Export Subsidies as Industrial Policy: the Case of the 19th Century Sugar Industry

Job Market Paper , with Bjorn Brey and Karolina Hutkova

The Rise of Business Services

with Andrew Bernard and Banu Demir

Dissecting Structural Change in an Open Economy

R&R at JEEA

Abstract: This paper studies the role of trade and international borrowing in driving structural change. I decompose the change in manufacturing shares into contributions by sectoral expenditure shares, trade shares, and aggregate trade imbalances, and map these into structural primitives in a quantitative trade model with endogenous borrowing. Using data from twenty economies, I show that trade specialization and international borrowing explain 34% of the average change in the manufacturing share, half of the cross-country heterogeneity in the patterns of industrialization, half the dynamics in high-technology subsectors of manufacturing, and much of the China-driven deindustrialization and ‘miracle’ industrialization in South Korea.

Profits, ‘Superstar’ Firms and External Imbalances

R&R at JPE Macro

Abstract: In this paper, I study the net foreign asset positions of economies with differing aggregate profit shares. I show that if firms compete oligopolistically, then economies which host a large number of very large — ‘superstar’ — firms enjoy higher aggregate profit shares. Embedding this setup in a two-country model with heterogeneous agents and non-homothetic saving behavior, I show that economies with more profitable firms feature lower autarkic interest rate and hold positive net foreign assets under financial liberalization. Calibrating the model to Germany and a Rest-of-Europe aggregate, I show that the profit share gap can explain a quarter of European imbalances in 2019.

What is the Impact of Increased Business Competition

R&R at JPE Macro (with Sónia Félix and Chiara Maggi)

Abstract: This paper studies the macroeconomic effect and underlying firm-level transmission channels of a reduction in business entry costs. We provide novel evidence on the response of firms’ entry, exit, and employment decisions. To do so, we use as a natural experiment a reform in Portugal that reduced entry time and costs. Using the staggered implementation of the policy across the Portuguese municipalities, we find that the reform increased local entry and employment by, respectively, 25% and 4.8% per year in the first four years. Importantly, around 60% of the increase in employment came from incumbent firms expanding their size, with most of the rise occurring among the most productive firms. We show that a model with heterogeneous firms and markups, which vary endogenously with a firm’s market share and with the mass of operating firms, accounts for our evidence. In this framework, the most productive firms face a lower demand elasticity and increase their employment in response to the rise in entry. Our calibrated model reveals that the change in the level and distribution of markups account for around two thirds of the increase in employment and welfare.