Working Papers

The Comparative Advantage of Firms

(with Swati Dhingra and John Morrow)

Revise & Resubmit, Journal of Political Economy

Multiproduct firms dominate production, and their product turnover contributes substantially to aggregate growth. Theories propose that multiproduct firms grow by diversifying into products which need the same know-how or capabilities, but are less clear on what these capabilities are. Input-output tables show firms co-produce in industries that share intermediate inputs, suggesting input capabilities drive multiproduct production patterns. We provide evidence for this in Indian manufacturing: the similarity of a firm's input mix to an industry's input mix predicts entry into that industry. We identify the direction of causality from the removal of size-based entry barriers in input markets which made firms more likely to enter industries that were similar in input use to their initial input mix. We rationalize this finding with a model of industry choice and economies of scope to estimate the importance of input capabilities in determining comparative advantage. Complementarities driven by input capabilities make a firm on average 5% (and up to 15%) more likely to produce in an industry. Entry barriers in input markets constrained the comparative advantage of firms and were equivalent to a 10.5 percentage point tariff on inputs.(Updated 2019-04-17)

Vertical Integration and Foreclosure: Evidence from Production Network Data

(with Jan Sonntag)

Revise & Resubmit, Management Science

This paper studies the prevalence of potential anticompetitive effects of vertical mergers using a novel dataset on U.S. and international buyer-seller relationships, and across a large range of industries. We find that relationships are more likely to break when suppliers vertically integrate with one of the buyers' competitors than when they vertically integrate with an unrelated firm. This relationship holds for both domestic and cross-border mergers, and for domestic and international relationships. It also holds when instrumenting mergers using exogenous downward pressure on the supplier's stock prices, suggesting that reverse causality is unlikely to explain the result. In contrast, the relationship vanishes when using rumored or announced but not completed integration events. Firms experience a substantial drop in sales when one of their suppliers integrates with one of their competitors. This sales drop is mitigated if the firm has alternative suppliers in place. These findings are consistent with anticompetitive effects of vertical mergers, such as vertical foreclosure, rising input costs for rivals, or self-foreclosure. (Updated 2020-10-04)

Published and Forthcoming

Misallocation in the Market for Inputs: Enforcement and the Organization of Production

(with Ezra Oberfield)

Quarterly Journal of Economics 135(4), p. 2007-2058, November 2020

The strength of contract enforcement determines how firms source inputs and organize production. Using microdata on Indian manufacturing plants, we show that production and sourcing decisions appear systematically distorted in states with weaker enforcement. Specifically, we document that in industries that tend to rely more heavily on relationship-specific intermediate inputs, plants in states with more congested courts shift their expenditures away from intermediate inputs and appear to be more vertically integrated. To quantify the impact of these distortions on aggregate productivity, we construct a model in which plants have several ways of producing, each with different bundles of inputs. Weak enforcement exacerbates a holdup problem that arises when using inputs that require customization, distorting both the intensive and extensive margins of input use. The equilibrium organization of production and the network structure of input-output linkages arise endogenously from the producers' simultaneous cost minimization decisions. We identify the structural parameters that govern enforcement frictions from cross-state variation in the first moments of producers' cost shares. A set of counterfactuals show that enforcement frictions lower aggregate productivity to an extent that is relevant on the macro scale.

[Download paper (.pdf)] [Article page at journal]

The Impact of Contract Enforcement Costs on Value Chains and Aggregate Productivity

Forthcoming, Review of Economics and Statistics

Legal institutions affect economic outcomes, but how much? This paper studies how costly supplier contract enforcement shapes the patterns of intermediate input use and quantifies the impact of these distortions on aggregate productivity and welfare. Using the frequency of litigation between US firms to measure the potential for hold-up problems, I find a robust relationship between countries' input-output structure and their quality of legal institutions: in countries with high enforcement costs, firms have lower expenditure shares on intermediate inputs in sector pairs where US firms litigate frequently for breach of contract. I adapt a Ricardian trade model to the study of intersectoral trade, and show that the variation in intermediate input shares that is explained by contracting frictions is large enough to generate sizeable welfare increases when enforcement institutions are improved.

[Download paper (.pdf)] [Article page at journal] [Download enforcement-intensity measures (.zip)]

Work in Progress

Growth and the Fragmentation of Production

(with Ezra Oberfield)

Firm adaptation and production networks: structural evidence from extreme weather events in Pakistan

(with Clare Balboni and Mazhar Waseem)

Teaching

Microeconomics (Sciences Po, Fall 2018, 2019, 2020): see Moodle

International Trade & Finance (Sciences Po, Fall 2018, 2019, 2020): see Moodle

Macroeconomics and Finance (Insead, Spring 2017)

KEPP 2385: Macroeconomics 2 (for Master Economics, Sciences Po, Spring 2015, 2016, 2017)

BECO 1750: Money and Banking (Sciences Po, Fall 2014, 2015, 2016)

EC220: Introduction to Econometrics (LSE, 2009/10)

EC400: Introductory Course in Maths and Statistics (LSE, 2010/2011)

EC321: Monetary Economics (LSE, 2010/2011)

EC321: Money and Banking (LSE, 2010/2011)

EC210: Macroeconomic Principles (LSE, 2011/2012)

EC442: Macroeconomics for PhD (LSE, 2013/2014)

Software

I wrote some packages to help with doing econometrics in Julia. In particular:

• GLFixedEffectModels is a package for estimating Generalized Linerar Models with high-dimensional fixed effects
• Douglass is a package that allows you to do data manipulation tasks using a Stata-like syntax
• RegressionTables creates journal-style regression tables similar to 'estout' in Stata or 'stargazer' in R

All these packages, and some others, are on Github.