Publications

1] The Gravity of Experience 2021. (with Ana-Maria Santacreu and Daniel Traca). Canadian Journal of Economics. Forthcoming.

2] Income Distribution and Economic Development: Insights from Machine Learning (with Ilia Tsetlin) 2021. Economics and Politics 33 (1): 1-36. [Lead article]

3] The WTO is Not Passé 2020. European Economic Review, 128 (2020).

4] Microfinance and Entrepreneurship at the Base of the Pyramid (with Jasjit Singh and Arzi Adbi). 2020. Strategic Entrepreneurship Journal, Forthcoming.

5] Democracy and Policy Stability (with Ahmed Mushfiq Mobarak) 2015. International Review of Economics & Finance, 42, March 2016.

6] The Effect of WTO on the Extensive and the Intensive Margins of Trade (with Ilian Mihov and Timothy Van-Zandt) Journal of International Economics, November 2013, 91:2, 204-219. Website

7] Stock Market Comovements and Industrial Structure (with Ilian Mihov) Journal of Money Credit and Banking, August 2013, 45:5, 891-911.

8] Crisis and Consumption Smoothing (with Paddy Padmanabhan) Marketing Science, May-June 2011, 30:3, 491-512.

9] Corruption and Bilateral Trade Flows: Extortion or Evasion (with Daniel Traca) Review of Economics and Statistics, November 2010, 92:4, 843-860. Website

10] With Whom Do You Trade? Defensive Innovation and the Skill-bias (with Daniel Traca) Canadian Journal of Economics, November 2010, 43:4, 1198-1220. Website

11] Impacts of Ideology, Inequality, Lobbying and Public Finance, (with Devashish Mitra) in Anderson, K. (ed.) The Political Economy of Agricultural Price Distortions, Cambridge University Press. 2010.

12] International Trade and Unemployment: Theory and Cross-National Evidence (with Devashish Mitra and Priya Ranjan) Journal of International Economics, June 2009, 78:1, 32-44. Website

13] Trade Protection and Bureaucratic Corruption: An Empirical Investigation Canadian Journal of Economics, February 2009, 42:1, 155-183.

14] Inequality and the Instability of Polity and Policy (with Devashish Mitra) Economic Journal, August 2008, 118:531, 843-860. Website

15] Labor versus Capital in Trade-Policy: The Role of Ideology and Inequality (with Devashish Mitra) Journal of International Economics, July 2006, 69:2. NBER Working Paper; Data

16] Political Ideology and Endogenous Trade Policies: An Empirical Investigation (with Devashish Mitra) Review of Economics and Statistics, February 2005, 87:1, 59-72. NBER Working Paper; Data

17] Endogenous Trade Policy through Majority Voting: An Empirical Investigation (with Devashish Mitra), Journal of International Economics, October 2002, Vol. 57, Issue 2 . Data

18] Big Business Stability and Economic Growth: Is What’s Good for General Motors Good for America: Comment in Ito, T. and Rose, Andrew K. (ed.), Financial Sector Development in the Pacific Rim, East Asian Seminar on Economics Volume 18, NBER 2007.

19] Labor Market Outcomes and Trade Reforms: The Case of India in Hasan, R. and Mitra D. (ed.) T he Impact of Trade on Labor: Issues, Perspectives and Experiences from Developing Asia , Elsevier Science B.V. (North-Holland). 2003.

Does the WTO Matter? on VOX, May 2011.

When Corruption Boost Trade on VOX, June 2009.

Dutt, Pushan. in Craig Calhoun (Ed.) Dictionary of the Social Sciences. New York: Oxford University Press. (Co-wrote the entries in Economics), September 2001.

Singh, Jasjit and Dutt, Pushan. 2019. “Microfinance and Entrepreneurship at the Base of the Pyramid,” Academy of Management Proceedings, Volume 2019, No 1.

