Research

Abstract: This paper shows that the ancestry composition shaped by century-long immigration to the US can explain the current structure of global supply chains. Using an instrumental variable strategy, combined with a novel dataset that links firm-to-firm global supply chains with US establishment database and historical migration data, we find that the co-ethnic networks have a positive causal impact on global supply chain relationships between foreign countries and US counties. The positive impact not only exists in supplier-customer relationships but also extends to strategic partnerships and trade in services. Examining the mechanisms, we find that the positive impact is stronger in counties where a larger number of firms are credit constrained, and such a stronger effect becomes even more pronounced for foreign firms located in countries with weak contract enforcement. Collectively, the results suggest that co-ethnic networks serve as social collateral to overcome credit constraints and facilitate global supply chain formation.

Abstract: We study business cycles with cyclical returns to scale. Contrary to tightly parameterized production functions (e.g., Cobb-Douglas and constant elasticity of substitution), we empirically identify strong input complementarity that leads to procyclical returns to scale. We, therefore, propose a flexible translog production function that allows complementarity-induced procyclical returns to scale. We integrate this function into a standard medium-scale dynamic stochastic general equilibrium (DSGE) model. Our estimated model with input complementarity (i) features procyclical returns to scale and acyclical price markups, (ii) better matches the cyclicality of factor shares, and (iii) significantly decreases the contribution of markup shocks to output fluctuations relative to those of the standard model.

Abstract: We study how regional housing market disruptions spill over across US local markets through intrafirm spatial networks created by multimarket firms. We identify spillovers by linking granular data on product-county-level prices and quantities with producer-level information and exploiting variation in firms' exposure to differential declines in local house prices. A firm's local sales decrease following a local housing price decrease but do so more strongly to indirect exposure to the housing price decrease originating in its other markets. Our barcode-level data and multiregion model with endogenous product quality adjustment reveal a novel uniform product replacement mechanism behind the spillover: Firms replace higher-value products with lower-value products in response to the housing market disruptions, and such product replacements are synchronized across markets within each firm, including the markets with stable housing prices. 

Abstract: This paper studies the role of multi-sector firms in the cross-sectoral propagation of economic shocks. By leveraging an increase in import competition from China as a source of a negative economic shock, we show that employment of an establishment in a given industry is negatively affected by the shock that hits establishments operating in other industries within the same firm. We explore a range of explanations for our findings, emphasizing the role of within-firm input-output linkages and within-firm diversification across sectors. At the sectoral level, the shock that propagates through firms' internal networks has a sizable impact on industry-level employment dynamics.

Abstract: We study the role of offshoring in understanding long-run environmental impacts of trade liberalization and the cleanup of US manufacturing. Leveraging establishment-level pollution emissions and business activity data and a change in US trade policy toward China in the early 2000s, we show that US establishments decrease toxic emissions in response to a reduction in trade policy uncertainty. Emission abatement is mainly driven by a decline in pollution emission intensity. We provide comprehensive evidence that highlights the role of offshoring: US manufacturers, especially those that emit pollutants intensely, source from abroad and establish more subsidiaries in China following the event.

Abstract: We study how a firm's global connectedness through global supply chains and exports affects its stock market performance during crises. While global connectedness can expose firms to negative foreign shocks, it potentially reduces firms' susceptibility to domestic shocks by allowing international diversification. Using weekly global stock market data combined with firm-level supply chain, export, and balance sheet information, we show that, while firms' global supply chain and export networks expose firms to the negative impact of foreign COVID-19 outbreaks, firms with higher global connectedness are also more resilient to domestic COVID-19 exposures in stock markets. Consistent with the international diversification channel, global connectedness alleviates the negative impact of domestic COVID-19 exposures only if connected foreign economies experience a smaller rate of increase in COVID-19 cases than the domestic economy. We investigate various operational outcomes and find that such diversification motive leads firms to reorganize their global supply chain and export structures to mitigate the negative impact of COVID-19 exposures.

Abstract: We study the effect of ESG similarity on global supply chain formation. Using each firm's E, S, and G scores to estimate the similarity in firms' ESG focus, we find that firms with high similarity in ESG are more likely to form customer-supplier relationships. This positive effect is more pronounced when the customer and supplier firms both have high overall ESG scores and are in civil law countries. Moreover, once customer-supplier relationships are established, pairs with higher ESG similarity are less likely to terminate their relationships. Finally, we show that customer firms with high ESG similarities exhibit low stock return volatility, cash flow volatility, and reputational risk. Our evidence is consistent with the notion that ESG similarity will likely to mitigate the risks of incurring costs associated with partnering with low-ESG firms. Our results thus demonstrate the crucial role of ESG similarity in the global supply chain formation.

Abstract: This paper investigates a role of supply chain network in transmitting housing market disruptions during the Great Recession. We build up a unique micro-level data that combines local housing market condition, firms’ sales in each local market, and firm-level supply chain network information. Exploiting firm-specific demand shock stemming from cross-market variation in house price changes and an initial difference in firms’ local sales, we find that such shock not only affects downstream firms but also transmits to their suppliers. The estimated supplier-level elasticity is quantitatively large, reflecting larger role of downstream firms with higher elasticity in the network structure. To quantify such propagation at the aggregate level, we build up a parsimonious network model calibrated to match the micro-level data. Our counterfactual analysis shows that approximately 18% of the observed drop in the aggregate output can be attributed to the propagating role of the supply chain network.

Abstract: In light of recent trends in social networking services that encourage users of platforms to “share,” “recommend,” and “do activities” with others, this work analyzes platform competition in two-sided markets that exhibit direct (or within-) network effect in addition to conventional cross-network effect. Introduction of direct network effect to one group (buyer-side) in a two-sided market generates two counteracting effects: demand-augmenting effect and demand-sensitizing effect. The former allows platforms to raise buyer-side price, thereby increasing the sum of prices charged to buyers and sellers, whereas the latter causes platforms to lower them. I show that demand-augmenting effect dominates demand-sensitizing effect under the monopoly platform, whereas introducing competition between platforms under sufficient direct network effect relatively strengthens the demand- sensitizing effect, which lowers the price charged to buyers.

Abstract: This paper estimates a small-scale New Keynesian DSGE model using Bayesian methods to address the question of what monetary and fiscal policy regimes characterized the recent Korean data after 2000. We find that a passive monetary policy and an active fiscal policy prevailed. This finding implies that the Fiscal Theory of Price Level (FTPL) is relevant in understanding the dynamics of the key macroeconomic variables in Korea.