Firm Entry, Trade, and Welfare in Zipf's World

Firm size follows Zipf's Law, a very fat-tailed distribution that implies a few large firms account for a disproportionate share of overall economic activity. This distribution of firm size is crucial for evaluating the welfare impact of macroeconomic policies such as barriers to entry or trade liberalization. Using a multi-country model of production and trade in which the parameters are calibrated to match the observed distribution of firm size, we show that the welfare impact of high entry costs is small. In the sample of the largest 50 economies in the world, a reduction in entry costs all the way to the U.S. level leads to an average increase in welfare of only 3.25%. In addition, when the firm size distribution follows Zipf's Law, the welfare impact of the extensive margin of trade -- newly imported goods -- vanishes. The extensive margin of imports accounts for only about 3.5% of the total gains from a 10% reduction in trade barriers in our model. This is because under Zipf's Law, the large, inframarginal firms have a far greater welfare impact than the much smaller firms that comprise the extensive margin in these policy experiments. The distribution of firm size matters for these results: in a counterfactual model economy that does not exhibit Zipf's Law the gains from a reduction in entry barriers are an order of magnitude larger, while the gains from trade liberalization are an order of magnitude smaller.Zipf's Law, welfare, entry costs, trade barriers

Openness, Volatility and the Risk Content of Exports

It has been observed that more open countries experience higher output growth volatility. This paper uses an industry-level panel dataset of manufacturing production and trade to analyze the mechanisms through which trade can affect the volatility of production. We find that sectors with higher trade are more volatile and that trade leads to increased specialization. These two forces act to increase overall volatility. We also find that sectors which are more open to trade are less correlated with the rest of the economy, an effect that acts to reduce aggregate volatility. The point estimates indicate that each of the three effects has an appreciable impact on aggregate volatility. Added together they imply that a one standard deviation change in trade openness is associated with an increase in aggregate volatility of about 15% of the mean volatility observed in the data. The results are also used to provide estimates of the welfare cost of increased volatility under several sets of assumptions. We then propose a summary measure of the riskiness of a country's pattern of export specialization, and analyze its features across countries and over time. There is a great deal of variation in countries' risk content of exports, but it does not have a simple relationship to the level of income or other country characteristicsTrade, Output Volatility, Risk Content of Exports

Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement

A well established empirical result is that countries that trade more with each other exhibit higher business cycle correlation. This paper examines the mechanisms underlying this relationship using a large cross-country industry-level panel dataset of manufacturing production and trade. We show that higher bilateral trade in an individual sector increases both the co-movement within the sector between trading countries, as well as the comovement between that sector and the rest of the economy of the trading partner. We also demonstrate that vertical linkages in production are an important force behind the overall impact of trade on business cycle synchronization. The elasticity of comovement with respect to bilateral trade is significantly higher in industry pairs that use each other as intermediate inputs in production. Our estimates imply that vertical production linkages account for some 30% of the total impact of bilateral trade on business cycle correlation for our full country sample. Finally, the positive impact of trade on industry-level comovement is far more pronounced in the North-North country pairs compared to either the South-South or North-South country pairs. However, the relative contribution of vertical linkages to aggregate comovement is roughly three times greater for North-South trade than North-North trade.trade, institutional change

The Risk Content of Exports: A Portfolio View of International Trade

It has been suggested that countries whose exports are in especially risky sectors will experience higher output volatility. This paper develops a measure of the riskiness of a country's pattern of export specialization, and illustrates its features across countries and over time. The exercise reveals large cross-country differences in the risk content of exports. This measure is strongly correlated with the volatility of terms-of-trade, total exports, and output, but does not exhibit a close relationship to the level of income, overall trade openness, or other country characteristics. We then propose an explanation for what determines the risk content of exports, based on the theoretical literature exemplified by Turnovsky (1974). Countries with a comparative advantage in safe sectors or a strong enough comparative advantage in risky sectors will specialize, whereas countries whose comparative advantage in risky sectors is not too strong will diversify their export structure to insure against export income risk. We use both non-parametric and semiparametric techniques to demonstrate that these theoretical predictions are strongly supported by the data.trade, exports, risks

