Revisiting Productivity Dynamics in Europe: A New Measure of Utilization-Adjusted TFP Growth (with D. Comin, T. Schmitz and A. Trigari)  [NBER WP 28008, CEPR 15402] [Data] (R&R Journal of the European Economic Association)

We compute new estimates for Total Factor Productivity (TFP) growth in five European countries and in the United States. Departing from standard methods, we account for positive profits and use firm surveys to proxy for unobserved changes in factor utilization. These novelties have a major impact in Europe, where our estimated TFP growth series are less volatile and less cyclical than the ones obtained with standard methods. Based on our approach, we provide annual industry-level and aggregate TFP series, as well as the first estimates of utilization-adjusted quarterly TFP growth in Europe.

Regional Divergence, Manufacturing Decline and the Rise of Skilled Services (R&R Journal of Economic Geography)

This paper examines the relationship between the decline of manufacturing and regional divergence in the United States from 1990 to 2007, focusing on skill polarization and skill wage premium differentials. I show that the effect is not driven by different levels of manufacturing intensity across regions. Instead, the effect depends on the non-manufacturing industries present during the decline. Regions with skill-intensive service industries leveraged the increase in manufacturing import competition to undergo a successful structural transformation and mitigate the negative impact on local manufacturing employment. The interaction between exposure to manufacturing import competition and skill-intensive local services has a significant positive effect on the number and real wages of college-educated workers in local labor markets. The paper introduces a novel "labor market exposure" to manufacturing import competition for non manufacturing industries to test the labor reallocation channel. 

A Production Network Model for the Spanish Economy: Application to the Impact of NGEU Funds (with A. Fernández and  E. Moral-Benito)   [Banco de España. Analytical Article 13/23 ] (Economic Modelling)

This paper introduces a sectoral model for the Spanish economy that allows a better understanding of the propagation of sector-specific shocks taking into account different network interdependencies. In particular, the model features sector interactions along several dimensions in an open economy setting, either in the provision of intermediate inputs and capital goods or competing in the labour market. This framework is flexible enough to provide insights into the effect of several policy-relevant shocks, such as global value chain bottlenecks, increases in production costs in energy-intensive sectors or large public investment programmes. In order to illustrate the role of such sectoral interactions, we consider a sectorisation of Next Generation EU (NGEU) funds based on Spain’s Recovery, Transformation and Resilience Plan (RTRP) which will mobilize €69.5 bn in grants. According to our findings, the average impact over a 5-year horizon is 1.15% of GDP if we consider only the direct effect of the investment programmes and expenditure plans, but it increases to 1.75% if we take into account the increase in the productive capacity of certain sectors and its propagation through the production network. Moreover, the resulting expansion is particularly strong in sectors highly dependent on high-skilled labour, such as IT and professional services, which might lead to shortages of high-skilled workers, reducing the aggregate impact on GDP by 25%.

The heterogenous effects of a higher volume of regulation: evidence from more than 200k Spanish norms (with J. Mora-Sanguinetti, I. Soler and R. Spruk) ( Journal of Regulatory Economics )

We analyze the aggregate economic impacts, as well as the heterogeneous effects on the different types of enterprises, of the increasing volume of regulation observed in Spain between 1995 and 2000. Our novel database classifies more than 200,000 regulations adopted at the region level for 13 industries (sectors) of the Spanish economy. Exploiting this database, we are able to estimate the exposure to regulation of enterprises located in different Spanish regions. We find that an increase in the volume of regulations has an impact on economic activity, reducing employment. Entry of new firms in sectors-regions exposed to higher regulation is also lower. These effects are heterogeneous across firms, with negative effects concentrated in smaller and more recently established firms. This evidence emphasizes the importance of both the aggregate and distributional impact of the changing (increasing) volumes of regulation. 

Work in progress

The Role of Input-Output Investment Networks  [Data]

This paper documents the construction of a novel investment network matrix at the sectoral and global level. This matrix provides information on buyer-supplier relationships for investment goods across 44 sectors and 67 countries. Most investment goods are supplied by a small number of investment hubs. Construction is the largest supplier of investment goods and is highly localized in each country. Nevertheless, non-construction investment goods are highly integrated globally, with EU countries importing about a third of these investment goods. Because of their role in the supply of investment goods, sector-specific shocks to these hubs have a particular amplifying effect on the level and volatility of GDP, as well as on spillovers between European economies. The matrix can also be used to capture sectoral demand shocks to investment hubs resulting from interest rate shocks.

Policy work

Economic Consequences of a Trade Embargo between Russia and EU [Banco de España. Analytical Article 2/22 ]

A hypothetical interruption of energy commodity imports from Russia could significantly affect the Spanish economy. The difficulty of replacing these products in the short term would reduce the energy supply and compound the current inflationary episode, both of which would weigh on economic activity. However, since Spain is less energy dependent on Russia than other European economies, the effects on the Spanish economy would be notably smaller. Lastly, the impact would be amplified due to the shock propagating through global production chains, with a particularly marked effect on certain sectors of activity. The interruption of exports or imports of other goods would also adversely affect the European economies, although it would have a more limited impact than in the case of energy commodities.

This article presents a price index for Spanish urban areas covering the period 2004-2020. By way of example, according to this index, the cost of living in the two largest cities (Madrid and Barcelona) in 2020 was nearly 20% higher than the average of other Spanish urban areas. Thus, while average private sector wages in Madrid and Barcelona were 45% higher than in other cities, this gap narrows to 21% when wages are adjusted to reflect purchasing power.