Research
Publications
The Economics of Carbon Leakage Mitigation Policies with Stefan Ambec and Antonia Pacelli,
Journal of Environmental Economics and Management, March 2024
Abstract: In a trade model with endogenous emissions abatement, we investigate the impact of three policy instruments aimed at mitigating carbon leakage: free emission allowances, a Carbon Border Adjustment Mechanism (CBAM), and a CBAM with export rebates. We show that providing free allowances does not alter the incentives to abate carbon emissions, but, instead, fosters the entry of more carbon intensive producers. It "levels the playing field'' both domestically and internationally, and may even reverse the carbon leakage. In contrast, a CBAM only levels the playing field domestically, and may lead to an autarky equilibrium. To reverse the carbon leakage, a CBAM must be complemented with export rebates. We further show that a CBAM and export rebates improve welfare for any carbon price, and we identify the optimal share of free allowances with or without a CBAM. Finally, we perform a calibration exercise on cement and steel sectors to simulate the effects of the CBAM recently adopted by the European Union. Our model predicts a scenario with reverse carbon leakage and significant welfare gains for both sectors.
Demand Risk and Diversification through International Trade
Journal of International Economics, March 2022
Working paper version, Online Appendix, Codes and data, Slides
Abstract: I develop a theory of risk diversification through geography. In a general equilibrium trade model with monopolistic competition and stochastic demand, risk-averse entrepreneurs exploit the spatial correlation of demand across countries to lower the variance of their global sales. The model implies that both the probability of entry and trade flows to a country are increasing in the "Diversification Index", which depends on the multilateral covariance of the country's demand with all other markets. The risk diversification behavior can lead to higher welfare gains from trade than the ones predicted by trade models with risk neutrality. Using a panel of international sales of Portuguese firms, I estimate "risk-augmented" gravity regressions, which show that the Diversification Index significantly affects trade patterns at the extensive and intensive margins. In general equilibrium, the risk diversification channel increases welfare gains from trade by 17% relative to trade models with risk neutrality.
Trade Policy Uncertainty and Stock Returns with Marcelo Bianconi and Marco Sammon Journal of International Money and Finance, December 2021
Data, Working paper version, Slides
Featured on EconBrowser
Abstract: A recent literature has documented large real effects of trade policy uncertainty (TPU) on trade, employment, and investment, but there is little evidence that investors are compensated for bearing such risk. To quantify the risk premium associated with TPU, we exploit quasi-experimental variation in exposure to TPU arising from Congressional votes to revoke China's preferential tariff treatment between 1990 and 2001. A long-short portfolio designed to isolate exposure to TPU earns a risk-adjusted return of 3.6-6.2% per year. This effect is larger in sectors less protected from globalization, and more reliant on inputs from China. Industries more exposed to trade policy uncertainty also had a larger drop in stock prices when the uncertainty began, and more volatile returns around key policy dates. Our results are not explained by the effects of policy uncertainty on expected cash-flows, investors' forecast errors, and import competition from China.
Estimating the welfare costs of autarky: a sufficient statistics approach
Economics Letters, September 2020
Abstract: I use the Jeffersonian Embargo enacted in 1807 to estimate the welfare costs of autarky. I develop an Armington trade model to compute the welfare losses using two sufficient statistics: the share of expenditures on domestic goods and the elasticity of substitution between domestic and imported goods. I use historical data from 1792 to 1807 to estimate the Armington elasticity, using import tariffs as instrument for relative prices. The empirical findings suggest welfare losses of 2.83-8.14% of real income.
Working papers
“Input Sourcing under Risk: Evidence from U.S. Manufacturing Firms ” with Joaquin Blaum and Sebastian Heise, February 2024
Abstract: We use transaction-level data on U.S. manufacturing imports to construct a novel measure of input sourcing risk based on the historical volatility of ocean shipping times. Our measure isolates the unexpected component of shipping time volatility that is induced by weather conditions along more than 40,000 maritime routes. We first document that extreme unexpected shipping delays have negative effects on importers' revenues, profits and employment. We then show that firms actively diversify this source of risk: importers facing greater shipping volatility use more routes and source from more foreign suppliers, while they reduce imports. To rationalize these findings, we introduce shipping time risk into a general equilibrium model of importing with firm heterogeneity. Our quantitative analysis finds significant costs for the U.S. economy associated with supply chain risk.
