Job Market Paper
Trade and Agglomeration: Theory and Evidence from France
(previously circulated as "International Trade and Regional Inequality")
WTO Essay Award for Young Economists 2019
Kraks Fond prize for Best Student Paper at the 8th European Meeting of the Urban Economics Association
Best Paper Award at the 17th Annual GEP/CEPR Post-graduate conference
Best Paper Award at the 18th RIEF Doctoral Meeting
Trade openness leads to aggregate welfare gains, but the local effects of trade vary across space. This paper shows that the welfare gains from trade are lower in smaller cities, due to weaker export-specific agglomeration. Using rich micro data from France, I show that firms’ export-to-sales ratio increases with city size, both within and across industries. I develop an open economy economic geography model with heterogeneous firms to rationalize these novel facts: firms jointly choose their location and export behavior in the presence of sectoral differences in factor intensity and external economies of scale in export costs. Within industries, more productive firms sort into larger cities and into exporting, endogenously benefitting from lower export costs. Across industries, more capital-intensive sectors are endogenously more export intensive and overrepresented in larger cities. To quantify the role of export-specific agglomeration forces, I structurally estimate the model: they account for 1/3 of the differences in export intensity across locations. As a result, counterfactual trade liberalization induces 17% lower welfare gains in bottom size vs top size-quartile locations. These results shed new light on the distributional effects of trade openness and help explain the urban-rural divide over protectionist policies.
Publications
Of Mice and Merchants: Trade and Growth in the Iron Age, [NBER Working Paper]
(with Stephan Maurer, Jörn-Steffen Pischke and Ferdinand Rauch),
Accepted at the Review of Economics and Statistics
We study the causal relationship between geographic connectedness and development using one of the earliest massive trade expansions: the first systematic crossing of open seas in the Mediterranean during the time of the Phoenicians. We construct a geography based measure of connectedness along the shores of the sea. We relate connectedness to economic activity, which we measure using the presence of archaeological sites. We find an association between better connected locations and archaeological sites during the Iron Age, at a time when sailors began to cross open water routinely on a big scale. We corroborate these findings at world level.
Coverage: VoxEU, CentrePiece, Quartz
Migration and Urbanisation in Post-Apartheid South Africa, [published version] [WBPR Working Paper][Older IZA Discussion Paper]
(with Chris Parsons and Ferdinand Rauch),
World Bank Economic Review, Vol. 34, pp 509-532, June 2020
Although Africa has experienced rapid urbanization in recent decades, little is known about the process of urbanization across the continent. This paper exploits a natural experiment, the abolition of South African pass laws, to explore how exogenous population shocks affect the spatial distribution of economic activity. Under apartheid, black South Africans were severely restricted in their choice of location, and many were forced to live in homelands. Following the abolition of apartheid they were free to migrate. Given a migration cost in distance, a town nearer to the homelands will receive a larger inflow of people than a more distant town following the removal of mobility restrictions. Drawing upon this exogenous variation, this study examines the effect of migration on urbanization in South Africa. While it is found that on average there is no endogenous adjustment of population location to a positive population shock, there is heterogeneity in the results. Cities that start off larger do grow endogenously in the wake of a migration shock, while rural areas that start off small do not respond in the same way. This heterogeneity indicates that population shocks lead to an increase in urban relative to rural populations. Overall, the evidence suggests that exogenous migration shocks can foster urbanization in the medium run.
How well do experience curves predict technological progress? A method for making distributional forecasts, [published version] [ungated version]
(with Francois Lafond, Aimee Bailey, Dylan Rebois, Rubina Zadourian, Patrick McSharry and Doyne Farmer),
Technological Forecasting and Social Change, Vol. 128, pp 104-117, March 2018
Experience curves are widely used to predict the cost benefits of increasing the deployment of a technology. But how good are such forecasts? Can one predict their accuracy a priori? In this paper we answer these questions by developing a method to make distributional forecasts for experience curves. We test our method using a dataset with proxies for cost and experience for 51 products and technologies and show that it works reasonably well. The framework that we develop helps clarify why the experience curve method often gives similar results to simply assuming that costs decrease exponentially. To illustrate our method we make a distributional forecast for prices of solar photovoltaic modules.
Work-in-Progress
Quantifying agglomeration economies: A firm-level investigation
(with Aureo de Paula and Kalina Manova)
Why do firms co-locate? We quantitatively evaluate the importance of the Marshallian agglomeration forces for the co-location of firms: Input-Output linkages, similarity of labour inputs and shared technology. Using detailed administrative data from Brazil on firm transactions, employment and balance sheets we provide novel evidence on the differences in firm outcomes in terms of input, output, employment and technology choices across locations within narrowly defined industries. Guided by this evidence we build and estimate a structural model of firm location choice that features the three Marshallian forces.
