Microeconomics & International Trade Seminars

Thursdays, 1:40 - 3:00 PM
via Zoom

Fall 2020

October 8
Jaya Wen, Harvard Business School
"The Political Economy of State Employment and Instability in China" 
Host: Ajay Shenoy
ABSTRACT: 
This paper demonstrates that China uses state employment to promote social stability via job provision. I present new facts about state-owned enterprise (SOE) employment consistent with a stability motive and then build a model of government-subsidized, stability-oriented state employment. I test model predictions using variation from an ethnic conflict in China’s Xinjiang province and find that, in times and places with a higher threat of unrest spillover, SOEs hire more male minorities. Concurrently, male minority wages rise and private firms hire fewer people from this group. A quantification exercise suggests that SOEs implicitly receive a 26% subsidy on male minority wages.

October 22
Rob Garlick, Duke University
"Job Search and Hiring with Two-sided Limited Information about Workseekers’ Skills"
Host: Ajay Shenoy
ABSTRACT: 
We present field experimental evidence that limited information about workseekers’ skills distorts both firm and workseeker behavior. Assessing workseekers’ skills, giving workseekers their assessment results, and helping them to credibly share the results with firms increases workseekers’ employment and earnings. It also aligns their beliefs and search strategies more closely with their skills. Giving assessment results only to workseekers has similar effects on beliefs and search, but smaller effects on employment and earnings. Giving assessment results only to firms increases callbacks.  These patterns are consistent with two-sided information frictions, a new finding that can inform design of information-provision mechanisms.

October 29
Alina Arefeva, Wisconsin School of Business at UW Madison
"Who Benefits from Place-Based Policies? Job Growth from Opportunity Zones"
Host: Jessie Li
ABSTRACT: 
The Tax Cuts and Jobs Act of 2017 established a new program called “Opportunity Zones” that created tax advantages for investment locating in Census tracts with relatively low income or high poverty. Importantly, only 25% of eligible tracts in each state could be designated as an Opportunity Zone. We use detailed establishment-level data and a difference-in-difference (DiD) approach to identify the designation of a tract as an Opportunity Zone on job creation. We find the Opportunity Zone designation increased employment growth relative to comparable tracts by a statistically significant 2-4 percentage points over the 2017-2019 period. This result holds for many different industries and for a variety of skill levels.

November 12
Meredith Startz, Dartmouth
"Cutting Out the Middleman: The Structure of Chains of Intermediation"
Host: Alan Spearot
ABSTRACT: 
Although trade models typically assume that producers sell directly to consumers around the world, finished goods may in fact pass along a whole chain of intermediaries. Using original survey data from Nigeria, we document that there are at least three separate intermediaries between an international manufacturer and a Nigerian consumer on average, and that the characteristics of these intermediaries and their transactions are systematically related to their position along the distribution chain. We build a general framework for understanding the formation of chains with multiple intermediaries and illustrate their implications for consumer welfare and measuring trade costs. Contrary to the common intuition, consumers can actually benefit from being at the end of longer chains of intermediation. Taking chains into account also suggests that existing estimates of distance costs in developing countries are biased upward, and may contribute less to consumer-producer price gaps than typically thought. We then build a quantifiable version of the general model, which relates the endogenous chain structure through which goods actually reach consumers in a particular market to fundamentals of geography and demand in many locations, and calibrate it in the context of Nigerian wholesale trade. 

November 19
Achyuta Adhvaryu, University of Michigan Ross Business School
"Organizational Responses to Product Cycles: Evidence from Auto Manufacturing"
Host: Ajay Shenoy
ABSTRACT: 
Product cycles are a fundamental feature of innovation, growth, and survival in many industries. Firms develop new generations of products to  remain profitable when the production of current generations becomes imitable.  This phenomenon often entails the mass production of new — and often increasingly complex — products on a regular basis. How does the firm manage this highly dynamic production environment? In this project, we study how the organization of the firm changes endogenously in response to product cycles. We focus on the production of new models of automobiles, a prototypical example of product cycles.  We use granular administrative data from a leading global auto manufacturer to demonstrate the organizational impacts of the introduction of new models on the auto assembly line.  Using event study and discontinuity-based methods, we show that demand (number of vehicles) and number of total parts do not change in the short term after a new model is introduced; the main change is a large, discontinuous increase in new parts. The production of new models thus necessitates learning-by-doing: we accordingly show that defects per vehicle increase substantially after the production change, and decrease to their prior level over a period of 2-3 weeks. We next ask how the firm’s organization facilitates this problem-solving. Guided by a canonical model of knowledge-based hierarchies, we show that navigating the learning-by-doing induced by product cycles involves an increase of frontline employment coupled with an accordion-like contraction and expansion of management layers. We find clear evidence in support of these predictions in our data. We contrast these results with the impacts of a demand shock, for which we show the organizational response is a monotonic increase in both employment and management layers, consistent with prior evidence from manufacturing in high-income countries. In sum we seek to document the surprising flexibility of organizational structure in response to product cycles, and the extent to which organizational changes allow firms to survive and grow in highly dynamic markets. 

