Curriculum Vitae
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Curriculum Vitae |
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THESIS ABSTRACT "Marshallian Externalities, Comparative Advantage, and International Trade" with Andrés Rodríguez-Clare (Job Market Paper) Abstract: There is strong evidence for the existence of external economies of scale that are limited in their industrial and geographical scope. What are the implications of these Marshallian externalities for the patterns of international trade, the welfare gains from trade, and industrial policy? The standard model in the literature assumes that firms engage in perfect competition and ignore the effect of their actions on industry output and productivity. This has the unfortunate implication that any assignment of industries across countries is consistent with equilibrium. To avoid this predicament, we follow Grossman and Rossi-Hansberg (2010) and assume that firms in each industry engage in Bertrand competition and understand the implications of their decisions on industry output and productivity. We develop three main results. First, we show that the indeterminacy of international trade patterns still persists for some industries when trade costs are low. Second, we apply these results in a full general equilibrium analysis and reexamine the implications of Marshallian externalities for industrial policy. Our results indicate that the additional welfare gains from moving to the Pareto-superior equilibrium depend positively on the strength of Marshallian externalities and negatively on the strength of comparative advantage, and - using reasonable parameter estimates - are at most about 2%. Finally, our framework allows us to ask whether Marshallian externalities lead to additional gains from trade. Our quantitative analysis indicates that this is indeed the case, and that Marshallian externalities increase overall gains from trade by around 50%.
Ignoring return migration in our model yields results consistent with a "brain drain" for the developing country as well as overall welfare gains for the developed country nationals. Once we account for return migration the results are more nuanced. If the cost of return is sufficiently low to attract skilled emigrants with enhanced foreign expertise, then skilled emigration can lead a "beneficial brain drain" for a "sufficiently developed" developing country, as well as welfare gains for the developed country nationals. |
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