Publications by Type: Unpublished

Using three different panel data sets, we show: (i) that mark-ups are significantly higher in South African manufacturing industries than they are in corresponding industries worldwide; (ii) that competition policy (i.e a reduction of mark-ups) should have largely positive effects on productivity growth in South Africa.

A central assumption of open economy macro models with nominal rigidities relates to the currency in which goods are priced, whether there is so-called producer currency pricing or local currency pricing. This has important implications for exchange rate pass-through and optimal exchange rate policy. We show, using novel transaction level information on currency and prices for U.S. imports, that even conditional on a price change, there is a large difference in the pass-through of the average good priced in dollars (25%) versus non-dollars (95%). This finding is contrary to the assumption in a large class of models that the currency of pricing is exogenous and is evidence of an important selection effect that results from endogenous currency choice. We describe a model of optimal currency choice in an environment of staggered price setting and show that the empirical evidence strongly supports the model's predictions of the relation between currency choice and pass-through. We further document evidence of significant real rigidities, with the pass-through of dollar pricers increasing above 50% in the long-run. Lastly, we numerically illustrate the currency choice decision in both a Calvo and a menu-cost model with variable mark-ups and imported intermediate inputs and evaluate the ability of these models to match pass-through patterns documented in the data.

For two hundred years, social science has provided the lens through which people view society and the visions animating most demands for political reform – at least since Adam Smith’s efforts to unleash the ‘invisible hand’ of the market without destroying the moral sentiments of society.1 However, the perspectives of social science shift, as each new generation questions its predecessors, with import for politics as well as the academy. From time to time, therefore, we should reflect on them. In this essay I do so from the perspective of political science, mainly about American scholarship and with no pretense to comprehensiveness, but with a focus on the disciplinary intersections where so many have found Archimedean points. Intellectual developments in any one field are often ‘progressive’ in the scientific sense of that term.2 But something can be lost as well as gained in the course of them, and there is reason for concern about the fate of social science over the past twenty-five years. What has been lost becomes clear only if we revisit the path taken.

Why do advanced democracies cluster into some that are highly inegalitarian and redistribute very little and others that are highly egalitarian and redistribute a great deal? Related, why do some economies rely a great deal on free market exchange while others are permeated by a dense network of non-market regulations and organizations? As Korpi reminds us in a recent World Politics article (Korpi 2006), explaining this diversity, and its persistence, is a main task for anyone interested in understanding the workings of modern capitalism.

We develop a simple model of international trade with heterogeneous …firms that is consistent with a number of stylized features of the data. In particular, the model predicts positive as well as zero trade ‡flows across pairs of countries, and it allows the number of exporting fi…rms to vary across destination countries. As a result, the impact of trade frictions on trade ‡flows can be decomposed into the intensive and extensive margins, where the former refers to the trade volume per exporter and the latter refers to the number of exporters. This model yields a generalized gravity equation that accounts for the self-selection of …firms into export markets and their impact on trade volumes. We then develop a two-stage estimation procedure that uses a selection equation into trade partners in the fi…rst stage and a trade ‡ow equation in the second. We implement this procedure parametrically, semi-parametrically, and non-parametrically, showing that in all three cases the estimated effects of trade frictions are similar. Importantly, our method provides estimates of the intensive and extensive margins of trade. We show that traditional estimates are biased, and that most of the bias is not due to selection but rather due to the omission of the extensive margin. Moreover, the effect of the number of exporting fi…rms varies across country pairs according to their characteristics. This variation is large, and particularly so for trade between developed and less developed countries and between pairs of less developed countries.

In recent years, concerns about the impact of trade and investment on human rights and labor standards in developing nations have played an increasingly important role in political debates about globalization in Europe and the United States. In particular, labor unions, human rights groups, and other NGOs have raised alarms about "sweatshops" in developing nations that produce items for export (typically sewn or woven textile products) and are characterized by low wages, long working hours, unsafe and unsanitary conditions, child labor, and prohibitions against organization among workers. Many people fear that globalization has contributed to the spread of sweatshop production in developing countries as they compete to establish new export sectors and attract investment from footloose multinational firms (see Rodrik 1996; Klein 2000). The most adamant critics of globalization argue that this is part of a general "race to the bottom" in social and environmental standards in developing countries. These types of concerns have contributed to what appears to be a significant and growing political backlash against globalization in many western nations, mobilizing local activist groups and transnational NGOs and stirring uneasiness among voters about future trade agreements.

