines two features. First, key beneficiaries and supporters of free trade are firms that export, import, and participate in global production networks. Second, concerns about contract enforcement impede trade between firms and therefore the emergence of firms that benefit from trade openness. Because democratic institutions are associated with better contract enforcement, they are also associated with the emergence of more firms that benefit from trade openness. We show that democracies boast more exporting firms; trade more products, especially contract-intensive products; and that the trade profile of democracies is skewed toward contract-intensive products, which involve more firms in the production process, spreading the benefits of open markets across the economy. We offer a new institutional theory of trade openness and, by emphasizing the role of contract enforcement, identify important parallels in the literatures over international trade and investment.