The cold shower effect – alive and well and living in twelve European economies.

The cold shower effect is a dangerous beast. It supports free market types in supporting trade liberalisation. When last seen, the cold shower effect was explaining why trade liberalisation is even better for you than you thought. If there’s a cold shower effect it means that if firms get a hard time from imports, they just try harder. And if you’re a leftie, then the cold shower effect gets another name I guess, but minimum wages give firms cold showers and they just have to try harder. Anyway, Chinese imports gave a bunch of European firms a cold shower.

Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity by Nicholas Bloom, Mirko Draca, John Van Reenen – #16717 (EFG IO ITI LS PR)

Abstract:

We examine the impact of Chinese import competition on patenting, IT, R&D and TFP using a panel of up to half a million firms over 1996-2007 across twelve European countries. We correct for endogeneity using the removal of product-specific quotas following China’s entry into the World Trade Organization. Chinese import competition had two effects: first, it led to increases in R&D, patenting, IT and TFP within firms; and second it reallocated employment between firms towards more innovative and technologically advanced firms. These within and between effects were about equal in magnitude, and appear to account for around 15% of European technology upgrading between 2000-2007. Rising Chinese import competition also led to falls in employment, profits, prices and the skill share. By contrast, import competition from developed countries had no effect on innovation. We develop a simple “trapped factor” model of innovation that is consistent with these empirical findings.

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John Quiggin
John Quiggin
10 years ago

I haven’t read the paper, but the final sentence in the abstract suggests that the explanatory model doesn’t include a true “cold shower” effect (of which there is also no clear evidence in the illustrative photo).

Free market types ought to beware this kind of argument – if free trade produces beneficial cold shower effects, import subsidies should do even better.

Conversely, I don’t think the cold shower case for minimum wages is very convincing – the obvious counter is that we are simply seeing capital being substituted for the least-skilled workers. A more plausible version, I think, would be that the rents of organizational slackness can be redistributed from managers and financial markets to workers, depending on what policies are adopted.

hc
hc
10 years ago

John, your point is right provided the dead weight losses induced by the subsidies do not exceed any cold shower benefits.

I used to be skeptical of cold shower benefits but the empirical evidence is interesting. Certainly the gains we observe from free trade in terms of promoting growth seem a lot larger than the tiny triangles of surplus gain that static gains from trade theory suggest.

Rafe
10 years ago

Is it a “try harder” effect or does it just mean that the struggling firms in the sector close down, and the more efficent firms survive (so it looks as though the sector is trying harder)?

Fine
Fine
10 years ago

Great. You illustrate your story with a gratuitous image of a woman in a bikini. Do you know anything about gender politics, Nick? Do you wonder why women don’t bother posting here?

Fine
Fine
10 years ago

I assume you think you’re being ironic.

C’mon humour me – explain why the photo is a good idea.

Fine
Fine
10 years ago

Thank you, Nick. But women stopped reading Club Troppo long ago.

Don Arthur
Don Arthur(@don-arthur)
10 years ago

I think Fine is right. Helen from Blogger on the Cast Iron Balcony dropped by the other day. But I’m pretty sure she didn’t read anything.

Ken Parish
Admin
Ken Parish(@ken-parish)
10 years ago

My theory is that this feminist backlash is all Quiggin’s fault. JQ’s veiled but tacky reference to that woman’s nipples was a bridge too far in sexist objectification IMO. I join Nicholas in expressing my most sincere apologies for this unfortunate outbreak of soft porn self-indulgence at Troppo, once the home of deepest civility. I also take this opportunity of forthrightly condemning the false consciousness of pseudo-feminists like Wendy McElroy, not to mention that brazen hussy Sarah.

hc
hc
10 years ago

Do many women have Fine’s feminist view? Are women offended by such a photo?

I doubt it.

Fyodor
10 years ago

Seeing as Teh Wimminz aren’t reading this blog anymore – except when they want you to know they don’t read it no more – why don’t you blokes go full-on Yobbo and have regular soft-porn? I might even read some of the Gubmint 2.Something posts if they have eye candy.

Also, Quiggler is wrong, and showing his bias: definite shadow of nip on the left bazonga.

Bystander
Bystander
10 years ago

Steady Fyodor – don’t want too many pulses racing around here.

JC
JC
10 years ago

You illustrate your story with a gratuitous image of a woman in a bikini.

With “gratuitous” being the exact word I’d use too, Fine. I hear ya 100%

jtfsoon
jtfsoon
10 years ago

I absolutely agree with JC.

The way you testosterone-soaked bunch make light of concerns about the dehumanisation and objectification of women (as expressed by a woman, no less!) through your flippant perpetuation of madonna-whore highly gendered archetypes can only beget future abuses by the patriarchy.

Fyodor
10 years ago

Jiminy. Cue the girlymen of Catallaxy Pony Club.

Ken Parish
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Ken Parish(@ken-parish)
10 years ago

Graeme Bird posted a quite funny comment a few minutes ago but past experience compels the conclusion that letting him through the initial pre-approval process can only result in trouble.

Fyodor
10 years ago

You’re such a shtick-tease, Ken.

Nabakov
Nabakov
10 years ago

You could always replace it with a picture of Birdy in budgie smugglers.

What? You think someone wasn’t going to suggest that sooner or later?

Piett
Piett
10 years ago

I think you should all be ashamed at yourselves for your distasteful and misogynistic attempts at levity.

Instead of making smutty schoolboy jokes, we should be discussing the article and its argument concerning Trade Induced Technical Change — or TIT change, to use the acronym.

Economists should pay more attention to TIT change during cold showers. I would happily volunteer to commence a PhD on this topic.

FDB
FDB
10 years ago

Sorry Fyodor – I’m with Quiggin. If that’s a cold shower, she’s only been under it for a couple of seconds, after a period of normal temps and not looking at photos of me.

Nick – for balance, might I suggest appending a complementary pic?

hc
hc
10 years ago

And the advantage of FDB’s complementary pic is that it is clearly not gratuitous – it is a cold shower.

murph the surf.
murph the surf.
10 years ago

Not sure about the complementary picture aiding anything except our understanding of the side-effects of long term consumption of anabolic steroids.