Research Interests
International Trade, International Macroeconomics/Finance, Risk and Uncertainty, Global Value Chains, and Firm Theory.Research Interests
The attention on multi-product firms to date has mainly focused on firm scope, rather than what firms produce. We study what firms produce by developing a stochastic heterogeneous firm model accounting for correlations in production efficiencies across products and correlations in consumers' tastes across products and destinations. Using simulated method of moments estimation, we fit the model to Chinese exports data, focusing on firms exporting leather products. We document clustered coproduction structures consistent with correlated tastes and technologies across products.
International trade flows show strong persistence over time. Standard static gravity models cannot rationalize this persistence and lack a micro-foundation for including lagged trade flows as a determinant of current trade. We develop a structural dynamic gravity framework in which persistence arises from firms' sluggish adjustment of destination-specific prices, analogous to sticky prices in macroeconomics but operating at the bilateral level. The model delivers a gravity equation with lagged trade flows as a structural feature rather than an ad hoc add-on. We propose a novel estimation approach for dynamic gravity models that explicitly accounts for persistence. Empirically, we show that ignoring persistence can lead standard gravity estimates to substantially understate the effects of trade policy changes. As an application, we find that the estimated trade impact of regional trade agreements can increase by 30 percent or more once persistence is taken into account.
We analyse firms’ sourcing decisions under institutional uncertainty in foreign countries. Firms can reduce their uncertainty by observing offshoring firms’ behaviour. The model characterises a sequential offshoring equilibrium path, led by the most productive firms in the market. With multiple countries, information spillovers drive sourcing location choices, leading to multiple equilibria with implications for countries’ comparative advantages and welfare. Using firm-level data from Colombia, we test for the determinants and timing of offshoring decisions. We also derive spatial probit structural models to identify the firms’ dynamic trade-off when they decide on the offshoring location. We find supportive evidence for the model’s predictions.
Institutions affect the organisation of global value chains (GVCs). I analyse the organisational choices of heterogeneous firms in a model of incomplete contracts and uncertainty about foreign institutions. Under uncertainty, the model shows a sequential offshoring equilibrium path led by the most productive firms in the market. Other firms sequentially follow as the former reveal information about offshore institutional conditions and uncertainty reduces through learning. The sequential offshoring process intensifies competition in final-good markets, affecting the optimal organisation of the GVCs: firms initially choose foreign vertical integration (i.e., FDI), but the stronger progressively competition tilts the balance towards foreign outsourcing (i.e., arm's length trade). Thus, the least productive offshoring firms sequentially shift from foreign integration to foreign outsourcing. Empirical models with sector-level data of US manufacturing sectors provide supportive evidence of the model's predictions.
This paper studies how international firms hedge against trade cost uncertainty. We analyze two margins of adjustment: foreign market entry (exporting versus foreign direct investment) and invoicing in free-on-board (FOB) or cost-insurance-freight-inclusive (CIF) prices. In a unified model with oligopolistic competition and price rigidity, we show that trade cost volatility affects firms’ entry decisions through market shares and interacts systematically with invoicing strategies under sticky prices. Firms with small market shares prefer exporting and FOB-price invoicing, while firms with large market shares favor foreign investment and CIF-price invoicing. Using a novel transaction-level measure of trade cost volatility constructed from French customs data, we provide empirical support for these mechanisms and document joint determination of entry and invoicing decisions.