Estimating the Effects of the Totalization Agreements

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Abstract

This paper quantifies the effects of the totalization agreements that coordinate the United States Social Security program with the comparable programs of other countries. For each treated country that has signed an agreement with the U.S., we construct a synthetic control country by properly weighting other countries that have not signed a totalization agreement with the U.S. to make sure that the resulting synthetic control mimics the behavior of the treated country before the totalization agreement entered into force.  Using the synthetic country to approximate what would happen to the treated country after the agreement, we find, on average, that totalization agreements reduce U.S. exports significantly and increase U.S. imports and U.S. foreign direct investment in the fifth year after the agreement.  Moreover, we find the effects are quite heterogeneous across countries/agreements, with some agreements increasing U.S. exports and others decreasing U.S. imports, both of which are the opposite of the average effects. In future work, we will investigate why the effects vary across countries by relating the estimates in this paper to the bilateral trade patterns between the U.S. and the treated countries, as well as the number and composition of beneficiaries of the totalization agreements.

Key Findings

  • We find that on average, the totalization agreements reduce United States exports and increase U.S. imports and foreign direct investment. The effect on U.S. exports are more significant both economically and statistically, while the effects on U.S. imports and FDI are not significant statistically until the fifth year after an agreement entered into force.
  • U.S. exports to countries with totalization agreements increase by about 50% on average in the six years between the year leading to the agreement and the fifth year after the agreement. In the absence of the totalization agreement, the estimates suggest that the U.S. exports to those countries would double. This implies that totalization agreements reduce the growth of U.S. exports during the six years by about 50% on average.
  • The effects are heterogeneous across countries/agreements. Although most of the totalization agreements are estimated to reduce U.S. exports, the estimates suggest an increase in U.S. exports due to the totalization agreements with Finland, Ireland, and the Czech Republic. Similarly, the estimates suggest a decrease in U.S. imports due to the totalization agreements with Italy, Germany, Norway, Sweden, Portugal, South Korea, and Australia, while the totalization agreements with most other countries are estimated to increase U.S. imports from those countries.

Citation

Seshadri, Ananth. 2019. “Estimating the Effects of the Totalization Agreements.” Ann Arbor, MI. University of Michigan Retirement and Disability Research Center (MRDRC) Working Paper; MRDRC WP 2019-403. https://mrdrc.isr.umich.edu/publications/papers/pdf/wp403.pdf

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Paper ID

WP 2019-403

Publication Type

Working Paper

Publication Year

2019