Published Papers
Exporter Heterogeneity and Price Discrimination: A Quantitative View (with Ina Simonovska and Jae Wook Jung).
Journal of International Economics, January 2019, 116:103-124.
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.
Journal of International Economics, January 2019, 116:103-124.
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, March 2019 (with Asli Leblebicioglu).
Conditionally Accepted 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. The model highlights financial development as a potential channel for the reduction in labor share observed globally.
Openness and Factor Shares: Is Globalization Always Bad for Labor? October 2018 (with Asli Leblebicioglu).
Revise and Resubmit at Journal of International Economics
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.
Quality Heterogeneity and Misallocation: The Welfare Benefits of Raising your Standards, March 2019 (with Luca Macedoni)
Web Appendix: The CES Case Web Appendix: Other VES Cases Web Appendix: The Planner's Allocation
Inefficient allocation of production across heterogeneous firms is a major source of welfare loss, but frameworks generally ignore policies that reduce the misallocation. We study the welfare effects of policies that target the selection of surviving firms. As an example of such policies, we focus on product standards that force the small, low-quality firms to exit the market. Using data from Chile, we find that more restrictive standards are associated with a reallocation of domestic sales from small to large firms. Guided by this evidence, we study the welfare effects of standards in a model with monopolistically competitive, heterogeneous firms, and a general demand system. The standard improves welfare if low-quality firms over-produce in the market allocation relative to the efficient allocation. We estimate our model across Chilean industries and find that in several instances the imposed standard is too restrictive relative to a theoretical upper bound.
Markups and Misallocation with Evidence from Exchange Rate Shocks, FRB Dallas Globalization and Monetary Policy Institute Working Paper No. 251 (2015), revised March 2019.
In a setting with firms that charge variable markups, this paper finds that firm heterogeneity has welfare implications that result exclusively from the differential markup adjustment to global shocks. Changes in allocative efficiency are summarized by a sufficient statistic that can be directly measured with aggregate data. I use Chilean data between 1995-2007 to show that exchange rate shocks can be an important driver of allocative efficiency, as there are large changes in misallocation over time due to the way firms pass-through these shocks into markups. At the firm-level, there is evidence that importing firms pass-through real exchange rate appreciations into their markups, and over time industries that import a larger share of their inputs become more misallocated. In a structural model with productivity gains from importing, where firm market power increases with size, I show how firm reallocation in response to a positive supply shock rationalizes the reduced-form results.
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).
Revise and Resubmit 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.
Conditionally Accepted 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. The model highlights financial development as a potential channel for the reduction in labor share observed globally.
Openness and Factor Shares: Is Globalization Always Bad for Labor? October 2018 (with Asli Leblebicioglu).
Revise and Resubmit at Journal of International Economics
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.
Quality Heterogeneity and Misallocation: The Welfare Benefits of Raising your Standards, March 2019 (with Luca Macedoni)
Web Appendix: The CES Case Web Appendix: Other VES Cases Web Appendix: The Planner's Allocation
Inefficient allocation of production across heterogeneous firms is a major source of welfare loss, but frameworks generally ignore policies that reduce the misallocation. We study the welfare effects of policies that target the selection of surviving firms. As an example of such policies, we focus on product standards that force the small, low-quality firms to exit the market. Using data from Chile, we find that more restrictive standards are associated with a reallocation of domestic sales from small to large firms. Guided by this evidence, we study the welfare effects of standards in a model with monopolistically competitive, heterogeneous firms, and a general demand system. The standard improves welfare if low-quality firms over-produce in the market allocation relative to the efficient allocation. We estimate our model across Chilean industries and find that in several instances the imposed standard is too restrictive relative to a theoretical upper bound.
Markups and Misallocation with Evidence from Exchange Rate Shocks, FRB Dallas Globalization and Monetary Policy Institute Working Paper No. 251 (2015), revised March 2019.
In a setting with firms that charge variable markups, this paper finds that firm heterogeneity has welfare implications that result exclusively from the differential markup adjustment to global shocks. Changes in allocative efficiency are summarized by a sufficient statistic that can be directly measured with aggregate data. I use Chilean data between 1995-2007 to show that exchange rate shocks can be an important driver of allocative efficiency, as there are large changes in misallocation over time due to the way firms pass-through these shocks into markups. At the firm-level, there is evidence that importing firms pass-through real exchange rate appreciations into their markups, and over time industries that import a larger share of their inputs become more misallocated. In a structural model with productivity gains from importing, where firm market power increases with size, I show how firm reallocation in response to a positive supply shock rationalizes the reduced-form results.
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).
Revise and Resubmit 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.
Work In Progress
Trade Shocks and Chinese Students in U.S. Higher Education (with Gaurav Khanna, Kevin Shih, Mingzhi Xu, and Miaojie Yu)
International Regulatory Protectionism (with Luca Macedoni)
The Pass-Through of Productivity Gains from Offshoring
International Regulatory Protectionism (with Luca Macedoni)
The Pass-Through of Productivity Gains from Offshoring
