Explaining Spatial Variations in Productivity. Evidence from Latin America and the Caribbean. with Mark Roberts. Revise and Resubmit at Journal of Urban Economics.
There is a large and extensive literature examining the strength of agglomeration economies and, more generally, the determinants of spatial variations in productivity for developed countries. However, the corresponding literature for developing countries is comparatively scant. This paper contributes to filling this knowledge gap by providing estimates for city productivity premiums and different sources of agglomeration effects for 16 countries in the Latin America and Caribbean region. While two of the countries in our sample - Brazil and Colombia - have been considered by the literature - the remaining 14 countries have not been previously analyzed. We generate these estimates for the region as well as comparable estimates for each individual country using a harmonized data set with characteristics of individual workers and features of the cities in which the workers live. In addition to examining the strength of agglomeration economies, we asses the roles of human capital externalities and market access in explaining sub-national productivity variations. We find that city-wide human capital externalities appear much stronger than agglomeration economies in explaining productivity variation in all of the considered countries. There is considerable heterogeneity in the estimated strength of human capital externalities across countries, which could be a reflection of country differences in educational quality.
We investigate the impact of increasing concentration in local residential construction markets on housing cycle dynamics. We show that the increase in concentration has led to greater unit price volatility, less production, and fewer vacant unsold units. Our results imply that the greater concentration has decreased the annual value of new housing production by $144 billion. Because housing is a determinant of the business cycle these findings provide further evidence that the secular decline in competitive intensity in the American economy is altering macroeconomic dynamics. Previous draft circulated as Market Concentration in Homebuilding. Also see a press release, media coverage, and the slides presented at the AEA meetings.
Urban Decline in an Urbanizing World, with Paula Restrepo.
This article presents evidence on the striking phenomenon of population decline in Eastern Europe and Central Asia (ECA) using a novel dataset that spans more than 3 decades for all cities in the countries of the region. To explain the observed patterns of population redistribution in a context of strong population decline, we present a modified gravity migration model based on Brezis and Krugman (1997) model on life cycle of cities. Under a negative population shock, the model predicts concentration of population in larger cities, driven by a temporary wedge between productivity and living costs. We test these predictions and find that indeed population distribution across the city distribution increased its concentration. In particular, there is a negative causal effect on population growth of having access to larger labor markets, and a causal positive effect of having a larger local market. This research was awarded the ECA Academy award 2020.
MCMC Approach to Classical Estimation with Overidentifying Restrictions.
I extend the Laplace estimators approach proposed by Chernozhukov and Hong (2003) for an overidentified system by decomposing the m moments into the identifying space and the overidentifying space, and using both to construct a transformed criterion function for a new just-identified system. Parameters and test statistics are estimated simultaneously using the entire equation do- main, not only the global minimum. As in Chernozhukov and Hong (2003), Markov-Chain Monte Carlo (MCMC) avoids the curse of dimensionality in this method. It is also applicable to non-smooth criterion functions. Incorporating the ORs in the objective function amounts to using economic theory as criterion for estimate selection when facing multiple local solutions. The proposed estimators outperform counterparts in simulation of an asset-pricing model in Hall and Horowitz (1996).
Stopping Asset Market Bubbles.
We test a policy that changes the information and payoff structure in a double auction experiment in order to prevent bubbles from forming. This cash out policy gives the investor all his asset holding (game money) and dividends at the end of each transaction period in the form of real cash. This intends to change the reference point and make the investor realize gains or losses as real. The results of the experiments support the hypothesis that, at least partially, the creation of bubbles is affected by mental accounting and framing. These phenomena affect investors’ willingness to hold or demand assets whose prices are unrealistically above its fundamental value. We have experiments with 3 groups of subjects (inexperienced, experienced, and mixed). The largest bubbles are formed for the inexperienced subjects, although bubbles do form in all groups. In all cases where strong bubbles are present, the cash out policy seems to have a strong effect in reducing or preventing the bubble formation.
Projects in Progress
Redevelopment and housing prices (with Jacob Cosman)
Shedding light on measuring economic growth from outer-space: learning from the BRICS, (with Roberts, M., Restrepo, P., Stewart, B).
Metropolitan Housing Markets with Commuting (with Ismir Mulalic).
The Long and Winding Road: Roads, Politics and Growth in Colombia (with Guillermo Sinisterra).