Publications
Misallocation or Mismeasurement? with Mark Bils & Pete Klenow. (Slides) (Online Appendix)
Journal of Monetary Economics 124, November 2021, 39-56.
The ratio of revenue to inputs differs greatly across plants within countries such as the U.S. and India. Such gaps may reflect misallocation which lowers aggregate productivity. But differences in measured average products need not reflect differences in true marginal products. We propose a way to estimate the gaps in true marginal products in the presence of measurement error. Our method exploits how revenue growth is less sensitive to input growth when a plant’s average products are overstated by measurement error. For Indian manufacturing from 1985 to 2013, our correction lowers potential gains from reallocation by 20%. For the U.S. the effect is even more dramatic, reducing potential gains by 60% and eliminating 2/3 of a severe downward trend in allocative efficiency over 1978 to 2013.
Working Papers
Worker Mobility in Production Networks, with Marvin Cardoza, Francesco Grigoli and Nicola Pierri, May 2023.
Conditionally accepted at review of economic studies.
Media Coverage: VoxDev
This paper documents that production networks play an essential role in the job search and matching process. Employer-employee data, matched with the universe of firm-to-firm transactions for the Dominican Republic, reveals that one-fifth of workers who change firm move to a buyer or supplier of their original employer---significantly more than predicted by standard labor market characteristics. Hiring from buyers or suppliers accounts for the majority of net job flows to high-wage firms. An event study shows that moving to a buyer or supplier is associated with a persistent 2 percent earning premium relative to other workers hired by the same firm. Worker mobility along the supply chain is also associated with an increase in firm-to-firm trade. Survey evidence shows that the main reasons for hiring from within the supply chain are the presence of a supply chain specific component of human capital and firms having more information about job applicants. Additional empirical evidence points to human capital as the most likely explanation for the supply chain earnings premium and increase in trade. Our results point to a new channel through which factors affecting the supply chain, such as international outsourcing or contracting frictions, affect labor market dynamism.
The Aggregate Importance of Intermediate Input Substitutability with Alessandra Peter, September 2022.
Revise and Resubmit at Econometrica.
Young Economist Award, European Economic Association Conference 2019.
Media Coverage: The Economist
We estimate long-run elasticities of substitution between intermediate inputs for Indian manufacturing plants. India's trade liberalization in the early 1990s provides an ideal natural policy experiment, with permanent and heterogeneous tariff reductions inducing changes in relative prices which we use for identification. We find a high degree of substitutability at the plant-level between 8 broad categories of material inputs, significantly above the Cobb-Douglas benchmark of 1. In contrast, we find elasticities less than 1 between energy, materials, and services as well as between value added and intermediates. We embed our elasticities in a general equilibrium model with a rich input-output structure to quantify their importance. Relative to a Cobb-Douglas benchmark, the aggregate gains from trade are 9% larger when intermediate inputs are substitutes, and come hand in hand with 40% more reallocation of labor across sectors. Furthermore, the aggregate gains from closing the India-U.S. TFP gap in any one sector are on average 29% larger with our estimated elasticities; losses from misallocation of intermediate inputs are 3 times larger.
Distribution Costs with Alessandra Peter, May 2022.
Revise and Resubmit at American Economic Journal: Macroeconomics.
We provide the first direct estimates of distribution expenses incurred by manufacturing plants and quantify their importance for aggregate output. Using a novel measure from the Indian Annual Survey of Industries, we document three key facts: (1) distribution expenses are large - they amount to over half of labor costs; (2) plants in the largest decile - relative to the smallest - spend over three times as much on distribution as a share of sales; and (3) between 2000 and 2010, distribution costs as a share of sales declined by one third. We develop a model of heterogeneous manufacturing firms that rely on the distribution sector to sell their goods across space. We quantify the model using the facts on size and systematic heterogeneity in distribution shares as well as newly constructed estimates of intranational trade. Accounting for firm heterogeneity in distribution requirements is important: welfare losses from low TFP in the distribution sector are amplified 1.7-fold. From 2000 to 2010, India saw an increase in intranational trade hand in hand with a decrease in the distribution share. In combination with the model, these trends suggest large decreases in variable costs of distribution, leading to welfare gains of 7.4% over this ten year period.
Informality and Aggregate Productivity: The Case of Mexico, with Jorge Alvarez, February 2024.
Revised and Resubmitted to European Economic Review.
