This paper analyzes international externalities of a local shock to the global shipping network. The 2016 Panama Canal expansion removed a bottleneck in seaborne transportation. Using reduced-form and structural methods in combination with novel satellite data on ships, we find that trade increased significantly among country-pairs using the canal. We find that the global real income gains from the canal expansion were over three times greater than the income gains for Panama itself. A link removal analysis reveals that most shipping links are associated with positive and quantitatively important positive international externalities.

We study the implications of the presence of foreign multinationals on regional corporate tax policies of a country. We develop and estimate a quantitative spatial model with multinational production (MP) and local corporate taxes. Exploiting China's 2008 corporate tax reform, we find that firm production across regions is twice as footloose as estimates in the literature on cross-country production. Counterfactual analysis shows that (i) China's 2008 corporate tax reform shifted foreign-firm productions to western provinces and increased Chinese welfare by 0.86%; (ii) regional tax competition would significantly reduce China's corporate tax revenue, lowering the welfare by 5.56%; (iii) the nationally optimal corporate tax schedule would increase Chinese welfare by 3.10%. Finally, without the presence of foreign multinationals, the welfare loss from regional tax competition would be 2.04%, while the gain from the nationally optimal corporate taxes would be only 0.06%.