We develop a simple general equilibrium model for studying the impact of workers’relative-wage concerns on resource allocation and the organization of production. We characterize equilibria for the closed economy and for an open economy in which an intermediate input can be produced o¤shore. In the closed economy, …firms that are otherwise identical may have different hiring practices and pay different wages to low-skill workers. In the open economy, some …firms perform all production at home while others produce all of the intermediate input offshore. We show that relative-wage concerns add to incentives for offshoring. Offshore production may take place in the presence of relative-wage concerns in situations where it would not be pro…table in their absence. And if offshoring takes place with or without such concerns, the extent of offshore production is greater in the former setting than in the latter. We further show that when workers are concerned about relative pay, the equilibrium does not maximize the economy’s net output. Nonetheless, the competitive equilibrium with o¤shoring is constrained Pareto efficient.

In 1980, India nationalized its large private banks. This induced different bank ownership patterns across different towns, allowing credible identi…cation of the effects of bank ownership on …nancial development, lending rates, and the quality of intermediation, as well as employment and investment. Credit markets with nationalized banks experienced faster credit growth during a period of …nancial repression. Nationalization led to lower interest rates and lower quality intermediation, and may have slowed employment gains in trade and services. Development lending goals were met, but these had no impact on the real economy.

How vulnerable are economic interventions to political capture, how are captured resources used, and how costly are the resulting distortions? This paper answers these questions in the context of the credit market in India. Integrating theories of political budget cycles with theo- ries of tactical electoral redistribution yields a compelling framework to test for the presence of capture. I …nd that government-owned banks are subject to substantial capture: the amount of agricultural credit lent by public banks is 5-10 percentage points higher in election years than in years following an election, and in election years more loans are made to districts in which the ruling state party had a narrow margin of victory (or a narrow loss) in the previous election. This targeting does not occur in non-election years. Politically motivated loans are costly: they are less likely to be repaid, and election year credit booms do not measurably a¤ect agricultural output.

Gender Based Taxation (GBT) satisfies Ramsey’s optimal criterion by taxing less the more elastic labor supply of (married) women. This holds when different elasticities between men and women are taken as exogenous and primitive. But in this paper we also explore differences in gender elasticities which emerge endogenously in a model in which spouses bargain over the allocation of home duties. GBT changes spouses’ implicit bargaining power and induces a more balanced allocation of house work and working opportunities between males and females. Because of decreasing returns to specialization in home and market work, social welfare improves by taxing conditional on gender. When income sharing within the family is substantial, both spouses may gain from GBT.

We present evidence from a field experiment in Lusaka, Zambia that male involvement in the decision to seek out family planning services leads to substantial reductions in utilization. This phenomenon appears to be driven by average differences by gender in the demand for children rather than by a general distrust of or lack of information about family planning technologies among men. Study participants were offered a voucher that granted access to an appointment with a family planning nurse without a wait in line. Demand for family planning services is high, as evidenced by the 41 percent overall rate at which these vouchers were redeemed. Women were randomly assigned to receive the voucher either by themselves in private, or together with their husbands. Takeup among women assigned to receive the vouchers with their husbands was 9 percentage points (18 percent) lower than among women randomly assigned to receive the vouchers alone. We find evidence that this reduction in takeup was larger if husbands wanted more children than their wives, and stronger evidence that this reduction was larger among young couples than among older couples with completed fertility. There is no evidence that assignment to couples treatment reduces voucher use for women whose husbands want no more children, and evidence for a 12 percentage point reduction in use in the subsample of women whose husbands do want more children. Taken together, these results suggest that the unitary and collective bargaining models do not sufficiently richly describe the bargaining process over fertility within the household. Furthermore, policies or technologies that shift relative control of contraceptive methods from men to women may significantly increase contraceptive use and reduce average fertility in some contexts.

