Research

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Working Papers

Abstract: We explore the mechanics of empathy. We conjecture that perceiving others as similar magnifies the empathetic response to witnessing their struggles: it makes it possible to live their experience as if one were `in their shoes.' We propose a novel measure of perceived similarity, applicable to any pre-specified group. We show that perceived similarity to unauthorized migrants can be experimentally enhanced by providing neutral information on unauthorized immigration. In a controlled immersive virtual reality experimental setting, the same neutral information magnifies the empathetic response of subjects when they witness the struggles of unauthorized migrants. We provide similar evidence in observational data, showing that contact with a given foreign origin group induces a higher perceived similarity to this group and a greater empathetic response --more charitable donations-- after the country of origin of this group is hit by a natural disaster. Together, our evidence suggests that the ability to put oneself in the shoes of another person or group can be enhanced through standard policy tools such as information provision and inter-group contact.

Immigration, Innovation, and Growth 

(Stephen Terryⓡ; Thomas Chaneyⓡ; Konrad Burchardiⓡ; Lisa Tarquinioⓡ; and Tarek Hassanⓡ)

February 2024 | [PDF] | [NBER WP No. 27075] | [CEPR DP No. 14719] | [Immigration Instruments]

American Economic Review Revise and Resubmit 2nd round

Abstract: We propose a novel identification strategy to isolate exogenous immigration shocks across US counties, by interacting quasi-random variations in the composition of ancestry across counties with the contemporaneous inflow of migrants from different countries. We show a positive causal impact of immigration on local innovation and wages at the 5-year horizon. The positive dynamic impact of immigration on innovation and wages dominates the short-run negative impact of increased labor supply. A structural estimation of a model of endogenous growth and migrations suggests the increased immigration to the US since 1965 may have increased innovation and wages by 5%.

Abstract: To study social, economic, and historical questions, researchers in the social sciences and humanities have started to use increasingly large unstructured textual datasets. While recent advances in NLP provide many tools to efficiently process such data, most existing approaches rely on generic solutions whose performance and suitability for domain-specific tasks is not well understood. This work presents an attempt to bridge this domain gap by exploring the use of modern Entity Linking approaches for the enrichment of museum collection data. We collect a dataset comprising of more than 1700 texts annotated with 7,510 mention-entity pairs, evaluate some off-the-shelf solutions in detail using this dataset and finally fine-tune a recent end-to-end EL model on this data. We show that our fine-tuned model significantly outperforms other approaches currently available in this domain and present a proof-of-concept use case of this model. We release our dataset and our best model.

Publications

The Immigrant Next Door

(Leonardo Bursztyn; Thomas Chaney; Tarek Hassan; and Aakaash Rao)

February 2024, 114(2): 348-84 | [PDF] | [NBER WP No. 28448] | [Appendix] | [BibTeX] 

American Economic Review ©2024 by the American Economic Association

Abstract: We study how decades-long exposure to individuals of a given foreign descent shapes natives’ attitudes and behavior toward that group. Using individualized donations data, we show that long-term exposure to a given foreign ancestry leads to more generous behavior specifically toward that group’s ancestral country. Focusing on exposure to Arab Muslims to examine mechanisms, we show that long-term exposure (i) decreases explicit and implicit prejudice against Arab Muslims, (ii) reduces support for policies and political candidates hostile toward Arab Muslims, (iii) increases charitable donations to Arab countries, (iv) leads to more personal contact with Arab Muslims, and (v) increases knowledge of Arab Muslims and Islam.


Quantifying Reduced-Form Evidence on Collateral Constraints  

(Sylvain Catherine; Thomas Chaney; Zongbo Huang; David Sraer; and David Thesmar)

August 2022, 77(4): 2143-81 | [PDF] | [Data/Code] | [Appendix] | [BibTeX] 

Journal of Finance ©2022 by the American Finance Association

Abstract: This paper quantifies the aggregate effects of financing constraints. We start from a standard dynamic investment model with collateral constraints. In contrast to the existing quantitative literature, our estimation does not target the mean leverage ratio to identify the scope of financing frictions. Instead, we use a reduced-form coefficient from the recent corporate finance literature that connects exogenous debt capacity shocks to corporate investment. Relative to a frictionless benchmark, collateral constraints induce losses of 7.1% for output and 1.4% for total factor productivity (TFP) (misallocation). We show these estimated losses tend to be more robust to misspecification than estimates obtained by targeting leverage.