20] Trade Diversification and Economic Development (with Ilian Mihov and Timothy Van-Zandt)

21] When Corruption Begets Corruption: Welfare Analysis and the Role of Bureaucratic Wages Under Multiple Equilibria

Learning Spillovers in International Trade (with Lin Tian & Xuan Luo)

The Rise of Populism (with Devashish Mitra)

Racism in Football (with Nils Rudi and Henrich Greve)

Corruption and Bilateral Trade Flows: Extortion or Evasion?

Pushan Dutt and Daniel Traca

Review of Economics and Statistics

Abstract:

This paper analyzes the impact of corruption on bilateral trade flows, highlighting the dual role of corruption in terms of extortion and evasion. On one hand, corruption taxes trade, when corrupt customs officials in the importing country extort bribes from exporters (the extortion effect); on the other, if tariffs are high, corruption may be trade enhancing, when the corrupt officials allow exporters to evade tariff barriers (the evasion effect). The paper derives and estimates a corruption-augmented gravity model that shows that the effect of corruption on trade flows is ambiguous and is contingent on the level of tariffs. The predictions are borne out in the data: corruption taxes trade in the majority of cases, but in high tariff environments (covering 5-14% of the observations,) its marginal effect is trade-enhancing.

Paper

Data, documentation, and do-files (zipped file)

Coverage of our paper: VOX; Transparency International

The Effect of WTO on the Extensive and the Intensive Margins of Trade

Pushan Dutt - Ilian Mihov - Timothy Van-Zandt

Journal of International Economics

Abstract

We use 6-digit bilateral trade data to document the effect of WTO/GATT membership on the extensive and intensive product margins of trade. We construct gravity equations for the two product margins motivated by Chaney (2008). The empirical results show that standard gravity variables provide good explanatory power for bilateral trade on both margins. Importantly, we show that the impact of the WTO is concentrated almost exclusively on the extensive product margin of trade, i.e. trade in goods that were not previously traded. In our preferred specification, WTO membership increases the extensive margin of exports by 25%. At the same time, WTO membership has a negative impact on the intensive margin. Based on novel comparative statics results about how fixed and variable trade costs impact the product margins of trade, our results suggest that WTO membership works by reducing primarily the fixed rather than the variable costs of trade.

Paper

Data and Do-File

Non-technical version

The WTO Is Not Passé

Pushan Dutt

European Economic Review

Abstract

The empirical literature on the effect of trade agreements has reached a consensus that WTO effects are insignificant or modest at best especially compared to the robust and strong positive effect of preferential trade agreements (PTAs) on bilateral trade (Rose, 2004; Eicher and Henn, 2011; Baier and Bergstrand, 2007, 2009). In this paper, we show that previous work that reports “average treatment effects” on trade flows fails to account for the heterogeneity in the effects of trade arrangements over time, leading to an underestimation of the WTO effect on bilateral trade. We present semi-parametric estimates of the impact of WTO membership, allowing for heterogeneity of WTO effects over time. We find evidence for strong WTO effects over time, with the WTO effects increasing almost monotonically with years of membership. In fact, in the long-term, the magnitude of the WTO effect exceeds those of the PTA effects. We also find that the strongest WTO effect over time is for destinations that are developing countries that underwent rigorous accession procedures to join the WTO. Disaggregating PTAs into bilateral, multilateral, and deep integration (customs union, common markets, and economic union), we find that the long-term effects of WTO membership dominate bilateral and multilateral PTAs but fall short of deep integration arrangements. Finally, we show that WTO membership increases both the extensive and intensive margins of trade over time, with a stronger impact on the former. Our results are consistent with gradual trade liberalization and declining trade policy uncertainty over time, following WTO membership.