In an age of migration, anticipating, directing, or stemming migration flows is a leading dilemma for policy makers confronting a broad range of concerns. A critical research finding is that migration flows can develop a self-sustaining momentum that is difficult to redirect. This phenomenon, predicted by cumulative causation theory, hypothesizes that migration flows gain momentum and eventually become self-sustaining due to the accumulation of migration experience in the form of migrant social capital. Migration studies evaluating the theory are substantial, especially for the Mexican-U.S. case, but also for other sites, powerfully demonstrating how macro social structures influence behavior and vice versa. However, recent research also shows that rather than uniformity in the macro-micro migration dynamic, instead there is still substantial heterogeneity in migration patterns at both the community and individual level. We propose that this heterogeneity in patterning can be explained by further theorizing the mechanisms that underlie cumulative causation. Specifically, we propose that migrant social capital evolves differently depending the historical continuity of migration flows to and from a particular destination and the social proximity of migrants to potential migrants in origin communities. We examine longitudinal data from Thailand to test this theoretical modification by estimating migration models to substantively different destinations, observing migration experiences at multiple levels of social proximity (individual, household, and community). Our models also include a gender account of these patterns, since gender is a fundamental social organizing mechanism. We find significant cumulative differences in migration patterns that can be explained by historical continuities to destinations and social proximity within origin communities. In addition, men’s and women’s accumulated migration experiences, differential social proximity, and differential access to migrant social capital demonstrate that heterogeneity in migration flows is also driven by gender.

The empirical literature finds mixed evidence on the existence of positive productivity externalities in the host country generated by foreign multinational companies. We propose a mechanism that emphasizes the role of local financial markets in enabling foreign direct investment (FDI) to promote growth through backward linkages, shedding light on this empirical ambiguity. In a small open economy, final goods production is carried out by foreign and domestic firms, which compete for skilled labor, unskilled labor, and intermediate products. To operate a firm in the intermediate goods sector, entrepreneurs must develop a new variety of intermediate good, a task that requires upfront capital investments. The more developed the local financial markets, the easier it is for credit constrained entrepreneurs to start their own firms. The increase in the number of varieties of intermediate goods leads to positive spillovers to the final goods sector. As a result financial markets allow the backward linkages between foreign and domestic firms to turn into FDI spillovers. Our calibration exercises indicate that a) holding the extent of foreign presence constant, financially well-developed economies experience growth rates that are almost twice those of economies with poor financial markets, b) increases in the share of FDI or the relative productivity of the foreign firm leads to higher additional growth in financially developed economies compared to those observed in financially under-developed ones, and c) other local conditions such as market structure and human capital are also important to generate a positive effect of FDI on economic growth.

Comparative political economists have become deeply interested in processes of institutional change, and especially in those taking place in response to the opening of world markets associated with 'globalization' (Pierson 2001; Djelic and Quack 2003; Rieger and Leibfried 2003; Campbell 2004). They are asking a number of questions. When do the institutions of the political economy change? What factors drive change? Are changes in the international economy enforcing institutional convergence on the developed economies?

Prior work models individuals’ migration and remittance behavior separately, and finds mixed empirical support for altruistic or contractual theories of remittances. This inconsistency may result from selection bias. This study controls for this bias statistically, and treats migration as a mechanism for selection in a censored probit model of remittances. Using longitudinal and multi-level data from Thai internal migration, the study reports three findings: First, altruism and insurance seeking influence both migration and remittance probability. Second, bargaining, inheritance seeking and investment opportunities decrease probability of migrating, but increase probability of remitting. Third, these results are considerably different than those obtained by conventional approach of modeling remittances separately. The study concludes that migration and remittances are related processes, and it is crucial for an analysis of remittances to control for the selectivity of migration.

This paper evaluates how rural-urban migration and remittance flows alter the level and distribution of household assets in 22 sending communities in Nang Rong, Thailand. Principal components analysis is used to construct an index of household assets from sixteen asset indicators measured in 1994 and 2000. The index is decomposed into productive and consumer assets, which constitute two broad categories of investments, with potentially different implications for future household wealth and community development. The changes in the total, productive and consumer asset indices over 6 years are then modeled as a function of migration-remittance behavior of households in 1994, and other household and village characteristics in 1994 and 2000. Because households’ migration-remittance behavior is non-random, a propensity score matching technique is used to correct for selectivity bias, where selection is specified as a multinomial choice among three household strategies: not migrate, migrate-not remit, migrate-remit. The findings show that households’ migration and remittance choices have a significant effect on the level and nature of their subsequent investments, and this effect depends strongly on households’ initial wealth. While rich households face a decrease in productive assets due to migration of their members, poor households gain assets, and improve their relative status within their communities.