December 3 
Juan Carlos Suarez Serrato, Duke University
"Regulating Conglomerates in China: Evidence from an Energy Conservation Program"
Host: Brenda Samaniego
ABSTRACT: 
How does energy regulation affect production and energy use within conglomerates? We study the effects of a large program aimed at reducing energy utilization of large Chinese companies. We conduct a difference-in-differences analysis that compares firms across sharp size-based criteria for regulation. Directly regulated firms experience declines in both production output and energy usage, but regulated firms do not see increases in energy efficiency. Using detailed data on business registrations, we link regulated firms to non-regulated firms that are part of the same conglomerate. We identify large spillovers across cross-owned non-regulated firms, which see increases in both output and energy utilization. We then use a calibrated model where conglomerates reallocate production across related firms to study the aggregate effects of the policy on allocative efficiency and energy consumption. Within conglomerate spillovers counter the direct effects on energy conservation of regulated firms and lead conglomerates to allocate resources to less productive and potentially less energy efficient firms.

December 10
Sung Ah Bahk, American University
"Regulating Conglomerates in China: Evidence from an Energy Conservation Program"
Host: Brenda Samaniego
ABSTRACT: 
How does energy regulation affect production and energy use within conglomerates? We study the effects of a large program aimed at reducing energy utilization of large Chinese companies. We conduct a difference-in-differences analysis that compares firms across sharp size-based criteria for regulation. Directly regulated firms experience declines in both production output and energy usage, but regulated firms do not see increases in energy efficiency. Using detailed data on business registrations, we link regulated firms to non-regulated firms that are part of the same conglomerate. We identify large spillovers across cross-owned non-regulated firms, which see increases in both output and energy utilization. We then use a calibrated model where conglomerates reallocate production across related firms to study the aggregate effects of the policy on allocative efficiency and energy consumption. Within conglomerate spillovers counter the direct effects on energy conservation of regulated firms and lead conglomerates to allocate resources to less productive and potentially less energy efficient firms.

Winter 2021

March 11
Frederic Warzynski, Aarhus University
"The Impact of Research and Development on Quality, Productivity and Welfare”
Host: Guyeon Kim
ABSTRACT: 
In this paper we provide a methodology that jointly studies production and demand for multi-product firms using detailed firm-product level dataset from Denmark. We recover estimates of marginal cost by combining the proxy techniques of production function estimation with a cost function that allows for quasi-fixed inputs. We use a discrete choice demand model that extends insights from Berry, Levinsohn and Pakes (1995) to obtain a measure of the demand shock (quality). We estimate the relationship between quality (technical efficiency) and product (process) R&D. We find strong evidence that process innovation is related to higher efficiency, while product innovation is associated with higher product quality. We discuss welfare implications of these two distinct innovation activities.

Spring 2021

April 8
Brian Kovak, Carnegie Mellon University
"The Long-Run Labour Market Effects of the Canada-U.S. Free Trade Agreement"
Host: Gueyon Kim
ABSTRACT:
This paper uses matched longitudinal administrative data for Canadian workers during 1984-2004 to assess the long-run effects of the 1988 Canada-U.S. Free Trade Agreement (CUSFTA) on the Canadian labor market. Due to its bilateral nature, we are able to examine simultaneously the effects of increased export expansion and import competition. For workers initially in manufacturing industries that experienced Canadian concessions, we find a heightened probability of work-shortage based separations at large firms but little impact on long-run cumulative earnings. Lower cumulative earnings at the initial employer are offset by gains outside manufacturing. For Canadian workers in industries that obtained U.S. concessions, we find a lower probability of separation and higher cumulative earnings. These effects are concentrated among workers initially employed in larger firms, and there are important differences between low and high attachment workers.

April 15
David Yang, Harvard
"Data-intensive Innovation and the State: Evidence from AI Firms in China"
Host: Ajay Shenoy
ABSTRACT:
Artificial intelligence (AI) innovation is data-intensive. States have historically collected large amounts of data, which is now being used by AI firms. Gathering comprehensive information on firms and government procurement contracts in China’s facial recognition AI industry, we first study how government data shapes AI innovation. We find evidence of a precise mechanism: because data is sharable across uses, economies of scope arise. Firms awarded public security AI contracts providing access to more government data produce more software for both government and commercial purposes. In a directed technical change model incorporating this mechanism, we then study the trade-offs presented by states’ AI procurement and data provision policies. Surveillance states’ demand for AI may incidentally promote growth, but distort innovation, crowd-out resources, and infringe on civil liberties. Government data provision may be justified when economies of scope are strong and citizens’ privacy concerns are limited.

