Refereed Publications:

Working Papers:.

Abstract:  This paper estimates, for the first time, the exchange rate elasticity of bilateral trade in services; in so doing, it provides indirect evidence of the prevalence of  dominant currency pricing in services trade. We draw on a new data set of bilateral trade flows in services that covers eleven service sectors in more than 200 countries for the period 1995--2017. We distinguish between  exchange rate pass-through and the volume elasticity by zeroing in on tourism, a sector for which proxies for trade volume (viz., tourist arrivals and hotel nights spent) are available. Our analysis offers strong evidence of both producer currency pricing and dominant currency pricing in services trade, although the results vary across different service categories. We find that bilateral exchange rates have a greater effect on the value of services trade than do US dollar exchange rates. Since traded services are frequently used as inputs in the production of re-exported goods and services, our analysis also shows that downstream dollar exchange rate movements (i.e., through forward linkages) affect the demand for service imports. However, downstream bilateral exchange rates do not have significant effects.

Abstract:  We provide a unified framework for quantifying the cross-country and cross-sector interactions among trade, innovation, and knowledge diffusion. We study the effect of trade liberalization in an endogenous growth model in which comparative advantage and the stock of knowledge are determined by innovation and diffusion. We calibrate the model to match observed cross-country and cross-sector heterogeneity in production, innovation efficiency and knowledge spillovers.   Our counterfactual analysis shows that a reduction in trade costs induces a re-allocation of R&D and comparative advantage across sectors.  Heterogeneous knowledge diffusion, as estimated empirically, amplify the specialization effects of trade-induced R&D re-allocation, becoming an important source of growth and welfare.

Abstract:  This paper investigates whether trade costs in prime export and prime import sectors can account for the current account outcomes in a sample of around 40 countries for the period 1970-2014.  By imposing a parsimonious structure of trade, we first infer comparative advantages and trade costs, by sector.We then construct a measure of effective trade costs---that is, trade costs weighted by sectoral comparative advantage---to gauge the height of a country's overall trade costs. Results reveal that: (1) Higher effective exporting costs are associated with lower current account balances. Though non-negligible in earlier decades, the average impact of those costs has declined over time and has become more quantitatively limited. (2) The effective costs of importing often have no statistically significant effect. (3) Aggregating across surplus and across deficit countries, effective trade costs have contributed little to the global imbalances. (4) Despite limited average and global effects in recent decades, for some countries such as the US, exporting costs account for a sizable part of the current account.

Abstract: This paper examines whether the rapidly growing firm patenting activity in China is associated with real economic outcomes by building a unique dataset uniting detailed firm balance sheet information with firm patent data for the period 1998-2007. We find strong evidence that within-firm increases in patent stock are associated with increases in firm size, export, and more importantly, firm productivity and new product revenue share. Event studies of initial patent applications, using first-time patentees as the treatment group, and nonpatenting firms---selected based on the Propensity-Score Matching method---as the control group, also generate similar findings. State-owned enterprises have higher productivity-patenting elasticities than private firms. Changes in productivity associated with patenting, however, should not be interpreted as being caused by patenting, as our instrumental variable analysis does not indicate that patenting has a significant effect on productivity.

Abstract: This paper studies how the composition of knowledge, in addition to the amount of knowledge capital, a country possesses matters for development. We develop a multi-sector model of innovation, trade and growth, in which sectors differ in terms of their knowledge applicability in innovation in other sectors. The model describes how countries allocate R&D in different sectors and how the endogenous cross-country variations in knowledge composition matters for income difference. It yields new insights that trade costs—besides reducing trade volume— impede aggregate innovation efficiency through the within-country allocation of R&D towards sectors with lower knowledge applicability, demonstrating a “composition effect”. We construct measures quantifying the sector-specific knowledge applicability using cross-sector patent citations. Based on this index, we present cross-country evidence that supports the model’s main implications: (a) countries that are more geographically remote tend to export disproportionately less in highly applicable sectors; (b) the “applicability bias” of a country’s knowledge structure is positively associated with its income level.

Work in Progress
  • "The Granularity of Corporate Saving" with Mai Dao, Isabel Hanisch, Callum Jones, 2018.
  • "Predicting Sudden Stops: A Machine Learning Analysis" with Suman Basu, Roberto Perrelli and Weining Xin, 2018
  • "Learning about Structural Reforms" with Chris Papageorgiou, Tong Xu and Tao Zha, 2018. 
  • "Fear of Floating and Product Structure" with Chuan Li, 2016.
  • "Large and Persistent Current Account Surpluses and Their Reversals" with Emine Boz, 2017.

Other Writings

Comments and Discussions

  • Discussion of "Technology Shocks: Novel Implications for International Business Cycles"  by Andrea Raffo, NBER Summer Institute IFM, July 2009

  • Discussion of "Capital Obsolescence and Agricultural Productivity" by Julieta Caunedo and Elisa Keller, 2nd Workshop on Macroeconomic Policy and Income Inequality, IMF, Oct 2015

  • Discussion of "Firm Entry and Regional growth Disparities: the Effect of SOEs in China" by Loren Brandt, Gueorgui Kambourov and Kjetil Storelsetten, 1st IMF-Atlanta Fed Joint Workshop on China's Economy, May 2016.