The Textbook Case for Industrial Policy: Theory Meets Data, (with Arnaud Costinot, Dave Donaldson and Andres Rodriguez-Clare) (November 2021, resubmitted to the JPE)
The textbook case for industrial policy is well understood. If some sectors are subject to external economies of scale, whereas others are not, a government should subsidize the first group of sectors at the expense of the second. The empirical relevance of this argument, however, remains unclear. In this paper we develop a strategy to estimate sector-level economies of scale and evaluate the gains from such policy interventions in an open economy. Our results point towards significant and heterogeneous economies of scale across manufacturing sectors, but gains from industrial policy that are hardly transformative, even among the most open economies.
Industry agglomeration can be indicative of agglomeration forces and is correlated with firm outcomes. Because multi-plant firms tend cluster their establishments in space, industry agglomeration could in part be driven by forces internal to the firm rather than across-firm spillovers. We propose and implement a decomposition of the industry agglomeration measures into within and across-firm components using U.S. census microdata. The within-firm component makes a small contribution to observed industry agglomeration for most industries and spatial scales, but accounts for 20% or more of observed agglomeration at short spatial scales for a subset of industries.
Trade Costs and Economic Geography: Evidence from the US, (March 2018, R&R at ReStat)
This paper shows that for a wide class of economic geography models the positive implications of trade costs are captured by two reduced form elasticities: the elasticities of wages and population with respect to market access. It develops a novel IV approach to consistently estimate these elasticities using exogenous changes in the incomes of each location's trading partners. The approach is implemented using data from U.S. MSAs and finds that wages and especially employment are quite sensitive to differences in market access across cities. Counterfactual simulations indicate that reducing trade costs would result in large population shifts from the Northeast toward the South and West, along with a flattening of the city size distribution.
Specialization is a powerful source of productivity gains, but how production networks at the industry level are related to aggregate productivity in the data is an open question. We construct a database of input-output tables covering a broad spectrum of countries and times, develop a theoretical framework to derive an econometric specification, and document a strong and robust relationship between the strength of industry linkages and aggregate productivity. We then calibrate a multisector neoclassical model and use alternative identification assumptions to extract an industry-level measure of distortions in intermediate input choices. We compute the aggregate losses from these distortions for each country in our sample and find that they are quantitatively consistent with the relationship between industry linkages and aggregate productivity in the data. Our estimates imply that the TFP gains from eliminating these distortions are modest but significant, averaging roughly 10% for middle and low income countries.
Econ 641 (International Trade), Fall 2015, Fall 2016, Fall 2017, Fall 2020
Econ 441 (International Trade), Winter 2016, Fall 2016, Fall 2017, Winter 2020, Fall 2020
Econ 340 (International Economics), Winter 2020, Fall 2020