Publications:
"Economic Reforms and Industrial Policy in a Panel of Chinese Cities" (with Lin Shao and Fabrizio Zilibotti), Journal of Economic Growth (2016).
Abstract:
We study the effect of place-based industrial policy on economic development, focusing on the establishment of Special Economic Zones (SEZ) in China. We use data from a panel of Chinese (prefecture-level) cities from 1988 to 2010. Our difference-in-difference estimation exploits the variation in the establishment of SEZ across time and space. We find that the establishment of a state-level SEZ is associated with an increase in the level of GDP of about 20%. This finding is confirmed with alternative specifications and in a sub-sample of inland provinces, where the selection of cities to host the zones was based on administrative criteria. The main channel is a positive effect on physical capital accumulation, although SEZ also have a positive effect on total factor productivity and human capital investments. We also investigate whether there are spillover effects of SEZ on neighboring regions or cities further away. We find positive and often significant spillover effects.
"A Theory of Structural Change that Can Fit the Data" (with Timo Boppart and Andreas Müller), American Economic Journal: Macroeconomics (2022)
Abstract:
We study structural change in historical consumption expenditure of the United States, the United Kingdom, Canada, and Australia over more than a century. We characterize the most general class of preferences in a time-additive setting that admits aggregation of the saving decision and allows to identify preference parameters from aggregate data. We parametrize and estimate such intertemporally aggregable (IA) preferences and discuss their properties in a dynamic general equilibrium framework with sustained growth. Our preference class is considerably more flexible than the Gorman form or PIGL, giving rise to a good fit of the non-monotonic pattern of structural change.
Working Papers:
"Chinese Roads in India: The Effect of Transport Infrastructure on Economic Development", Conditionally Accepted, Journal of International Economics [media coverage]
Abstract:
India and China followed different strategies in the design of their recent highway networks. India first focused on connecting the four largest economic centers of the country, the Golden Quadrilateral, while China had the explicit strategy of connecting intermediate-sized cities. The two countries also experienced different regional development patterns, with stronger convergence in China. This paper analyzes the aggregate and distributional effects of transport infrastructure in India based on a general equilibrium trade framework. I compare the effect of the Golden Quadrilateral to a counterfactual network that connects India's intermediate-sized cities. To construct the counterfactual network, I propose a heuristic network design algorithm to maximize aggregate real income net of road construction costs in the general equilibrium model, and I show that the heuristic algorithm provides a good approximation of the optimal network. The results suggest that the actual network led to sizable aggregate gains but unequal effects across regions. The income-maximizing counterfactual network is substantially larger than the actual Indian network, would imply further aggregate gains, and would benefit the lagging regions of India.
The Impact of Ethiopia’s Road Investment Program on Economic Development and Land Use: Evidence from Satellite Data (Revise & Resubmit, Journal of Economic Geography, with Kevin Croke, Alice Duhaut, Rob Marty, Ariana Vaisey)
Abstract:
This paper studies the impacts of the large-scale Road Sector Development Program in Ethiopia between 1997 and 2016 on land use - urban and cropland - and on local economic activity. It exploits spatial and temporal variation in road upgrades across Ethiopia, together with high-resolution panel data derived from satellite imagery. We find that road upgrades contributed to increases in local economic activity as proxied by nighttime lights and growth in urban land areas. However, we find significant heterogeneity in results across baseline levels of economic activity. Gains from road upgrades are concentrated in areas with moderate-to-high initial levels of economic activity. By contrast, there was little or even negative growth in areas with low levels of initial economic activity. Finally, we find that road upgrades contributed to a reduction in cropland in areas with medium-to-high baseline nighttime lights.
Policy Research working paper; no. WPS 10000
"On (Un)Congested Roads: A Quantitative Analysis of Infrastructure Investment Efficiency using Truck GPS Data" (with Zheng (Michael) Song and Zhitao Zhu)
Abstract:
This study aims to quantify the gains from investments in a transportation network where the elasticity of driving time to traffic ("congestion elasticity'') may differ across roads. We use high-frequency GPS data from half a million Chinese trucks to measure traffic flow and uncover the congestion elasticity heterogeneity in China's city-to-city road links. We find that one-third of the links are uncongested and that no more than 40% are associated with a large congestion elasticity comparable to the recent estimates for developed economies. In contrast, using real-time traffic data for interregional highways in England, we find that almost all roads are associated with a large congestion elasticity. We next incorporate congestion elasticity heterogeneity into a quantitative general equilibrium trade model with optimal route choices and structurally estimate the model. To calculate the returns on investment in each link, we infer the benefit from the estimated model. We find the returns to be highly unequal in China, and the heterogeneity in congestion elasticity can account for more than half of the dispersion. Numerical simulations show that dispersion is a robust indicator of misallocation and that optimized investments with a reasonable budget generate sizable welfare gains. Moreover, the optimal investment allocation turns out to be orthogonal to the actual allocation. Our findings suggest a severe misallocation of road investments in China.
