Trade, Technological Change and the Skill Premium: The Case of Mexico
[PDF, July 2020]   Accepted at the International Economic Review
In the decade following the Mexico-U.S. trade integration, the manufacturing skill premium rose by roughly 50 percent in Mexico while also rising in the U.S. Standard trade theory predicts that when countries with different levels of skilled labor integrate, the skill premium should fall - not rise - in the skill-scarce country. In this paper, I reconcile theory and data by building a model in which intermediate goods are produced using rented technology. After integration, producers in Mexico begin to rent technologies from the United States, which are more advanced and, hence, more skill-intensive. This increases the skill premium in Mexico due to the diffusion of the U.S. technology to Mexico. Furthermore, the skill premium in the U.S. rises modestly due to increased investment in this technology, which is driven by the increased marginal return on the technology arising from its adoption in Mexico. The mechanism is supported by plant- and industry-level evidence: Mexican plants and industries which are more integrated into the U.S. supply chain have higher skill premia than their non-integrated counterparts. The calibrated model can account for about 29% of the increase in the skill premium in Mexico. I show that technological diffusion is a key driver of this increase in the skill premium.

The Evolution of Purchasing Power Partiy , with C. Rabe
[PDF, June 2019]   Accepted at the Journal of International Money and Finance
A large body of literature in international finance has attempted to estimate the speed of convergence between countries' aggregate price indices to those levels predicted by purchasing power parity (PPP). This paper takes a novel approach by considering how this speed of convergence itself has evolved over time. Using a dynamic common correlated effects (DCCE) framework from Chudik and Pesaran(2015) applied to a panel of countries' real exchange rates over the years 1960-2015, we find an average half-life of around 3 years. More interestingly, we also show that the estimated half-life fell by about 1.5{3 years over the course of the past five decades, suggesting that the so-called PPP puzzle (Rogoff, 1996) may become an antiquated concern in the future. Our results also serve to contextualize past estimates by demonstrating the degree of sample selection sensitivity. Furthermore, we propose explanations for the observed increase in price re-calibration speed, focusing primarily on the increasingly tradable nature of the composition of the U.S. consumer price index (CPI). We build a measure of tradability of the CPI and show that, despite an increase in the proportion of services in the average consumer's basket, the CPI has become more tradable over time, thus offering a potential explanation for the observed increase in adjustment speed.

The Impact of Brexit on Foreign Investment and Production, with E. McGrattan
[PDF , December 2018] American Economic Journal, Macroeconomics, 2020, 12(1), 76-103.
Using simulations from a multicountry neoclassical growth model, we analyze several post-Brexit scenarios. First, the United Kingdom unilaterally imposes tighter restrictions on FDI and trade from other EU nations. Second, the European Union retaliates and imposes the same restrictions on the UK. Finally, the United Kingdom reduces restrictions on other nations during the post-Brexit transition. Model predictions depend crucially on the policy response of multinationals’ investment in technology capital, accumulated know-how from investments in R&D, brands, and organizations used simultaneously in their domestic and foreign operations.

Intellectual Property, Tariffs, and International Trade Dynamics, with F. Mandelman
[PDF  , October 2019] Journal of Monetary Economics, 2020, 109, 86-103.
The emergence of global value chains not only leads to a magnification of trade in intermediate inputs, but also to extensive technology diffusion among the different production units involved in arms-length relationships. The lack of enforcement of intellectual property rights has recently become a highly controversial subject of debate, especially in the context of the China-US trade negotiations. This paper analyzes the strategic interaction of tariff policies and the enforcement of intellectual property rights within a quantitative general equilibrium framework. Results indicate that tariffs may be an effective deterrent for weak protections of intellectual property. Moreover, weakening enforcement of intellectual property rights may be a strong deterrent for raising tariffs. These results combined indicate that there is scope for international cooperation on these fronts.

Globalization and Jobless Recoveries
[PDF , July 2019] Journal of Macroeconomics, 2019, 62(C).
Slow rebounds in employment have become a salient feature of recoveries from recessions over the past few decades. During this time, U.S. production has become increasingly globalized. In this paper, I show that these two facts are linked. I provide evidence from the Current Population Survey that employment in offshorable occupations recovers more slowly than other types of occupations and then provide a theoretical framework that rationalizes this observation in the context of a modified growth model.