Using one million procurement contracts awarded in France and Spain, we quantify the importance of home bias in explaining governments’ purchases. First, we exploit that “home” has a different meaning for subnational and national governments and identify their relative home bias by comparing how local and non-local establishments sell to national and subnational agencies within a region. Second, we exploit a reorganization of French regions, to estimate how “new local” establishments sell to governments after the reform. Using a quantitative trade model, we find that governments’ home bias increases local expenditures shares by 29% and reduces governments’ output by 8%.
Do community networks shape firm-to-firm trade in emerging economies? We study the role of communities in facilitating firm-to-firm trade and firm outcomes using data on firm-to-firm transactions and firm owners’ community (castes) affiliations for the universe of medium- and large- sized firms in West Bengal, India. We find that firms are substantially more likely to trade, and trade more, with firms from their own caste. Studying the mechanisms underlying this effect, we find evidence consistent both with castes alleviating trade frictions and taste-based discrimination by firms against those outside their community. Guided by these stylized facts, we develop a model of firm-to-firm trade in which communities affect pair productivity and matching costs and estimate the model using our reduced-form estimates. A counterfactual extending the positive effects of castes on trade to all potential supplier-client pairs would increase the number of network links by 60% and increase average firm-to-firm sales by 20%.
Are country borders still an impediment to trade flows within Europe? Using a rich microlevel survey with 3 million annual shipments of goods by road across 269 European regions, we construct a matrix of bilateral trade flows for 12 industries from 2011 to 2017. We then use the causal inference framework to design an identification strategy to estimate the causal effect of country borders on trade flows. Take two similar region pairs, the first one containing regions in different countries and the second one containing regions in the same country. The market share of the origin region in the destination region for the international pair is only 17.5 percent that of the intranational pair. We refer to this estimate as the average border effect. When we look at each industry separately, we find border effects that range from 12.3 to 38.9 percent. When we look at recent borders, i.e. created after 1910, we find a border effect of 28.8 percent, which is smaller than the average border effect but still quite large. The implication is clear: Europe is far from having a single market.
Can governments adjust transportation infrastructure to unexpected economic changes? This paper studies the importance of flexibility in the development of a transport network exploiting the division of Germany. To understand the incentives behind infrastructure construction, I develop a multi-region quantitative trade model with endogenous infrastructure choice and calibrate it to the prewar German economy. I exploit the division of Germany, an exogenous change in borders, to test the ability of the model to predict highway development before and after the division. Using newly collected data, I document that the West German government considerably reshaped the highway network after the division shock. The reshaping of the network increased aggregate welfare by 1.24% to 2.13%. However, this reshaping was constrained by the part of the network developed before the division. I quantify the cost of path-dependence from these pre-division highway links. The ability to reshape the full network could have increased aggregate welfare by an additional 1.86%.
Replication package and Data [link]
We use the new dataset of trade flows across 269 European regions in 24 countries constructed in Santamaría et al. (2020) to systematically explore for the first time trade patterns within and across country borders. We focus on the differences between home trade, country trade and foreign trade. We document the following facts: (i) European regional trade has a strong home and country bias, (ii) geographic distance and national borders are important determinants of regional trade, but cannot explain the strong regional home bias and (iii) the home bias is heterogeneous across regions and seems to be driven by political regional borders.
Media coverage: Innovations for Poverty Action blog [LINK]
Poor public service provision and government accountability is commonplace in low-income countries. Although mobile phone-based platforms have emerged to allow constituents to report service deficiencies to government officials, they have been plagued by low citizen participation. We question whether low participation may root in low political efficacy to politically participate. In the context of a text-message reporting platform in Uganda, we investigate the impact of adding efficacy-boosting language to mobilization texts - (a) citizen name personalization and (b) politician encouragement - on citizens' willingness to report service deficiencies to politicians via text messages. Both treatments, designed to increase internal and external efficacy, respectively, have a large, positive effect on participation. The results are driven by traditionally less internally efficacious constituents (females and less externally efficacious constituents (those represented by opposition party members), respectively.