Job Market Paper

"Firm-Level Distortions, Trade, and International Productivity Differences" (Download)

Developing countries typically exhibit small firm size, high dispersion of marginal productivity of factors across firms, and low trade-to-output ratios. They also tend to export particularly less to more distant and smaller markets. To rationalize these facts, this paper develops a flexible, multi-country general equilibrium model of production and trade in which heterogeneous producers face both domestic size-dependent distortions (SDD) and costly entry into exporting. Since larger firms have greater export-market participation, misallocation induced by SDD reduces the economy's overall market access, trade volumes, and gains from trade, reinforcing the contraction in aggregate total factor productivity (TFP). I explore the quantitative properties of the model calibrated to firm-level and aggregate data from the manufacturing sector of 77 major economies. I find that productivity gains from reducing SDD are significantly larger when economies are open to trade. Enhanced firm selection and factor allocation across firms fully explain this amplification, whereas the contribution from changes in firm creation is actually dampened by trade. Furthermore, cross-country variation in SDD explains a substantial share of international productivity differences, but only when countries are integrated through trade.

Research Papers in Progress

"Distance, Trade, and Welfare: An Evaluation of Quantitative Trade Models" (with Greg Casey) (New version coming soon! Old version available upon request.)

We use the shock to trade costs caused by the closing of the Suez Canal to test the accuracy of counterfactual predictions generated by standard general equilibrium models of international trade. We first estimate the trade elasticity using a structural model. We find a trade elasticity that is lower than estimates in the existing literature, suggesting the previous literature underestimates the gains from trade. Then, we use the model predictions as a simulated instrument to directly estimate the gains from trade using instrumental variable regressions. We again find evidence that the true gains from trade are higher than those implied by the standard model, even when using our new estimate of the trade elasticity. Finally, we provide some preliminary evidence that home shares do not capture the full effect of the canal closure, indicating that the standard welfare equation may be incomplete.

"Flexible Comparative Advantage and the Gains from Trade" (New version coming soon!)

Ricardian models of international trade based on the seminal work of Eaton and Kortum (2002) (EK) assume that the within-sector dispersion of micro-level productivity is constant across countries. This assumption implies that all bilateral trade flows are equally sensitive to trade barriers and that the cross-country differences in the gains from trade depend only on differences in measured trade openness and sectoral composition. I provide reduced form evidence that in most sectors exports from developing countries are systematically more sensitive to trade costs than sales from OECD economies. I then estimate a nonlinear gravity equation based on an extension of EK that allows for productivity heterogeneity to vary across countries. I find that developed economies have structural trade elasticities that are approximately half of those from poor countries. This result suggests that welfare calculations based on a constant trade elasticity might overestimate gains from trade for developing economies while underestimating them for rich countries.

 Active Projects

"Agricultural Productivity and International Trade of Fertilizer across Countries and over Time" (with Heitor Pellegrina)

"A General Equilibrium Model of Importing and Exporting"