Research
Working papers
Data for 83 developing countries over the sample period 1980 - 2019 shows a robust negative correlation between net capital inflows and productivity growth, which is known as the allocation puzzle. After decomposing net capital inflows into net private capital inflows and net public capital inflows, net public capital inflows account for the negative correlation between productivity growth and net capital inflows. On the other hand, net private capital inflows are positively correlated with economic growth. Further, I find that human capital is positively correlated with private capital flows and negatively correlated with public capital flows by adding human capital, measured as years of schooling, into the regression model. Based on these findings, I provide a theoretical framework that explains the joint behavior of private and public capital flows in a small open economy.
Spatial Consumption Risk Sharing (with Chenyue Hu and Prateek Arora)
This paper examines how frictions in bilateral economic linkages shape the consumption pattern across economies. Using state-level data from the US, we find that the degree of bilateral consumption risk sharing across economies decreases in geographic distance. To explain this novel fact, we develop a DSGE model that incorporates trade, migration, and finance as channels of risk sharing which are subject to frictions that covary with distance. Calibrated to the US data, the model not only enables us to quantify the magnitude of the frictions in each channel, but also allows us to examine the interplay among the channels and disentangle their effects on the level, volatility, and comovement of consumption across states. Counterfactual analyses based on the model shed light on the design of macroeconomic policies that aim to reduce cross-region consumption disparity.
Work in progress
Trade Costs and A Gravity Model of Risk Sharing (with Chenyue Hu and Fernando Chertman)
This paper presents new evidence that trade costs impede cross-country consumption risk sharing. Our analysis exploits cross-sectional and time-series variations in trade costs across country pairs. Using the data for a large panel of countries over the period 1970-2014, we find that bilateral risk sharing improves once a pair of countries become partners under a regional trade agreement. Moreover, we establish a gravity model of consumption risk sharing by finding that countries that are more geographically distant from each other exhibit weaker bilateral risk sharing. The effect is more pronounced in the absence of RTAs, which suggests that trade-promoting policies mitigate the impact of geographic distance on risk sharing. Furthermore, we build a causal relationship between trade and risk sharing by using instrumental variables. These results point to the importance of the trade channel for international consumption risk sharing. Based on these findings, lifting trade barriers will benefit countries by reducing consumption fluctuations.