Paper

The Gravity of Experience

Pushan Dutt, Ana Maria Santacreu and Daniel A. Traca

Abstract

In this paper, we establish the importance of experience in international trade in reducing unmeasured trade costs and facilitating bilateral trade. We find a strong role for experience, measured in years of positive trade, for both aggregate and sectoral bilateral trade. In an augmented gravity framework, with a very comprehensive set of fixed-effects and trend variables, we find that a 1% increase in experience at the country-pair level increases bilateral exports by 0.417% and reduces trade costs by 0.105%. Non-parametric estimates imply that nine years of experience is equivalent to a country-pair joining a preferential trading area. We show that experience matters more for country-pairs that are distant, non-contiguous, do not share a common language, lack colonial links, and legal ties to one another. Subsequently, we construct microfounded measures of trade costs and show how these decline with the accumulation of experience. Our results are consistent with experience reducing the bilateral unmeasured variable costs of trade and experience shared across firms and industries.

Endogenous Trade Policy Through Majority Voting: An Empirical Investigation

Pushan Dutt; Devashish Mitra (Journal of International Economics)

Abstract

The median-voter approach to trade policy determination (within a Heckscher-Ohlin framework) as in Mayer [Am. Econ. Rev. 74(5) (1984) 970] predicts that an increase in inequality, holding constant the economy’s overall relative endowments, raises trade barriers in capital-abundant economies and lowers them in capital-scarce economies. We find support for this prediction using cross-country data on inequality, capital-abundance and diverse measures of protection. We perform certain robustness checks that include controlling for the effects of political rights and schooling as well as using alternative datasets on factor endowments.

Paper

Data

Political Ideology and Endogenous Trade Policy: An Empirical Investigation

Pushan Dutt; Devashish Mitra (Review of Economics and Statistics)

Abstract

In this paper, we investigate empirically how government ideology affects trade policy. The prediction of a partisan, ideology-based model (within a two-sector, two-factor Heckscher-Ohlin framework) is that left-wing governments will adopt more protectionist trade policies in capital-rich countries, but adopt more pro-trade policies in labor-rich
countries, than right-wing ones. The data strongly support this prediction in a very robust fashion. There is some evidence that this relationship may hold better in democracies than in dictatorships, though the magnitude of the partisan effect seems stronger in dictatorships.

Paper

Data

Labor versus Capital in Trade-Policy: The Role of Ideology and Inequality

Pushan Dutt; Devashish Mitra (Journal of International Economics)

Abstract

Trade policy depends on the extent to which the government wants to redistribute income as well as on a country’s overall factor endowments and their distribution. While the government’s desire to redistribute income itself is dependent on asset distribution, it is to a large extent also driven by the partisan nature of the government, i.e., whether it is pro-labor or pro-capital. Using cross-country data on factor endowments, inequality and government orientation, we find that, conditional on inequality, left-wing (pro-labor) governments will adopt more protectionist trade policies in capital-rich countries, but adopt more pro-trade policies in labor-rich economies than right-wing (pro-capital) ones. Also, holding government orientation constant, higher inequality is associated with higher protection in capital-abundant countries while it is associated with lower protection in labor-abundant countries. These results are consistent with the simultaneous presence of both inequality as well as ideology as determinants of protection within a two-factor, two-sector Heckscher–Ohlin framework. Overall, various statistical tests support an umbrella model (that combines both the ideology and inequality models) over each of the individual models.

Paper

Data

Impacts of Ideology, Inequality, Lobbying and Public Finance

Pushan Dutt; Devashish Mitra (The Political Economy of Agricultural Price Distortions, Cambridge University Press.)

Abstract

In this paper, we examine the political economy drivers of the variation in agricultural protection, both across countries and within countries over time. The paper starts by listing the key insights provided by both the theoretical and empirical literature on the political economy of trade policy formulation. We then set out a basic framework that allows us to put forth various testable hypotheses on the variation and evolution of agricultural protection. We find that both the political ideology of the government and the degree of income inequality are important determinants of agricultural protection. Thus, both the political-supportfunction approach as well as the median-voter approach can be used in explaining the variation in agricultural protection across countries and within countries over time. The results are consistent with the predictions of a model that assumes that labor is specialized and sector-specific in nature. Some aspects of protection also seem to be consistent with predictions of a lobbying model in that agricultural protection is negatively related to agricultural employment and positively related to agricultural productivity. Public finance aspects of protection also seem to be empirically important.

