Agglomeration, Trade and Selection

This paper studies how firm heterogeneity in terms of productivity affects the balance between agglomeration and dispersion forces in the presence of pecuniary externalities through a selection model of monopolistic competition with variable mark-ups. It shows that firm heterogeneity matters. However, whether it shifts the balance from agglomeration to dispersion or the other way round depends on its specific features along the two defining dimensions of diversity: 'richness' and 'evenness'. Accordingly, the role of firm heterogeneity in selection models of agglomeration cannot be fully understood without paying due attention to various moments of the underlying firm productivity distribution.agglomeration, trade, heterogeneity, selection, economic geography

Rethinking the effects of immigration on wages

This paper asks the following important question: what was the effect of surging immigration on average and individual wages of U.S.-born workers during the period 1990-2004? Building on section VI I of Borjas (2003) we emphasize the need for a general equilibrium approach to analyze this problem. The impact of immigrants on wages of US born workers can be evaluated only by accounting carefully for labor market and capital market interactions in production. Using such a general equilibrium approach we estimate that immigrants are imperfect substitutes for U.S.-born workers within the same education and experience group (because they choose different occupations and have different skills). Moreover, accounting for reasonable speed of adjustment of physical capital we show that most of the wage effects of immigration accrue to native workers already within a decade. These two facts, overlooked by the previous literature, imply a positive and significant effect of the 1990-2004 immigration on the average wage of U.S.-born workers overall, both in the short and in the long run. This positive average effect resulted from a positive effect on wages of all US-born workers with at least a high school degree and a small negative effect on wages of U.S born workers with no high school degree. --Immigration,Skill Complementarities,Average Wage,Wage Dispersion,Physical Capital Adjustment

A Geographic Approach to International Economics: “Strategic Trade Policy”?

This paper introduces a trade cost asymmetry into the Core-periphery model to investigate the location effects of protection. Trade costs arise from the active choice of governments. In the case of a country that can decide the level of barriers to imports without retaliation by the other country, unilateral protection is shown to attract firms and to increase the welfare of residents. Since all countries face a rational incentive to unilateral protection, non-cooperative behaviour may lead to an inefficient equilibrium with too much protection

Immigration and National Wages: Clarifying the Theory and the Empirics

This paper estimates the effects of immigration on wages of native workers at the national U.S. level. Following Borjas (2003) we focus on national labor markets for workers of different skills and we enrich his methodology and refine previous estimates. We emphasize that a production function framework is needed to combine workers of different skills in order to evaluate the competition as well as cross-skill complementary effects of immigrants on wages. We also emphasize the importance (and estimate the value) of the elasticity of substitution between workers with at most a high school degree and those without one. Since the two groups turn out to be close substitutes, this strongly dilutes the effects of competition between immigrants and workers with no degree. We then estimate the substitutability between natives and immigrants and we find a small but significant degree of imperfect substitution which further decreases the competitive effect of immigrants. Finally, we account for the short run and long run adjustment of capital in response to immigration. Using our estimates and Census data we find that immigration (1990-2006) had small negative effects in the short run on native workers with no high school degree (-0.7%) and on average wages (-0.4%) while it had small positive effects on native workers with no high school degree (+0.3%) and on average native wages (+0.6%) in the long run. These results are perfectly in line with the estimated aggregate elasticities in the labor literature since Katz and Murphy (1992). We also find a wage effect of new immigrants on previous immigrants in the order of negative 6%.Less Educated Workers, Physical Capital Adjustment, Skill Complementarities and Wages

Firm Heterogeneity, Contract Enforcement, and the Industry Dynamics of Offshoring

We develop an endogenous growth model with R&D spillovers to study the long run consequences of offshoring with firm heterogeneity and incomplete contracts. In so doing, we model offshoring as the geographical fragmentation of a firm’s production chain between a home upstream division and a foreign downstream one. While there is always a positive correlation between upstream bargaining weight and offshoring activities, there is an inverted U-shaped relationship between these and growth. Whether offshoring with incomplete contracts also increases consumption depends on firm heterogeneity. As for welfare, whereas with complete contracts an R&D subsidy is enough to solve the inefficiency due to R&D spillovers, with incomplete contracts a production subsidy is also needed.o¤shoring, heterogeneous �rms, incomplete contracts, industry dynamics

Integration, geography and the burden of history

This paper develops a simple two-region two-sector general equilibrium model of trade and migration where one monopolistically competitive sector generates local pecuniary externalities. The aim is to gain insight on the question whether economic integration can be expected to increase the differences in industrial structure between more and less developed regions. It is shown that a reduction in trade and/or migration costs weakens the lock-in effect of historical events while strengthening the role of expectations

European integration and the gains from trade

This chapter discusses whether and how 'new quantitative trade models' (NQTMs) can be fruitfully applied to quantify the welfare effects of trade liberalization, thus shedding light on the trade-related effects of further European integration. On the one hand, it argues that NQTMs have indeed the potential of being used to supplement traditional ‘computable general equilibrium’ (CGE) analysis thanks to their tight connection between theory and data, appealing micro-theoretical foundations, and enhanced attention to the estimation of structural parameters. On the other hand, further work is still needed in order to fully exploit such potential

Immigration, diversity and the labour market outcomes of native workers: some recent developments

This brief essay provides a selective discussion of how in recent years economists in the neoclassical tradition have addressed the questions whether and how immigration affects native workers’ labour market outcomes. In particular, it discusses: the distinction between the displacement, productivity and amenity effects of immigration; the issues that arise in using wage changes to identify those effects; and the problem of assessing a causal link from immigration to natives’ labour market outcomes

European integration and the gains from trade

This chapter discusses whether and how 'new quantitative trade models' (NQTMs) can be fruitfully applied to quantify the welfare effects of trade liberalization, thus shedding light on the trade-related effects of further European integration. On the one hand, it argues that NQTMs have indeed the potential of being used to supplement traditional ‘computable general equilibrium’ (CGE) analysis thanks to their tight connection between theory and data, appealing micro-theoretical foundations, and enhanced attention to the estimation of structural parameters. On the other hand, further work is still needed in order to fully exploit such potential