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. This is true for yearly data and even more so for higher-frequency data such as monthly data. Standard gravity theory cannot explain the persistence, i.e., why lagged trade flows should enter as an explanatory variable. While some dynamic gravity models have been explored, the dynamics in these models are either driven by country-specific factors (such as capital accumulation or technology) or ad hoc (like assuming bilaterally specific capital). We provide a structural dynamic gravity framework where the persistence stems from firms’ sluggish adjustment of destination-specific prices, akin to sticky pricing a la Calvo (1983). Our theoretical framework provides a micro-foundation for a gravity equation with lagged trade flows as an explanatory variable. Using OECD trade data at high and low frequencies, we document the persistence of trade flows and estimate the parameter governing the share of firms that sluggishly adjust prices. Consistent with the literature on nominal rigidities, we find a high degree of price stickiness at monthly frequency and a lower degree at annual frequency. Our results help to explain the propagation of trade cost shocks to trade, prices, and welfare over the short and long run.
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 unexpected trade cost shocks. We focus on two margins of adjustment: contractual arrangements that determine whether trade costs are borne by the buyer or the seller, and the choice between serving foreign markets through exports or foreign direct investment. We develop a unified framework in which market structure and price rigidity jointly shape the effectiveness of these hedging instruments. Under flexible prices, contractual arrangements are neutral, and trade cost uncertainty affects firms' entry decisions: greater uncertainty encourages exporting when market power is low, but favors foreign investment when market power is high. With price rigidity, foreign investment becomes more attractive as a hedge against trade cost risk, and contractual arrangements emerge as an additional instrument that interacts with firms’ entry mode choices. The strength and direction of this interaction depend on the elasticity of demand and the extent to which production is relocated abroad under foreign investment.