Trade, Merchants and the Lost Cities of the Bronze Age  

(Gojko Barjamovic; Thomas Chaney; Kerem Cosar; and Ali Hortacsu)

August 2019, 134(3): 1455-1503 | [PDF] | [Data/Code] | [Appendix] | [BibTeX] 

Reviewed in Science.

Quarterly Journal of Economics ©2019 by the Oxford University Press

Abstract: We analyze a large data set of commercial records produced by Assyrian merchants in the nineteenth century BCE. Using the information from these records, we estimate a structural gravity model of long-distance trade in the Bronze Age. We use our structural gravity model to locate lost ancient cities. In many cases, our estimates confirm the conjectures of historians who follow different methodologies. In some instances, our estimates confirm one conjecture against others. We also structurally estimate ancient city sizes and offer evidence in support of the hypothesis that large cities tend to emerge at the intersections of natural transport routes, as dictated by topography. Finally, we document persistent patterns in the distribution of city sizes across four millennia, find a distance elasticity of trade in the Bronze Age close to modern estimates, and show suggestive evidence that the distribution of ancient city sizes, inferred from trade data, is well approximated by Zipf’s law. JEL Codes: F1, N7, N9, R12.

Migrants, Ancestors and Foreign Investments  

(Konrad Burchardi; Thomas Chaney; and Tarek Hassan)

July 2019, 86(4): 1448-86 | [PDF] | [Data/Code] | [Appendix] | [Ancestry Instruments] | [BibTeX]

Review of Economic Studies ©2019 by the Oxford University Press

Abstract: We use 130 years of data on historical migrations to the U.S. to show a causal effect of the ancestry composition of U.S. counties on foreign direct investment (FDI) sent and received by local firms. To isolate the causal effect of ancestry on FDI, we build a simple reduced-form model of migrations: Migrations from a foreign country to a U.S. county at a given time depend on (1) a push factor, causing emigration from that foreign country to the entire U.S., and (2) a pull factor, causing immigration from all origins into that U.S. county. The interaction between time-series variation in origin-specific push factors and destination-specific pull factors generates quasi-random variation in the allocation of migrants across U.S. counties. We find that doubling the number of residents with ancestry from a given foreign country relative to the mean increases the probability that at least one local firm engages in FDI with that country by 4 percentage points. We present evidence that this effect is primarily driven by a reduction in information frictions, and not by better contract enforcement, taste similarities, or a convergence in factor endowments.

The Gravity Equation in International Trade: An Explanation  

(Thomas Chaney)

February 2018, 126(1): 150-77 | [PDF] | [Data/Code] | [Appendix] | [BibTeX]

Journal of Political Economy ©2018 by the University of Chicago

Response to Dewitte comment 2022

Abstract: The gravity equation in international trade states that bilateral exports are proportional to economic size and inversely proportional to geographic distance. While the role of size is well understood, that of distance remains mysterious. I offer an explanation for the role of distance: If (i) the distribution of firm sizes is Pareto, (ii) the average squared distance of a firm’s exports is an increasing power function of its size, and (iii) a parameter restriction holds, then the distance elasticity of trade is constant for long distances. When the firm size distribution follows Zipf’s law, trade is inversely proportional to distance.

