"Financial Linkages and the Global Business Cycle" with Marina M. Tavares (International Monetary Fund)

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Coverage: Trade Diversion

How are financial shocks transmitted across countries? We construct a new data set to study financial linkages within multinational firms as a channel of international business cycle transmission. We exploit empirical variation in the availability of credit to U.S. multinationals during the 2008-09 financial crisis to identify the strength of this channel. Abstracting from general equilibrium effects, we estimate that the U.S. credit crunch accounted for a quarter of the drop in sales of European subsidiaries during the crisis. Through the lens of a dynamic multicountry model, our micro estimates imply that financial linkages within multinationals account for at most a fifth of global GDP comovement. We document substantial heterogeneity in the strength of this mechanism across countries. Our findings suggest that countries with the largest foreign multinational presence experience more spillovers from foreign financial shocks, especially from shocks originating in the United States.


"Catch-Up Growth and Inter-Industry Productivity Spillovers in Open Economies"

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Coverage: World Bank Blogs

Countries tend to export more skill-intensive products as they become more productive. This paper proposes a tractable quantitative framework to examine the role of inter-industry productivity spillovers in this development process. I document that a country's comparative advantage tends to increase in industries that employ occupations that are used most intensively in current exports. The model rationalizes these findings by incorporating occupation-specific dynamic scale economies into a multi-sector gravity framework. I estimate the model using cross-sector heterogeneity in foreign demand shocks and find that scale economies are relatively large in high-skilled production. As a result, productivity spillovers tend to be larger in richer countries, and access to foreign markets allows developing countries to shift labor into sectors that contribute more to aggregate productivity growth. Counterfactual exercises suggest that spillovers play a quantitatively substantial role in accounting for slow cross-country convergence and increase the gains from trade, especially in economies with a comparative advantage in manufacturing.

"Misallocation in Indian Agriculture" with Swapnika Rachapalli (University of Toronto) and Diego Restuccia (University of Toronto and NBER)

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We exploit substantial variation in land-market institutions across Indian states and detailed micro panel data to study distortions in land rental markets and their impact on agricultural productivity. We find evidence that states with more rental-market activity feature less misallocation and over time reallocate land more efficiently. We develop a model of land rentals across heterogeneous farms to estimate land-market distortions in each state and assess their quantitative effect on agricultural productivity. Rentals have substantial positive effects on agricultural productivity. If farmers operate with their owned land instead of the actual cultivated land, agricultural productivity would decline by 22 percent on average and by more than 30 percent in states with substantial rental-market activity; whereas an efficient reallocation of land would further increase agricultural productivity by 29 percent on average and by more than 50 percent in states with highly distorted rental markets. Land market-distortions contribute to about one quarter of the differences in agricultural productivity across states.


"The Millennial Boom, the Baby Bust and the Housing Market" with Judd Cramer (Harvard University)

Coverage: VoxEU


  • Discussion of "Insurance and Propagation in Village Networks" , by Kinnan, Samphantharak, Townsend, and Vera-Cossio .

  • Discussion of "Irrigation vs Education: The Long Run Effects of Opium Cultivation in British India", by Lehne .

  • Discussion of "The Impact of Genetic Diversity on Religiosity", by Cesur and Yildirim .