Importing intermediates and the productivity advantage of cities
Better access to intermediates from local suppliers is one of the traditional Marshallian agglomeration benefits of large cities. In this paper I highlight that larger cities also facilitate the access to foreign intermediates providing an additional benefit in the open economy. First, I show that firms in larger cities import a larger share of their intermediates. Second, I embed trade in intermediates into an open economy economic geography model. I estimate the model to disentangle the contribution of differences in firm and productivity and in the cost of importing across different city sizes. Based on the estimated model, I simulate how a reduction in the national cost of importing has differential effects across city sizes and shapes the spatial distribution of economic activity and the gains from trade.
Trade Reforms with Buyer-Supplier Networks: Trade Creation and Diversion
(with Salamat Ali, Kalina Manova and Zhihong Yu)
The rise of global value chains has fundamentally transformed international trade and development. We study the role of buyer-supplier linkages for the effects of a trade reform and how the reallocation across buyers and suppliers drives trade creation and diversion. To this end, we exploit differences in tariff cuts from the Pakistan-China FTA and transaction-level data on trade flows.
Value Chains, Wage Inequality and the Labor Share
(with Aureo de Paula and Kalina Manova)
Over the last 20 years many countries have experienced three macro trends: an increase in the dispersion of profitability across firms, a decline in the labor share and a rise in wage inequality. In this paper we use detailed micro data from Brazil to document the role of the contemporaneous rise in the fragmentation of production across firms and countries for these developments. To this end we combine exogenous changes in communication technology and detailed micro data from Brazil with a task-based model of selection into production fragmentation
The Aggregate and Distributional Consequences of UK housing policy: Evidence from the Tenancy Fee Act
(with Nikhil Datta)
We evaluate one of the recent flagship UK housing policies, the Tenancy Fee Act 2019, which banned most fees that landlords or letting agents can charge tenants when signing or renewing a tenancy. We provide reduced-form evidence on the distributional effects of the policy by estimating the pass-through into agents’ profits, landlord fees and rents. To understand the distributional and aggregate welfare implications of the policy, we estimate a structural model of this two-sided market. The aggregate welfare effects in the model are ambiguous, as gains from removing the tax on moving could be offset by changes in market power among letting agents.
Funding: CEP Research Grant (£10,000, Principal Investigator), UCL Harvesting Grant (£1,000, Principal Investigator)
Policy Notes and Non-academic Publications
Vulnerabilities of Supply Chains Post-Brexit, [final report]
(with Nikhil Datta, Josh De Lyon and Elitsa Garnizova
LSE Consulting, September 2020
The impact of Brexit on the UK dairy sector, [final report]
(with Nikhil Datta)
LSE Consulting, June 2018
Coverage: Dairy All-Party Parliamentary Group, Financial Times, The Guardian, (additional coverage)
Trade and Agglomeration: Theory and Evidence from France
(previously circulated as "International Trade and Regional Inequality")
WTO Essay Award for Young Economists 2019
Kraks Fond prize for Best Student Paper at the 8th European Meeting of the Urban Economics Association
Best Paper Award at the 17th Annual GEP/CEPR Post-graduate conference
Best Paper Award at the 18th RIEF Doctoral Meeting
Trade openness leads to aggregate welfare gains, but the local effects of trade vary across space. This paper shows that the welfare gains from trade are lower in smaller cities, due to weaker export-specific agglomeration. Using rich micro data from France, I show that firms’ export-to-sales ratio increases with city size, both within and across industries. I develop an open economy economic geography model with heterogeneous firms to rationalize these novel facts: firms jointly choose their location and export behavior in the presence of sectoral differences in factor intensity and external economies of scale in export costs. Within industries, more productive firms sort into larger cities and into exporting, endogenously benefitting from lower export costs. Across industries, more capital-intensive sectors are endogenously more export intensive and overrepresented in larger cities. To quantify the role of export-specific agglomeration forces, I structurally estimate the model: they account for 1/3 of the differences in export intensity across locations. As a result, counterfactual trade liberalization induces 17% lower welfare gains in bottom size vs top size-quartile locations. These results shed new light on the distributional effects of trade openness and help explain the urban-rural divide over protectionist policies.
Publications
Of Mice and Merchants: Trade and Growth in the Iron Age, [NBER Working Paper]
(with Stephan Maurer, Jörn-Steffen Pischke and Ferdinand Rauch),
Accepted at the Review of Economics and Statistics
We study the causal relationship between geographic connectedness and development using one of the earliest massive trade expansions: the first systematic crossing of open seas in the Mediterranean during the time of the Phoenicians. We construct a geography based measure of connectedness along the shores of the sea. We relate connectedness to economic activity, which we measure using the presence of archaeological sites. We find an association between better connected locations and archaeological sites during the Iron Age, at a time when sailors began to cross open water routinely on a big scale. We corroborate these findings at world level.
