Working Paper

"Optimal Infrastructure Under a Two-Tier Government Structure in the Global Economy." [Draft here]

Abstract: This paper develops a quantitative spatial equilibrium model to study endogenous infrastructure under a two-tier government structure where a benevolent national government, followed by self-interested provincial governments, optimally solves the planners' problems by allocating highways and tunnels to maximize aggregated welfare within their jurisdictions. I estimate the trade-cost mitigating effect of highways and tunnels by introducing two novel instrumental variables and incorporating bilateral elevation. The model is calibrated to 309 prefectures across 23 Chinese provinces. Results show that, compared to complete centralization, a two-tier approach promotes equality, lowering inequality measures at the expense of lowering expected utility. In contrast, complete decentralization leads to a substantial decrease in expected utility and a significant increase in inequality.

Publication

"The Earth Is Not Flat: Bilateral Elevation as a Component of Trade Costs." 

2025, Review of International Economics. [Working Paper Draft] [Published Paper]

Abstract: This paper quantifies the trade effects of effective bilateral elevation (EBE), representing the transportation cost incurred when trucks go uphill and downhill between countries. Introducing an instrumental variable for EBE, the paper reveals that a one-percent rise in EBE leads to a 0.046 percent reduction in trade. This impact varies across regions and industries, with landlocked countries experiencing effects more than nine-fold. The impact is more pronounced in industries with higher weight-to-value ratios. Employing a multi-sector Armington model, the paper estimates that removing bilateral elevations could lead to an average 1 percent increase in real wages.