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Sovereign Gravity: the Military Alliance Effect on Trade, 2023

Abstract. International insecurity can severely disrupt trade. This paper studies treaties aimed at preventing such insecurity: military alliances. Taking a structural gravity approach, we show that alliances increase trade by 60% on average. The effects of military alliances are dynamic and heterogeneous. They depend to a large extent on the type of alliance and the economic size of partners. An instrumental variable strategy and an event study confirm the causal interpretation of the results. Investigating the mechanism behind the impacts of military alliances, we demonstrate that alliances increase trade by reducing international insecurity. General equilibrium analysis moreover shows that the growth in trade generated by military alliances brings substantial welfare gains for signatories and losses for non-aligned countries.

Published in working paper series

Deep Trade Agreements and Heterogeneous Firms Exports, 2023, CESifo Working Paper No. 10436

(joint work with Gianluca Orefice & Michele Ruta)

Abstract. This paper studies the effect of regional trade agreements on firms’ exports. Using detailed information on the content of trade agreements and firm-level exports for 31 developing countries between 2000 and 2020, the analysis shows that the depth of trade agreements matters for the export performance of firms. Moving from shallow to deep trade agreements boosts firms’ exports, on average, by 3.6 percent. In line with models of trade with heterogeneous firms and mark-ups, the trade impact of deep trade agreements depends on the firm’s characteristics. The impact is stronger for large firms and firms involved in global value chains and is negative for small firms. Robustness tests, an event study approach and an Instrumental Variable strategy confirm the causal interpretation of the results. These heterogeneous impacts on firms’ exports imply a selection (pro-competitive) effect of deep trade agreements with significant welfare consequences for signatory countries.

The Impact of Regional Trade Agreements on Georgia's Exporters, 2021, World Bank Policy Research Working Paper No. 9768

(joint work with Gianluca Orefice & Michele Ruta)

Abstract. This paper assesses the trade impact of regional trade agreements signed by Georgia. Using information from the World Bank’s Deep Trade Agreements database and the Exporters’ Dynamics Database for Georgia for 2000–20, the paper tests the effect of regional trade agreements on the performance of Georgian exporters. The results show that the depth of regional trade agreements has a positive effect on the exports of firms, and the more so if trade agreements include legally enforceable provisions. Interestingly, the effect of regional trade agreements is not homogeneous across exporters with different characteristics. While large exporters and firms participating in global value chains benefit from deep trade agreements, small firms are negatively affected. Deep trade agreements have a positive effect on the probability of entry into the export market for large firms and firms in global value chains.

Work in progress

Firms under Fire! How Insecurity Affects Formal Firms' Existence, 2024

Abstract. This paper studies the effect of insecurity on formal firms’ existence. We develop a flexible theoretical framework in which insecurity affects firms’ market entry, exit, and formality decisions. In our empirical analysis, we combine an original dataset on Afghan firms with georeferenced data on military events during the post-2003 Afghan conflict. In such a state-building context, exposure to military events has an average positive effect on formal firms’ existence. Nonetheless, this effect is highly heterogeneous depending on actors, location, timing and firms’ characteristics. The Afghan conflict has the specificity of deeply involving foreign countries. Mobilising this particular source of exogenous variation, we identify insecurity’s causal effect on formal firms’ existence. We show that an increase of 1% in the exposure to instrumented military events raises the formal activity probability by 4.16%.

Over-Distorted Gravity: Welfare Gains from Trade and Bilateral Elasticities, 2024

Abstract. We develop a theoretical framework for international trade and perform a welfare analysis in the presence of exporter-importer-specific trade elasticities. Adapting the workhorse models of trade, we show that in the presence of bilateral trade elasticities, the share of domestic expenditure and the elasticity of exports to the importer’s price-index are sufficient statistics to infer welfare gains from trade. We provide a methodology for policy evaluation in general equilibrium. Applying this method to Regional Trade Agreements, we show that bilateral trade elasticities imply important distortions, which, if ignored, can lead to important misestimations of the trade liberalization’s impact.