Research
Publications
"Short-Run Market Access and the Construction of Better Transportation Infrastructure in Mexico" (joint with Fernando Pérez-Cervantes) Economía, Volume 18 Number 1, pp. 225-250
We calculate the short-run effect that the construction of the Durango-Mazatlán highway in late 2013 and the Mexico City-Tuxpan highway in early 2014 produced on welfare in every municipality and on market access in every location of Mexico. Our estimates suggest that the former highway produced benefits not only in the region where the new highway is located, but in vast areas in the north of the country. Analogous estimates show that the latter highway mostly benefited regions near Tuxpan, but these focalized benefits were larger than any of the benefits derived from the construction of the Durango-Mazatlán highway. The municipalities in the south of the country have net short-run losses from the infrastructure construction due to losses in competitiveness. Our model is consistent with the observed sectoral growth in Sinaloa, Durango, and Veracruz in 2014. Qualitatively, market access and welfare change in the same direction and magnitudes. We thus recommend using the market access approach for short-run analysis of infrastructure, because it is much less computationally intensive.
Working Papers
"Trade and Product Regulation: Insights from a New Index" (joint with Sophie Clarke, Mattia Di Ubaldo, Michael Gasiorek and Barry Reilly) (2023)
Domestic regulation is an important determinant of production and trade patterns. The effect of regulation can be complex however, as the requirements that products have to comply with for them to be sold on a market can either hinder or facilitate international trade. Adherence to specific standards can result in extra costs and act as non-tariff barriers (NTBs) to trade; else, production and labelling requirements can make it easier to enter a certain market, or can reduce information costs. To shed light on the complex relationship between trade and regulation, we construct a new set of indices of regulatory intensity at the HS 6-digit level along the three dimensions of product standards, conformity assessment, and compliance. For this purpose, we use machine learning and text-analysis tools on a set of EU Regulations and Directives to extract information on obligations and requirements that are imposed on firms serving the EU Single Market. Specifically, we exploit over 200 EU law acts listed in the Northern Ireland Protocol that products shipped from Great Britain to Northern Ireland have to comply with. These rules govern trade that crosses the UK-EU border (that the Protocol placed in the Irish Sea), and concern key standards and procedures that the EU considers fundamental to protect the integrity of the Single Market, and that are therefore of relevance also in the broader context of EU imports from any third country. We test how trade flows respond to the application of the EU Regulations that we analyse. We use data on EU imports from both EU and non-EU countries, and estimate a gravity model with a very stringent set of fixed effects that allow us account for time invariant product characteristics, as well as industry or product demand and supply shocks. We find that higher regulatory intensity has a strong trade deterrent effect on EU imports from non-EU countries, both in absolute terms and relative to intra-EU trade, across all three areas of standards, conformity assessment, and compliance. Higher compliance requirements also affect intra-EU trade. The negative trade effects are driven by non-EU countries at the extremes of the income per-capita distribution, i.e. low- and high-income countries, and by products characterised by higher complexity.
This paper investigates the impact of policy uncertainty on trade, with a specific focus on the unpredictability of tariff policy. Using a detailed dataset of India's imports at the HS6 digit product level across all trading partners, the study produces two sets of empirical findings. First, an augmented gravity equation is employed to estimate the trade elasticity of 'tariff water'—the gap between binding and applied tariffs—and its corresponding tariff equivalent. The results reveal a robust negative correlation between tariff water and the value of Indian imports, with estimated coefficients indicating that positive tariff water is equivalent to imposing a tariff of approximately 13%. Second, the research examines the potential of Free Trade Agreements (FTAs) in removing trade policy uncertainty. Utilizing a triple difference-in-difference estimator, the paper studies two Indian FTAs and quantifies their contribution to import growth for products that experienced tariff reductions and a decrease in future trade policy unpredictability. The findings suggest that Indian imports of products that were already duty-free saw significant growth following the implementation of these agreements. Given that these specific products did not undergo any tariff reductions post-agreement, the observed growth can be attributed to a decrease in trade policy uncertainty in India.
