Discussion Papers

CREATE Discussion Paper 1-22

A model of the U.S. food system: What are the determinants of the state vulnerabilities to production shocks and supply chain disruptions?

Noé J Nava, William Ridley, and Sandy Dall’erba

Abstract: We adapt a Ricardian general equilibrium model to the setting of U.S. domestic agri-food trade to assess states’ vulnerability to adverse production shocks and supply chain disruptions. To this end, we analyze how domestic crop supply chains depend on fundamental state-level comparative advantages – which reflect underlying differences in states’ cost-adjusted productivity levels – and thereby illustrate the capacity of states to adapt to and mitigate the impacts of such disruptions to the U.S. agricultural sector. Based on the theoretical framework and our estimates of the model’s structural parameters obtained using data on U.S. production, consumption, and domestic trade in crops, we undertake simulations to characterize the welfare implications of counterfactual scenarios depicting disruptions to (1) states’ agricultural productive capacity, and (2) interstate supply linkages. Our results emphasize that the distributional impacts of domestic supply chain disruptions hinge on the extent of individual states’ agricultural productive capacities, and that the capacity for states to mitigate the impacts of adverse production shocks through trade relies on the degree to which states are able to substitute local production shortfalls by sourcing crops from other states.

CREATE Discussion Paper 2-22

Revisiting the impact of climate change on agriculture through spatially-varying and place-tailored Ricardian estimates

Noé J Nava, Sandy Dall’Erba, Chang Cai, and A. Stewart Fotheringham

Abstract: The Ricardian framework has been widely used to study the impact of climate change on agriculture across US counties over the past few decades. While the spatial heterogeneity of climate change is well-accepted, the literature struggles to reach an agreement on how to model it, hence leading to a wide range of forecasted impacts. This paper employs Multiscale Geographically-Weighted-Regression (MGWR) to avoid setting an a priori definition of heterogeneity and to generate county-specific marginal effects of climate change impacts. This manuscript tests the predictive power of our MGWR application with other functional forms found in the literature on a homogenized dataset of historical climate, demographic and soil quality controls. Our cross-validation exercise indicates that our MGWR approach has a higher predictive power than studies that cluster spatial units, and that other approaches have a downward bias. We attribute the divergence in results to unspecified heterogeneity. Our place-specific marginal effects will help guide the development of place-tailored mitigation and adaptation strategies to climate change.

CREATE Discussion Paper 1-21

Instrumental Variable Network Difference-in-Differences (IV-NDID) estimator: model and application

Sandy Dall’erba, Andre Chagas, William Ridley, Yilan Xu and Lilin Yuan

Abstract: The difference-in-difference (DID) framework is now a well-accepted method in quasi-experimental research. However, DID does not consider treatment-induced changes to a network linking treated and control units. Our instrumental variable network DID methodology controls first for the endogeneity of the network to the treatment and, second, for the direct and indirect role of the treatment on any network member. Monte Carlo simulations and an estimation of the drought impact on global wheat trade and production demonstrate the performance of our new estimator. Results show that DID disregarding the network and its changes leads to significant underestimates of overall treatment effects.

CREATE Discussion Paper 2-21

The role of interregional and inter-sectoral knowledge spillovers on regional knowledge creation across US metropolitan counties

Orsa Kekezi, Sandy Dall’erba, Dongwoo Kang

Abstract: Knowledge accumulation and its spillovers are important determinants of the regional economic growth process in the U.S. As such, this paper relies on a regional knowledge production function to examine the heterogeneous determinants of knowledge creation across 5 U.S. manufacturing sectors and 853 metropolitan counties. Using a Tobit model with State fixed effects, our results indicate that local intra-sectoral and inter-sectoral R&D investments by the private sector as well as university R&D play a key role in knowledge creation across all sectors under study. We also find that the role of short-distance vs. long-distance interregional spillovers on knowledge creation varies greatly across sectors. These key features improve the design of future local and national innovation policies.

CREATE Discussion Paper 3-21

How Do Exchange Rates Affect Environmental Quality?

Doyoung Park and William Ridley

Abstract: Exchange rates are integral to explaining the environmental consequences of globalization as they govern the prices of imported inputs and the price competitiveness of exports, and consequently, firms’ production levels and emissions. We study how exchange rates, foreign input sourcing, and export orientation determine environmental outcomes across countries and industries. For industries relying intensively on foreign inputs and intermediate exports, a stronger domestic currency leads to lower emission intensities (emissions over output), while the opposite relationship holds with respect to an industry’s reliance on final exports. Our findings suggest that exchange rates have environmental implications that have been heretofore unexplored.

CREATE Discussion Paper 4-21

Identifying the atmospheric and economic key drivers of global air pollution change: a combined SDA approach

Sandy Dall’erba, Nicole Riemer, Yilan Xu, Ran Xu, and Yao Yu

Abstract: The transmission of pollution across countries has been studied through the lens of atmospheric chemical transport or through its content in international trade. The few studies that consider both channels concurrently do not highlight what the key drivers of the change in pollution production and transmission are. Based on a structural decomposition method this paper uncovers which changes in target pollutants emanate from technological changes, structural changes, final demand changes or household activities taking place locally, in the trade partners, or in the upwind countries. We apply our approach to a five-region model and focus on carbon monoxide (CO) for its capacity to promote the formation of secondary pollutants. Our results provide solid scientific evidence for the US, the European Union and South Korea
to request changes from China because the large increase of its domestic demand is the main driver of the growth in CO they experienced over 1990-2014. By providing new insights into the interconnected sources of air pollution, this paper suggests more nuanced global emission abatement policies than the consumer-focused or producer-focused approaches currently used.