Technical Change, Task Reallocation and Wage Inequality Macroeconomic Dynamics (2024), Volume 28 , Issue 5 , pp. 1049 - 1072
(Job Market Paper) "Financing constraints, size-dependent distortions, and aggregate productivity" with Galina Vereshchagina, [pdf]
Revision Requested at AEJ: Macroeconomics
Presentations: European Economic Association 2024, Asia Meeting of the Econometric Society 2023; China International Conference in Macroeconomics 2023
Firms in developing economies have limited excess to external financing and face size-dependent distortions. This paper studies how these two frictions interact. It is well understood that in an otherwise frictionless environment size-dependent distortions necessarily reduce aggregate output. We show that the adverse effects associated with size-dependent distortions drastically reduce, and in many cases even reverse, if firms face capital financing constraints. This occurs because the two frictions help offset each other, both along the intensive margin (misallocation of resources across a given set of firms) and along the extensive margin (changes in the number and composition of firms). Our quantitative analysis shows that the size-dependent distortions estimated using the World Bank Enterprise Survey data actually increase per capital output for the overwhelming majority of the countries, as long as the model accounts for presence of the capital financing constraints consistent with capital-output ratios observed in these countries. These findings have implications for understanding the cross-country income differences, as well as for policy design.
"The Shape of Convergence in Growth Miracles: The Role of Human Capital" [pdf]
Presentations: ASU Macro Workshop; Asia-Pacific Conference on Economics & Finance
Abstract: Economists have long studied the role that human capital plays in economic development. The hypothesis of Nelson and Phelps (1966) implies that higher education levels in an economy can facilitate technology diffusion and lead to faster convergence in technology. I incorporate the idea into a growth framework by developing a model of human capital investment, adding a role for human capital in the convergence of productivities towards the technology frontier. This introduces an externality through which individual education decisions affect aggregate productivity. I calibrate my model to the case of South Korea between 1960 and 2019. Like many growing countries, South Korea’s experience exhibited convergence in output that was ‘S Shaped’. My model matches the ‘S Shaped’ convergence trajectory well with the half-life of transition being 30-35 years and is consistent with the sharply rising education attainment observed in South Korea. More importantly, the quantitative exercises demonstrate that a significant extent of the externality is required to match the transition path of output in South Korea. If the externality is removed from the model, then one-third of the growth is not accounted for and thus it cannot quantitatively match South Korea’s convergence pattern well.
Competition, Entry and Exit, and Price Dynamics (2024)