"The challenges facing UK firms: trade and supply chains" (2023) joint with Sophie Clarke and Michael Gasiorek, Briefing Paper 73: UK Trade Policy Observatory (UKTPO) (link)
Key points
Analysis of three surveys of firms conducted by the British Chambers of Commerce reveals that the biggest challenge facing firms across 2021 and 2022 has been increased costs. Labour, skill and supply chain issues are also major concerns but ease slightly in mid-2022.
Significant issues for firms working with the new TCA trading arrangements with the EU are those associated with red tape and bureaucracy, shipping/transport issues and delays, increased costs, and customs and border controls. The least significant issue, in the context of the TCA, would appear to be labour and skill issues.
Specifically related to the TCA, the biggest changes over time are the rise in the significance of taxes, tariffs and duties for firms, the role of increased costs for firms, and the increased perception of a competitive disadvantage for the UK.
There is a notable rise in negative sentiment in the North East and in Northern Ireland. Negative sentiment is the highest in public administration, and in agriculture, and is also relatively high in manufacturing. The lowest negative sentiment scores are in educationand legal services.
According to the latest survey, Brexit and COVID-19 are the principal causal factors in supply chain shortages, with the most significant shortages amongst electronic components/goods and labour.
The most frequently cited opportunity refers generically to business expansion opportunities, but was mentioned in less than 2% of the responses.
(circulated before under the title "Import wholesalers and the effect of trade on Canadian producers")
Using a unique administrative dataset containing detailed information on firm performance and import transactions for all Canadian firms, I study the role of wholesalers as international trade facilitators, and provide evidence on how their import decisions affect the performance of domestic producers through different margins. Initially, with this dataset, I document some features regarding the import behavior of wholesalers. First, I find that the share of total import value accounted by wholesalers increased from from 26.5% in 2002, to 34.3% in 2012. Second, I document that wholesalers were the dominant players on the final goods import markets, accounting for almost 50% of the total import value of final goods in 2012, up from 43% in 2002. Similarly, they earned notoriety in the import markets of intermediate inputs by increasing their import share from 16% to almost 22% ten years later. Additionally, I find substantial differences on how wholesalers and manufacturing firms engage in international trade. Specifically, I document that when compared to manufacturing firms, wholesalers imported more goods and from more countries, and over the observation period the number of importing firms grew more in the wholesale trade sector relative to the manufacturing sector. Finally, I explore how domestic producers respond to the increased import competition in the form of final and intermediate goods carried by wholesalers. To do that, I construct measures of exposure to these indirect imports at the local market level, and exploit the geographic variation in this exposure to empirically estimate the effect on sales, employment, productivity and exit rates of the domestic manufacturing firms located there. The empirical analysis reveals that a higher exposure to indirect imports of final goods has a negative effect on domestic firms' employment and sales and a positive effect on exit probabilities. While a higher exposure to the imports of intermediate goods made by wholesalers has a positive effect on employment and sales, and a negative effect on exit rates. Recognizing the potential endogeneity of local market-level indirect import penetration, I also report the results obtained by specifications that instrument the indirect import penetration. Instrumental variable estimates confirm most of the previous results.
"Dynamic pricing and exchange rate pass-through in a model of new exporter dynamics" (new version coming soon!)
