A Linder Hypothesis for Foreign Direct Investment

We study patterns of FDI in a multi-country world economy. We develop a model featuring non-homothetic preferences for quality and monopolistic competition in which specialization is purely demand-driven and the decision to serve foreign countries via exports or FDI depends on a proximity-concentration trade-off. We characterize the joint patterns of trade and FDI when countries differ in income distribution and size and show that FDI is more likely to occur between countries with similar per capita income levels. The model predicts a Linder Hypothesis for horizontal FDI, which is consistent with the patterns we find using establishment-level data on multinational activity.

Income Distribution, Product Quality, and International Trade

We develop a framework for studying trade in vertically and horizontally differentiated products. In our model, consumers with heterogeneous incomes and tastes purchase a homogeneous good as well as making a discrete choice of quality and variety of a differentiated product. The distribution of preferences in the population generates a nested logit demand structure. These demands are such that the fraction of consumers who buy a higher-quality product rises with income. We use the model to study the pattern of trade between countries that differ in size and income distributions but are otherwise identical. Trade―which is driven primarily by demand factors―derives from "home market effects" in the presence of transport costs. The model helps to explain why richer countries export higher-quality goods. It provides a tractable tool for studying the welfare consequences of trade, transport costs, and trade policy for different income groups in an economy.

Replication Data for: 'Optimal Spatial Policies, Geography, and Sorting'

The data and programs replicate tables and figures from "Optimal Spatial Policies, Geography, and Sorting", by Fajgelbaum and Gaubert. Please see the Readme file for additional details

Optimal lockdown in a commuting network

Supplementary materials files: online appendix; replication dataWe study optimal dynamic lockdowns against COVID-19 within a commuting network. Our framework integrates canonical spatial epidemiology and trade models and is applied to cities with varying initial viral spread: Seoul, Daegu, and the New York City metropolitan area (NYM). Spatial lockdowns achieve substantially smaller income losses than uniform lockdowns. In the NYM and Daegu—with large initial shocks—the optimal lockdown restricts inflows to central districts before gradual relaxation, while in Seoul it imposes low temporal but large spatial variation. Actual commuting reductions were too weak in central locations in Daegu and the NYM and too strong across Seoul

Replication Data for: 'The Return to Protectionism'

The data and programs replicate tables and figures from "The Return to Protectionism", by Fajgelbaum, Goldberg, Kennedy, and Khandelwal. Please see the Readme file for additional details

State Taxes and Spatial Misallocation

© The Author(s) 2018. We study state taxes as a potential source of spatial misallocation in the U.S.. We build a spatial general equilibrium framework that incorporates salient features of the U.S. state tax system, and use changes in state tax rates between 1980 and 2010 to estimate the model parameters that determine how worker and firm location respond to changes in state taxes. We find that heterogeneity in state tax rates leads to aggregate welfare losses. In terms of consumption equivalent units, harmonizing state taxes increases worker welfare by 0.6% if government spending is held constant, and by 1.2% if government spending responds endogenously. Harmonization of state taxes within Census regions achieves most of these gains. We also use our model to study the general equilibrium effects of recently implemented and proposed tax reforms