Switching bubbles: from outside to inside bubbles

The United States has recently experienced two asset price bubbles: the Dot-Corn and the Housing Bubbles. These bubbles had very different effects on investment and debt of manufacturing firms. In this paper I develop a framework to understand the differential effect of two types of rational bubbles. I distinguish between (i) Outside Bubbles, which I define as savers purchasing and selling costless assets not-attached to inputs of production and (ii) Inside Bubbles, which I define as savers buying an input of production (e.g., land or houses) only as a store of value. The model is an OLG economy with savers and entrepreneurs. Savers save to consume when they are old. Entrepreneurs can borrow to invest but they face a collateral constraint. In this environment, rational bubbles can emerge. I show that the size of an Inside Bubble is larger. I also find that when the economy switches from an Outside to an Inside Bubble, manufacturing (or non-housing) investment and debt is lower, consistent with the U.S. experience. Finally, I show that even though steady-state consumption is higher with an Outside Bubble, a social planner would prefer an Inside Bubble when the productivity of entrepreneurs is low. (C) 2016 Elsevier B.V. All rights reserved.I acknowledge financial support from Banco de España and from the Ministerio de Economía y Competitividad (Spain), grant MDM 2014–0431

The World Income Distribution: The Effects of International Unbundling of Production

We build a dynamic trade model to study how international unbundling of production and the emergence of global supply chains affect the world income distribution. We consider a world where countries only differ in their productivity. The level of productivity determines the number of varieties a country produces. To manufacture each variety a bundle of intermediates, which require capital and labor in different proportions, needs to be assembled. We characterize two trade regimes: (i) trade only in varieties and (ii) trade in both varieties and intermediates (unbundling). We show that unbundling of production generates income divergence among ex-ante identical countries (symmetry breaking). With heterogeneous countries, it increases top-bottom inequality and it has non-monotonic effects on the world income distribution (it reduces relatively more the income share of middle-productivity countries). We also show that when the South joins the global supply chain, the income share of all northern and the most productive southern countries increase, at the expense of the least productive countries. In addition, we find that the effect of a labor-saving technology, computerization, depends on the trade regime. Without unbundling, computerization has no effect on the world income distribution. With unbundling, computerization raises world inequality. Finally, we show that technology diffusion leads to income convergence under both trade regimes. However, with unbundling of production more low-productivity countries benefit from technological catch-up

Banks, credit supply, and the life cycle of firms : Evidence from late nineteenth century Japan

How does local credit supply affect economic dynamism? Using an exogenous bond shock in historical Japan and new genealogical firm-level data, we empirically examine the effects of credit availability on firm life cycles. We find that the lifespan of firms decreases with bank capital and that capital-abundant regions have more firm creation and destruction. These effects are amplified for manufacturing, while service sector firms experience no change in longevity and have less creation. Our results suggest that samurai bonds were conducive to the emergence of banking, which eased firms’ financial constraints and led to more capital-intensive investment and economic dynamism

Mergers along the Global Supply Chain: Information Technologies and Routineness

This paper empirically analyzes how the adoption of Information Technologies (IT) has changed the organization of global supply chains. We focus on international mergers, which are a growing and important component of foreign direct investment. We use data on North-South vertical mergers and acquisitions for all manufacturing industries. We show that the effect of IT adoption on the number of vertical mergers and acquisitions is decreasing with the “routineness” of the industry. Our interpretation is that the IT revolution has enabled new monitoring mechanisms. This has allowed Northern headquarters to better monitor suppliers, specially those in less routine-intensive industries –which were harder to monitor prior to the IT revolution

Essays on International economics by Sergi Basco.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2010.Cataloged from PDF version of thesis.Includes bibliographical references (p. 151-160).This dissertation analyzes different aspects of the globalization process. In recent years we witnessed an increasing role of emerging economies in world capital markets. Moreover, there has been a large reduction in trade costs which has allowed production to be offshored to less developed economies. Both elements are part of the globalization process but they have different effects within and between countries. The first essay studies the relationship between globalization and the appearance of rational bubbles. It shows that bubbles cannot appear in a financially developed economy in autarky. In contrast, as globalization progresses, more financially underdeveloped economies have access to world capital markets and the possibility of having a bubble in the financially developed country increases. It also shows that, conditional on having a bubble, globalization raises house prices only when the bubble is attached to houses. The second essay, co-authored with Marti Mestieri, analyzes the distributional effects of two waves of globalization. A First Globalization characterized by trade liberalizations and a Second Globalization characterized by reductions in communication costs. It shows that wage inequality always rises in the South. However, wage polarization emerges in the North during the Second Globalization. Moreover, there exists a complementarity between both globalizations. Wage polarization is delayed by the extent of trade in the First Globalization. It also shows that heterogeneous participation in Second Globalization trade generates a discontinuous pattern of specialization. The third essay studies how financial institution differences affect the offshoring choice of firms. It shows that financial institution differences affect the optimal contract offered to the supplier and are enough to generate a product cycle. Production is kept in North when the good is new and it is shifted to the South as it becomes more standardized.Ph.D

Mergers along the Global Supply Chain: Information Techonologies and Routine Tasks

This paper empirically analyses how the adoption of Information Technologies (IT) has changed the organization of global supply chains. We focus on international mergers, which are a growing and important component of foreign direct investment. We use data on North&-South mergers and acquisitions (M&As). We show that the effect of IT adoptionon the number of vertical M&As is decreasing with the routine intensity of the industry. Our interpretation is that the IT revolution enabled new monitoring mechanisms. This allowed Northern headquarters to better monitor suppliers, especially those in less routine-intensive industries &-which were harder to monitor before.Basco acknowledges financial support from the Spanish Ministry of Science and Innovation, grant MDM 2014-0431. Mestieri acknowledges financialsupport from the Agence Nationale de la Recherche

Banks, credit supply, and the life cycle of firms: Evidence from late nineteenth century Japan

How does local credit supply affect economic dynamism? Using an exogenous bond shock in historical Japan and new genealogical firm-level data, we empirically examine the effects of credit availability on firm life cycles. We find that the lifespan of firms decreases with bank capital and that capital-abundant regions have more firm creation and destruction. These effects are amplified for manufacturing, while service sector firms experience no change in longevity and have less creation. Our results suggest that samurai bonds were conducive to the emergence of banking, which eased firms' financial constraints and led to more capital-intensive investment and economic dynamism

The Samurai Bond: Credit Supply, Market Access, and Structural Transformation in Pre-War Japan

While credit supply growth is associated with exacerbating financial crises, its impact on long-run growth is unclear. Market access similarly has ambiguous economic effects over time. Using regional variation in bond payments to samurai and the introduction of railways in nineteenth century Japan, we find that together they are associated with persistent redistributive effects between regions and sectors. Areas with higher bond value and railway access experienced tertiary sector growth and primary sector shrinkage, with analogous results in sectoral labor shares. This interaction between credit supply and market access facilitated structural transformation but had little long-run net growth impact

The Samurai Bond: Credit Supply and Economic Growth in Pre-War Japan

While credit supply growth is associated with exacerbating financial crises, its impact on long-run development is unclear. Using bond payments to samurai in nineteenth century Japan as a quasi-natural experiment and exploiting regional variation, we find that bond payments are associated with persistent redistributive effects between regions and sectors. Areas with early railway access and higher bond value per capita experienced faster income growth in the tertiary sector and slower growth in the primary, with analogous effects for sectoral labor shares. Our interpretation is that the interaction between credit supply and productivity-enhancing technologies facilitated economic development and structural transformation