Slicing the Pie: Quantifying the Aggregate and Distributional Effects of Trade – New version: September 2018
We develop a multi-sector gravity model with heterogeneous workers to quantify the aggregate and group-level welfare effects of trade. The model generalizes the specific-factors intuition to a setting with labor reallocation, leads to a parsimonious formula for the group-level welfare effects from trade, and nests the aggregate results in Arkolakis, Costinot and Rodríguez-Clare (2012). We estimate the model using the structural relationship between China-shock driven changes in manufacturing employment and average earnings across US groups defined as commuting zones. We find that the China shock increases average welfare but some groups experience losses as high as five times the average gain. Adjusted for plausible measures of inequality aversion, gains in social welfare remain positive and deviate only slightly from those according to the standard aggregation method.
Competition, Financial Constraints and Misallocation: Plant-level Evidence from Indian Manufacturing – New version: October 2018
This paper demonstrates the dual impact of increased competition on misallocation in a setting with both markup and capital misallocation. Without financial constraints, more competition is unambiguously beneficial by reducing the level and dispersion of markups. However, with financial constraints, increased competition reduces the profitability of constrained firms, and thereby slows down their rate of self-financed investment and consequently their convergence to their optimal capital levels. I test the predictions of the model by leveraging the pro-competitive impact of India’s 1997 dereservation reform. As predicted, this reform leads to reduced markup levels and markup dispersion, and to slower capital convergence.
Ethnically Biased? Experimental Evidence from Kenya – Forthcoming at The Journal of the European Economic Association
Ethnicity has been shown to shape political, social, and economic behavior in Africa, but the underlying mechanisms remain contested. We utilize lab experiments to isolate one mechanism—an individual’s bias in favor of coethnics and against non-coethnics—that has been central in both theory and in the conventional wisdom about the impact of ethnicity. We employ an unusually rich research design involving a large sample of 1,300 participants from Nairobi, Kenya; the collection of multiple rounds of experimental data with varying proximity to national elections; within-lab priming conditions; both standard and novel experimental measures of coethnic bias; and an implicit association test (IAT). We find very little evidence of an ethnic bias in the behavioral games, which runs against the common presumption of extensive coethnic bias among ordinary Africans and suggests that mechanisms other than a coethnic bias in preferences must account for the associations we see in the region between ethnicity and political, social and economic outcomes.