Published Papers
Exporter Heterogeneity and Price Discrimination: A Quantitative View, August 2018 (with Ina Simonovska and Jae Wook Jung).
forthcoming, Journal of International Economics (previously NBER Working Paper No. 21408).
WEB APPENDIX (See this appendix for an estimation of various models of monopolistic competition with non-homothetic preferences!)
FDI, Productivity and Country Growth: An Overview, 2009, (with Silvio Contessi).
Federal Reserve Bank of St. Louis Review, 91(2):61-78.
forthcoming, Journal of International Economics (previously NBER Working Paper No. 21408).
WEB APPENDIX (See this appendix for an estimation of various models of monopolistic competition with non-homothetic preferences!)
FDI, Productivity and Country Growth: An Overview, 2009, (with Silvio Contessi).
Federal Reserve Bank of St. Louis Review, 91(2):61-78.
WORKINg Papers
Credit and the Labor Share: Evidence from U.S. States, August 2018 (with Asli Leblebicioglu).
R&R at The Economic Journal
Previous version: FRB Dallas Globalization and Monetary Policy Institute Working Paper No. 326 (2017)
We analyze the role of credit markets in explaining the changes in the U.S. labor share by evaluating the effects of state-level banking deregulation, which resulted in improved access to cheaper credit. Utilizing a difference-in-differences strategy, we provide causal evidence showing a labor share decline following interstate banking deregulation. Lower cost of credit, increase in the availability of credit, and greater bank competition in each state are mechanisms that led to the decline in the labor share. We identify the most impacted states as manufacturing-intensive with more concentrated labor markets. We also focus on manufacturing and services to show that the impact of banking deregulation is particularly important in capital intensive and external finance dependent industries. In order to quantify the relationship between the cost of credit and the labor share, we calibrate a model with financial frictions and analyze a mechanism through which labor share decreases with lower lending rates.
Export Tax Rebates and Resource Misallocation: Evidence from a Large Developing Country, FRB Dallas Globalization and Monetary Policy Institute Working Paper No. 302 (2017), (with Qian Xuefeng and Mahmut Yasar).
R&R at Canadian Journal of Economics
The export tax rebate (ETR) policy is one of the most frequently used policy instruments by Chinese policy makers. This paper therefore provides a vital analysis of its allocation effects. To motivate our empirical analysis for the allocation effects of the ETR policy, we first add a tax rebate to the Melitz and Ottaviano (2008) model and examine the impact of this policy on firms' markup size and resource allocation between eligible and non-eligible firms for the rebates. We use customs transactions, tax administration, and firm-level data to measure the effect of variation in export tax rebates, taking advantage of the large policy change in 2004. A difference-in-difference approach allows us to compare the production and pricing decisions of eligible versus non-eligible firms and the distributional implications. We find that an increase in tax rebates shifts production to eligible firms and that tax rebates increase allocative efficiency.
The Welfare Benefits of Raising your Standards, August 2018 (with Luca Macedoni)
Negotiations on modern trade agreements are increasingly focused on technical measures such as quality standards. We first examine the implications of quality standards on the reallocation of domestic sales. Guided by this evidence, we build a model of monopolistically competitive, heterogeneous firms, in which a quality standard forces low-quality firms to exit. Raising the quality standard can improve welfare if too many low-quality firms are present in the market allocation relative to the efficient allocation. We find that this is indeed the case when preferences are non-homothetic, which provides a new rationale for technical measures that has not been accounted for in the previous literature. A reduction in trade costs reduces the optimal standard in a cooperative equilibrium across countries. We estimate the restrictiveness of standards across Chilean industries and find that in several instances the imposed standard is too restrictive relative to an upper bound for the standard predicted by the model. However, there is suggestive evidence that a rise in openness has reduced restrictiveness, which supports the efforts to improve agreements on technical measures along with traditional trade agreements.
Markups and Misallocation with Evidence from an Exchange Rate Appreciation, FRB Dallas Globalization and Monetary Policy Institute Working Paper No. 251 (2015), revised April 2018.
With non-homothetic preferences, a monopolistic competition equilibrium is inefficient. In a setting with heterogeneous firms that charge variable markups, this paper finds a sufficient statistic for changes in allocative efficiency that can be directly measured with data. The model also predicts differential effects of competition and cost shocks on the reallocation across domestic firms, which I test empirically with firm and industry-level data in Chile, a country that has experienced large exchange rate shocks. I find important changes in misallocation over time due to the way firms pass-through productivity gains into markups. From industry-year variation, there is evidence that industries that import a larger share of their inputs become more misallocated as a result of exchange rate appreciations compared to “open” sectors whose output competition becomes fiercer. The observations of markup responses at the firm level are consistent with the aggregate measure of allocative efficiency.
Openness and Factor Shares: Is Globalization Always Bad for Labor? October 2018 (with Asli Leblebicioglu).
The secular decline in the labor share since the 1980's is a global phenomenon, and a trend that is concurrent with large liberalization episodes worldwide. In this paper we investigate the liberalization episode in India during the 1990's, which has been characterized by large and unexpected changes in trade and foreign investment policies. Contrary to what might be expected given the reduction in the aggregate data, we uncover a trade channel that raises the labor-to-capital relative factor shares in India. A reduction in capital tariffs and liberalization of FDI raise the share of income paid to labor relative to capital. Our results reveal access to foreign capital as a new mechanism through which openness affects factor shares. An increasing share of foreign capital in the total capital stock provides a capital-augmenting technical change and potentially reduces rental rates, both of which raises the relative labor share. We find capital and R\&D intensities, and the borrowing capacity of the firm, to be important determinants of the factor share response to openness. Finally, we identify domestic deregulation policies and credit expansion as potential determinants of the observed decline in the labor share.
