Inferring within-country inequality from trade data
(with G. Vannoorenberghe) [link to job market paper]
We develop a two-step method to infer inequality within a country from its import patterns. First, we identify varieties of goods typically imported by richer, more unequal countries. In a second step, we exploit the variation of income elasticities across goods to uncover within-country inequality. Keeping average income constant, disproportionate imports of highly income elastic varieties correlate with income dispersion. We take advantage of the global availability of trade flow reports to extend inequality data coverage across countries and over time. We add in particular consistently measured inequality data for developing countries, where conventional inequality data is scarce. The resulting inequality data facilitates the study of cross-country causes and consequences of inequality.
An extended Linder Hypothesis
The Linder hypothesis posits that countries with similar demand structures trade more with each other. The international trade literature explains the Linder’s observation with firms in a country producing more of what is locally in high demand and selling to all consumers globally with similar preferences. I introduce the idea that global demand shapes local production. Following the literature I proxy demand similarity with per capita income similarity. I define an exporter’s associated per capita income as the export-share weighted average of all its destinations’ per capita income. I find that an exporter with associated per capita income more similar to a given destination’s per capita income exports relatively more to that destination. This result points to potential spill-overs to trade with third countries of increasing the market share in a given destination, for example through trade liberalization.
Trade, Uncertainty and Financial Development
I explore how revenue uncertainty impacts export financing costs and export patterns. In my model I account for two key characteristics of trade. First, exporters are exposed to a plethora of risk factors. Second, exporters routinely rely on external sources to finance their export activities. I develop a heterogeneous firm trade model in which firms differ in terms of their productivity, their financial risk management skills and their exogeneously matched importer’s financial health. Firms have to commit to exporting to a destination as well as the price and quantity of exported goods before the uncertainty is resolved. As a result exporting firms price in the risk of non-payment and charge higher mark-ups in riskier destinations. Better risk management skills compensate for lower productivity in the export selection process. Financial development allows banks to price-discriminate among potential exporters and hence prevents credit miss-allocation.
Trade costs, home bias and the unequal gains from trade
(with Gonzague Vannoorenberghe)