Paper

International Trade and Unemployment: Theory and Cross-National Evidence

Pushan Dutt - Devashish Mitra - Priya Ranjan

Abstract:

In this paper, we present a model of trade and unemployment, in which unemployment is search induced and trade arises as a result of Heckscher-Ohlin (H-O) comparative advantage based on differences in factor proportions and/or Ricardian comparative advantage based on relative technological differences. Using cross-country data on various measures of trade policy, unemployment, and a variety of controls (that include labor-market institutions and macroeconomic distortions), and controlling for endogeneity and measurement error problems, we find fairly strong and robust evidence for the Ricardian prediction that unemployment and trade openness are negatively related (protection and unemployment are positively related). This effect of trade seems to dominate the H-O effect of trade openness on unemployment that changes from negative to positive as we move from labor-abundant to capital-abundant countries. Using panel data, we find support for an unemployment increasing short-run impact effect of trade liberalization, followed by an unemployment reducing effect leading to the new steady state.

Paper Journal of International Economics, June 2009, Vol. 78, No. 1

Online Appendix Please see for additional results

Data and Do File (STATA)

With Whom do You Trade? Defensive Innovation and the Skill-bias

Pushan Dutt - Daniel Traca

Abstract:

This paper tests the hypothesis that increased trade with countries with weak or ineffective protection of intellectual property has contributed to the skill deepening of the 1980s. We draw on Thoenig and Verdier’s (2003) theory that the threat of competitive imitation from countries where the protection of intellectual property rights (IPR) is low promotes skill-biased strategies and technologies, which are less likely to be imitated. We first construct an index of effective protection of intellectual property at the country level, combining data on the statutory protection of patents and the rule of law (as a proxy for enforcement). Next we construct an industry-specific version of this index, using as weights each country's trade share in the total trade of industry. We find an important and pervasive decline in this trade weighted index, due to a rise in trade with countries with a low effective protection of intellectual property, which explains 29% of the rise in within-industry skill intensity.

Paper

Online Appendix Please see for additional results

Data and Do-Files

Labor Market Outcomes and Trade Reforms: The Case of India

Pushan Dutt

Abstract

The empirical literature on the impact of trade policies on compensation of factors of production has mainly had a developed country focus (see Lawrence and Slaughter, 1993; Krugman and Lawrence, 1994; Sachs and Shatz, 1994; Freeman and Katz, 1995). Much of the existing literature has been concerned with how trade liberalization has affected trends in the U.S. labor markets— the widening of income inequality between skilled and unskilled labor, the decline in overall employment in manufacturing sectors, and the especially sharp decline in employment in low-skill manufacturing sectors. In contrast, the linkages between trade and labor markets are yet to be explored thoroughly in the context of developing countries. This chapter takes a step in this direction by
analyzing the relationship between labor markets and international trade in the Indian context. In particular, it focuses on the trade liberalization initiated in 1992 and their consequences for labor market outcomes.

Paper

Inequality and the Instability of Polity and Policy

Pushan Dutt - Devashish Mitra

Economic Journal

Abstract:

We create new measures of political instability, which capture only movements from dictatorship to democracy and vice versa and, unlike older, well known measures does not capture government changes that preserve the democratic or dictatorial structure of the country. We show that inequality is positively correlated with our measures of political instability as well as with a well-known measure (used by Alesina and Perotti), but the impact of inequality on the latter is only through components of political instability captured by our measures. We show that our measures of political instability have significant policy implications – it increases both fiscal and trade polity volatility.

Paper

Data and Do File

Charts

Additional Results

Democracy and Policy Stability

Pushan Dutt - Ahmed Mushfiq Mobarak

International Review of Economics & Finance

Abstract

We explain stable growth performance in democracies by characterizing political systems in terms of the distribution of political power across groups, and show when the qualities of policy alternatives are uncertain, greater democracy (decentralization of authority) leads to more stable policy choices. We empirically test this mechanism by creating measures of the intertemporal variability in fiscal and trade policies. In an array of specifications (cross-sectional,
panel with fixed-effects, matching models, instrumental variables, difference-in-difference), we show that policy choices are significantly more stable over time in democracies. This mechanism explains a large part of the negative link between democracy and output volatility.