Divide and Rule: How Political Elites Polarize Society (with Yikai Wang)
Abstract:
We propose a theory of endogenous polarization where a political elite strategically initiates conflicts between groups of people to polarize society and strengthen the elite's power. In the model, interactions between two groups of people result in stochastic gains, which are taxed by the elite. Outcomes of past interactions are observed and used to update the common belief about the expected gains. High expected gains from interactions correspond to low polarization and increase people's incentives to oust the rent-extracting elite. The elite responds with a divide and rule strategy: initiating a conflict to interrupt the interactions and prevent the updating of beliefs. An initial increase in polarization due to the conflict can lead to a persistent high-polarization conflict trap without productive interactions. In an extension, we discuss policy interventions that could counter the polarizing strategies of the elite.
"Political Distortions and Infrastructure Networks in China: A Quantitative Spatial Equilibrium Analysis" (with Illenin Kondo)
Abstract:
Using the timing of China’s highway network construction and political leadership cycles, we document systematic political distortions in the road infrastructure network: the birthplaces of the top officials who were in power during the network’s implementation are closer to the actual network, compared to the counterfactual optimal network in a quantitative spatial general equilibrium model. We then use the model to quantify the aggregate costs of distortions in the highway network. Overall, compared to the actual highway network, aggregate real income net of road construction costs is 1.76 percent higher with the heuristic optimal network. Political distortions due to favoring birthplaces account for approximately 0.2 percentage points of this welfare difference.
"Corruption, Firm Dynamics and Economic Growth" (with Lin Shao)
Abstract:
We build a firm dynamics model with corruption to study its impact on firm entry and exit, capital accumulation, and innovation. The effect of corruption depends on the degree of financial frictions and the stage of economic development. In the model, corruption serves as an endogenous entry barrier that reduces firm churning and protects the incumbent firms, allowing them to accumulate capital more quickly and grow out of financial constraints. Corruption can therefore have a positive effect when economic growth relies mainly on capital accumulation. However, as the economy develops, corruption can lead to increasing productivity losses when capital becomes abundant and technological progress is the main driver of growth. In addition, more corruption at the early stage could lead to a highly skewed distribution of firms later on, making it easier for asset-rich incumbent firms to bribe the government officials and prevent successful innovators from entering the market. We test the predictions of our theory using the Chinese firm-level data from 1998 to 2007. Our theory also has implications for the optimal anti-corruption policy over the development process.
"The Effects of Transport Infrastructure on India’s Urban and Rural Development" (with Mark Roberts and Meenu Tewari)
Abstract:
This paper uses a two-sector domestic trade model to study urban and rural development in India over the past decade. Based on a version of the market access approach proposed by Donaldson and Hornbeck (2016), we derive general equilibrium relationships between a sector’s income and it’s access to markets in both the urban and rural sectors. While the one-sector model that is often used in the literature predicts a constant elasticity of income with respect to market access, the two-sector version allows for heterogeneous effects. We use satellite data to measure urban and rural growth in 5,900 sub-districts where we assign areas to either urban or rural sectors based on a threshold for urban light intensity. In order to estimate the relationship between income and market access, we exploit changes in transportation infrastructure that have led to reductions in travel times on the computed shortest path. The implied reduction in trade costs generates variation in the market access measures. This time variation allows us to estimate the elasticity of income in each sector with respect to market access in the own and the other sector. The results suggest that both urban and rural market access are each individually strongly correlated with income, but they are empirically difficult to disentangle when estimating jointly. We then study the role of various complementary factors that potentially play different roles for urban and rural production and could imply heterogeneous effects of transport infrastructure. We consider natural resources like groundwater, rainfall, temperature, and the availability of cropland, as well as measures for human capital. The evidence on interaction effects is mixed and mostly suggests that the effect of market access is relatively stable.
Work in Progress:
The Baltic Exchange: Weather Risk and International Trade in Early Modern Europe (with Kerem Cosar and Jonathan Colmer)
Infrastructure Network Centrality and Politics in the U.S. (with Patrick Farrell, Illenin Kondo and Leonard Wantchekon)
Roads and Institutions (with Illenin Kondo and Leonard Wantchekon)
Policy Papers:
"A timely measure of wage growth on the basis of payment system data" (with Simon Beyeler, Laura Felber, Jonas Huwyler, Christoph Meyer, Simon Niederberger, Rina Rosenblatt-Wisch), SNB Economic Note 2/2024.