Quality Pricing-to-Market  

(Raphael Auer; Thomas Chaney; and Philip Saure)

January 2018, 110: 87-102 | [PDF] | [Appendix] | [BibTeX]

Journal of International Economics ©2018 by Elsevier

Abstract: This paper analyzes firm’s pricing-to-market decisions in vertically differentiated industries. We first present a model featuring firms that sell goods of heterogeneous quality levels to consumers who are heterogeneous in their income and thus their marginal willingness to pay for quality increments. We derive closed-form solutions for the unique pricing game under costly international trade. The comparative statics highlight how firms’ pricing-to-market decisions are shaped by the interaction of consumer income and good quality. We derive two testable predictions. First, the relative price of high qualities compared to low qualities increases with the income of the destination market. Second, the rate of cost pass-through into consumer prices falls with quality if destination market income is sufficiently high. We present evidence in support of these two predictions based on a dataset of prices, sales, and product attributes in the European car industry.

Liquidity Constrained Exporters  

(Thomas Chaney)

November 2016, 72: 141-54 | [PDF] | [BibTeX]

Journal of Economic Dynamics and Control ©2016 by Elsevier

Abstract: I propose a model of international trade with liquidity constraints. If firms must pay a fixed entry cost in order to access foreign markets, and if they face liquidity constraints to finance these costs, only those firms that have sufficient liquidity are able to export. A set of firms could profitably export, but are prevented from doing so because they lack sufficient liquidity. More productive firms that generate large liquidity from their domestic sales, and wealthier firms that inherit a large amount of liquidity, are more likely to export. This model offers a potential explanation for the apparent lack of sensitivity of exports to exchange rate fluctuations. When the exchange rate appreciates, existing exporters lose competitiveness abroad, and are forced to reduce their exports. At the same time, the value of domestic assets owned by potential exporters increases. Some liquidity constrained exporters start exporting. This dampens the anti-competitiveness impact of a currency appreciation. Under some conditions, it may reverse it altogether and increase aggregate exports. In this sense, the model is able to rationalize the co-existence of competitive devaluations and competitive revaluations.

Networks in International Trade  

(Thomas Chaney)

Oxford Handbook of the Economics of Networks, edited by Y. Bramoulle, A. Galleoti and B. Rogers

April 2016: 754-75 | [PDF] | [BibTeX]

Oxford University Press ©2016 by the Oxford University Press

Abstract: International trade offers a unique environment for the study of large-scale networks for two reasons. First, the structure of international trade intrinsically resembles that of a network: countries are connected to each other by trade linkages; individual exporting firms are connected to other importing firms in foreign countries; migrants personally know people from various countries. Second, most international transactions and transnational migrations are recorded, by customs or immigration authorities, so detailed data are readily available for the empirical study of those large-scale networks. This chapter reviews recent advances in international trade and the economic networks and suggests promising avenues for research on the role networks play in international trade. The author describes both important empirical studies of networks in trade, and powerful theoretical tools that can be used to analyze the micro and aggregate properties of large-scale networks.

The Network Structure of International Trade  

(Thomas Chaney)

November 2014, 104(11): 3600-34 | [PDF] | [Data/Code] | [Appendix] | [BibTeX]

American Economic Review ©2014 by the American Economic Association

Abstract: Motivated by empirical evidence I uncover on the dynamics of French firms’ exports, I offer a novel theory of trade frictions. Firms export only into markets where they have a contact. They search directly for new trading partners, but also use their existing network of contacts to search remotely for new partners. I characterize the dynamic formation of an international network of exporters in this model. Structurally, I estimate this model on French data and confirm its predictions regarding the distribution of the number of foreign markets accessed by exporters and the geographic distribution of exports. (JEL D85, F11, F14, L24)

Market Size, Division of Labor, and Firm Productivity  

(Thomas Chaney and Ralph Ossa)

May 2013, 90(1): 177-80 | [PDF] | [BibTeX]

Journal of International Economics ©2013 by Elsevier

Abstract: We generalize Krugman's (1979) ‘new trade’ model by allowing for an explicit production chain in which a range of tasks is performed sequentially by a number of specialized teams. We demonstrate that an increase in market size induces a deeper division of labor among these teams which leads to an increase in firm productivity. The paper can be thought of as a formalization of Smith's (1776) famous theorem that the division of labor is limited by the extent of the market. It also sheds light on how market size differences can limit the scope for international technology transfers.

