Are Imports from Rich Nations Deskilling Emerging Economies? - Human Capital and the Dynamic Effects of Trade

This paper starts by documenting that during the last decades, the human capital embodied in imports from skill abundant nations has noticeably reduced skill accumulation in the less developed world. To identify the causal relation between these variables, the analysis utilizes over-time variation in the supply of skilled labor and the extent to which this variation affects the skill content of trade given the bilateral distance between im- and exporter. In a panel estimation covering 41 non-OCED members, a one standard deviation higher geographic pressure to import human capital is associated with a 12% reduction in the national average length of schooling. The paper next develops a model to analyze the income and welfare consequences of such trade-induced human capital disaccumulation. The model is based on heterogeneous workers who make educational decisions in the presence of complete markets. When heterogeneous workers invest in schooling, high type agents earn a surplus from their investment. Trade shifts this surplus to rich countries that can use skills more efficiently. Consequently, the dynamic effects of liberalization tend to occur to initially rich countries, thus leading to divergence.Factor Content of Trade, Employment, Human Capital, Economic Growth

Consumer Heterogeneity and the Impact of Trade Liberalization: How Representative is the Representative Agent Framework?

While it is well established that across-country taste differences are associated with "home market effects", there is very limited analysis of how such preference heterogeneity impacts the aggregate volume of trade and the welfare gains from liberalization. I develop a structural model of aggregate demand featuring products with heterogeneous attributes, consumers with heterogeneous tastes for attributes, and across-country differences in the distribution of tastes. The impact of across-country taste differences depends on whether the domestic industry can adjust to the mismatch between the attribute composition of imports and the domestic distribution of tastes. For the case of a large degree of across-country taste differences, countries specialize completely and the model supports notions along the lines of Linder (1961) that taste diversity impedes the volume of trade and leads to group-specific gains from trade. In contrast, if specialization is incomplete, free firm entry implies that the relative toughness of competition across different market segments must be invariant to liberalization. It is shown that therefore, both trade volume and welfare gains are entirely unaffected by the distribution of foreign tastes and coincide with those in a representative agent framework.Intra-Industry Trade, Monopolistic Competition, Heterogeneous Agents, Industrial Structure, Firm Dynamics

The Colonial Origins of Comparative Development: A Solution to the Debate on Settler Mortality Rates

I address David Albouy's (2006) critique of the data constructed by Daron Acemoglu, Simon Johnson and James Robinson (2001). The contribution of this paper is to instrument for settler mortality rates that are collected from historical sources - and that may be measured with error - with a geographic model of the determinants of disease. I first establish that my instruments are significant predictors of mortality and are otherwise excludable to institutions. Among other things, the excludability is established by a falsification exercise, in which I document that the geographic potential for mortality strongly affected institutions in former colonies, yet it had no effect on institutions in the rest of the world. This differential effect settler mortality had on development can only be rationalized by the early institution building hypothesis that Acemoglu et al. argue for. I next repeat the analysis of Acemoglu et al. instrumenting for the historical mortality rate with its geographic projection. The instrumented mortality rate is a highly significant predictor of institutional quality. Moreover, this result is true when instrumenting for either the original data or the revised mortality series of Albouy. This result is also true when accounting for the population that the historical data was sampled from. Turning to the instrumental variable estimations, I show that also the relation between institutions and income is highly significant and that the associated importance of institutions for international income differences is substantial. Again this finding is true when using either of the two historical series and also when accounting for the population that the historical data was sampled from. I thus conclude that the empirical results presented in Acemoglu et al. indeed reflect their early institution building hypothesis rather than measurement error.Comparative Development, Growth, Institutions, Colonialism, Property Rights, Mortality

Cost Pass Through in a Competitive Model of Pricing-to-Market

This paper builds up an extension to the Mussa and Rosen (1978) model of quality pricing under perfect competition. Our model incorporates decreasing returns to scale. First, we predict that exchange rate shocks are imperfectly passed through into prices. Second, prices of low quality goods are more sensitive to exchange rate shocks than prices of high quality goods. Third, in response to an exchange rate appreciation, the composition of exports shifts towards higher quality and more expensive goods. We test those predictions using highly disaggregated price and quantity US import data. We find that the prices of high quality goods, proxied as high unit price goods, are more sensitive to exchange rate movements. Moreover, we find evidence that in response to an exchange rate appreciation, the composition of exports shifts towards high unit price goods.Pricing-to-Market, Exchange Rate Pass Through, Local Distribution