This paper develops and estimates a quantitative model to analyze the aggregate productivity consequences of informality in Mexico. While informality is typically viewed as prevailing solely among small firms, we use rich census data to document a high and rising share of large informal firms between 1998 and 2013. The model features an intensive and extensive margin of informality, and it is quantified using the observed size and productivity distributions of both informal and formal firms. We use the model to assess the role of changes in labor market regulations, entry costs and enforcement in contributing to the rise in informality and decline in TFP observed in Mexico from 1998 to 2013. We estimate that regulatory changes during the 2000s contributed to over a third of the observed rise in the informal employment share, but without large aggregate productivity consequences. Rising entry costs and declines in enforcement explain almost half of the decline in TFP from 1998 to 2013, though partially offset by improving within-sector allocative efficiency.
China’s Declining Business Dynamism with Diego A. Cerdeiro, March 2024.
Accepted at CANADIAN JOURNAL OF ECONOMICS
Covered in China: IMF 2021 Article IV Staff Report and Selected Issues
We document five novel facts about the dynamism of Chinese manufacturing firms between 2003 and 2018. We show that (i) the revenue and capital shares of young firms have declined, (ii) life cycle growth of firm revenues and assets has declined, (iii) life cycle growth of process efficiency / product quality and investment in intangibles has declined (iv) younger firms have higher capital productivity than older firms, with the gap increasing over time, (v) the dispersion of capital growth and the responsiveness of capital growth to capital productivity have both declined. Using a simple model, we estimate that the lower life-cycle productivity growth of young firms reduces manufacturing productivity growth by 0.8 percentage points annually, and worsening allocative efficiency of capital between young and old firms reduced manufacturing TFP by 1.25 percent between the early 2000s and late 2010s. We find that business dynamism is weaker in provinces where state-owned enterprises (SOEs) account for a larger share of the capital stock.
Work in Progress
Exporter Market Power with Diego A. Cerdeiro, Davide Malacrino and Andrea Presbitero.
Discussions
Misallocation in Firm Production: A Nonparametric Analysis Using Procurement Lotteries by Paul Carrillo, Dave Donaldson, Dina Pomeranz and Monica Singhal,
NBER Summer Institute, Macroeconomics and Productivity, July 2023.
Annual Meeting of the CEPR Macroeconomics and Growth Programme joint with STEG, November 2022.
Unreliable Firms: Evidence from Rwanda by Vishan Nigam and Brandon Tan, North East Universities Development Consortium, 2021.
Measuring Cross-Country Differences in Misallocation by Martin Rotemberg and T. Kirk White, 2020 ASSA/SGE Sessions, January 2020.
Good Dispersion, Bad Dispersion by Matthias Kehrig and Nicolas Vincent, 2nd IMF Annual Macro-Financial Research Conference, April 2019.
Reports, Policy Contributions and Other Publications
A User Manual for the DIGNAD Toolkit, IMF Technical Note and Manual, June 2023. Link to DIGNAD Toolkit.
External Sector Impact of Disaster Shocks, Box in IMF External Sector Report Chapter 1, August 2022.
Building Resilience to Natural Disasters and Climate Change: A Model Application to Timor-Leste, SI, Timor-Leste IMF Country Report 308, September 2022.
China: 2021 Article IV Consultation Staff Report, IMF Country Report 021, 2022.
Resource Misallocation Among Listed Firms in China: The Evolving Role of State-Owned Enterprises, IMF Working Paper, No. 2021/075.
Chinese State-Owned Enterprises, Resource (Mis)allocation, and Productivity, Selected Issues, China IMF Country Report 006, 2021.
China: 2020 Article IV Consultation Staff Report, IMF Country Report 006, 2021.
Reigniting Growth in Emerging Market and Low-Income Economies: What Role for Structural Reforms?, IMF, World Economic Outlook, Chapter 3, October 2019.
Is Misallocation Really Mismeasurement? When Models Meet the Micro Data, in IMF Research Perspectives, Vol. 20, No. 1, Spring/Summer 2019.
Dormant Papers
The Industrial Revolution and Irish Manufacturing Quality. (Slides)
In this paper I present empirical evidence from an industrial exhibition in Ireland as to the geographic distribution of the quality of Irish manufactured products in 1883. My main finding is that manufacturers from the north-east were on average producing higher quality products than those from other parts of the country. This finding is consistent with the fact that Irish industrialization between 1850 and 1900 was mostly confined to the north-east of Ireland. Further research into the evolution of Irish manufacturing activity may help discriminate between existing theories explaining the localized industrialization which characterized Ireland in the 19th century.