Publications
Rule of Law, Economic Structure and Development , Canadian Journal of Economics, October 2024
Joint with Roberto Samaniego, The George Washington University
Abstract: If rule of law encourages relationship-specific investments, then industries that use intermediates which require relationship-specific investments should have a disproportionately low share of output or labor in countries where rule of law is weak. We find robust support for this prediction using data on industry composition for 189 countries. Using a standard preference framework to construct model-implied income values from the estimated coeffi cients, we find that the interaction between relationship specificity and rule of law may be an economically significant determinant of aggregate outcomes.
Joint with Huanhuan Zheng, National University of Singapore
Abstract: Utilizing industry-level foreign direct investment (FDI) from 72 source markets to 122 destination markets between 2003 to 2018, we evaluate how cross-border technology investments respond to economic recessions. We find that FDI embedded with intensive research and development (R&D) drops when the destination market is in a recession and the source market is in a normal state and recovers to the pre-recession levels when both destination and source markets are in recession. However, there is little evidence that recessions affect cross-border investments in other aspects of technology measured by the penetration of robots, intellectual property products and information and communications technology (ICT). The response of R&D-intensive FDI to recessions is particularly pronounced in deep and long recessions, during the propagation stage of recessions and in destination markets with relatively weak institutional protection of intellectual property and rule of law, loose FDI regulation and high financial development. Our findings are limited to advanced markets: there is no evidence that R&D-intensive FDI from or to emerging markets responds to either destination or source market recessions.
The Embodiment Controversy: on the Policy Implications of Vintage Capital models , Journal of Money, Credit and Banking , Vol. 54, No. 5 , August 2022 .
Joint with Roberto Samaniego, The George Washington University
Abstract: We explore the long run impact of policy on the level of economic activity through changes in the vintage distribution of capital, in a model where different vintages coexist in production. Because firms can choose the vintage of capital in which they invest, investment subsidies do not in general affect the vintage structure of capital. In contrast, vintage-specific taxes or subsidies that target the newest vintages of capital can significantly affect output and welfare in the long run, mainly downwards.
The Relative Price of Capital and Economic Structure, Review of Economic Dynamics, Vol. 37, July 2020, 127-155.
Joint with Roberto Samaniego, The George Washington University
Abstract: Are trends in the price of capital technological in nature? First, we find that trends in the relative price of capital vary significantly across countries. We then show that a multi-industry growth model, calibrated to match differences in economic structure around the world and productivity growth rates across industries, accounts for this variation -- mainly due to variation in the composition of capital. The finding indicates that the rate of change in the relative price of capital can be interpreted as investment-specific technical change -- the extent to which productivity growth is relatively more rapid in the capital-producing sector. The model also accounts for the empirical dispersion in investment rates, but not in rates of economic growth.
Uncertainty, Depreciation and Industry Growth , European Economic Review, Vol. 120, November 2019.
Joint with Roberto Samaniego, The George Washington University
Abstract: When investment is irreversible, firms invest only when the mismatch between their productivity and their capital stock is large. This suggests that two factors should be related to the frequency of mismatch: volatility and capital depreciation. A canonical model of industry dynamics with investment irreversibility displays slow growth in times of high uncertainty, and decline is particularly pronounced in industries where capital depreciation is rapid. A differences-in-differences regression using industry growth data from a large sample of countries supports this result.
For more empirical results, please refer to the working paper version: Gray's Anatomy: Understanding Uncertainty 2016, MPRA Paper 72787.
Entrepreneurship, Education and Credit: The Golden Triangle . Journal of Money, Credit and Banking, Vol. 51, No. 7 ,October 2019, 1765-1813 .
Joint with Roberto Samaniego, The George Washington University
Abstract: We develop a model to evaluate the aggregate impact of college finance in an environment with entrepreneurship. The calibrated model captures the stylized fact that entrepreneurs with college are more common and more profitable in the US. The calibration indicates this is mainly because higher labor earnings allow college educated agents to ameliorate credit constraints if and when they eventually become entrepreneurs. Changes in financing constraints on entrepreneurs can thus affect college attendance, and changes in financing constraints on college can affect entrepreneurship rates as well.
Productivity Growth and Structural Transformation. Review of Economic Dynamics, 21 (2016), 266-285.
Joint with Roberto Samaniego, The George Washington University
Abstract: Economies tend to diversify and then re-specialize as they develop. An economy may display these "stages of diversification" as a result of productivity-driven structural change if initially resources are concentrated in industries other than those that dominate economic structure in the long run. A calibrated multi-industry growth model with many countries and with industry differences in productivity growth rates replicates the main features of the "stages of diversification". We also present evidence that countries systematically shift resources towards manufacturing industries with rapid productivity growth, and towards sectors with low productivity growth, consistent with the model.
Technology and Contractions: Evidence from Manufacturing. European Economic Review, 79, October 2015, 172-195.
Joint with Roberto Samaniego, The George Washington University
Abstract: Theory suggests a range of technological characteristics that might interact with the business cycle depending on what kind of shocks or propagation mechanisms are quantitatively important. We use variation in industry growth within manufacturing to determine which technological characteristics interact significantly with the business cycle. We find that growth in labor intensive industries and industries that use specific capital is especially sensitive to contractions. Further analysis suggests that a tightening of financing constraints during contractions is responsible for this result. We show this cross-industry asymmetry occurs specifically in contractions, not in recoveries nor over the cycle in general.
Recent Developments in European Bank Competition, IMF Working Paper, No. 11/146, 2011.Winning paper of the World Bank Finance and Private Development (FPD) Academy Award, Fall 2011.