Work in Progress
Misallocation of Human Capital: Implications for Returns to Schooling and Returns to Capital
This paper studies how credit market imperfections affect the composition of investment in human capital, and shows how the composition channel reduces returns to schooling and capital in poor countries. I present a model in which individuals differ in wealth and ability. Education is modeled as a costly investment needed to take advantage of own ability. In this set-up, credit market imperfections, in addition to making human capital scarcer, generate compositional changes in its supply: wealthy, low-ability types obtain education replacing poor, high-ability types. Thus, this compositional effect reduces measured returns to schooling. In addition, if capital and labor are complements, the compositional effect reduces returns to capital. The reason is that the effective capital-labor ratio of the economy increases once the compositional effect is accounted for. Thus, this model provides a mechanism to explain why both returns to capital and education in developing countries may not be higher than in rich countries.
Deconstructing International Mergers: The Role of Internet Adoption and Routine Intensity (with Sergi Basco)
In this paper we analyze how the determinants of international mergers changed with the IT revolution. We focus on the complementarity between Internet adoption and the routine intensity of the target firm in cross-border mergers. First, we document that routine intensity was a determinant of North-South mergers in the 1990s and ceases to be important in the 2000s. In contrast, routine intensity is not a determinant of North-North mergers. Then, we find a differential effect of Internet adoption of the host country on the number of international mergers. In the 1990s, Internet adoption had a negative effect in the number of (vertical) North-South mergers in routine-intensive industries. However, Internet adoption had a positive effect on the number of (horizontal) North-North mergers in routine-intensive industries. These results suggest a complementarity between Internet adoption and routine-intensive industries in the North and substitutability in the South. Finally, in the 2000s, Internet adoption does not have a significant effect on cross-border mergers.
Human Capital Acquisition and Occupational Choice: Implications for Growth and Inequality (with Robert Townsend)
We develop and estimate a general equilibrium model to investigate the implications of human capital acquisition for growth and inequality. The focus of the paper is on the process of development, which is framed as the transition of an economy to its steady state. Our model features two sectors (formal and informal) and endogenous human capital acquisition. As the economy evolves over time, it undergoes a structural transformation, because the technology by which final output is produced changes from the informal to the formal technology. The engines of this structural transformation are capital accumulation, human capital accumulation and technological progress of the formal sector. Along with the evolution of the macroeconomic variables, our model has implications for the cross-section of individual outcomes that conform the aggregate measures. We plan to test both the aggregate and microeconomic implications of the model on a panel of household surveys from Mexico and Chile.