Fields of Specialization
- International Trade
- Economic Geography
Working Papers
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Firm
Sorting and Agglomeration. American Economic Review, 2018 (Lead article)
Abstract:
The distribution of firms in space is far from uniform. Some locations
host the most productive large firms, while others barely attract any.
In this paper, I study the sorting of heterogeneous firms across
locations and analyze policies designed to attract firms to particular
regions (place-based policies). I first propose a theory of the
distribution of heterogeneous firms in a variety of sectors across
cities. Aggregate TFP and welfare depend on the extent of agglomeration
externalities produced in cities and on how heterogeneous firms sort
across them. The distribution of city sizes and the sorting patterns of
firms are uniquely determined in equilibrium. This allows me to
structurally estimate the model, using French firm-level data. I find
that nearly half of the observed productivity advantage of large
cities is due to firm sorting. I use the estimated model to quantify
the general equilibrium effects of place-based policies. I find that
policies that decrease local congestion lead to a new spatial
equilibrium with higher aggregate TFP and welfare. In contrast,
policies that subsidize under-developed areas have negative aggregate
effects.
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Tourism and Economic Development: Evidence from Mexico's Coastline (with Ben Faber). American Economic Review, 2019
Abstract:
Tourism is a fast-growing services sector in developing countries. This paper combines a rich collection of Mexican microdata with a quantitative spatial equilibrium model and a new empirical strategy to study the long-term economic consequences of tourism both locally and in the aggregate. We find that tourism causes large and significant local economic gains relative to less touristic regions that are in part driven by significant positive spillovers on manufacturing. In the aggregate, however, these local spillovers are largely offset by reductions in agglomeration economies among less touristic regions, so that the national gains from tourism are mainly driven by a classical market integration effect.
- Optimal Spatial Policies, Geography and Sorting (with Pablo Fajgelbaum). Quarterly Journal of Economics, 2020
Abstract:
We study optimal spatial policies in a quantitative trade and geography framework with spillovers and spatial sorting of heterogeneous workers. We characterize the spatial transfers that must hold in efficient allocations, as well as labor subsidies that can implement them. There exists scope for welfare-enhancing spatial policies even when spillovers are common across locations. Using data on U.S. cities and existing estimates of the spillover elasticities, we find that the U.S. economy would benefit from a reallocation of workers to currently low-wage cities. The optimal allocation features a greater share of high skill workers in smaller cities relative to the observed allocation. Inefficient sorting may lead to substantial welfare costs.
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Granular Comparative Advantage (with Oleg Itskhoki). Accepted at the Jounal of Political Economy
Abstract:
Large firms play a pivotal role in international trade, shaping the export patterns of countries. We propose and quantify a granular multi-sector model of trade, which combines fundamental comparative advantage across sectors with granular comparative advantage embodied in outstanding individual firms. We develop an SMM-based estimation procedure, which takes full account of the general equilibrium of the model, to jointly estimate these fundamental and granular forces using French micro-data with information on firm domestic and export sales across manufacturing industries. We find that granularity accounts for about 20% of the variation in realized export intensity across sectors, and is more pronounced in the most export-intensive sectors. We then extend the model to a dynamic environment featuring both granular and fundamental shocks that jointly shape the time-series evolution of comparative advantage. We find a central role of granular forces in shaping comparative advantage reversals observed in the data.
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Income Growth and the Distributional Effects of Urban Spatial Sorting (with Victor Couture, Jessie Handbury and Erik Hurst) Revise and Resubmit at the Review of Economic Studies
Abstract:
We explore the impact of rising incomes at the top of the distribution on changes in spatial
sorting patterns within large US cities. We develop and quantify a spatial model of a city with
heterogeneous agents, heterogeneous neighborhoods of endogenous quality, and non-homothetic
preferences for locations with different amenities. As the rich get richer, their increased demand
for luxury amenities available downtown drives housing prices up in downtown areas. The poor
are made worse off, either being displaced or paying higher rents for amenities that they do not
value as much. Endogenous provision of private amenities amplifies the mechanism, while public
provision of other amenities in part curbs it. We quantify the corresponding impact on wellbeing
inequality. Through the lens of the quantified model, the change in income distribution
between 1990 and 2014 lead to neighborhood change and spatial resorting within urban areas
that increased the welfare of richer households relative to that of poorer households by an
additional two percentage points on top of their differential income growth.
- Place-Based Redistribution (with Pat Kline and Danny Yagan).
Abstract:
We study the equity-efficiency tradeoffs that arise when taxes may be indexed to location in addition to labor income. Working with a model of locational choice and labor supply decisions that nests workhorse specifications in urban and public economics, we show that when disadvantaged households are spatially concentrated, lump-sum transfers from one location to another can yield equity gains that outweigh the efficiency costs of distorting location decisions. Efficiency costs dominate equity gains, however, when workers are very mobile or subsidized areas are substantially less productive. Expressions for the optimal transfer size are provided that depend on the mobility of households, the earnings responses of movers, and sorting patterns. We also provide conditions under which place-based redistribution can improve welfare when place-blind income taxes are set optimally. Place-based redistribution is more likely to improve on income taxes when society favors spatial equity within income groups, motives for which we provide some utilitarian microfoundations. To gauge the plausibility of such social preferences, we conduct a survey querying Americans about the desirability of place-based redistribution within income groups. Responses indicate strong support for targeting tax relief to poor households who live in distressed places. A calibration exercise suggests that optimal place-based transfers may be of the same order of magnitude as found in some prominent American zone policies.
- Government Policies in a Granular Global Economy (with Oleg Itskhoki and Maximilian Vogler ) Work in progress
Abstract:
We use the granular model of international trade developed in Gaubert and Itskhoki (2020) to study the rationale and implications of three types of government interventions typically targeted at large individual firms – antitrust, trade and industrial policies. We find that in antitrust regulation, governments face an incentive to be overly lenient in accepting mergers of large domestic firms. It substitutes for beggar-thy-neighbor trade policy in sectors with strong comparative advantage. In trade policy, targeting large indi- vidual foreign exporters rather than entire sectors is often desirable, as doing so largely transforms the domestic burden of tariffs into a reduction of foreign producer surplus. Finally, we show that subsidizing ‘national champions’ is generally suboptimal in closed economies as it leads to an excessive build-up of market power, but it becomes unilater- ally welfare improving in open economies. We contrast unilaterally optimal policies with the coordinated globally optimal policy and emphasize the need for international policy coordination in these domains.
- Sorting to Expensive Cities (with Frederic Robert-Nicoud ) Work in progress
Abstract:
We develop a spatial general equilibrium model featuring heterogeneous households holding non-homothetic preferences and cities endowed with heterogeneous consumption and production amenities. In equilibrium, desirable and productive locations command high housing prices; they are disproportionately inhabited by high-income earners; the cost of living of high-income earn- ers relative to the cost of living of low-income earners is lower in expensive cities than in more affordable ones. These equilibrium properties are all related: we show that high-ability/high- income households sort disproportionately to expensive and/or productive places if housing is the income inelastic good under general non-homothetic preferences.
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