Working paper version: NBER Working Paper No. 21149, May 2015, joint with Maximiliano Dvorkin and Fernando Parro
We develop a dynamic labor search model where production and consumption take place in spatially distinct labor markets with varying exposure to domestic and international trade. The model recognizes the role of labor mobility frictions, goods mobility frictions, geographic factors, and input-output linkages in determining equilibrium allocations. We show how to solve the equilibrium of the model without estimating productivity, reallocation frictions, or trade frictions, which are usually difficult to identify. We use the model to study the dynamic labor market outcomes of aggregate trade shocks. We calibrate the model to 38 countries, 50 U.S. states and 22 sectors and use the rise in China’s import competition to quantify the aggregate and disaggregate employment and welfare effects on the U.S. economy. We find that China’s import competition growth resulted in 0.6 percentage point reduction in the share of manufacturing employment, approximately 1 million jobs lost, or about 60% of the change in the manufacturing employment share not explained by a secular trend. Overall, China’s shock increases U.S. welfare by 6.7% in the long-run and by 0.2% in the short-run with very heterogeneous effects across labor markets.
Working paper version: NBER Working Paper No. 20168, 2014, joint with Fernando Parro, Esteban Rossi-Hansberg and Pierre-Daniel Sarte
We study the impact of intersectoral and interregional trade linkages in propagating disaggregated productivity changes to the rest of the economy. Using regional and industry data we obtain the aggregate, regional and sectoral elasticities of measured TFP, GDP, and employment to regional and sectoral productivity changes. We find that the elasticities vary significantly depending on the sectors and regions affected and are importantly determined by the spatial structure of the economy. We use these elasticities to perform a variety of counterfactual exercises including a detailed study of the effects of the boom in the Computers and Electronics industry in California.
Over the last decades, large labor abundant countries, like China, have played a growing role in world trade. Using the factor proportions theory, this paper investigates the dynamic effects of economic growth consequent to international trade between countries with different factor proportions. I present a unified characterization of the equilibrium dynamics of Heckscher-Ohlin theory with initial factor endowments outside of the cone of diversification. The model can reconcile why countries experience non-monotonic changes in their pattern of specialization as they grow, why countries do not converge to the same steady state level of income, and why non-factor price equalizations might be the most likely outcome after all.
The Review of Economic Studies, (2015) 82 (1): 1-44, joint with Fernando Parro
Working paper version: NBER Working Paper No. 18508, 2012
Codes and data files used in the paper: Data_and_Codes_CP.zip
(contains a readme file with a detailed description of every single file)
We build into a Ricardian model sectoral linkages, trade in intermediate goods, and sectoral heterogeneity in production to quantify the trade and welfare effects from tariff changes. We also propose a new method to estimate sectoral trade elasticities consistent with any trade model that delivers a multiplicative gravity equation. We apply our model and use our estimated elasticities to identify the impact of NAFTA’s tariff reductions. We find that Mexico’s welfare increases by 1.31%, U.S.’s welfare increases by 0.08%, and Canada’s welfare declines by 0.06%. We find that intra-bloc trade increases by 118% for Mexico, 11% for Canada and 41% for the U.S. We show that welfare effects from tariff reductions are reduced when the structure of production does not take into account intermediate goods or input-output linkages. Our results highlight the importance of sectoral heterogeneity, intermediate goods and sectoral linkages for the quantification of the welfare gains from tariffs reductions.
Forthcoming, Journal of Political Economy, joint with Ferdinando Monte and Esteban Rossi-Hansberg
Working paper versions:
NBER Working Paper No. 18259, 2012
CEPR Discussion Paper No. 9073, 2012
Cowles Foundation Discussion Paper No. 1867, 2012
Here is a link to the Online Appendix
We use a comprehensive dataset of French manufacturing firms to study their internal organization. We first divide the employees of each firm into layers using occupational categories. Layers are hierarchical in that the typical worker in a higher layer earns more, and the typical firm occupies less of them. In addition, the probability of adding/dropping a layer is very positively/negatively correlated with value added. We then explore the changes in the wages and number of employees that accompany expansions in layers, or output. The empirical results indicate that reorganization, through changes in layers, is key to understand how firms expand and contract. For example, we find that firms that expand substantially add layers and pay lower average wages, in part by hiring less experienced employees, in all pre-existing layers. In contrast, firms that expand little and do not reorganize pay higher average wages in all pre-existing layers, partly by hiring more educated employees.
The Quarterly Journal of Economics (2012) 127(3): 1393-1467, joint with Esteban Rossi-Hansberg
Working paper version: NBER Working Paper No. 17308, 2011
A firm’s productivity depends on how production is organized. To understand this relationship we develop a theory of an economy where firms with heterogeneous demands use labor and knowledge to produce. Entrepreneurs decide the number of layers of management and the knowledge and span of control of each agent. As a result, in the theory, heterogeneity in demand leads to heterogeneity in productivity and other firms outcomes. We use the theory to analyze the impact of international trade on organization and calibrate the model to the U.S. economy. Our results indicate that, as a result of a bilateral trade liberalization, firms that export will increase the number of layers of management. The new organization of the average exporter results in higher productivity, although the responses of productivity are heterogeneous across these firms. Liberalizing trade from autarky to the level of openness in 2002 results in a 1% increase in productivity for the marginal exporter and a 1.8% increase in its revenue productivity. Endogenous organization increases the gains from trade by 41% relative to standard models.
Changing partners on a Trading Bloc: The MERCOSUR Case joint with Fernando Parro
New Developments in Computable General Equilibrium Analysis for Trade Policy, Hamid Beladi, E. Kwan Choi (ed.), (Frontiers of Economics and Globalization, Volume 7), Emerald Group Publishing Limited, pp.41-60.
This paper applies the new heterogeneous firm CGE model of Caliendo and Parro (2009) to determine what the Ricardian gains are from changing partners for members of a trade bloc. We focus on the MERCOSUR case, using a model with 48 sectors and 5 countries. Motivated by recent policy discussions, we quantify Uruguay’s trade and welfare effects from signing a Free Trade Agreement with the United States and leaving MERCOSUR. We find positive welfare effects for Uruguay from bilaterally reducing tariffs with the United States. Most of the gains come from having access to lower-cost intermediate inputs for production. We then consider the policy experiment of bilaterally eliminating tariffs between all members of MERCOSUR and the United States. We find that Uruguay has the largest gains, while Argentina and Brazil do not benefit much. This paper also illustrates how new models are a promising tool for the analysis of trade.
NAFTA led to Mexico increasing its trade in intermediate goods, resulting in welfare and trade growth
December 2014, USAPP - LSE, joint with Fernando Parro
August 2012, VoxEU, joint with Ferdinando Monte and Esteban Rossi-Hansberg