Wealth Distribution and Human Capital: How Borrowing Constraints Shape Educational Systems (Job Market Paper) [.pdf]
This paper provides a theory of how the wealth distribution of an economy affects the optimal design of its educational system. The model features two key ingredients. First, agents are heterogeneous both in their ability and wealth levels, neither of which is observable. Second, returns to schooling depend on the ability-composition of agents attending each school tier, for example, because of choices of common curricula. An educational system is characterized by an assignment rule of agents to schools and by endogenous sizes of tiers. I find that a benevolent planner seeking to maximize economic efficiency implements “elitist” educational systems in economies with poor, borrowing-constrained, agents. Compared to the first best, the optimal solution features (i) relatively low-ability, rich agents selecting into higher education and (ii) higher education schools with less capacity. The same qualitative results obtain when only two commonly used instruments are available to the planner: school fees and exams. In addition, I show that economies with relatively tighter borrowing constraints rely more extensively on exams, and that agents performing better on exams are rewarded with lower school fees.
Heterogeneous Trade Costs and Wage Inequality: A Model of Two Globalizations (with Sergi Basco, second revise and resubmit, Journal of International Economics) [.pdf]
We develop a model for analyzing the distributional effects of two globalizations and their interdependencies. We distinguish between (i) trade liberalizations in the 1980s, which increased trade in low-skill-intensive goods (denoted L-Globalization) and (ii) reductions in communication costs due to the IT revolution, which raised trade in middle-skill-intensive goods during the 1990s (denoted C-Globalization). We consider a North-South trade economy in which the North is skill abundant. A freely traded final good is produced in the North using high-skill services and a bundle of inputs. Inputs differ on the intensity of middle and low-skill workers required to be produced, and are subject to heterogeneous trade costs. In the North, we find that wage inequality increases in the L-globalization. During the C-globalization, wage polarization emerges. The relative wage of high- to middle-skill workers increases, while the relative wage of middle- to low-skill is hump-shaped. In the South, we find that wage inequality increases in both globalizations. We find a complementarity between the two globalizations. Wage polarization is delayed by the extent of trade in the L- globalization. These results hold when we allow for endogenous labor supply. We also show that the mass of northern agents selecting into middle-skill jobs increases during the L-globalization and eventually shrinks during the C-globalization Finally, we show how asymmetric participation in the C-globalization of two southern countries generates a discontinuous pattern of specialization. The southern country participating in the C-globalization specializes in the least and most skill-intensive traded inputs.
The Intensive Margin of Technology Adoption (with Diego Comin), NBER Working Paper #16379, September 2010. [.pdf]
We present a tractable model for analyzing the relationship between economic growth and the intensive and extensive margins of technology adoption. The “extensive” margin refers to the timing of a country's adoption of a new technology; the “intensive” margin refers to how many units are adopted (for a given size economy). At the aggregate level, our model is isomorphic to a neoclassical growth model, while at the microeconomic level it features adoption of firms at the extensive and the intensive margin. Based on a data set of 15 technologies and 166 countries our estimates yield four main findings: (i) there are large cross-country differences in the intensive margin of adoption; (ii) differences in the intensive margin vary substantially across technologies; (iii) the cross-country dispersion of adoption lags has declined over time while the cross-country dispersion in the intensive margin has not; (iv) the cross-country variation in the intensive margin of adoption accounts for more than 40% of the variation in income per capita.
Dynamics of Technology Adoption and Growth: 1800-2000 (with Diego Comin) [available upon request at email@example.com]
Thispaper investigates the transitional dynamics associated with the acceleration in the rate of development and adoption of technologies after the industrial revolution. We provide a model to study how the intensive and extensive margin of technology adoption and an acceleration in the technological frontier affected the cross-country growth patterns in the last two centuries. We find that changes in the rate of technology development and adoption (i) have very persistent effects on growth and (ii) can accommodate very different growth dynamics for rich and poor countries. In our calibrated model, important growth differences between rich an poor countries can be sustained for more than 100 years. For instance, our calibrated model accounts for a differential of .75% in the annual growth rate between rich and poor countries over the 1960-2000 period. In addition, the model explains why there is no convergence in output despite the convergence in technology adoption, as well as the cross-country income dynamics over the nineteenth century, including the great divergence.