Fields of Specialization
- International Trade
- Economic Geography
- Responsible Sourcing? Theory and Evidence from Costa Rica (with Alonso Alfaro-Urena, Ben Faber, Isabela Manelici and Jose Pablo Vasquez).
: Multinational enterprises (MNEs) increasingly impose "responsible sourcing" (RS) standards on their suppliers worldwide, including requirements on worker compensation, benefits and working conditions. Are these policies just `hot air' or do they impact exposed suppliers? If so, what is the welfare incidence of RS in general equilibrium (GE) on average and across worker types in sourcing origin countries? To answer these questions, we develop a quantitative theoretical model of RS and combine it with a unique new database. In the theory, we show that the welfare implications of RS are a priori ambiguous, depending on an interplay between what is akin to an export tax (+) and a labor market distortion (-). Empirically, we build a database covering the near-universe of RS rollouts by more than 400 MNE affiliates in Costa Rica (CR) since 2009, linked with firm-to-firm transactions and matched employer-employee microdata for all CR firms. Using these data, we find that RS rollouts lead to significant reductions in firm sales and employment at exposed suppliers, an increase in their salary payments to initially low-wage workers and a reduction in their low-wage employment share. We then use the estimated effects and the microdata to calibrate the model and quantify counterfactuals in GE. We find that while MNE RS policies have led to significant welfare gains among the roughly 20% of low-wage workers who are employed at exposed suppliers ex ante, the real incomes of the remaining majority of low-wage workers in CR decline due to adverse indirect effects on their wages and the domestic price index.
- Place-Based Redistribution (with Pat Kline and Danny Yagan).
Revise and Resubmit at the American Economic Review (Slides)
Governments around the world redistribute to distressed areas by conditioning taxes and transfers on location. We show that when poor households are spatially concentrated, transfers from one location to another can yield equity gains that outweigh their efficiency costs, even when income- based transfers are set optimally. Expressions for the optimal transfer size depend on the mobility of households, the earnings responses of movers, and sorting patterns. Surveys find support for targeting tax credits to poor Americans who live in distressed places. A calibration exercise finds optimal transfers of the same order of magnitude as prominent American zone policies.
Work in Progress
- The Political Economy of Transport Investment: Evidence from the California High-Speed Rail (with Pablo Fajgelbaum, Nicole Gorton, Eduardo Morales and Edouard Schaal).
: Transportation infrastructure projects rank among the largest types of public investments. What forces determine the allocation of transport infrastructure investments? How does political feasibility shape transportation infrastructure policy? We study how important voters' and policymakers preferences are in shaping the transport investments, in the context of the California High-Speed Rail that was put on the ballot in California in 2008.
- Sorting to Expensive Cities (with Frederic Robert-Nicoud).
: Abstract We propose an elementary spatial equilibrium theory with heterogeneous households holding general non-homothetic preferences. Cities are endowed with heterogeneous consumption and production amenities. In equilibrium, desirable and productive locations command high housing prices. So long as housing is a necessity, these locations are disproportionately inhabited by high-income earners who are relatively less affected by high housing prices than low-income earners. We clarify how this source of sorting complements other potential sorting forces in spatial equilibrium models, namely, comparative advantage in production and heterogeneous preferences for locations. We show how to measure changes in welfare inequality across income groups in a theoretically-consistent way when housing is a necessity, extending the approach popular in models with homothetic preferences.
- Spatial Sorting and Inequality (with Rebecca Diamond).
Forthcoming at the Annual Review of Economics
: The spatial segregation of college and non-college educated workers between commuting zones in the U.S. has steadily grown since 1980. We summarize prior work on sorting and location and document new descriptive patterns on how sorting and locations have changed over the past four decades. We find that there has been a shift in the sorting of college-educated workers from cities primarily centered around production in 1980 to cities centered around consumption by 2017. We develop a spatial equilibrium model to understand these patterns, and highlight key places where further research is needed. Our framework helps understand the causes and consequences of changes in spatial sorting, their impact on inequality, and how they respond to, and feed into, the changing nature of cities.
- Income Growth and the Distributional Effects of Urban Spatial Sorting (with Victor Couture, Jessie Handbury and Erik Hurst).
Forthcoming at the Review of Economic Studies
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.
- Trends in U.S. Spatial Inequality: Concentrating Affluence and a Democratization of Poverty (with Pat Kline, Damian Vergara and Danny Yagan).
AEA Papers and Proceedings, May 2021
We study trends in income inequality across U.S. states and counties 1960-2019 using a mix of administrative and survey data sources. Both states and counties have diverged in terms of per-capita pre-tax incomes since the late 1990s, with transfers serving to dampen this divergence. County incomes have been diverging since the late 1970s. These trends in mean income mask opposing patterns among top and bottom income quantiles. Top incomes have diverged markedly across states since the late 1970s. In contrast, bottom income quantiles and poverty rates have converged across areas in recent decades.
- Government Policies in a Granular Global Economy (with Oleg Itskhoki and Maximilian Vogler).
Journal of Monetary Economics (2021)
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, which acts akin to beggar-thy-neighbor trade policy in sectors with strong comparative advantage. In trade policy, targeting large individual foreign exporters rather than entire sectors is desirable from the point of view of a national government. Doing so minimizes the pass-through of import tariffs into domestic consumer prices, placing a greater portion of the burden on foreign producers. 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 may become unilaterally welfare improving in open economies. We contrast unilaterally optimal policies with the coordinated global optimal policy and emphasize the need for international policy cooperation in these domains.
- Granular Comparative Advantage (with Oleg Itskhoki).
Jounal of Political Economy, 2021
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.
- Optimal Spatial Policies, Geography and Sorting (with Pablo Fajgelbaum).
Quarterly Journal of Economics, 2020
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.
Tourism and Economic Development: Evidence from Mexico's Coastline (with Ben Faber).
American Economic Review, 2019
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.
Sorting and Agglomeration.
American Economic Review, 2018 (Lead article)
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