"The Dynamic Impact of International Trade Liberalization: Entry Timing of Exporters and Financial Development" (Job Market Paper, draft available here) Abstract: This paper studies the dynamics of how trade responds to trade liberalization. Specifically, I find that exporters enter into an export market prior to the actual implementation of a trade liberalization episode (the “early entry decision”) only if the financial market of an origin country is sufficiently developed. An empirical study of free trade agreements shows that the amount of early entry into export markets, measured as the extensive margin of trade during periods before tariff is actually reduced is positively correlated with the measure of financial development of exporting countries. This new stylized fact can reconcile apparently contradictory findings in the existing literature about the effect of trade liberalization over time. I demonstrate that this discrepancy disappears when a measure of financial development, the relative size of private credit by banks and other financial intermediaries to GDP, is included in the regression and interacted with FTA time dummy variables. This empirical finding suggests that the theoretical literature modeling trade dynamics should include a financial sector. "Exporter Heterogeneity and Price Discrimination: A Quantitative View" joint with Ina Simonovska (UC Davis) and Ariel Weinberger (Univ. of Oklahoma), NBER Working Paper No. 21408, (revise and resubmit at Journal of International Economics, draft available here, NBER version here) Abstract: We quantify a class of commonly-employed general equilibrium models of international trade and pricing-to-market that feature firm-level heterogeneity and consumers with non-homothetic preferences. We demonstrate theoretically that the models lack the flexibility to match salient features of US firm-level data. Consequently, we outline a theoretical framework that can reconcile the documented price dispersion across firms and markets, while maintaining consistency with cross-sectional observations on firm productivity and sales. We calibrate the model's parameters to match bilateral trade flows across 71 countries as well as the productivity and sales advantages of US exporters over non-exporters. We find that the calibrated model accounts for the majority of the dispersion in prices of tradables across countries of different income levels, while maintaining a tight quantitative fit to firm-level data. Given its additional flexibility, the model quantitatively outperforms the existing alternatives and yields welfare gains for the US that are 14-54% higher, but at the cost of loss of tractability.
Working in progress
“Income Inequality and Heterogeneous Agent Model in a Small Open Economy” with Kyunghun Kim (KIEP) Abstract: We investigate the relationship between financial market integration and income inequality within a country. Over the past decades, the financial market has been integrated across countries and inequality has increased in most countries. In Jaumotte et al (2013), they empirically show that financial market integration is associated with higher inequality after controlling the effect of the trade globalization on income distribution. To explain this, we build a heterogeneous agent model focusing on the income distribution. Based on Krusell and Smith (1998), we extend to a small open economy and see how financial market integration affects the income inequality. We introduce a restriction in asset portfolio decision to reflect home bias. Taking home bias as given, the model can explain higher inequality after liberalizing the financial market.
“Does Overtime Labor Enrich Your Lives?: Model and Evidence from Korean Labor and Income Panel Study" with Kyunghun Kim (KIEP) Abstract: An empirical study using Korean Labor and Income Panel Study (KLIPS) identifies that the net income gain of overtime work is very weak when considering the opportunity cost of overtime work for home production. A unique South Korean working culture in which about a half of employees in the sample choose overtime work unwillingly allows to create new instrument variables (IV) for overtime work decision. The IV estimation shows the net pecuniary benefit of overtime work is significantly smaller than the OLS estimation result. We also provide a simple model of indivisible labor decision on overtime work to explorer effects of forced overtime work. An benefit of working overtime comes from additional income gain, but its net income gain when the opportunity cost of overtime work is considered is very weak, especially for workers who earn lower wages than the market price of home production. This result sheds light on the implication of proper policies for overtime work and the compensation structure.
“The Dynamic Impact of International Trade Liberalization with Frictions in Labor and Financial Markets: Intensive vs. Extensive Margins”