CID’s faculty affiliates embody the breadth and depth of international development research at Harvard. Faculty affiliates hail from across Harvard and work in every region of the world, on every topic in development.
By Diana King
During the 2018-2019 U.S.-China trade war, while many researchers focused on the impact of the trade war on U.S. companies, and to a lesser extent, Chinese firms, Assistant Professor of Business Administration at Harvard Business School and CID Faculty Affiliate was curious about third-country effects: what was happening in the rest of the world?
In a groundbreaking study on , Iyoha and her co-authors – fellow HBS faculty member and CID affiliate Jaya Wen, Duke political scientist Edmund Malesky and postdoctoral research fellow at the University of Nottingham’s School of Economics Sung-ju Wu – analyzed hundreds of millions of trade transactions and firm-level data in a dead run to meet a government subpoena to testify before the U.S.-China Security and Economic Review Commission.
At stake was the question of whether Chinese companies were rerouting products to Vietnam to circumvent tariffs. The perception of a Vietnamese “back door” was so strong, several politicians including former senator and current Secretary of State Marco Rubio had proposed increasing tariffs on countries suspected of rerouting.
The study’s findings tell a surprising story. While exports from Vietnam to the U.S. grew substantially, the increase due to rerouting in 2021 was found to be modest – especially at more granular levels of measurement. About 16 percent of goods were identified as potential rerouting at the product level; when examined at the firm level, tracking specific Chinese-owned companies’ goods as they passed from China through Vietnam to the U.S., less than two percent were flagged for rerouting.
It appears that the trade war accelerated a “China plus one” policy companies were already exploring to diversify production. As Chinese wages and costs increased, many multinationals, including non-Chinese firms such as Samsung and Sony, were already operating in Vietnam, which has low production costs, an educated population, and good infrastructure. Effectively, “raising tariffs on Vietnam would penalize value-added producers who have made capital investments, are employing thousands of people, producing affordable, accessible goods, and helping the U.S. supply chain, while not curbing the rerouters who can easily set up shop elsewhere,” says Iyoha.
For Iyoha, the study also emphasized the importance of microdata. “To advance development in different contexts, you need granular data,” she asserts. “Sometimes people take developing or lower-income countries as some kind of outlier. But if [a model or policy] doesn’t generate the same results, it’s because you’ve somehow missed the details, the underlying factors driving people’s behavior.”
“Sometimes people take developing or lower-income countries as some kind of outlier. But if [a model or policy] doesn’t generate the same results, it’s because you’ve somehow missed the details, the underlying factors driving people’s behavior.”
Ebehi Iyoha
Getting granular means thinking, for instance, about trade between companies rather than countries, about the many decisions and interactions of firms, and their subsidiaries, affiliates and partners around the world that, in turn, create myriad second-order effects.
“Mapping out the network of companies and their individual decisions” captures complex, multi-layered firm relationships, and encourages different questions, Iyoha says. When it comes to understanding how trade drove growth in “countries that significantly increased the well-being of large swaths of their populations (e.g., China, Japan, South Korea),” one is led to wonder why similar trade patterns did not emerge in regions like Africa.
“But the real question isn’t why don’t African countries trade more with each other but why don’t African firms trade with each other?,” she states. At that scale, you can identify more clearly “what’s missing in the African context – maybe it’s trade credit, maybe it’s trust or language barriers, or market access.”
Taking a network approach has also enabled Iyoha to develop a pioneering method for measuring that addresses the interdependence of buyer-supplier relationships while accounting for common trade shocks. Her work suggests that spillovers in manufacturing benefit both upstream (suppliers) and downstream (retail customers) sides of the supply chain, generating greater gains for the entire production network compared to sectors like retail and raw materials, whose gains impact just one end.
Though a microeconomist by training, Iyoha is driven by fundamental, big picture questions: How do we accurately measure and foster growth and prosperity? How do we design policies that help countries grow, enable their people to thrive — and protect against avoidable losses of life?
These questions emerged from a tragedy that shook Nigeria when Iyoha was in her third year at Loyola Jesuit College, a secondary school community of 600 students located in the capital city, Abuja. A domestic flight crash landed, killing nearly all 110 passengers on board, including 60 students from her school heading home for the holidays.
When she returned to school, Iyoha walked into a startlingly bare classroom, every row punctuated by empty spaces. “They had taken out the desks of the students who had died, and they hadn’t rearranged [the remaining] desks yet,” she recalls. “That entire year I turned 13, I kept thinking, these were some of the brightest, most high potential people I know… and this could’ve been prevented.”
A year later, at a school career day, an economist spoke about how he studied human behavior with mathematics, and used incentives to drive people to make better decisions and change policy. It was exactly, Iyoha decided, what she wanted to do. “The next day, I googled how to become an economist,” she recounts with humor.
During Iyoha’s first year at Loyola Marymount University, she convinced an economics professor to hire her as a research assistant. “At the time, I knew little, and was paid to learn how to read papers, to code and analyze data.” A trade course during her doctoral studies at Vanderbilt University shifted her interests from development to firm networks.
Today, Iyoha’s work has come full circle. From thinking about the impact of tariffs to measuring productivity, her research has wide-ranging policy implications for developing countries. Her current agenda includes further “unboxing what spillovers look like and where they come from,” and studying how firm-to-firm relationships affect the adoption of new technology.
She is also examining the potential of artificial intelligence to enhance the productivity of African companies. There have been several recent global surveys on AI adoption, but coverage often doesn’t include Africa, says Iyoha, who is partnering with researchers from Nigeria, Kenya, and Senegal to gain clearer insights into how African firms are thinking about and using AI.
At a moment of growing protectionism that some are calling “the age of deglobalization,” Iyoha believes getting rich, contextual data and seeing the structure of the entire network is crucial to understanding the true impact of policy proposals, and “creating ecosystems that promote long-term growth.”
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