Research

We study how firms adjust when they gain preferential access to a large export market. We exploit a trade liberalization in which the European Union, in 2014, removed tariffs on most exports of a lower-middle-income economy without requiring any reciprocal tariff cuts. Using administrative corporate tax records linked to product-level tariff exposure, we use variation in pre-reform EU tariffs across products to track how firms’ exports, labor, and capital respond. The preference raises exports: trade shifts toward the EU, and a one-percentage-point higher pre-reform tariff raises firm export value by about 19 percent, driven mainly by existing exporters selling more. Yet exposed firms do not grow on average: production wage bills decline, while capital stock and activity show no clear change. Beneath this average, firms adjust in different ways. More productive firms gain more exports and shift from production labor toward capital, while less productive firms become less active. Large incumbent exporters expand exports while reducing production wage bills, whereas large non-exporters, which must first bear the sunk costs of entering export markets, build up their capital stock. These findings suggest that preferential access works through existing exporters selling more abroad and through changes in how firms combine labor and capital, rather than through firm expansion. The results highlight productivity and prior export experience as key dimensions shaping how firms in developing economies respond to market access.

When Pakistan’s foreign exchange reserves collapsed in 2023, the government introduced a barter trade mechanism allowing direct goods-for-goods exchange with Afghanistan, bypassing frozen banking channels. Using transaction-level customs data and product-level variation in barter eligibility, we provide causal evidence that alternative payment mechanisms can mitigate crisis-induced trade disruptions. Barter-eligible products experienced 30% higher export quantities during the crisis peak relative to ineligible products. These effects were crisis-contingent, emerging during reserve depletion and dissipating as conventional payment systems resumed. The mechanism operated through real trade expansion with minimal price distortion, demonstrating that well-designed temporary interventions can sustain trade during payment system failures without generating persistent distortions.

Resolving a contractual dispute through mediation could preempt the uncertainty and cost of litigation, and thus could be a strategy to reduce pending case backlogs in courts. We leverage random assignment of commercial and contractual cases to judges in newly created commercial courts in India to examine the impact of judge-led mediation on case outcomes and litigating firms’ profits. Resolution through mutual reconciliation (“settlement”) rather than a full-length trial, driven by assignment to a settlement-prone judge, is negatively associated with case duration and pending status. We estimate a large, positive effect of judge settlement-propensity on the profitability of plaintiff firms. Defendants experience a negative effect around the timing of suing, but settlement reverses the trend, potentially stemming the losses associated with lengthy and uncertain trial outcomes.