Research Papers
Exporter Heterogeneity and Price Discrimination: A Quantitative View, March 2018 (with Ina Simonovska and Jae Wook Jung).
Conditionally Accepted, Journal of International Economics
Previous version: NBER Working Paper No. 21408 (2015)
Abstract: We quantify a general equilibrium model of international trade and pricing-to-market that features firm-level heterogeneity and consumers with non-homothetic preferences---generalized CES (GCES). We demonstrate theoretically that, relative to existing frameworks, the GCES model exhibits features of the data that are essential to conduct quantitative analysis. The framework can reconcile the documented price dispersion across firms and markets, while maintaining consistency with cross-sectional observations on firm productivity, markups, and sales. We estimate the model's parameters to match bilateral trade flows across 66 countries as well as moments from the markup and sales distributions of Chilean firms. The model reconciles both micro and macro facts quantitatively, and yields trade elasticity estimates that are in line with the existing literature. Hence, we conclude that the GCES model constitutes a plausible and parsimonious quantitative workhorse framework that can be used to analyze gains from trade.
Credit and the Labor Share: Evidence from U.S. States, FRB Dallas Globalization and Monetary Policy Institute Working Paper No. 326 (2017), new version coming soon, (with Asli Leblebicioglu).
R&R at The Economic Journal
Abstract: 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 labor share declined following the interstate banking deregulation. We show that the 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 use this evidence to obtain the elasticity of labor share with respect to borrowing costs, which itself is informative about the aggregate elasticity of substitution between capital and labor. Finally, we focus on manufacturing and services to show that the impact of banking deregulation is particularly important in capital intensive and external finance dependent industries.
Markups and Misallocation with Evidence from an Exchange Rate Appreciation, FRB Dallas Globalization and Monetary Policy Institute Working Paper No. 251 (2015), revised November 2017.
Submitted
Abstract: 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.
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
Abstract: 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.
Conditionally Accepted, Journal of International Economics
Previous version: NBER Working Paper No. 21408 (2015)
Abstract: We quantify a general equilibrium model of international trade and pricing-to-market that features firm-level heterogeneity and consumers with non-homothetic preferences---generalized CES (GCES). We demonstrate theoretically that, relative to existing frameworks, the GCES model exhibits features of the data that are essential to conduct quantitative analysis. The framework can reconcile the documented price dispersion across firms and markets, while maintaining consistency with cross-sectional observations on firm productivity, markups, and sales. We estimate the model's parameters to match bilateral trade flows across 66 countries as well as moments from the markup and sales distributions of Chilean firms. The model reconciles both micro and macro facts quantitatively, and yields trade elasticity estimates that are in line with the existing literature. Hence, we conclude that the GCES model constitutes a plausible and parsimonious quantitative workhorse framework that can be used to analyze gains from trade.
Credit and the Labor Share: Evidence from U.S. States, FRB Dallas Globalization and Monetary Policy Institute Working Paper No. 326 (2017), new version coming soon, (with Asli Leblebicioglu).
R&R at The Economic Journal
Abstract: 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 labor share declined following the interstate banking deregulation. We show that the 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 use this evidence to obtain the elasticity of labor share with respect to borrowing costs, which itself is informative about the aggregate elasticity of substitution between capital and labor. Finally, we focus on manufacturing and services to show that the impact of banking deregulation is particularly important in capital intensive and external finance dependent industries.
Markups and Misallocation with Evidence from an Exchange Rate Appreciation, FRB Dallas Globalization and Monetary Policy Institute Working Paper No. 251 (2015), revised November 2017.
Submitted
Abstract: 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.
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
Abstract: 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.
Work In Progress
Openness and the Factor Shares: Is Globalization Always Bad for Labor? (with Asli Leblebicioglu)
Importing, Productivity and the Exchange Rate.
Housing Booms, Trade Shocks, and International Student Migration (with Kevin Shih and Mingzhi Xu)
The Pass-Through of Productivity Gains from Offshoring
Importing, Productivity and the Exchange Rate.
Housing Booms, Trade Shocks, and International Student Migration (with Kevin Shih and Mingzhi Xu)
The Pass-Through of Productivity Gains from Offshoring