Working Papers

"Capital Accumulation, Trade, and China’s Economic Rise" (with Siqiang Yang and Shuichiro Nishioka) [pdf]

This paper examines the effects of China’s economic rise on the global trade of high-tech manufacturing goods and capital accumulation dynamics. We study these effects comparing resource-rich (RREs) and high-tech economies (HTEs), which exhibit distinct comparative-advantage patterns. We use a dynamic Eaton-Kortum model of trade with capital accumulation to conduct our analysis. We find that capital accumulation amplifies the positive short-run effects of China’s rise on investment and GDP over the long run. Sectoral adjustments are substantial, even in the short run. In particular, China’s rise contributes significantly to the decline of high-tech manufacturing and the re-primarization of RREs. Although many of these economies had developed sizable high-tech manufacturing sectors by 2000, they subsequently experienced a reallocation of labor and output away from these industries. The decline in China’s exporting costs for high-tech goods alone accounts for approximately 50% of the observed contraction of high-tech manufacturing in RREs. We also document substantial long-run tertiarization among these economies. Despite the importance of China’s rise, productivity growth in domestic high-tech industries and services has even larger quantitative effects on capital accumulation and GDP in developing RREs such as Brazil, Indonesia, and Mexico. Finally, we document high-tech de-industrialization in some HTEs, particularly the United States and Western Europe, as well as tertiarization across all HTEs..

"Bridging the Gap: How Ownership Affects Infrastructure Quality" (with Daniele Coen-Pirani and Yucheng Wang) [pdf]

The maintenance of public infrastructure is a persistent policy challenge. In the United States, federal, state, and local governments share responsibility for funding and managing it. Using data on the universe of U.S. public bridges over the past 40 years, we document systematic differences between matched, comparable state- and city-maintained bridges. State bridges are in better condition, deteriorate more slowly, and receive more frequent investment. We test whether the state-city bridge quality gap is relatively larger in cities with less resources, using population changes over time as a proxy for changes in resources. The evidence supports the hypothesis that resources matter for bridge quality. Finally, we interpret the empiricalfindings using a simple model of public goods provision by local and state governments. The model suggests that while a bridge-quality gap is a feature of the Pareto optimal allocation, the response of the gap to changes in a city’s population is muted relative to the gap in the decentralized allocation.

"The Neoclassical Theory of Population" (with Juan Carlos Cordoba and Xiying Liu) [pdf]

We show that a suitable extension of the neoclassical growth model to include land and endogenous fertility can account for four robust patterns in international data: (i) population size is strongly positively correlated with effective land; (ii) per capita income is largely uncorrelated with effective land; (iii) the land share of income declines with per capita income; and (iv) per capita income is positively correlated with labor-augmenting productivity. Our theory features a fixed land endowment, a production function combining capital, labor, and land with technological change specific to each factor and a Barro-Becker model of fertility with both time and goods costs of raising children. The model delivers a steady-state dichotomy: land and land-augmenting productivity determine the long-run level of population, while labor-augmenting productivity governs long-run income per capita. We construct crosscountry measures of effective land and factor-specific productivities and find support for the models core predictions. The framework also generates non-monotonic transitional dynamics: technological breakthroughs, such as industrial revolutions, induce population surges above long-run levels followed by sustained declines, broadly consistent with historical trajectories.

"Accounting for the International Quantity-Quality Trade-Off" (with Juan Carlos Cordoba and Xiying Liu) [pdf]

We investigate what accounts for the observed international differences in schooling and fertility, in particular the role of TFP, age-dependent mortality rates and public education policies. We use a generalized version of the Barro-Becker model that: (i) includes accumulation of human capital; (ii) allows for separate roles for intertemporal substitution, intergenerational substitution, and mortality risk aversion; and (iii) considers intergenerational financial frictions. We calibrate the model to a cross-section of countries in 2013. We find that while differences in TFP account for a large fraction of the dispersion in schooling, fertility and income per capita, public education subsidies play a major role. Public education spending per pupil matters relatively more in explaining the dispersion of fertility, while both the amount spent per pupil and the duration (years) of the subsidy are important in accounting for the dispersion of schooling. Eliminating public education subsidies results in an increase in average fertility, a decrease in human capital and income per capita, and an increase in the dispersion of schooling, fertility and income.

"A Contribution to the Economic Theory of Fertility" (with Juan Carlos Cordoba) [pdf]

Altruistic individuals regard fertility as a form of longevity. As a result, standard time-separable altruistic models of the type commonly used in macroeconomics cannot account for the evidence of increasing longevity but decreasing fertility as income rises, a puzzle. We show that a non-separable formulation of preferences that allows for a low elasticity of intertemporal substitution (EIS) but a high elasticity of intergenerational substitution (EGS) can explain the longevity-fertility puzzle. The model with a single elasticity cannot account for both. Our results suggests a major role for a new parameter in macro, the EGS. While the EIS mostly influences short-term economic decisions, the EGS influences mostly long-term economic choices.

"Trade Liberalization, Paths of Development, and Income Distribution" [pdf]

The Stolper-Samuelson theorem predicts that since developing countries are relatively abundant in unskilled labor, trade liberalization would decrease the relative wage of skilled to unskilled workers. Empirical evidence shows that while this prediction holds for some developing countries, it does not for many others. To account for these different outcomes, this paper develops a dynamic, general equilibrium model where small developing economies differ in their factor endowments at the time of trade liberalization. These different initial conditions, along with the impact of increased openness on the endogenous accumulation of factors of production, generate a rich set of outcomes that account for the diverse income-distribution patterns observed across developing countries. In the model, the existence of different initial conditions is explained by differences in trade policy and development strategies across countries. In particular, we consider both import substitution and subsidies to exports and education. Following trade liberalization, the behavior of the skill premium varies across countries because of the different paths of adjustment of both prices and factor endowments. In contrast to the existing literature on trade and wages in developing countries, this paper emphasizes the dynamic and general equilibrium aspects of trade. This paper also stresses the importance of a general equilibriumapproach in the empirical work on trade and wages.

Google Sites

Report abuse