Publications

International Trade and Innovation Dynamics with Endogenous Markups (with Pau Roldan-Blanco and Tom Schmitz) [pdf]  [Haiku, courtesy of Heski Bar-Isaac]

Economic Journal, Vol. 133, Issue 651,  pp. 971-1004, 2023

Over the last decades, the United States has experienced a secular increase in market concentration and markups, as well as a doubling of the trade-to-GDP ratio. Our paper argues that these trends could be linked, pointing out an “innovation feedback effect of trade. Lower trade costs increase innovation incentives for large global firms, and as the winners of the ensuing innovation races increase their technological advantage over global competitors and local firms, concentration and markups rise. To make this point formally, we develop a dynamic general equilibrium trade model with endogenous markups and endogenous innovation. We calibrate our model to US manufacturing data, and show that an increase in trade openness (consistent with the one observed between 1989 and 2007) increases the aggregate markup by 3.5 percentage points. This increase is entirely due to firms’ innovation response: without this response, markups would have fallen by 4 percentage points. 

Public Education Expenditures, Growth and Income Inequality (with Lionel Artige) [pdf]

Journal of Economic Theory, Vol. 209, 2023

This paper analyzes the relationship between public education spending, long-run growth and income inequality. We propose an endogenous growth model with occupational choice and an endogenous supply of teachers and education quality. We show that endogenous school quality alters the shape of those relationships in a way that has new policy implications. First, growth depends on the level of public education expenditures and on the shape of the human capital distribution. Second, the relationship between public education and inequality can be either positive or negative. Calibrating our model to US state data, we find that a significant share of states faces a trade-off between increasing growth and decreasing inequality through public education spending. We find that this trade-off is overall more likely in states with higher public education expenditures, teacher employment share and relative wage, and intergenerational mobility. Finally, the existence of such a trade-off depends on how public education spending is financed.

The Dynamic Effects of Antitrust Policy on Growth and Welfare (with Murat Alp Celik and Xu Tian)   [pdf]

Journal of Monetary Economics, Vol. 121 pp. 42-59, 2021

To study the dynamic effects of antitrust policy on growth and welfare, we develop and estimate the first general equilibrium model with Schumpeterian innovation, oligopolistic product market competition, and endogenous M&A decisions. The estimated model reveals that: (1) Existing policies generate gains in growth and welfare. (2) Strengthening antitrust enforcement could deliver substantially higher gains. (3) The dynamic long-run effects of antitrust policy on social welfare are an order of magnitude larger than the static gains from higher allocative efficiency in production. (4) Current HHI-based antitrust rules leave the majority of anticompetitive acquisitions undetected, highlighting the need for alternative guidelines.

Advertising, Innovation and Economic Growth (with Pau Roldan-Blanco) [pdf]

American Economic Journal: Macroeconomics, Vol. 13, Issue 3, pp. 251-303, 2021

This paper analyzes the implications of advertising for firm dynamics and economic growth through its interaction with R&D. We develop a model of endogenous growth with firm heterogeneity that incorporates advertising decisions and calibrate it to match several empirical regularities across firm size. Our model provides microfoundations for the empirically observed negative relationship between both firm R&D intensity and growth, and firm size. In the calibrated model, about half of the deviation from proportional firm growth is attributed to our novel advertising channel. In addition, R&D and advertising are substitutes, a prediction for which we find evidence in the data.

Offshoring, Computerization, Labor Market Polarization and Top Income Inequality [pdf]

Journal of Macroeconomics, Vol. 69, 2021 

This paper proposes a model of occupational choice with heterogeneous agents in terms of human capital to quantify the role of offshoring and computerization in labor market polarization and increased top income inequality. We find that both offshoring and computerization played a major role regarding labor market polarization in the US over the period 1975 - 2008. We further show that the last decades can be decomposed into two subperiods. Computerization is the main driver of labor market polarization from 1975 to the mid 1990s, after which globalization (through decreased costs of offshoring) explains more than 70% of job and wage polarization. Our model can also explain around 40% of the observed increase in top income inequality since 1975.

Stock Markets, Banks and Long-Run Economic Growth: a Panel Cointegration-Based Analysis (with Chistian Gengenbach and Franz Palm)

De Economist, Vol. 162, Issue 1, pp. 19-40, 2014

This paper investigates the long run relationship between the development of banks and stock markets and economic growth. We make use of a Johansen-based panel cointegration methodology allowing for cross-country dependence to test the number of cointegrating vectors among these three variables for 5 developing countries. In addition, we test the direction of potential causality between financial and economic development. Our results conclude to the existence of a single cointegrating vector between financial development and growth and of causality going from financial development to economic growth. We find little evidence of reverse causation as well as bi-directional causality. We interpret this as evidence supporting the significance of financial development for economic development although banks and stock markets may have different effects depending on the level of economic development.

A Global Approach to Mutual Fund Market Timing Ability (with Laurent Bodson and Danielle Sougné)

Journal of Empirical Finance, Vol. 20, pp. 96-101, 2013

We investigate market timing abilities of mutual fund managers from the three perspectives: market return, market-wide volatility and aggregate liquidity. We propose a new specification to study market timing. Instead of considering an average market exposure for mutual funds, we allow mutual fund market betas to follow a random walk in the absence of market timing ability. As a consequence, we capture market exposure dynamics which is really due to manager market timing skills while allowing dynamics to come from other sources than market timing. We find that on average 6% of mutual funds display return market timing abilities while this percentage amounts to respectively 13% and 14% for volatility and liquidity market timing. We also analyze market timing by investment strategies and for surviving and dead funds. Dead funds exhibit lower volatility and liquidity timing skills than live funds.

Financial Development and Economic Growth: an Empirical Investigation of the Role of Banks and Institutional Investors (with Danielle Sougné)

Applied Financial Economics, Vol. 22, Issue 20, pp. 1719-1725, 2012

We make use of panel cointegration techniques to study the potential long-run relationship between economic growth, banking development and institutional investors in six OECD countries. Our results highlight some heterogeneity in the long-run relationship between financial development and growth. Institutional investors are shown to support long-run economic growth in only two countries. We also report a negative long-run relationship between both indicators of financial development.

An Empirical Analysis of Income Convergence in the European Union (with David Dubois)

Applied Economics Letters, Vol. 18, Issue 17, pp. 1705-1708, 2011

We investigate the convergence process within the European Union. More particularly, we study the convergence process of the new entrants from Central and Eastern Europe and of the 15 Western countries between 1990 and 2007. Applying a panel approach to the convergence equation derived from the Solow model, we show that new entrants and former members of the European Union can be seen as belonging to different groups of convergence.