The Collateral Channel: How Real Estate Shocks Affect Corporate Investment  

(Thomas Chaney; David Sraer; and David Thesmar)

October 2012, 102(6): 2381-2409 | [PDF] | [Data/Code] | [Appendix] | [BibTeX] 

American Economic Review ©2012 by the American Economic Association

Abstract: What is the impact of real estate prices on corporate investment? In the presence of financing frictions, firms use pledgeable assets as collateral to finance new projects. Through this collateral channel, shocks to the value of real estate can have a large impact on aggregate investment. To compute the sensitivity of investment to collateral value, we use local variations in real estate prices as shocks to the collateral value of firms that own real estate. Over the 1993–2007 period, the representative US corporation invests $0.06 out of each $1 of collateral.

Exchange Rate Pass-Through in a Competitive Model of Pricing-to-Market  

(Raphael Auer and Thomas Chaney)

February 2009, 41(s1): 151-75 | [PDF] | [Appendix] | [BibTeX]

Journal of Money, Credit and Banking ©2009 by the Ohio State University

Abstract: This paper extends the Mussa and Rosen (1978) model of quality pricing under perfect competition. Exporters sell goods of different qualities to consumers who have heterogeneous preferences for quality. Production is subject to decreasing returns to scale and, therefore, supply and the toughness of competition react to cost changes brought about by exchange rate fluctuations. First, we predict that exchange rate shocks are imperfectly passed through into prices. Second, prices of low-quality goods are more sensitive to exchange rate shocks than prices of high-quality goods. Third, in response to an exchange rate appreciation, the composition of exports shifts toward higher quality and more expensive goods. We test these predictions using highly disaggregated price and quantity U.S. import data and find only weak empirical evidence in support of our theory.

Distorted Gravity: The Intensive and Extensive Margins of International Trade  

(Thomas Chaney)

September 2008, 98(4): 1707-21 | [PDF] | [Appendix] | [BibTeX]

American Economic Review ©2008 by the American Economic Association

Abstract: By considering a model with identical firms, Paul Krugman (1980) predicts that a higher elasticity of substitution between goods magnifies the impact of trade barriers on trade flows. In this paper, I introduce firm heterogeneity in a simple model of international trade. When the distribution of productivity across firms is Pareto, which is close to the observed size distribution of US firms, the predictions of the Krugman model with representative firms are overturned: the impact of trade barriers on trade flows is dampened by the elasticity of substitution, and not magnified.

Work in Progress

Very Long Run Growth

Trade and the End of Antiquity

The Road-knot Hypothesis and the Emergence of Cities in the Neolithic

Merchant Networks in the Bronze Age

How to Create New Cities from Scratch? 

Evidence from 13th Century Bastides in Southwest France

Work in Limbo

Summary: In the presence of financing frictions and firm-to-firm input-output linkages, idiosyncratic firm-level shocks generate fat tails of extreme events (sudden and large recessions and recoveries), and, absent extreme events, log-normally distributed aggregate fluctuations.

Summary: I propose a partition of US firms into "production clusters": two firms belong to the same cluster if their sales are correlated. Cluster boundaries better describe production chains than the arbitrary legal boundaries of firms. I uncover robust statistical regularities for production clusters:

(i) cluster sizes are precisely governed by a two-sided Pareto distribution, while firm sizes are governed by a complex mixture of Pareto and log-normal distributions, or even worse;

(ii) production clusters precisely follow Gibrat's law, an average growth rate independent of size, while small firms strongly depart from Gibrat's law;

(iii) unlike firms, cluster volatility falls sharply with cluster size.

Summary: Some people are good at inventing new technologies, and some at implementing them. Both don't always live in the same country. When international trade in ideas is allowed, talented inventors team up with talented craftsmen, world production and world trade go up.

Summary: When trade barriers are high, (too) many firms can survive, sheltered from foreign competition. After a trade liberalization, it takes a long time for those firms to exit. The economy may overheat for a while.