Research
PUBLICATIONS
“Intersectoral Distortions and the Welfare Gains from Trade”
Journal of International Economics, Vol. 104, January 2017, 138-156.
Abstract: How large are the welfare gains from trade when factors are misallocated due to domestic distortions? In this paper I provide a theoretical and a quantitative answer to this question by incorporating distortions to the allocation of labor across sectors into a Ricardian trade model. Applying the model to data for a diverse set of countries I find that (1) gains from trade for net exporters in sectors with low marginal product of labor are overstated in models that abstract from intersectoral distortions since in those countries trade tends to exacerbate the effect of domestic frictions; (2) the gains from implementing optimal tariffs are substantial in the presence of domestic frictions because trade policy can offset some of their negative effect; and (3), mitigating domestic frictions has a much larger potential payoff for countries when they are open to international trade.
“Determinants of Structural Change"
Review of Economic Dynamics, Vol. 24, March 2017, 95-131.
Abstract: In this paper I ask which of the multiple mechanisms suggested in the literature are quantitatively important for understanding the process of structural change. I build a model combining in a common framework four forces: (i) sector-biased technological progress, (ii) nonhomothetic tastes, (iii) international trade and (iv) changing wedges between factor costs across sectors. I calibrate the model using the data for 45 diverse countries over the period 1970-2005 and use counterfactual simulations of the model to assess the relative importance of the four determinants of structural change. I find that sector-biased technological change is overall the most important mechanism and it is essential for understanding experiences of developed countries. Nonhomothetic preferences are key to accounting for movement of labor out of agriculture which matters primarily for poorer countries. Trade and intersectoral wedges are important for individual countries but their impact on the relocation of labor is less systematic. I also show that a model with homothetic preferences would overstate the importance of agriculture in accounting for differences in aggregate productivity across countries and over time.
WORKING PAPERS
“Barriers to Mobility or Sorting? Sources and Aggregate Implications of Income Gaps across Sectors in Indonesia” with José Pulido
Revision requested at American Economic Journal: Macroeconomics
Abstract: The existence of large income gaps between agricultural and non-agricultural workers in developing countries is well known. However, the source of these gaps is still being debated and the two main hypotheses - barriers to labor mobility and sorting of workers based on unobserved productivity - have opposing implications for aggregate efficiency. We use a panel of Indonesian workers to move beyond the cross-sectional gaps and document that workers moving out of agriculture see income gains of over 20% while those moving into agriculture see similar income losses, with large flows of workers in both directions. To interpret these findings, we structurally estimate a model featuring both sorting and barriers to sectoral mobility. Our estimates indicate that while self-selection is important, there is more misallocation than is suggested in the recent literature. Removing mobility barriers would lead one third of workers to reallocate and would increase aggregate output by as much as 21%.
OLDER PAPERS
“Credit Constraints, Trade and Wealth Distribution”
Abstract: In this paper I study the effects of credit constraints on aggregate outcomes and wealth distribution in closed and open economies. Entrepreneurs, who are heterogeneous in ability and wealth, might encounter collateral constraints as an obstacle to building businesses of optimal size. In the open economy entrepreneurs can decide to enter a foreign market, possibly subject to paying a fixed cost. The main finding of the paper is that while credit frictions negatively affect both closed and open economies, the impact is relatively larger in trading economies when entering the foreign market is costly. Stated differently, credit frictions lower the welfare gains from trade if some entrepreneurs are not exporting.