Two essays on the impacts of globalization

Abstract

Globalization through international trade benefits the domestic market with cheaper goods for consumers and lower input cost for manufacturers; however, some firms are also outcompeted by foreign imports, which leads to job loss. The adverse effects of trade on domestic citizens and corporations have drawn a lot of attention, as the world witnesses the backlash of the recent wave of globalization which is led by China. The thesis aims to study the impacts of globalization between the world’s two largest economies: China and United States, which can help understand the current process of globalization. The thesis consists of two studies on the impact of Chinese import competition on the United States. The first study focuses on the impact of Chinese import competition on the attitudes of U.S. media. Using a data set of 147 U.S. local daily newspapers over 1998-2012, the study finds that newspapers whose circulation counties face greater exposure to Chinese imports relatively report more negative news about China, and are more likely to endorse Democrats in presidential election. The results hold with two identification strategies and three measures of media slant. In additional, the results are confirmed by an event study of newspaper reports during Beijing Olympic Games. The study further shows that, in U.S. House and Senate elections between 2000 and 2012, media slant is associated with increased voting shares for Democrats, who are traditionally champions for the poor and critical of globalization. The second study explores how Chinese import competition changes the corporate behaviors of U.S. manufacturing firms, more specifically tax avoidance activities. Tax avoidance has become a global issue; however the fundamental incentives of aggressive tax planning are not well understood. Using U.S. granting China Permanent Normal Trade Relations (PNTR) as a natural experiment, the study finds a significant increase in tax avoidance for firms facing higher Chinese import competition. The positive effect of Chinese import competition on tax avoidance is more pronounced for firms that have less financial flexibility and higher product market competition, but is mitigated by the local social capital of firms’ headquarters. The study provides initial evidence that Chinese import competition motivates firms to avoid more tax.