Weekly NBER Digest 3/6/16

This is the second post in my weekly NBER digest series.

  1. Bertrand and Duflo summarize the field experiments on discrimination.Dynamics of discrimination and ways to undermine discrimination seem to be promising future research areas.
  2. Dinkleman and Mariotti investigate how circular migration from Malawi to South Africa helps to improve the human capital in origin communities. Using spatial variation in migration costs and two policy instruments, a removal of migrant quota and a ban on migration, they find that after twenty years of the shocks, “human capital is 4.8%-6.9% higher among cohorts who were eligible for schooling in communities with the easiest access in migrant jobs.”
  3. A new working paper by Hummels, Munch, and Xiang reviews the existing literature on the labor market impacts of offshoring.

Weekly NBER Digest 2/20/16

This is the second post in my weekly NBER digest series.

1.What can we say about optimal trade policy using heterogeneous firms theory?

Costinot and coauthors use the classic Melitz (2003) model of heterogeneous firms trade theory to derive optimal tax levels at the micro (firm) level. They find that optimal import taxes discriminate against the most profitable foreign exporters, while optimal export taxes are uniform across domestic exporters.

Relative to another recent paper by Costiinot, Donaldson, Vogel and Werning (2015), the assumption of monopolistic competition (rather than perfect competition) in this paper leads to conclusions that are exactly the opposite. More generally, this paper is part of the trend in international trade research to connect traditional macro theories to micro data regularities.

2. How to evaluate the impact of international competition on firm performance?

This is not a new topic, but De Loecker and Van Biesebroeck highlights two aspects that are not well addressed in previous research. First, the impact of international trade on market power and productive efficiency should be studied in an integrated framework. Second, trade liberalization has the potential to increase competition by enlarging the relevant market, but this effect is not well understood. The discussion on the relevant market definition in the trade context is especially insightful.

Weekly NBER Digest 2/14/16

I decided to start a series of weekly blog posts on the new NBER working papers on development economics, labor economics, and international trade that I find interesting. In the past few months, I have experienced the excitement of finding an interesting research question, going through the empirical methodology to answer the question, cleaning data, and then figuring out there is not enough variation to answer my question (due to the contextual nature of the question). Now I am opening myself up to new ideas, and my NBER digests will serve this purpose as well.

1. How does taxation affect growth through corruption?

This working paper builds an endogenous growth model to examine the relationship between taxation, corruption, and economic growth. Taxes have disincentive effects on entrepreneurs, but also provide them with public infrastructure. Political corruption governs how efficient tax revenues are translated into infrastructure. The model predicts an inversed-U relationship between taxation and growth, which is consistent with data from the Longitudinal Business Database (LBD) at the US Census Bureau.

This paper is an example of combining macro modeling with micro empirical analysis to address an interesting question.

2. Are trade policies no longer important?

This working paper by Goldberg and Pavcnik describes the declining research interest in assessing the impact of trade policies and reasons for this decline, and suggests future areas of research. A lot of useful insights. As an example,

The variation in trade policy across cross-sectional units and time is only helpful for identifying the effects of trade policy in the presence of some type of friction and/or heterogeneity in exposure to policy change. … the main limitation of relying on differential exposure of economic agents to trade policy to identify its causal effects is … that this approach by its nature will generally reveal only the relative and not absolute effects of a policy change. The latter require a theoretical framework within which the relative effects can be interpreted.