Research

Working Papers

Trade Liberalization, Structural Change, and Skill Premium Growth in India (submitted) - Draft, Slides

This paper examines the impact of changing trade costs on skill premium growth and sectoral value-added shares in India between 1995 and 2005. I develop a quantitative trade model featuring multi-stage production and two types of labor, in which structural change and skill premium growth arise through relative price effects and shifting comparative advantage. I calibrate the model to India and two trading partners, then simulate trade cost reductions and sectoral productivity growth over time. Counterfactual exercises show that trade cost reductions alone can explain much of India’s service sector expansion, manufacturing decline, and skill premium growth, whereas productivity growth in isolation plays a limited role. The interaction between changing trade costs and productivity growth, however, is quantitatively important. The two-stage structure is important, as it generates an amplified elasticity of relative wages with respect to trade costs, and allows the model to match moments that a one-stage model cannot. 

The Sovereign Spread Compressing Effect of Fiscal Rules During Global Crises, with Ergys Islamaj and Agustin Samano - World Bank Version

This paper studies whether fiscal rules can signal fiscal responsibility and compress borrowing costs for emerging economies during periods of global crisis. Using daily data on sovereign spreads for 58 emerging market economies from 2019-2022 and 26 countries from 2007-2009, this paper shows that the compressing effect of fiscal rules on sovereign spreads is stronger during global crises. We find that the existence of a fiscal rule reduces sovereign spreads with a high degree of statistical significance, regardless of the extent to which enforcement of the rule occurred during the global crisis. In our baseline test covering the COVID-19 timeframe, estimates of the average spread compressing effect of fiscal rules range from 319 to 378 basis points. We also find that for countries that deviated from a fiscal rule during a global crisis, the median duration to return to the baseline fiscal balance is 3.5 years. This fact explains why the spread compressing effect is independent of the enforcement of the rule during a global crisis, as lenders expect countries to return to compliance with the fiscal rule in the aftermath of a crisis. Our results suggest that second-generation rules have increased not only the flexibility but also the credibility of fiscal rules, even during crisis periods.