"Exporter Heterogeneity and Price Discrimination: A Quantitative View" joint with Ina Simonovska (UC Davis) and Ariel Weinberger (Univ. of Oklahoma), (Journal of International Economics (2019) Vol. 116, p.p. 103-124., Web Appendix, Data and codes, NBER version) Abstract: We quantify a general equilibrium model of international trade and pricing-to-market that features firm-level heterogeneity and consumers with non-homothetic preferences generalized CES (GCES). We demonstrate theoretically that, relative to existing frameworks, the GCES model exhibits features of the data that are essential to conduct quantitative analysis. The framework can reconcile the documented price dispersion across firms and markets, while maintaining consistency with cross-sectional observations on firm productivity, markups, and sales. We estimate the model’s parameters to match bilateral trade flows across 66 countries as well as moments from the markup and sales distributions of Chilean firms. The model reconciles both micro and macro facts quantitatively, and yields trade elasticity estimates that are in line with the existing literature. Hence, we conclude that the GCES model constitutes a plausible and parsimonious quantitative workhorse framework that can be used to analyze gains from trade. Working papers
"The Dynamic Impact of International Trade Liberalization: Entry Timing of Exporters and Financial Development" (revised 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.
“Financial Market Integration and Income Inequality” with Kyunghun Kim (Hongik Univ.) Abstract: Over the past decades, financial markets have been integrated across countries while income inequality has increased in most countries. This paper studies the effect of financial market integration on income inequality and investigates whether the effect varies with the degree of financial market development. We find an empirical evidence that financial market integration and financial market development interact to change income inequality. Specifically, the effect of financial market integration on income inequality is nonlinear, and the degree of financial market development plays an important role. Opening financial market worsens income inequality in the countries holding the underdeveloped state of financial market, however, the effect of capital account openness on income inequality is statistically insignificant in the countries with developed financial market.
“The Great Trade Collapse and Intrafirm Trade” with Sooyoung Lee (Hobart and William Smith College) Abstract: Intrafirm and arm’s length trade of intermediate goods during the recent recession in 2008-09 have responded differently in level and speed. The intrafirm trade fell less and adapted to the drop in demand more swiftly than the arm’s length trade. This paper presents a two-country general equilibrium model to explain the heterogeneous responses of intermediate goods trade depending on the organizational mode of sourcing. The model assumes that vertically integrated firms manage the inventory more effectively than outsourcing firms at added costs. The model economy is able to replicate the resilience of the intrafirm trade, predicting that arm’s length and intrafirm import collapse by 30.8 and 18.7 percent of the steady state level in response to an aggregate demand shock. “The Dynamic Impact of International Trade Liberalization with Frictions in Labor and Financial Markets: Intensive vs. Extensive Margins” Abstract: The effect of trade liberalization policies is not universal. Some countries benefit from trade liberalization such as free trade agreements and custom unions, while others fails to enjoy the advantage of trade liberalization. This paper studies the export dynamics as a consequence of international trade liberalization and how the dynamics are different across countries, especially depending on the degree of frictions in the financial and labor markets of an exporting country. An empirical study of free trade agreements with the market friction measures of two main factor markets, the financial market and the labor market explores how the interaction between free trade agreements and factor market conditions change the dynamics of export. The dynamic regression model finds three main findings: (1) exports from an origin country where more flexible and developed factor markets are located in grow faster during a transition period of free trade agreements than other origins that have less flexible and developed financial or labor markets, when other things are controlled; (2) the financial market condition more strongly affects the entry of firms into exporting markets (extensive margin) during the transition of trade liberalization, while the labor market frictions more strongly impact the size of output and the revenue gains from export markets (intensive margin) in the short-run; (3) the impact of financial market development on exports tends to be realized earlier than the labor market frictions' effect on exports.
“The Impact of Trade Liberalization in Africa”
Working in progress
“Product Churning and Dynamics within Firms and Trade Liberalization” with Jung Hur (Sogang Univ.) and Haeyeon Yoon (Singapore Management Univ.)
“Does Overtime Labor Enrich Your Lives?: Model and Evidence from Korean Labor and Income Panel Study" with Kyunghun Kim (Hongik Univ.) 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.