Research

Abstract: What is the relationship between international trade and business cycle synchronization? Using data from 40 countries, I find that trade in intermediate inputs plays a significant role in synchronizing GDP fluctuations across countries while trade in final goods is not significant. Motivated by this new fact, I build a model of international trade in intermediates that is able to replicate more than 85% of the empirical trade-comovement slope, offering the first quantitative solution for the "Trade Comovement Puzzle". The model relies on two key assumptions: (i) price distortions due to monopolistic competition and (ii) fluctuations in the mass of firms serving each country. The combination of those ingredients creates a link between domestic measured productivity and foreign shocks through trade linkages. Finally, I provide evidence for the importance of those elements in the link between foreign shocks and domestic GDP.


Abstract: This paper explores how global value chain participation affects the exchange rate pass-through to export prices and export volumes. We develop a partial equilibrium model of international trade with cross-border production and show that higher participation in global value chains reduces the elasticities. Specifically, a higher share of foreign value added in exports reduces the exchange rate pass-through to export prices and export volumes. A greater share of exports that return as imports also reduces the responsiveness of export volumes to changes in bilateral exchange rates. Finally, exports of inputs that are further re-exported increase the responsiveness to the trading partner's effective exchange rate. Using a novel sector level panel dataset with 40 countries we test and find strong empirical support for our theoretical predictions. We further show that some sectors in some countries can even experience a decline in gross exports when their currency depreciates.


Abstract: This paper explores the role of global value chain participation in affecting the exchange rate pass-through to export prices and export volumes. We develop a partial equilibrium model of international trade with cross-border production and show that higher participation in global value chains reduces the elasticities. Specifically, a higher share of foreign value added in exports reduces the exchange rate pass-through to export prices and export volumes. A greater share of exports that return as imports also reduces the responsiveness of export volumes to changes in bilateral exchange rates. Finally, exports of inputs that are further re-exported increase the responsiveness to the trading partner's effective exchange rate. Using a novel sector level panel dataset with 40 countries we test and find strong empirical support for our theoretical predictions. We further show that some sectors in some countries can even experience a decline in gross exports when their currency depreciates.


  • Regional Diversity and the Geography of Unemployment (with Simon Fuchs)

Abstract: We introduce a new framework to evaluate the effects of regional diversification. We observe that in the presence of mobility frictions workers are exposed to local shocks and that in a multi-sectoral framework this induces a trade-off: Regions can specialize in their comparative advantage industries, but at the same time such specialization increases labor market risk due to sector specific shocks. If mobility costs are high, then welfare effects from lack of diversification can be substantial. We measure the segmentation of the French labor market and introduce a new spatial equilibrium model that incorporates labor market frictions, unemployment, and mobility cost into an otherwise standard multi-sector economic geography model. We employ the model to simulate unemployment responses to sector specific shock and demonstrate the interaction between mobility frictions and matching frictions.


  • How Much Will the Belt and Road Initiative Reduce Trade Costs? (with and Alen Mulabdic, Siobhan Murray, Nadia Rocha and Michele Ruta )

Abstract: This paper studies the impact of transport infrastructure projects of the Belt and Road Initiative (BRI) on shipment times and trade costs. Based on a new data on completed and planned BRI transport projects, we use Geographic Information System (GIS) analysis to estimate the shipment times before and after the Belt and Road Initiative. We compute two databases that can be used to address different research questions: a “worldwide database” based on an analysis of more than 1,000 cities in 191 countries and 50 sectors and a “regional database” that covers the same variables but focuses on more granular information (1,818 cities) for BRI countries. We then use the sectoral estimates of “value of time” from Hummels and Schaur (2013) to transform reduction in shipment times into reduction in ad valorem trade costs at the country-sector level. We find that the Belt and Road Initiative will significantly reduce shipment times and trade costs. For the world as a whole, the (unweighted) average reduction of shipment time will range between 1.5 and 2.0 percent, leading to reduction of aggregate trade costs between 1.4 and 1.9 percent. For the BRI economies, the change in shipment times and trade costs will range between 3.6 and 4.5 percent and 3.2 and 4.0 percent, respectively.


  • The Belt and Road Initiative: A Structural Analysis (with Alen Mulabdic and Michele Ruta )
  • Employment sensitivity in Network Economies (with Shekhar Tomar and Miguel Zerecero Anton)