International Trade, Market Concentration and Welfare [draft soon!]
I introduce a heterogeneous firms model with endogenous market structure to measure changes in welfare in periods of international trade integration and increasing market concentration. The model features small and granular firms, resulting from different utility weights of the varieties they produce, endogenous entry and profit shares. I provide an analytical expression for first-order changes in welfare accounting for changes in consumer surplus (i.e. the markup distribution firms selling varieties in the domestic market) and producer surplus (i.e. profits of domestic firms in all export markets). These expressions depend on two types of functionally novel market concentration measures, which depend on the importance of large firms (e.g. concentration ratios) and the relative importance of large firms within their type (e.g. Herfindahl-Hirschman Index). I employ the model to measure welfare changes in Colombia over 2007-2017—a period of trade integration and increasing domestic concentration. In spite of negative pro-competitive effects and lower profits made by Colombian firms at home and abroad, the welfare gains from trade were positive and of similar magnitude to using other typical analytical welfare computations in the literature.
CESifo Working Paper No. 9170, with Jeronimo Carballo, Georg Schaur and Christian Volpe Martincus. R&R in Journal of International Economics.
Trade facilitation policy focuses on accelerated and transparent shipment processing to reduce trade costs. A common measure to evaluate processing frictions is the time it takes to import. In this paper we translate import processing times to costs. Our theory considers that shipment processing times at the port of entry are random and firms choose lead times to buffer processing shocks. Based on this theory, we employ detailed data on import processing dates, instrumental variables, and firm-product-origin level import data to estimate import processing costs. Evaluated at the median, import processing is equivalent to a 20 percent import tariff. For experienced importers, the import processing cost tariff drops to about 12 percent. Our time cost estimate generalizes existing approaches in the literature. We show that our extensions are economically relevant to determine import processing costs, predict who would benefits from trade facilitation, and interpret existing data on the time it takes to import.
GEP working paper N 2023/06, with Yuan Tian.
In 2020, a pandemic generated by a novel virus caused a large and abrupt decline in world trade, only comparable within the last half-century to the Great Trade Collapse during the 2008-09 Financial Crisis. This collapse followed naturally from the difficulty of locally producing, transporting, and consuming goods in the affected regions worldwide. In this paper, we study the impact of these disruptive local shocks on international trade flows during the COVID-19 pandemic. Using rich product-level import data from Colombia, we first show that import collapse at the onset of the pandemic was due to a decrease in import quantities, and the import recovery in later periods was partially explained by a rise in both foreign export prices and shipping costs. Using smartphone data tracking local human mobility changes to identify local shocks, we decompose the trade effects into shocks originating from exporter cities, seaports, and importer cities. We find that while the decline in quantity was driven by both changes in exporter and importer shocks, the increase in price was entirely driven by exporter shocks. Using data on port calls made by container ships, we document a decline in port productivity during the pandemic. We show that mobility changes at port locations induced a decline in port efficiency and a rise in freight costs. We also document a positive correlation between product-level domestic inflation and mobility shocks to foreign exporters.
NBER working paper N 31600, with Kyle Handley and Nuno Limão.
We estimate the impact of trade policy uncertainty (TPU) on CES import price indices, focusing on the implications of Britain's exit from the European Union (Brexit). Our analysis reveals that an increase in the probability of Brexit increases U.K. import price indices by raising the prices of existing products and by reducing product variety from the E.U. We find evidence that the risk of higher import protection from the 2016 referendum increased current import price indices by more than 10%. This amounted to a 2 log point increase in manufactured goods prices and a 0.6 log point decrease in consumers' real income.
The Border Labyrinth: Information Technologies and Trade in the Presence of Multiple Agencies [revision in progress, new draft soon!]
IDB Working Paper Series No. IDB-WP-706, 2016, with Jeronimo Carballo, Georg Schaur and Christian Volpe Martincus
Firms selling products abroad usually have to interact with several border agencies that develop multiple trade regulations and oversee their compliance. These regulations establish the procedures that these firms have to follow and the documents that they have to obtain, fill in, and submit for their exports to be authorized. In this paper, we estimate the effects of introducing information technologies as a new means to complete such trade-related procedures. In particular, we use highly disaggregated firm-level export data from Costa Rica over the period 2007-2013 and exploit the gradual phase-in of an electronic trade single window scheme across groups of products and ports. Results suggest that this new system has been associated with both an expansion in the number of exporting firms and increased firms' exports along the shipment extensive margin and the buyer extensive and intensive margins.