We explore the relation between international financial integration and the level of entrepreneurial activity in a country. We use a unique firm level data set of approximately 24 million firms in nearly 100 countries in 2004 and 1999, which enables us to present both cross-country and industry level evidence. We establish robust cross-country correlations between increased international financial integration and the activity of entrepreneurs using various proxies for entrepreneurial activity such as entry, size, and skewness of the firm-size distribution and de jure and de facto measures of international capital integration. We then explore causal channels through which foreign capital may encourage entrepreneurship. We find evidence that entrepreneurial activity in industries which are more reliant on external finance is disproportionately affected by international financial integration, suggesting that foreign capital may improve access to capital either directly or through improved domestic financial intermediation. Second we find that entrepreneurial activity is higher in industries which have a large share of foreign firms or in vertically linked industries.

This paper explores types of migrants from Mexico to the United States in the period 1970-2000. Prior work analyzes the distinctions between migrants and non-migrants and suggests a number of theories that explain migration behavior. While each theory uncovers a different facet of migration flows, no single theory is able to capture the complexity of individuals’ migration choices. Furthermore, focusing on what distinguishes migrants from non-migrants, prior research effectively treats migrants as a homogenous group, assuming that they respond to changes in the migration context in the same way. This paper develops a context-dependent model of migration and argues that variations in the social, economic and political context of sending and receiving regions create different conditions for migrating. These conditions are heightened or lessened by migrants’ demographic characteristics and family networks. Hence, together all these elements help identify different types or strategies of migrants. A cluster analysis, informed by theories of migration, finds five distinct types of migrants from Mexico to the United States: network migrants (those who follow family or community migrants), income-maximizing migrants (those who seek to increase their income), risk-diversifying migrants (those who migrate to diversify their sources of income), push migrants (those who migrate to escape worsening economic conditions in Mexico), and pull migrants (those who take advantage of favorable migrating conditions to the U.S.). The relative presence and dominance of each migrant type follows a clear time pattern, signifying critical changes in the Mexican-U.S. migration context. Moreover, migrant types seem to influence several outcomes (legal or illegal entry, subsequent trips, length of stay), and lead to specific predictions not foreseen by the theories of migration. These results not only provide novel insights into the migration process between Mexico and the U.S., but they also show that different theories about why individuals migrate may each be correct in different contexts. Future research should focus on the interrelations among different theories of migration, and identify the specific contexts under which different ideas work.

We identify a new type of vertical foreign direct investment (FDI) made up of multinational subsidiaries producing intermediate inputs, which are of similar skill intensity to the final goods produced by their parents, and which are overwhelmingly located in high skill countries. Making up more than half of all vertical FDI, these subsidiaries are not readily explained by the comparative advantage considerations in traditional models, where firms locate their low skill production stagesabroad in low skill countries to take advantage of factor cost differences. In this paper we exploit a remarkable new firm level data set which establishes the location, ownership, and activity of 650,000multinational subsidiaries—close to a comprehensive picture of global multinational activity. A number of patterns emerge from the data. Most foreign direct investment (FDI) occurs between rich countries. The share of vertical FDI (subsidiaries which provide inputs to their parent firms) is larger than commonly thought, even within developed countries. More than half of all vertical subsidiaries are only observable at the four-digit level because the inputs they are supplying are so proximate to their parent firm’s final good that they appear identical at the two-digit level. We call these proximate subsidiaries ‘intra-industry’ vertical FDI and find that their location and activity are significantlydifferent to the inter-industry vertical FDI visible at the two-digit level. We explain this pattern of intra-industry north-north vertical FDI in terms of the decision to outsource versus own the production of intermediate inputs. Overwhelmingly, multinationals tend to own the stages of production proximate to their final production giving rise to a class of high-skill intra-industry vertical FDI.

This paper uses data on elected village councils in South India to examine the political economy of public resource allocation. We find that the pattern of policy-making reflects politicians' self-interest. Elected councillors benefit from improved personal access to public resources. In addition, the head councillor's group identity and residence influences public resource allocation. While electoral incentives do not eliminate politician opportunism, voters appear able to use their electoral clout to gain greater access to public resources.