In this paper, I empirically investigate the importance of demand dynamics in explaining the growth process of new exporters, and the degree of response of firm-level prices to movements in the bilateral exchange rate. Using a transaction-level data for Colombia over the period 2008 to 2018, I document that: 1) export sales and survival rates are initially small, but then consistently grow in the years following entry to a new market; 2) prices of exported goods increase with the number of years a firm has exported to the same destination; 3) the exchange rate pass-through into international prices is incomplete and new exporters exhibit a pass-through rate that is, on average, 1.8 times higher than the one of incumbent exporters. To rationalize these empirical facts, I develop a dynamic discrete choice model of exporting introducing customer base accumulation due to deep habits. A key feature of this model is that pricing decisions become dynamic, and exporters have incentives to charge low prices upon entry to foster their future demand at the expense of their current profits. Moreover, this model has important predictions for the variation of the price response to exchange rate movements across firms. According to the model, young firms that are closer to the exit margin transmit a higher fraction of the exchange rate shocks into their prices, while experienced exporters partially absorb these shocks in order to keep their prices and customer base stable. I calibrate this model to match salient features of Colombian exporters, and in particular to generate new exporter dynamics that are consistent with the data. I then use the calibrated model to examine, through impulse-response analysis, the aggregate response of trade volumes to two types of trade shocks: a persistent depreciation of the Colombian peso, and a trade liberalization episode. The inclusion of deep habits and endogenous entry and exit has important aggregate implications. First, aggregate volumes are more responsive to tariffs than to exchange rates. On impact, I estimate an elasticity of trade volumes to tariffs of 1.5 and to exchange rates of 0.5. Second, for both shocks, the customer base accumulation mechanism generates a sluggish response of trade volumes, which produces discrepancies between the short-run and long-run elasticities. Particularly, in response to a permanent tariff reduction, I estimate a long-run trade elasticity that is 2.6 times higher than the short-run elasticity.
"The impact of the UK points based system on European Union professional footballer mobility in England", joint with Sophie Clarke and Barry Reilly, (2022)
The introduction of the Single European Act in 1992, the European Court of Justice ‘Bosman Rulings’ in 1995, and the subsequent enlargements of the European Union increased the degree of professional footballer mobility in European football. Brexit ended the free movement of labour between the European Union (EU) and the UK as of December 31st2020. English football clubs seeking to sign EU players now require a work permit to do so. Thus, EU players from Europe are now treated the same as non-EU players from other European countries, as well as Africa and South America. This paper investigates the impact of the newly introduced migration points-based system on the EU composition of the playing squads in tiers 2 & 3 of the professional game in England and tier 1 in Scotland. A difference-in-difference approach exploiting data from comparable leagues in Europe (viz., the second tiers of the German Bundesliga, and the second tiers in Spain, Italy and France) over a protracted period prior to the introduction of the new PBS arrangement for the UK and a short period afterwards. The analysis suggests that, after one complete year, the system appears to have exerted a fairly mild effect on the nationality profile of professional football squads in tier 2 of the English game and tier 1 in Scotland. Specifically, it is found to reduce, on average and ceteris paribus, the number of EU players in club rosters by a single player. The empirical evidence from the third tier of English football (not reported here) suggests a comparable effect but the estimate on which this is based is found to be less precisely determined.
"New exporter dynamics: learning and self-selection with incomplete information" (2017)
In this paper, I develop a model featuring Bayesian demand learning and endogenous export participation in which the learning mechanism is modelled as a signal-extraction problem. The underlying assumption is that firms are uncertain about their demand in the foreign market and, for each period they export, they observe a noisy realization of it. These observed signals determine firms' posterior beliefs about their demand, on which they base their quantity and participation decisions. The parameters of the resulting dynamic discrete choice model are calibrated to match several key moments observed in Colombian firm-level data. This model is able to reproduce the dynamics of new exporters observed in the data, namely that new exporters sell only a small fraction in the foreign markets, and their survival rates are smaller than the ones of more experienced firms. Finally, the calibrated model is used to evaluate the efficiency of policies subsidizing a fraction of the fixed costs associated with exporting. The results suggest that, in terms of benefit-cost ratios, policies subsidizing exporters with less than 3 years of experience are more effective than the ones targeted to all the exporting firms.
Work in-progress
In this project we propose the use of the Bessel-Lommel covariance function to model spatial dependence in cross-sectional observations. For a list of studies published in leading journals, first we estimate spatial autocovariance function (ACF) using non-parametric methods and then we find the set of parameters of the Bessel-Lommel covariance function that better match the spatial autocorrelation structure present in the data. The preliminary results suggest that the proposed covariance function can match complex patterns of spatial dependence very accurately.
"NAFTA and its Effect on Mexican Labor Market"