Plaintiffs by Proxy: A Firm-level Appraoch to WTO Dispute Resolution (with Randall Stone) | The Review of International Organizations. 2018. 13(2): 273-308.
“The Effect of Economic Sanctions on Companies’ Foreign Direct Investment Decisions: The Case of Sanctions against Russia” (with Elena V. McLean and Taehee Whang)
Countries resort to economic coercion to compel other countries to change their policies. The success of this strategy depends on the size of economic costs that sanctioners can impose on their opponents by distorting trade and financial flows. Yet, existing studies indicate that governments and companies can adjust to such distortions, thereby reducing effectiveness of economic coercion. Specifically, research on sanctions’ effect on foreign direct investment indicates that sanctioning countries’ companies reduce their investments in targeted countries only temporarily, whereas companies from third-party countries take advantage of this temporary reduction by increasing their investment levels in targeted countries. The key limitation of this research, however, is its country-level focus, which fails to capture company-level decisionmaking processes and factors shaping them. In this paper, we consider how sanctions affect companies’ decisions to invest in a targeted country and how companies respond to the risk of investment substitution from third-party countries. We investigate effects of sanctions announced by companies’ home governments, as well as other governments, and consider varying responses of companies in different economic sectors. To keep our models tractable, we concentrate on one sanctioned country, Russia, and use monthly data on nearly 3,000 companies from 77 countries to evaluate companies’ decisions to invest in Russia’s economy, from January 2003 to September 2017. This period includes a series of sanctions imposed against Russia by the US, EU members and other countries, as well as Russian counter-sanctions. Our results show that sanctions reduce the likelihood of new investments in Russia.
“Dirty Work and the Americanization of Korean Firms” (with Randall W. Stone)
The Korean IMF program of 1997 opened the financial sector, and firms that were targets of foreign mergers and acquisitions went global in the ensuing years. In the process, their Korean identity was diluted and their investment strategies became guided by their American co-owners. We trace patterns attributable to firm nationality in firm-level location decisions for foreign investment (Mosley 2011, Wellhausen 2015), finding that Korean firms prefer to invest in countries with strong property rights, close diplomatic and trade relations with Korea, robust labor rights and weak environmental protection. These patterns shift when Korean firms have been targets of US foreign mergers and acquisitions. These Korean-American firms are not attracted by close diplomatic or trade relations with Korea, but are attracted by close relations with the United States. In addition, they exhibit a reverse corporate social responsibility effect, which we describe as a “dirty work” effect: Korean-American firms prefer to invest in countries with authoritarian politics, weak property rights, weak labor rights, and very weak environmental protection. We argue that US firms invest in Korea in order to use Korean firms as platforms for socially irresponsible corporate investing, using these intermediaries to do their dirty work, which allows them to insulate their own brands from the reputational damage that such investments might entail. Meanwhile, patterns of socially irresponsible Korean investing appear to be driven by firms with substantial US investor participation.
“Providing Protection: Agricultural Support and Flexibility of Preferential Trade Agreements in Democracies.”
In this chapter, I examine how domestic political forces affect the institutional design of preferential trade agreements (PTAs). What explains the variations in escape clauses in trade agreements? This article examines how agricultural support affects the design of preferential trade agreements (PTAs). I hypothesize that democratic political elites with survival incentives choose more flexible trade agreements as they are concerned more about domestic agricultural sectors. Flexible design of treaties enables members to shirk their contractual duties temporarily and can be often used as protectionist measures. To validate this argument, I construct a measure of flexibility using a Bayesian item response theory that treats flexibility as a latent characteristic of trade agreements. With this index and panel data covering 648 PTAs signed from 1948-2017, I find that political leaders are more likely to introduce flexibility provisions when entering into trade agreements as they confer more agricultural subsidies to farmers. In addition to providing a continuous index to measure PTA flexibility, the article introduces a robust predictor of trade agreement flexibility that has been overlooked in previous work.
