Shamil Sharapudinov

The Distributional Effects of Trade across Local Labor Markets and Heterogeneous Consumers

(Job Market Paper)

Abstract: I study how global trade and technology shocks propagate across local labor markets and affect the welfare of consumers with heterogeneous consumption baskets along the income distribution. I develop a tractable general equilibrium Ricardian-Roy framework that allows for non-homothetic expenditure patterns. Methodologically, it reconciles heterogeneous workers and non-homothetic demand with the “exact-hat algebra” approach for counterfactual analysis, which imposes minimal data requirements. I also derive a generalized welfare gains formula for the distributional impact of trade shocks that applies to any demand system. Apart from rich distributional implications, the framework gives rise to a novel – the Consumption Inequality – channel of the aggregate welfare gains. I apply the model to revisit the impact of the China shock for a sample of 40 countries and 722 US commuting zones. I find that the China shock led to overall gains for most countries. The aggregate US gains were 0.71%, about 1/3 of which is attributed to the Consumption Inequality channel. The shock disproportionately benefited low-income US consumers and commuting zones by reducing the relative prices of low-income elastic sectors. The distribution of welfare gains across income quantiles varied significantly between countries.

Trade in Niches, Markups, and Firm Sorting in General Equilibrium

(an earlier version of the paper is available as SSRN WP 4010994, January 2022)

Abstract: This paper develops a general equilibrium model with heterogeneous firms that endogenously choose among various market segments/niches within a differentiated sector. I study the implications of both autarky and international trade between countries. In equilibrium, larger niches are featured by lower local prices. Positive assortative matching between niche size and firm productivity is driven by the demand side and implies that more productive firms sort into more competitive niches. It generates a U-shaped equilibrium relation between markups and both niche and firm size. It suggests that markup differences between firms may not reflect true differences in firms’ market power. I also show that trade competition may increase niche-specific markups. I prove that, in autarky, consumer welfare is increasing in niche size. Trade induces higher local competition and an unambiguous shift in the matching function that features tougher selection. I find that while consumers in middle-sized niches gain the most from opening the closed economy to trade, consumers in the largest niches may bear losses. The impact of small changes in trade costs is also highly uneven across consumers: niches previously unexposed to trade are those that lose from little trade liberalization. The sorting effect is sizable for most niches and contributes up to 59% of the total welfare gains for middle-sized niches. In contrast to costly trade patterns, gains from free trade are positive and monotonically decreasing in niche size. I also show that while Marshall’s Second Law of Demand is a necessary and sufficient condition for positive sorting under many popular classes of preferences, it is actually neither necessary nor sufficient under the generalized Gorman-Pollak demand system.

A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers

American Economic Journal: Microeconomics, 2024, 16(2): 354–384 (with S.Kokovin, A.Ozhegova, A.Tarasov, and P.Ushchev)

Abstract: Our novel approach to modeling monopolistic competition with heterogeneous firms and consumers involves spatial product differentiation, in either a geographical space or a space of characteristics. In addition to price, each firm chooses location in space. We formulate conditions for positive sorting – more-productive firms serve larger market segments and face tougher competition – and for existence and uniqueness of equilibrium. To quantify the role of sorting, we calibrate the model using haircut market data and perform counterfactual analysis. Inequality in gains among consumers caused by positive market shocks can be substantial: gains for consumers at more-populated locations are three to four times higher.