Trade Openness and Volatility

This paper examines the mechanisms through which trade openness affects output volatility using an industry-level panel dataset of manufacturing production and trade. The main results are threefold. First, sectors more open to international trade are more volatile. Second, trade leads to increased specialization. These two forces act to increase aggregate volatility. Third, sectors which are more open to trade are less correlated with the rest of the economy, an effect that acts to reduce overall volatility. The point estimates indicate that each of the three effects has an appreciable impact on aggregate volatility. Added together they imply that the overall e®ect of trade openness is positive and economically signi¯cant. This impact also varies a great deal with country characteristics. We estimate that the same increase in openness raises aggregate volatility five times more in developing countries compared to developed ones. Finally, we find that the marginal impact of openness on volatility roughly doubled in the last thirty years, implying that trade exerts a larger influence on volatility over time.Trade, Output Volatility, Specialization, Comovement, Sector-Level Data

Mobilità ciclabile: una svolta culturale, politica e tecnica per l’assetto dei territori urbani e metropolitani

La recente approvazione da parte del Parlamento della Legge n.2 dell’11 gennaio 2018 recante “Disposizioni per lo sviluppo della mobilità in bicicletta e la realizzazione della rete nazionale di percorribilità ciclistica” rappresenta un atto fondamentale per l’avvio di una politica a sostegno della mobilità sostenibile – e di quella ciclabile, in particolare – nelle aree turistiche e in quelle urbane e metropolitane del Paese. Non solo: il dispositivo previsto dal testo di legge costituisce anche un’importante svolta culturale, politica e tecnica per la gestione e la programmazione urbanistica del futuro assetto dei territori e delle aree urbane e metropolitane, non priva di delicate implicazioni

Equivalence of gradient flows and entropy solutions for singular nonlocal interaction equations in 1D

We prove the equivalence between the notion of Wasserstein gradient flow for a one-dimensional nonlocal transport PDE with attractive/repulsive Newtonian potential on one side, and the notion of entropy solution of a Burgers-type scalar conservation law on the other. The solution of the former is obtained by spatially differentiating the solution of the latter. The proof uses an intermediate step, namely the $L^2$ gradient flow of the pseudo-inverse distribution function of the gradient flow solution. We use this equivalence to provide a rigorous particle-system approximation to the Wasserstein gradient flow, avoiding the regularization effect due to the singularity in the repulsive kernel. The abstract particle method relies on the so-called wave-front-tracking algorithm for scalar conservation laws. Finally, we provide a characterization of the sub-differential of the functional involved in the Wasserstein gradient flow

Power Laws in Firm Size and Openness to Trade: Measurement and Implications

Existing estimates of power laws in firm size typically ignore the impact of international trade. Using a simple theoretical framework, we show that international trade systematically affects the distribution of firm size: the power law exponent among exporting firms should be strictly lower in absolute value than the power law exponent among non-exporting firms. We use a dataset of French firms to demonstrate that this prediction is strongly supported by the data. While estimates of power law exponents have been used to pin down parameters in theoretical and quantitative models, our analysis implies that the existing estimates are systematically lower than the true values. We propose two simple ways of estimating power law parameters that take explicit account of exporting behavior.Firm Size Distribution, International Trade, Power Laws

Labor market regimes and monetary policy

In this paper we propose straightforward extensions of multi-union, monopolistic competition models appearing in the recent literature on the macroeconomic effects of monetary policy. We extend these models from the Stackelberg equilibrium to the Nash equilibrium under variations in labor market regime in order to evaluate propositions about non-neutrality of monetary policy.policy game monetary policy neutrality trade union monopolistic competition