Following its opening to trade and foreign investment in the mid-1980s, Mexico's economic growth has been modest at best, particularly in comparison with that of China. Comparing these countries and reviewing the literature, we conclude that the relation between openness and growth is not a simple one. Using standard trade theory, we find that Mexico has gained from trade, and by some measures, more so than China. We sketch out a theory in which developing countries can grow faster than the United States by reforming. As a country becomes richer, this sort of catch-up becomes more difficult. Absent continuing reforms, Chinese growth is likely to slow down sharply, perhaps leaving China at a level less than Mexico's real GDP per working-age person.

This paper is a primer on the great depressions methodology developed by Cole and Ohanian (1999, 2007) and Kehoe and Prescott (2002, 2007). We use growth accounting and simple dynamic general equilibrium models to study the depression that occurred in Finland in the early 1990s. We find that the sharp drop in real GDP over the period 1990-93 was driven by a combination of a drop in total factor productivity (TFP) during 1990-92 and of increases in taxes on labor and consumption and increases in government consumption during 1989-94, which drove down hours worked in Finland. We attempt to endogenize the drop in TFP in variants of the model with an investment sector and with terms-of-trade shocks but are unsuccessful.

This paper develops a methodology for predicting the impact of trade liberalization on exports by industry (3-digit ISIC) based on the pre-liberalization distribution of exports by product (5-digit SITC). Using the results of Kehoe and Ruhl (2013) that much of the growth in trade after trade liberalization is in products that are traded very little or not at all, we predict that industries with a higher share of exports generated by least traded products will experience more growth. Using our methodology, we develop predictions for industry-level changes in trade for the United States and Korea following the U.S.-Korea Free Trade Agreement (KORUS). As a test for our methodology, we show that it performs significantly better than the applied general equilibrium models originally used for the policy evaluation of the North American Free Trade Agreement (NAFTA).

We show how offshore profit shifting by U.S. multinational enterprises affects several key measures of the U.S. economy. Profits shifted out of the United States grew rapidly from the mid-1990s to 2010 and have since waned. From 1982-2016, on average, 38 percent of income attributed to U.S. direct investment abroad is reattributable to the United States. We find that adjusting for profit shifting shrinks the trade deficit, decreases the return on U.S. foreign direct investment abroad, boosts productivity growth rates in the late 1990s and early 2000s, and lowers labor's share of income.

We show that a trade model with an exogenous set of heterogeneous firms with fixed operating costs has the same aggregate outcomes as a span-of-control model. Fixed costs in the heterogeneous-firm model are entrepreneurs forgone wage in the span-of-control model.

Profit shifting to low-tax countries imposes challenges for the treatment of multinational enterprises in economic accounts. Using adjustments for profit shifting calculated in Guvenen et al. (2017) under an alternative measurement methodology, this paper empirically demonstrates how the effects of profit shifting cascade throughout a fully articulated set of economic accounts for the United States in 2014. We find a 1.5 percent and 3.5 percent increase in measured U.S. gross domestic product and operating surplus, respectively, and a 33.5 percent decrease in measured income receivable from the rest of world. As a result of offsetting effects, measured U.S. gross national saving decreases by 0.8 percent, and national borrowing increases by 6.9 percent. There are also potentially significant implications for analytic uses of the measures, including decreases for the labor share of income and the return on U.S. direct investment abroad and increases for the trade in services balance and the return on domestic non-financial business.

In what order should a developing country adopt policy reforms? Do some policies complement each other? Do others substitute for each other? To address these questions, we develop a two-country dynamic general equilibrium model with entry and exit of firms that are monopolistic competitors. The model includes barriers to entry of new firms, barriers to international trade, and barriers to contract enforcement. We find that the same reform can have very different effects on other economic outcomes, depending on the types of distortions present. In our model, we find that reforms to trade barriers and barriers to the entry of new firms are substitutable, as are reforms to contract enforcement and trade barriers. In contrast, we find that reforms to contract enforcement and the barriers to entry are complementary. Finally, the optimal sequence of reforms requires reforming trade barriers before contract enforcement.

Official statistics display a significant slowdown in U.S. aggregate productivity growth that begins in 2004. In this paper, we investigate a source of mismeasurement in official statistics, which arises from offshore profit shifting by multinational enterprises operating in the United States. This profit shifting causes part of the economic activity generated by these multinationals to be attributed to their foreign affiliates, leading to an understatement of measured U.S. gross domestic product. Profit-shifting activity has increased significantly since the mid-1990s, resulting in an understatement of measured U.S. aggregate productivity growth. We construct adjustments to correct for the effects of profit shifting on measured gross domestic product. The adjustments raise aggregate productivity growth rates by 0.1 percent annually for 1994–2004, 0.25 percent annually for 2004–2008, and leave productivity unchanged after 2008; Our adjustments mitigate, but do not overturn, the productivity slowdown in the official statistics. The adjustments are especially large in R&D-intensive industries, which are most likely to produce intangible assets that are easy to move across borders. The adjustments boost value added in these industries by as much as 8.0 percent annually in the mid-2000s.

Since the early 1990s, as the United States has borrowed from the rest of the world, employment in U.S. goods-producing sectors has fallen. Using a dynamic general equilibrium model, we find that rapid productivity growth in goods production, not U.S. borrowing, has been the most important driver of the decline in goods-sector employment. As the United States repays its debt, its trade balance will reverse, but goods-sector employment will continue to fall. A sudden stop in foreign lending in 2015-2016 would cause a sharp trade balance reversal and painful reallocation across sectors, but would not affect long-term structural change.