The Effect of Low-Wage Import Competition on U.S. Inflationary Pressure

This paper develops a new methodology to estimate the effect of low-wage import competition on U.S. producer prices. We first document that when low-wage countries grow, their exports to the United States increase most in labor-intensive sectors. Second, we demonstrate that the temporary and relative component of imports induced by labor intensity and output growth in low-wage countries is orthogonal to U.S. supply and demand shocks and can, therefore, be utilized to identify the causal impact of import competition on prices. In a panel covering 325 manufacturing industries from 1997 to 2006, we find that imports from nine low-wage countries are associated with strong downward pressure on U.S. prices. When these nations capture 1% U.S. market share, producer prices decrease by 3.1%, which is nearly fully accounted by a 2.4% increase in labor productivity and a 0.4% decrease in markups. Overall, we find that imports from the examined countries have decreased U.S. manufacturing PPI inflation by around two percentage points each year.Low-Wage Country Import Competition, Comparative Advantage, Globalization

Spatial Competition in Quality, Demand-Induced Innovation, and Schumpeterian Growth

We develop a general equilibrium model of vertical innovation in which multiple firms compete monopolistically in the quality space. The model features many firms, each of which holds the monopoly to produce a unique quality level of an otherwise homogenous good, and consumers who are heterogeneous in their valuation of the good's quality. If the marginal cost of production is convex with respect to quality, multiple rms coexist, and their equilibrium markups are determined by the degree of convexity and the density of quality-competition. To endogenize the latter, we nest this industry setup in a Schumpeterian model of endogenous growth. Each firm enters the industry as the technology leader and successively transits through the product cycle as it is superseded by further innovations. The intrinsic reason that innovation happens in our economy is not one of displacing the incumbent; rather, innovation is a means to di-erentiate oneself from existing firms and target new consumers. Aggregate growth arises if, on the one hand, increasingly wealthy consumers are willing to pay for higher quality and, on the other hand, private firms' innovation generates income growth by enlarging the set of available technologies. Because the frequency of innovation determines the toughness of product market competition, in our framework, the relation between growth and competition is reversed compared to the standard Schumpeterian framework. Our setup does not feature business stealing in the sense that already marginal innovations grant non-negligible prots. Rather, innovators sell to a set of consumers that was served relatively poorly by pre-existing firms. Nevertheless, "creative destruction" prevails as new entrants make the set of available goods more di-erentiated, thereby exerting a pro-competitive e-ect on the entire industry.

Bounds and Estimates for the Response to Correlated Fluctuations in Asymmetric Complex Networks

We study the spreading of correlated fluctuations through networks with asymmetric and weighted coupling. This can be found in many real systems such as renewable power grids. These systems have so far only been studied numerically. By formulating a network adapted linear response theory, we derive an analytic bound for the response. For colored we find that vulnerability patterns noise are linked to the left Laplacian eigenvectors of the overdamped modes. We show for a broad class of tree-like flow networks, that fluctuations are enhanced in the opposite direction of the flow. This novel mechanism explains vulnerability patterns that were observed in realistic simulations of renewable power grids

Low-Wage Import Competition, Inflationary Pressure,and Industry Dynamics in Europe

What is the impact of import competition from low-wage countries (LWCs) on inflationary pressure in Europe? This paper examines whether labor-intensive exports from emerging Europe, Asia, and other global regions have a uniform impact on producer prices in Germany, France, Italy, Sweden, and the United Kingdom. In a panel covering 110 (4-digit) NACE industries from 1995 to 2008, instrumental variable estimations predict that LWC import competition is associated with strong price effects. More specifically, when LWC exporters capture 1% of European market share, producer prices decrease by about 3%. In contrast, no effect is present for import competition from low-wage countries in Central and Eastern Europe. Next, decomposing the mechanisms that underlie the LWC price effect on European industry, we show that import competition has a pronounced effect on average productivity and only a muted effect on wages. Owing to the exit of firms and the increase in productivity, LWC import competition is shown to have substantially reduced employment in the European manufacturing sector.intra-industry trade, comparative advantage, globalization

The Colonial and Geographic Origins of Comparative Development

While the direct impact of geographic endowments on prosperity is present in all countries, in former colonies, geography has also affected colonization policies and institutional outcomes. Thus, one can disentangle the partial effects of endowments and institutions on income by utilizing the interaction of geography and colonial experience. I first document that climate and disease did affect institutional development in the group of former colonies while this is not the case in the rest of the world. Second, I develop an empirical strategy that identifies the relation between institutions and income but that also accounts for the direct effect of endowments. I find that institutions are the main determinant of development and that endowments also have a sizeable direct impact on development. Third, I highlight the importance of disease environment for both colonization policies and income directly.Growth, Institutions, Geography, Comparative Development, Colonialism

Continuous 25-yr aerosol records at coastal Antarctica: Part 2: Variability of the radionuclides 7Be, 10Be 210Pb

We investigated the variability of210Pb,7Be10Be in coastal Antarctic aerosol samples based on continuous, monthly annually resolved time series obtained from Neumayer Station over the period 1983 to 2008. Clear seasonal cycles peaking in the local summe