Job Market Paper

  • Trade and Real Incomes of the Rich and Poor: Cross-Country Evidence (with Feiran Zhang) Abstract

    Trade liberalization affects real-wage inequality through two channels: the distribution of nominal wages across workers and, if the rich and the poor consume different bundles of goods, the distribution of price indices across consumers. We provide a unified framework incorporating both channels by allowing for non-homothetic preferences and worker heterogeneity across jobs. Because skill-intensive goods are also high-income elastic in the data, we find an intuitive, previously unexplored, and strong interaction between both channels. We parametrize the model for 40 countries using sector-level trade and production data. We find that trade cost reductions decrease the relative nominal wage of the poor and the relative price index for the poor in all countries. On net, real-wage inequality falls everywhere. Close

Working Papers

  • Trade Liberalization, Productivity Distribution and Inequality (with Feiran Zhang) Abstract

    This paper proposes a new mechanism through which trade liberalization affects income inequality in a country: the use of imported inputs. Intuitively, a firm with higher initial productivity has a larger market share and operates on a larger scale. This justifies paying the fixed costs for a larger set of imported inputs when input tariff liberalization decreases their relative price. The firm becomes more import intensive which reduces its costs of production and enhances its productivity advantage. As a result, the firm is able to charge a higher markup, enjoy higher profits and pay higher wages to its workers, increasing within-industry wage dispersion. We find that both the mean and the dispersion of the distribution of firm productivity, markup and size went up during a period when China reduced its tariffs on imported inputs. More importantly, these results still hold when we consider the subset of firms that survived throughout the sample period, from 1998 to 2007. We also provide empirical evidence that supports our hypothesis that the differential change in the import intensity of firms with different productivity levels explains these patterns. In addition, we develop a partial equilibrium model that incorporates both a firm's endogenous choice to import intermediate inputs and variable markups that is consistent with these observations. Finally, we take the model to the data, and find considerable support for its predictions. Close

  • Learning by Importing (with Mi Dai) Abstract

    Does importing from a country have a causal effect on a firm's ability to start exporting there by allowing it to establish trade networks, build distribution channels as well as learn about local consumer preferences, business practices and institutional environment in that market? As micro-level data on firm imports became available, there has been a burgeoning research literature on firm import behavior, which hasn’t been intensively studied before. However, most of these studies focus on the connection between imported inputs and firm productivity, not the casual effect of firm-level imports on exports in individual markets. We use one of the most significant trade liberalization episodes, China's accession to the WTO in December 2001, to separate the impact of imported inputs on a firm's productivity from their impact on a firm's ability to enter individual export markets. First, we find that a reduction in import tariffs encourages firms to start importing from new countries. Second, and more interestingly, we find, based on the IV method, that there is a significantly positive causal effect of lagged imports on exports to the same country. That is, having imported from a country in the past increases the probability that a firm starts exporting there. We also find that a firm starts exporting to a country that it has imported from on a larger scale. In addition, the duration of such a trading partnership is longer. These results help to explain why large importers are simultaneously large exporters, and shed some light on what the sunk costs of exporting are and how to mitigate them. Close

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Work in Progress

  • The Elusive Reallocation Effects of Trade
  • Firm Productivity Distribution and Welfare Gains from Trade
  • What Explains Firm-Level Sales Variation Across Export Markets?

Zheli He
Ph.D. Candidate
Department of Economics
1022 International Affairs Building
420 West 118th Street
New York City, NY 10027

Phone: (314) 372-5061
zh2178@columbia.edu