“Examining Causal Mechanisms between Ethnic Diversity and Public Goods Provision: A Conjoint Analysis.” (with Hye-Sung Kim)
In this paper, we examine multiple causal mechanisms between ethnic diversity and public goods provision. In particular, we identify the relative causal effects of various attributes of ethnic diversity on individual contribution to public goods by conducting a fully randomized conjoint analysis for Indian respondents. By doing so, we examine which attribute influences individual behaviors the most among various attributes of the ethnically diverse community, namely, the difference in preferences across ethnic groups, a community's ability to sanction through enforcement, its ability to sanction through shame and reputation, the ethnicity of leaders, and how the authority of the leadership is granted. Contrary to the understanding in the existing literature, we do not find a community's ability to sanction either through enforcement or reputation or shame are effective in influencing individuals' willingness to contribute public goods. Rather, the type of public goods and whether the leader is one's coethnic or not have the largest influence on individual willingness to contribute public goods.
“Geographic Locations, Corporate Lobbying and Trade Remedies: Evidence from the U.S.”
In this chapter, I investigate how democratic political leaders compensate and support 'the losers from trade.' A central question of this paper is that why some uncompetitive firms are more likely to receive government support than others. While multilateral trade negotiations were stalled in the 1990s, the US has dramatically turned its attention to regional trade agreements and successfully pursued several PTAs. Since then, American industries have been adversely affected by imports and began to demand compensation or assistance from the government. Unlike previous literature’s approach to highlight the role of import-competing industries in the formation of post-liberalization trade policies, this paper focuses on two unique factors: corporate political activity and geographic locations of firms. I claim that from a perspective of “protection for sale” argument, politicians motivated by electoral incentives are more likely to provide protection for firms that are actively engaged in lobbying activities, and that geographic locations also matter because they are closely related to economic status of voters of those regions.
“WTO Disputes and Friends of the Court”
The WTO judicial bodies face dual obstacles because of their limited legal authority: they do not have the authority to investigate members, so they depend primarily on submissions by the disputants; and they have no authority to sanction members directly, so they rely on decentralized enforcement. Legalization of the trade regime depends on consent and voluntary compliance. This paper focuses on the role of third parties in the dispute settlement process and investigates how they contribute to the legalization of the WTO. I use an original dataset, covering all WTO disputes from 1995 to 2012, which contains unusually detailed information about the number of third parties, total dispute settlement period, the final stage that disputants use, etc. In contrast to the existing literature, which characterizes third parties as spoilers that prevent early settlement, I find that WTO third parties have heterogeneous motivations for participation; moreover, participation by third parties with differing motivations has different effects on dispute settlement and compliance. In particular, third parties that claim to have "systemic interests"--a legal designation that allows them to participate in spite of having negligible trade states in a dispute--have considerable influence in dispute resolution. Specifically: (1) their briefs provide higher-quality information than other third-party briefs to panels and the Appellate Body; (2) they help to accelerate dispute settlement; and (3) their participation makes respondents more likely to comply with panel and Appellate Body rulings.
Works in Progress
“Predicting FDI Inflows: Exploring a Non-linear Relationship Between Peace Years, Natural Resources, and Rule of Law” (with Hye-Sung Kim)
Despite active research on the effects of peace, natural resources and rule of law on FDI inflows, there is no consensus on their effects on FDI. This paper empirically tests competing hypotheses that have generated contrasting results regarding the effects of peace, natural resources and rule of law by applying generalized additive models (GAMs) to the data of non-OECD countries between 1970 and 2009. Our findings suggest that both for resource rich or resource poor countries, long established peace is critical in attracting FDI inflows, while the effects of rule of law depend on countries’ natural resource endowments. Somewhat surprisingly, natural resource rich countries receive more FDI inflows when they have ‘weak’ rule of law rather than ‘strong’ rule of law. Natural resource poor countries, on the other hand, tend to receive more foreign investments if they have moderately strong, but not too strong, rule of law. Our findings are substantively quite robust to different measures of natural resources and rule of law.