Coverage: VoxEU, CentrePiece, Quartz
Migration and Urbanisation in Post-Apartheid South Africa, [published version] [WBPR Working Paper][Older IZA Discussion Paper]
(with Chris Parsons and Ferdinand Rauch),
World Bank Economic Review, Vol. 34, pp 509-532, June 2020
Although Africa has experienced rapid urbanization in recent decades, little is known about the process of urbanization across the continent. This paper exploits a natural experiment, the abolition of South African pass laws, to explore how exogenous population shocks affect the spatial distribution of economic activity. Under apartheid, black South Africans were severely restricted in their choice of location, and many were forced to live in homelands. Following the abolition of apartheid they were free to migrate. Given a migration cost in distance, a town nearer to the homelands will receive a larger inflow of people than a more distant town following the removal of mobility restrictions. Drawing upon this exogenous variation, this study examines the effect of migration on urbanization in South Africa. While it is found that on average there is no endogenous adjustment of population location to a positive population shock, there is heterogeneity in the results. Cities that start off larger do grow endogenously in the wake of a migration shock, while rural areas that start off small do not respond in the same way. This heterogeneity indicates that population shocks lead to an increase in urban relative to rural populations. Overall, the evidence suggests that exogenous migration shocks can foster urbanization in the medium run.
How well do experience curves predict technological progress? A method for making distributional forecasts, [published version] [ungated version]
(with Francois Lafond, Aimee Bailey, Dylan Rebois, Rubina Zadourian, Patrick McSharry and Doyne Farmer),
Technological Forecasting and Social Change, Vol. 128, pp 104-117, March 2018
Experience curves are widely used to predict the cost benefits of increasing the deployment of a technology. But how good are such forecasts? Can one predict their accuracy a priori? In this paper we answer these questions by developing a method to make distributional forecasts for experience curves. We test our method using a dataset with proxies for cost and experience for 51 products and technologies and show that it works reasonably well. The framework that we develop helps clarify why the experience curve method often gives similar results to simply assuming that costs decrease exponentially. To illustrate our method we make a distributional forecast for prices of solar photovoltaic modules.
Work-in-Progress
Quantifying agglomeration economies: A firm-level investigation
(with Aureo de Paula and Kalina Manova)
Why do firms co-locate? We quantitatively evaluate the importance of the Marshallian agglomeration forces for the co-location of firms: Input-Output linkages, similarity of labour inputs and shared technology. Using detailed administrative data from Brazil on firm transactions, employment and balance sheets we provide novel evidence on the differences in firm outcomes in terms of input, output, employment and technology choices across locations within narrowly defined industries. Guided by this evidence we build and estimate a structural model of firm location choice that features the three Marshallian forces.
Importing intermediates and the productivity advantage of cities
Better access to intermediates from local suppliers is one of the traditional Marshallian agglomeration benefits of large cities. In this paper I highlight that larger cities also facilitate the access to foreign intermediates providing an additional benefit in the open economy. First, I show that firms in larger cities import a larger share of their intermediates. Second, I embed trade in intermediates into an open economy economic geography model. I estimate the model to disentangle the contribution of differences in firm and productivity and in the cost of importing across different city sizes. Based on the estimated model, I simulate how a reduction in the national cost of importing has differential effects across city sizes and shapes the spatial distribution of economic activity and the gains from trade.
Trade Reforms with Buyer-Supplier Networks: Trade Creation and Diversion
(with Salamat Ali, Kalina Manova and Zhihong Yu)
The rise of global value chains has fundamentally transformed international trade and development. We study the role of buyer-supplier linkages for the effects of a trade reform and how the reallocation across buyers and suppliers drives trade creation and diversion. To this end, we exploit differences in tariff cuts from the Pakistan-China FTA and transaction-level data on trade flows.
Value Chains, Wage Inequality and the Labor Share
(with Aureo de Paula and Kalina Manova)
Over the last 20 years many countries have experienced three macro trends: an increase in the dispersion of profitability across firms, a decline in the labor share and a rise in wage inequality. In this paper we use detailed micro data from Brazil to document the role of the contemporaneous rise in the fragmentation of production across firms and countries for these developments. To this end we combine exogenous changes in communication technology and detailed micro data from Brazil with a task-based model of selection into production fragmentation
The Aggregate and Distributional Consequences of UK housing policy: Evidence from the Tenancy Fee Act
(with Nikhil Datta)
We evaluate one of the recent flagship UK housing policies, the Tenancy Fee Act 2019, which banned most fees that landlords or letting agents can charge tenants when signing or renewing a tenancy. We provide reduced-form evidence on the distributional effects of the policy by estimating the pass-through into agents’ profits, landlord fees and rents. To understand the distributional and aggregate welfare implications of the policy, we estimate a structural model of this two-sided market. The aggregate welfare effects in the model are ambiguous, as gains from removing the tax on moving could be offset by changes in market power among letting agents.
Funding: CEP Research Grant (£10,000, Principal Investigator), UCL Harvesting Grant (£1,000, Principal Investigator)
Policy Notes and Non-academic Publications
Vulnerabilities of Supply Chains Post-Brexit, [final report]
(with Nikhil Datta, Josh De Lyon and Elitsa Garnizova
LSE Consulting, September 2020
The impact of Brexit on the UK dairy sector, [final report]
(with Nikhil Datta)
LSE Consulting, June 2018
Coverage: Dairy All-Party Parliamentary Group, Financial Times, The Guardian, (additional coverage)
