Revision requested at The Review of Economic Studies
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.
This paper demonstrates a dual impact of increased competition on misallocation in a setting with both oligopolistic competition and financial constraints. I develop a novel model where, in case there are no financial constraints, more competition unambiguously increases aggregate output by reducing markup levels and markup dispersion. However, with financial constraints, increased competition reduces the profitability of constrained firms, and thereby slows down their rate of self-financed investment and convergence to their optimal capital levels. To test the model’s predictions, I leverage the pro-competitive impact of India’s dereservation reform on incumbent plants exposed to the reform. In line with the theory, this reform leads to reduced markup levels and markup dispersion, and to slower capital convergence. To examine the external validity of the result on capital convergence beyond the sample of incumbent plants, I present further evidence for this prediction on the full panel of plants. My results help understand why misallocation in India is strongly persistent, despite multiple liberalization reforms.
Elections and Selfishness – Under review
Election outcomes affect the allocation of resources in society, and election periods may therefore trigger voters’ self-interest. By employing dictator games in a lab-in-the-field experiment involving a sample of more than a thousand individuals in Kenya and Tanzania, we document that election periods increase selfishness, using two approaches. First, comparing lab rounds at different time periods in Kenya, selfishness increases in the lab round closer to election time. Second, to improve the scope for causal inference, we randomly vary the situational salience of election periods within the lab and find that this priming treatment similarly amplifies selfishness. These results may hold important implications for our understanding of the institutional role of elections, and how they shape societal outcomes, for instance by increasing social divisions.
Forthcoming at the Journal of the European Economic Association
Previous version: How Strong Are Ethnic Preferences? – NBER working paper
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.