Current Research

"Optimal Degree of Foreign Ownership Under Uncertainty" (Job Market Paper) (pdf)

This paper studies the integration strategies of multinational firms in a multi-period model under incomplete contracts and uncertainty. I incorporate continuous levels of integration to the study of organizational choice in an existing model of foreign direct investment (Antras and Helpman, 2004) and extend the model to a multi-period framework of learning. The joint productivity of the two partners in an integrated firm is unknown initially to both sides and is revealed only after continued joint production. The model gives rise to a nondegenerate distribution of foreign ownership at the firm level and shows that the optimal level of integration rises with the age of the firm. These patterns are supported by detailed plant-level data on share of foreign ownership. The model predicts that the degree of foreign ownership is an increasing function of joint productivity and intra-firm trade should rise over time as a result of increased control by multinationals. I test the implications of my theory with plant-level data from Turkey and find support for the predictions of the model.

"Foreign Direct Investment and Wages: Does the Level of Ownership Matter?" RSIE Discussion Paper No. 618 (pdf) Submitted

This paper examines the relationship between foreign equity participation and average wages at the plant level. I show that using a binary measure for foreign ownership, as is the traditional practice in the literature, leads to biased estimates of the foreign ownership wage premium, compared to the use of a continuous measure if the true relationship is linear. Using nonparametric and semi-parametric techniques I find this is the case: the relationship between the level of foreign ownership and average wages is better approximated as linear rather than binary. I find that a ten percentage point increase in foreign equity participation is associated with an approximately 4% increase in the average wage of non-production workers. These results are the first to show that the wage premium due to foreign ownership varies with the level of foreign ownership in a continuous manner.

"Emerging Market Business Cycles and Home Bias in Capital" (with Jing Zhang) Coming Soon

Business cycles in emerging markets display a number of empirical discrepancies compared to developed economies. Exports are acyclical, they correlate negatively with the real exchange rate, and the real exchange rate is much more procyclical in emerging markets. In addition, imports are more procyclical, leading to the well-known strong countercyclicality of net exports in emerging markets. Standard dynamic general equilibrium models are unable to replicate these disparate regularities of the business cycle in emerging and developed economies. We develop a two-country model that embodies trade in investment goods and accounts for business cycle characteristics in both sets of economies. Our premise is that the two sets of economies have different levels of home bias in their final investment goods sector, which implies that terms of trade adjustments to technology shocks dffer significantly in the two sets of economies. Our findings suggest that varying levels of home bias in capital are an important determinant of business cycle properties.

"Violent Conflict and Inequality" (with Tilman Brueck and Marc Vothknecht) IZA Discussion Paper No. 4990 (pdf) Submitted

This paper analyzes the distributive impacts of violent conflicts, which is in contrast to previous literature that has focused on the other direction. We use cross-country panel data for the time period 1960-2005 to estimate war-related changes in income inequality. Our results indicate rising levels of inequality during war and especially in the early period of post-war reconstruction. However, we find that this rise in income inequality is not permanent. While inequality peaks around five years after the end of a conflict, it declines again to pre-war levels within the end of the first post-war period. Lagged effects of conflict and only subsequent adjustments of redistributive policies in the period of post-war reconstruction seem to be valid explanations for these patterns of inequality. A series of alternative specifications confirms the main findings of the analysis.

"Dynamic Panel Data Estimators Under Serially Correlated Errors" (with Yoonseok Lee) Coming Soon

We study the behavior of dynamic panel data estimators when the true data generating process for a dynamic panel with fixed effects includes serially correlated errors of unknown order and T is small. We focus on the use of alternative GMM estimation methods that are available to solve the problem of serial correlation. Asymptotic results are derived both for the fixed T large N setup and for T/N->c. We provide results from Monte Carlo simulations as well as from manufacturing plant-level data to suggest efficient approaches in estimation.