Paper

Trade Protection and Bureaucratic Corruption: An Empirical Investigation

Pushan Dutt

Abstract:

We examine whether protectionist trade policies lead to increased bureaucratic corruption. Using multiple measures of corruption and trade policies, we find strong evidence that corruption is significantly higher in countries with protectionist trade policies. These results are robust to endogeneity concerns. Next, a panel-data-based GMM
methodology is used to estimate a dynamic model of corruption. This estimator controls for country-specific effects, potential endogeneity of trade policy, and existence of measurement errors afflicting the corruption data. The paper strengthens the case for trade liberalization and argues that trade reforms may lead to improvements in governance.

Paper

Income Distribution and Economic Development: Insights from Machine Learning

Pushan Dutt - Ilia Tsetlin

Economics & Politics

Abstract

We draw upon recent advances that combine causal inferences with machine learning, to show that poverty is the key income distribution measure that matters for development outcomes. In a predictive framework, we first show that LASSO chooses only the headcount measure of poverty from 37 income distribution measures in predicting schooling, institutional quality, and per capita income. Next, causal inferences with post-LASSO models indicate that poverty matters more strongly for development outcomes than does the Gini coefficient. Finally, instrumental variable estimates in conjunction with post-LASSO models show that compared to Gini, poverty is more strongly causally associated with schooling and per capita income, but not institutional quality. Our results question the literature’s overwhelming focus on the Gini coefficient. At the least, our results imply that the causal link from inequality (as measured by Gini) to development outcomes is tenuous.

Paper

Microfinance and Entrepreneurship at the Base of the Pyramid

Jasjit Singh - Pushan Dutt - Arzi Adbi

Strategic Entrepreneurship Journal

Abstract

There continues to be substantial debate on whether and how providing inclusive access to finance through microcredit promotes entrepreneurship-led development at the base of the pyramid. We contribute to this literature by examining differences in household-level outcomes associated with microfinance loans given for different purposes, and identifying conditions under which the most impact is achieved. Defying common expectations, loans funding microenterprises do not exhibit greater impact than those funding traditional livelihood activities, and loans funding new microenterprises fare particularly poorly. But loan impact improves when multiple members of a borrower group seek livelihood loans together, and when the provided loans better match the individual financial needs of the borrowers. Our findings underscore the need to refine how microfinance is applied as a tool for development.

Paper

Stock Market Comovements and Industrial Structure

Pushan Dutt - Ilian Mihov

Journal of Money, Credit, and Banking

Abstract

We use monthly stock indices for 58 countries to construct pairwise correlations of returns and explain these correlations with risk-adjusted differences in industrial structure across countries. We find that countries with similar industries exhibit higher stock market comovements. The results are robust to the inclusion of other regressors such as differences in income per capita, stock market capitalizations, measures of institutions, as well as various fixed time, country, and country-pair effects. Our results are consistent with models where the impact of each industry-specific shock is proportional to the share of this industry in the overall industrial output of the country.

Paper

Paper: Final version; Original version

Online Appendix

Stock Market Comovements and Industrial Structure

Pushan Dutt - Ilian Mihov

Abstract:

We use monthly stock market indices for 58 countries to construct pairwise correlations of returns and explain these correlations with differences in the industrial structure across these countries. We find that countries with similar industries have stock markets that exhibit high correlation of returns. The results are robust to the inclusion of other regressors like differences in income per capita, stock market capitalizations, measures of institutions, as well as various fixed time, country and country-pair effects. We also find that differences in the structure of exports explain stock market correlations quite well. Our results are consistent with models in which the impact of each industry-specific shock is proportional to the share of this industry in the overall industrial output of the country. We also show that differences in production structures have higher explanatory power for segmented markets rather than for markets that are integrated.

Paper: Final version ; Original version

Online Appendix