Working Papers

Trade, Agglomeration Effects, and Labor Markets: Theory and Evidence (Joint with Costas Arkolakis and Federico Esposito)
Version coming soon!

We develop a unified theoretical and empirical framework to study the impact of trade shocks on local labor markets. We start by explicitly characterizing, in a class of trade and geography models, a structural relationship between trade and labor market outcomes at the regional level. We show that both labor supply and agglomeration elasticities are central in determining this relationship. To identify these key elasticities, we propose a new empirical methodology that uses as an instrument the impact of exogenous trade shocks on changes of the endogenous variables predicted by our general equilibrium model. This methodology yields the most efficient estimator of the structural elasticities, i.e. a Model-implied Optimal IV (MOIV). We then apply our methodology to evaluate the aggregate impact of trade shocks affecting regional labor markets in the U.S.

Worker Heterogeneity, Wage Inequality, and International Trade: Theory and Evidence from Brazil (November 2016) 

This paper proposes a new approach to quantify the distributional effects of international trade. The starting point of my analysis is a Roy-like model where workers are heterogeneous in terms of their comparative and absolute advantage. In this environment, I show that the schedules of comparative and absolute advantage (i) determine changes in the average and the variance of the log-wage distribution, and (ii) are nonparametrically identified from the cross-regional variation in the sectoral responses of employment and wages to observable shifters of sector labor demand. I then use these theoretical results to quantify the distributional consequences of the recent movements in world commodity prices in Brazil. I find that shocks to world commodity prices account for 5-10% of the fall in Brazilian wage inequality between 1991 and 2010.


Refereed Publications

Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade (Joint with Arnaud Costinot and Dave Donaldson)

American Economic Review107(3): 633-89. (Lead Article)

We develop a methodology to construct nonparametric counterfactual predictions, free of functional form restrictions on preferences and technology, in neoclassical models of international trade. First, we establish the equivalence between such models and reduced exchange models in which countries directly exchange factor services. This equivalence implies that, for an arbitrary change in trade costs, counterfactual changes in the factor content of trade, factor prices, and welfare only depend on the shape of a reduced factor demand system. Second, we provide sufficient conditions under which estimates of this system can be recovered nonparametrically. Together, these results offer a strict generalization of the parametric approach used in so-called gravity models. Finally, we use China's recent integration into the world economy to illustrate the feasibility and potential benefits of our approach.