General Equilibrium Effects in Space: Theory and Measurement with Costas Arkolakis and Rodrigo Adao, January 2023, Revise and Resubmit at American Economic Journal: Macro
Abstract: We document that estimates of the differential effect of the China shock measured by Autor et al. (2013) are much larger than those implied by existing quantitative frameworks. This disconnect is more substantial when we account for regional exposure in consumption and import competition in other nearby regions. We then develop a reduced-form representation of spatial models in which changes in regional outcomes combine (i) each region's ``shift-share'' exposure to shocks in its excess labor demand, and (ii) the reduced-form effect that this exposure has directly on that region, and indirectly on other regions through spatial links. We use this representation to uncover the roots of the disconnect, and derive an empirical specification whose aggregation yields the shock’s general equilibrium impact. Finally, estimates of our reduced-form representation for the China shock yield large direct effects and reinforcing indirect effects, which arise from strong agglomeration forces, strong (weak) employment sensitivity to wages (prices), and regional production and trade links. As a result, we obtain employment losses that are larger and more dispersed than those implied by existing quantitative frameworks.
Import Competition, Trade Credit, and Financial Frictions in General Equilibrium with Fadi Hassan, February 2023, Revise and Resubmit at American Economic Journal: Macro
CEP Discussion Paper, CEPR Discussion Paper, Slides
Abstract: We analyze the role of trade credit and financial frictions in the propagation of international trade shocks along the supply chain. First, we show empirically that exposure to import competition from China increased the use of trade credit in the U.S. Then, we use a multi-country input-output trade model with borrowing constraints, trade credit, and endogenous employment to quantify the general equilibrium effects of such increase, characterizing the different channels at work. Borrowing constraints amplify the negative consequences of the China shock on employment, but introducing trade credit reduces these losses by 8%-27%, depending on the tightness of the constraints.
Work in progress
"Resilience after Climate Shocks: Evidence from SBA Disaster Loans" with Saverio Simonelli
Abstract: We investigate the role of fiscal stimulus directed to businesses in the aftermath of climate shocks. We identify public intervention measures with the low-interest loans provided by the Small Business Administration to U.S. firms hit by natural disasters. We use data from a novel confidential dataset assembled by the U.S. Census Bureau on 32,000 applications to obtain the low-interest loans. We use a regression discontinuity design to trace down the effects of the loans on firms’ employment, investment, and production choices.
"The Spillover Effects of Climate Change: Evidence from U.S. Plants" with Saverio Simonelli
Abstract: We construct a monthly dataset of the intensity of the hurricanes that have hit U.S. counties in the past 30 years. Using U.S. Census Bureau plant-level data, we explore the role of firms’ internal networks, i.e., the plant-level networks of multi-region firms, for the propagation of the effects of climate shocks across U.S. regions. We estimate the local and spillover effects of climate shocks, in terms of wages, employment, capital, and TFP. We will use our empirical results to calibrate a spatial model of the U.S. economy and use that to evaluate several counterfactual policies.
"Climate Change and Infrastructure Resilience" with Saverio Simonelli
Abstract: We assess the role of infrastructure investment for the resilience of the transportation network. We assemble a novel dataset on all the road closures occurred in the U.S. in the aftermath of natural disasters. Using confidential data from the U.S. Census Bureau, we estimate the economic damage that climate shocks have inflicted to U.S. local markets through the infrastructure network. We build a spatial model to evaluate the benefits that the infrastructure policies have on the local and aggregate economy, with a focus on the Biden's Bipartisan Infrastructure Law.
"Tariff Exclusions and Firms Performance" with David Kuenzel
“Currency Risk and Stock Returns” with Marcelo Bianconi and Marco Sammon
"Social Media Sentiment and Firm Value" with Marcelo Bianconi, Ming Ye and Taowen Wu