Research

Work in Progress

• Import Firm Concentration and Tariff Incidence Across Countries (Draft coming soon!)
  (with Rodrigo Adão, Ana Fernandes, and Chang-Tai Hsieh)
  [Slides] (from ASSA 2025)
  
  Abstract [+]

  How does the market structure among importer firms affect the aggregate and distributional effects of changes in trade costs? We combine a model of domestic pricing decisions of importer firms with administrative firm-level import records from 55 countries to answer this question. We show that imports of a good are highly concentrated among the largest importer firms, with this concentration being more pronounced in smaller and lower income countries. We develop a model in which import firm concentration determines domestic pricing strategies and, consequently, the incidence of tariffs on consumer prices and firm markups. The role of import concentration is captured through the firm-level elasticity of imports to tariff changes, which depends solely on the firm’s initial share of the country’s imports of a good. We estimate that the negative impact of tariff increases on firm imports is monotonically decreasing with the firm's good import share. The combination of our model and estimates implies that, due to higher import concentration, poorer and smaller countries have higher markups on imported goods and a greater incidence of trade cost changes on firm profits than on consumer prices.

• (In)formal Growth: Knowledge Dynamics with Learning Segmentation (Updated Draft coming soon!)
  (with Santiago Franco)
  [Paper] [Slides] (from The Economics of Informality 2024)
  
  Abstract [+]

  Labor informality is pervasive in developing economies. In this paper, we investigate the interconnection between informal labor, human capital accumulation, and economic growth. How do informal labor markets affect human capital accumulation, and vice versa? What are the aggregate effects of this interaction on growth and welfare? Using panel data from Chile and Colombia, we explore the dynamics of the formal and informal sectors by documenting two new empirical facts. First, wages for formal workers increase significantly more over the life cycle than wages for informal workers. Second, a substantial portion of this formal wage premium is attributable to workers' skill-based sorting. To rationalize these patterns, we build an endogenous growth model where heterogeneous workers sort into formal and informal labor markets based on their potential earnings. Worker's human capital increases over their life cycle through interactions with other workers. In equilibrium, more knowledgeable workers sort into the formal sector, and the growth rate of the economy is determined by the rate at which all workers meet more knowledgeable formal workers. We structurally estimate the parameters of the model and use it to quantify the effect of formalization policies. We find that policies that decrease the cost of operating formally are more effective in reducing the size of the informal sector compared to policies that increase the cost of producing informally. However, both types of policies have adverse effects on economic growth by lowering the quality of interactions of more skilled workers.

• Good Firms, Bad Policies: The Dynamics of Informality and Industry Policy in Shaping Economic Growth (Draft coming soon!)
  (with Ufuk Akcigit, Y. Emre Akgunduz, Harun Alp, and Seyit M. Cilasun)
  [Slides] (from RIDGE 2022)
  
  Abstract [+]

  We study the effects of size-dependent regulations in a dynamic model in which heterogeneous firms spend resources to grow by improving their productivity and can rely on informality in the labor market. We use the model to study firms in Turkey, where labor market regulations make operation more costly for firms with more than 50 employees. We find that firms rely more on informality to avoid the burden of size-dependent regulations: the overall share of informality would be lower by 5.9% in the absence of regulation. Additionally, size-dependent policies take a higher toll on firms with high growth potential. In a counterfactual economy without distortion, the share of these firms would increase by 2.5%, and the share of firms with more than 50 employees would increase by 78%. Finally, without regulation, economic growth and welfare would increase by 1.9% and 0.6%, respectively.

• Financial Development, Informality, and Misallocation (Draft coming soon!)
  (with David Perez-Reyna)
  [Slides] (from LACEA LAMES 2024)
  
  Abstract [+]

  Financial development plays a crucial role in driving economic growth. In this paper, we analyze the relationship between financial development and informality. Using Enterprise Surveys (WBES) data, we find a negative correlation: economies with higher financial development exhibit lower informality rates. To rationalize these observations, we propose a two-period model where firms are subject to financial friction and endogenously choose formal and informal labor. The financial friction is a correlated distortion, so higher financial development reduces misallocation and benefits more productive firms. This leads to increased labor demand, productivity-enhancing investments, and positive effects on aggregate welfare and production.