Job Market Paper
Revitalize or Relocate: Optimal Place-based Transfers for Local Recessions
Many regions in the US experience depressed labor demand and high unemployment, even when the rest of the United States does not. How should the US government respond? In this paper, I characterize optimal place-based transfers in a dynamic economic geography model with nominal wage rigidity and compare them to observed government transfers. I show that transfers not only have a stimulus effect—by boosting local demand—but also a migration effect—by encouraging local residents to stay. Analytically, I provide optimal transfer formulas that capture this trade-off and show, perhaps surprisingly, that the optimal transfer to a distressed region may be a tax due to the migration effect. All else equal, transfers should be larger in the short-run and when distressed places are geographically concentrated. Quantitatively, I find that observed transfers are both too small in the short-run and too large in the medium-run, achieving less than half of the gains from the fully optimal response to idiosyncratic local shocks. I conclude by exploring how the US government could have responded to the China trade shock in the 2000s.
Research Papers
Strategic (Dis)Integration with John Sturm Becko
Suppose a country anticipates that it may use trade as a point of leverage in future geopolitical conflicts. How should it develop domestic industries and international trading relationships today in order to strengthen its hand tomorrow? Domestically, we show that the country abstains from peacetime capital subsidies if it can credibly threaten trade taxes as geopolitical punishments during conflict, but not otherwise. Internationally, peacetime trade policy promotes the accumulation of foreign capital that makes foreign prices more sensitive to trade during conflict, but not necessarily capital that increases foreign gains from trade. We apply these insights to quantify the US’s optimal policies for building geopolitical power vis-à-vis China. The optimal policy promotes US-China trade on both the import and export margins, especially in consumption goods.
The Granular Origins of Agglomeration with Shin Kikuchi
A few large firms dominate many local labor markets. How does that granularity affect the geography of economic activity? And what does it mean for the efficiency of firm entry? To answer these questions, we propose a new economic geography model featuring granular firms subject to idiosyncratic shocks. We show that average wages increase in the size of the local labor market due to that granularity, and provide a sufficient statistic for the contribution of our mechanism. We further prove that too few firms enter in equilibrium. Using Japanese administrative data on manufacturing, we provide evidence consistent with our mechanism and quantify it. Our mechanism implies that markets with around 2 firms per sector have an elasticity of wages to population of 0.05 and firms capture only 85% of their contribution to production in profits. In large markets like Tokyo, the elasticity is around 0.001, and firm entry is approximately efficient. Enacting optimal place-based industrial policy would increase the number of firms in modest-sized cities by more than 30% and actually decrease the number of firms and people in Tokyo.
The Stable Transformation Path with Francisco Buera, Joseph Kaboski, and Martí Mestieri
Many growth models lack balanced growth paths (BGPs). Instead, the sectoral, productivity, and capital dynamics change drastically as the economy develops. We define the Stable Transformation Path (STraP), a generalization of the BGP to non-stationary models, for a wide class of models and prove its existence and uniqueness. We use the STraP to evaluate the implications of benchmark models of structural transformation. Secular structural change can account for a quarter of growth in miracle economies, but it fails to explain the growth experience in the early industrial period.
Works in Progress
Optimal Carbon Taxation with Concerns for Redistribution with Arnaud Costinot, Joseph Shapiro, and Iván Werning
Optimal Industrial Mix with Granular Shocks with Shin Kikuchi