April 22
David Kaplan, University of Missouri
"Inference on Consensus Ranking of Distributions"
Host: Jessie Li
ABSTRACT: 
Instead of testing for unanimous agreement, I propose learning how broad of a consensus favors one distribution over another distribution (of income, productivity, asset returns, test scores, etc.). Specifically, I propose statistical inference methods to learn about the set of utility functions for which one distribution has higher expected utility than another. With high probability, an “inner” confidence set is contained within this true set, while an “outer” confidence set contains the true set. Such confidence sets can be formed by inverting a proposed multiple testing procedure that controls the familywise error rate.  I also discuss parallels with Atkinson's (1987) idea of consensus poverty ranking of distributions given a set of possible poverty lines, as well as consensus quantile utility ranking given a set of possible quantile levels.

April 29
Peter Cramton, University of Cologne; University of Maryland (Emeritus)
"Lessons from the 2021 Texas Electricity Crisis"
Host: Kristian Lopez Vargas
ABSTRACT: 
During four frigid days in mid-February, the Texas electricity market had more demand than supply. Out of necessity, the Electric Reliability Council of Texas (ERCOT), which operates the system, requested controlled outages for roughly 20 percent of the system. Electricity, unlike other products, requires that supply and demand balance every second so that frequency and voltage stay within tight tolerances. Absent this balance, generating units will trip off, causing a catastrophic blackout. The controlled, multiple-day outages that avoided such a total blackout in Texas nonetheless inflicted a severe human cost. Storm deaths total 111. Property damage is estimated at $130 billion. The event should not be repeated, not in Texas nor anywhere else. The Texas crisis’s proximate causes were two unanticipated shocks induced from the sub-zero temperatures ( 2˚ F in Dallas): 1) a failure of conventional (thermal) generating supply, mostly from lack of natural gas, and 2) a surge in electricity demand. I examine what happened and draw important lessons from the crisis that are relevant to electricity markets worldwide.

May 13
Kei-Mu Yi, University of Houston
"Deindustrialization and Industry Polarization"
Host: Gueyon Kim / Chenyue Hu
ABSTRACT: 
We confirm recent evidence on deindustrialization, and also document increasing "polarization" of manufacturing across countries over time. To account for these two facts, we develop and calibrate a dynamic, multi-sector, multi-country model of structural change. In our model, the two driving forces are sector-biased productivity growth and sectoral trade integration. Our calibrated model can recover two-thirds of the deindustrialization and all of the industry polarization. Counterfactual exercises indicate that sector-biased productivity growth is important for deindustrialization, and trade integration is important for industry polarization. In addition, there are strong interaction effects between the two forces. The key mechanism for deindustrialization involves the relative price of manufacturing to services. Early industrializers faced a relative high price of manufacturing to services; as agriculture shed factors of production, relatively more factors joined manufacturing. Later industrializers faced a lower relative price of manufacturing to services; consequently, relatively more factors of production joined services.

May 27
Arpita Chatterjee, University of New South Wales
"Trade and Minimum Wages in General Equilibrium: Theory and Evidence"
Host: Gueyon Kim
ABSTRACT: 
This paper develops a new model with heterogeneous firms under perfect competition in a Heckscher-Ohlin setting. We derive a novel prediction regarding the effect of minimum wages on selection, namely that a binding minimum wage will raise (or lower) TFP at the firm and industry level depending on whether the capital intensity of entry costs exceeds (falls short of) that of production. Exploiting rich regional variation in minimum wages across Chinese counties and using firm level production data, we find robust evidence in support of causal effects of minimum wages consistent with our theoretical predictions.

June 3
Jackie M. Chan, Aarhus University
"Mergers and Aggregate Fluctuations in a Granular Economy"
Host: Jessie Li
ABSTRACT: 
This paper develops a quantitative model of mergers and acquisitions (M&A) to investigate how merger activity impacts the firm size distribution and aggregate volatility. A discrete number of heterogeneous firms draw productivity from an initial distribution and participate in a domestic merger market. Following an M&A deal, the acquirer grows and its productivity improves. All firms then receive an idiosyncratic shock, and in a granular economy with a fat-tailed firm size distribution, shocks to large firms generate aggregate fluctuations. Because mergers create larger firms, the firm size distribution becomes more fat-tailed and aggregate volatility increases. We calibrate our model using Danish register data from 1993 to 2013 by matching key moments of the firm size distribution of acquirer and target firms. Comparing a counterfactual economy without mergers to the benchmark economy with mergers, we find that domestic M&A increase aggregate volatility by 4.4% under variable markups and 37% under constant markups.