Working papers
Job Market Paper
Abstract: In this paper, I study financial liberalization between economies that differ in their aggregate profit share. I first show that if firms compete oligopolistically, then a high aggregate profit share is a feature of an economy which generates more very large — `superstar’ — firms. Embedding this setup in a two-country model with heterogeneous agents and non-homothetic saving behavior, I show that if the domestic economy features a higher aggregate profit share than the foreign, then (1) its autarkic interest rate is lower; (2) it will experience capital outflows during an episode of financial liberalization. I calibrate the quantitative version of the model to eight European economies, and show that the profit share gap can explain 29% of variation in the current account imbalances incurred between 1998 and 2019. I conclude by discussing structural reforms widely advocated for current account rebalancing.
Abstract: This paper studies the role of trade and international borrowing in driving structural change. I decompose the change in manufacturing shares into three terms driven by (i) sectoral expenditure shares (what goods do agents buy?), (ii) trade shares (where do agents source these goods from?), and (iii) aggregate trade deficits (who borrows in a given period?), and map the reduced-form terms of the decomposition into structural primitives using a calibrated quantitative model of trade with non-homothetic preferences and endogenous borrowing. Using data from twenty economies between 1965 and 2011, I show that trade specialization and international borrowing explain 23% and 17% of observed change in manufacturing shares, half of cross-country heterogeneity in patterns of industrialization, half the dynamics in high-technology subsectors of manufacturing, and are indispensable for understanding the effect of China on global manufacturing and `miracle’ industrialization in South Korea.