Working Papers

"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.

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