Specialization, Market Access and Medium-Term Growth, (with Ting Lan and Andrei Levchenko) (March 2019)
This paper estimates the impact of foreign sectoral demand and supply shocks on medium-term economic growth. Our empirical strategy is based on a first order approximation to a wide class of small open economy models that feature sector- level gravity in trade flows. The framework allows us to measure foreign shocks and characterize their impact on growth in terms of reduced-form elasticities. We use machine learning techniques to group 4-digit manufacturing sectors into a smaller number of clusters, and show that the cluster-level growth elasticities can be estimated using high-dimensional statistical techniques. We find clear evidence of heterogeneity in the growth elasticities of different foreign shocks. Foreign demand shocks in complex intermediate and capital goods have large growth impacts, and both supply and demand shocks in capital goods have particularly large impacts on growth for poor countries. Counterfactual exercises show that both comparative advantage and geography play a quantitatively large role in how foreign shocks affect economic growth.
Economies of Scale and Industrial Policy: A View from Trade, (with Arnaud Costinot, Dave Donaldson and Andres Rodriguez-Clare) (December 2018)
When sector size goes up, does productivity go up as well? If it does, are productivity gains larger in some sectors than others? And if they are, what are the gains from industrial policies that subsidize these sectors at the expense of others? In this paper we develop a new empirical strategy to estimate economies of scale using trade data and provide answers to these questions. Across 2-digit manufacturing sectors, our baseline estimates of scale elasticities range from 0.07 to 0.25 and average 0.13. Viewed through the lens of a Ricardian model with external economies of scale, these estimates imply gains from optimal industrial policy that are around 0.61% on average across countries, a bit smaller than the gains from optimal trade policy.
We document four facts regarding the geographic location patterns of firms. Firms' establishments are clustered together; as they expand, firms become more dispersed; larger, more productive firms are more dispersed after adjusting for establishment counts; and establishments that are further away from their firm center are smaller and less productive. These findings are consistent with the hypothesis that firms face internal distance costs and that these costs may significantly affect the geographic distribution of economic activity. We find substantial heterogeneity in our results. Larger firms are less clustered, and firm size appears to attenuate the relationship between dispersion and productivity: establishments of larger firms do not decline in size with distance, and larger firms that are more dispersed are not more productive.
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
Econ 441 (International Trade), Winter 2016, Fall 2016, Fall 2017