R&R at The Economic Journal
Previous version: FRB Dallas Globalization and Monetary Policy Institute Working Paper No. 326 (2017)
We analyze the role of credit markets in explaining the changes in the U.S. labor share by evaluating the effects of state-level banking deregulation, which resulted in improved access to cheaper credit. Utilizing a difference-in-differences strategy, we provide causal evidence showing a labor share decline following interstate banking deregulation. Lower cost of credit, increase in the availability of credit, and greater bank competition in each state are mechanisms that led to the decline in the labor share. We identify the most impacted states as manufacturing-intensive with more concentrated labor markets. We also focus on manufacturing and services to show that the impact of banking deregulation is particularly important in capital intensive and external finance dependent industries. In order to quantify the relationship between the cost of credit and the labor share, we calibrate a model with financial frictions and analyze a mechanism through which labor share decreases with lower lending rates.
Export Tax Rebates and Resource Misallocation: Evidence from a Large Developing Country, FRB Dallas Globalization and Monetary Policy Institute Working Paper No. 302 (2017), (with Qian Xuefeng and Mahmut Yasar).
R&R at Canadian Journal of Economics
The export tax rebate (ETR) policy is one of the most frequently used policy instruments by Chinese policy makers. This paper therefore provides a vital analysis of its allocation effects. To motivate our empirical analysis for the allocation effects of the ETR policy, we first add a tax rebate to the Melitz and Ottaviano (2008) model and examine the impact of this policy on firms' markup size and resource allocation between eligible and non-eligible firms for the rebates. We use customs transactions, tax administration, and firm-level data to measure the effect of variation in export tax rebates, taking advantage of the large policy change in 2004. A difference-in-difference approach allows us to compare the production and pricing decisions of eligible versus non-eligible firms and the distributional implications. We find that an increase in tax rebates shifts production to eligible firms and that tax rebates increase allocative efficiency.
The Welfare Benefits of Raising your Standards, August 2018 (with Luca Macedoni)
Negotiations on modern trade agreements are increasingly focused on technical measures such as quality standards. We first examine the implications of quality standards on the reallocation of domestic sales. Guided by this evidence, we build a model of monopolistically competitive, heterogeneous firms, in which a quality standard forces low-quality firms to exit. Raising the quality standard can improve welfare if too many low-quality firms are present in the market allocation relative to the efficient allocation. We find that this is indeed the case when preferences are non-homothetic, which provides a new rationale for technical measures that has not been accounted for in the previous literature. A reduction in trade costs reduces the optimal standard in a cooperative equilibrium across countries. We estimate the restrictiveness of standards across Chilean industries and find that in several instances the imposed standard is too restrictive relative to an upper bound for the standard predicted by the model. However, there is suggestive evidence that a rise in openness has reduced restrictiveness, which supports the efforts to improve agreements on technical measures along with traditional trade agreements.
Markups and Misallocation with Evidence from an Exchange Rate Appreciation, FRB Dallas Globalization and Monetary Policy Institute Working Paper No. 251 (2015), revised April 2018.
With non-homothetic preferences, a monopolistic competition equilibrium is inefficient. In a setting with heterogeneous firms that charge variable markups, this paper finds a sufficient statistic for changes in allocative efficiency that can be directly measured with data. The model also predicts differential effects of competition and cost shocks on the reallocation across domestic firms, which I test empirically with firm and industry-level data in Chile, a country that has experienced large exchange rate shocks. I find important changes in misallocation over time due to the way firms pass-through productivity gains into markups. From industry-year variation, there is evidence that industries that import a larger share of their inputs become more misallocated as a result of exchange rate appreciations compared to “open” sectors whose output competition becomes fiercer. The observations of markup responses at the firm level are consistent with the aggregate measure of allocative efficiency.
Openness and Factor Shares: Is Globalization Always Bad for Labor? October 2018 (with Asli Leblebicioglu).
The secular decline in the labor share since the 1980's is a global phenomenon, and a trend that is concurrent with large liberalization episodes worldwide. In this paper we investigate the liberalization episode in India during the 1990's, which has been characterized by large and unexpected changes in trade and foreign investment policies. Contrary to what might be expected given the reduction in the aggregate data, we uncover a trade channel that raises the labor-to-capital relative factor shares in India. A reduction in capital tariffs and liberalization of FDI raise the share of income paid to labor relative to capital. Our results reveal access to foreign capital as a new mechanism through which openness affects factor shares. An increasing share of foreign capital in the total capital stock provides a capital-augmenting technical change and potentially reduces rental rates, both of which raises the relative labor share. We find capital and R\&D intensities, and the borrowing capacity of the firm, to be important determinants of the factor share response to openness. Finally, we identify domestic deregulation policies and credit expansion as potential determinants of the observed decline in the labor share.
Work In Progress
Housing Booms, Trade Shocks, and International Student Migration (with Gaurav Khanna, Kevin Shih, Mingzhi Xu, and Miaojie Yu)
Importing, Productivity and the Exchange Rate.
The Pass-Through of Productivity Gains from Offshoring
Importing, Productivity and the Exchange Rate.
The Pass-Through of Productivity Gains from Offshoring
