Estimating the Effects of the Totalization Agreements

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.