Publications

This chapter takes stock of what has been learned from the recent micro-development literature about wedges—mechanisms generating dispersion in marginal revenue products of factors across firms, which are commonly interpreted as indicators of misallocation. We present a general theoretical framework that allows us to consider several different types of wedges simultaneously. We argue that it is important to distinguish between between technological wedges, which are present even in the efficient allocation that would be chosen by the social planner, and distortionary wedges, which are present in market equilibrium but not the social planner's allocation. Not all wedges, as we have defined them, are distortionary. We also argue that interactions among wedges are pervasive. We review empirical findings about different types of wedges—taxes, regulations, political connections, corruption, market power, contracting frictions, upgrading investments, and search—focusing on studies that present direct evidence on particular wedges and how they generate dispersion in marginal returns to factors. Throughout, we pay special attention to how wedges vary with firm size and whether the evidence supports the “large firms are constrained” view of development. We conclude with thoughts about promising directions for the misallocation literature.

In today’s developing world, many economies appear to bypass industrialization and transition directly from agriculture to services. The largest rise in service employment has occurred in non-tradable consumer services, such as retail and hospitality, especially in urban areas, where many cities resemble consumer hubs built around local demand. These patterns of growth raise fundamental questions: Can service-led growth sustain improvements in living standards over time? Is service-led growth inherently biased toward affluent urban consumers? What role should policy play? To address these questions, we propose a parsimonious general equilibrium framework that incorporates non-homothetic preferences and locally non-tradable consumer services in a spatial setting. We apply the framework to a set of fast-growing sub-Saharan African economies and contrast their experience with economies following more industrialization-led path, highlighting how service-led growth shapes productivity, welfare, and inequality. Our framework bridges macro and micro perspectives and enables counterfactual analysis that accounts for both individual and spatial heterogeneity. We relate the framework to the recent literature and discuss several extensions and directions for future research.

In today’s developing world, many economies appear to bypass industrialization and transition directly from agriculture to services. The largest rise in service employment has occurred in non-tradable consumer services, such as retail and hospitality, especially in urban areas, where many cities resemble consumer hubs built around local demand. These patterns of growth raise fundamental questions: Can service-led growth sustain improvements in living standards over time? Is service-led growth inherently biased toward affluent urban consumers? What role should policy play? To address these questions, we propose a parsimonious general equilibrium framework that incorporates non-homothetic preferences and locally non-tradable consumer services in a spatial setting. We apply the framework to a set of fast-growing sub-Saharan African economies and contrast their experience with economies following more industrialization-led path, highlighting how service-led growth shapes productivity, welfare, and inequality. Our framework bridges macro and micro perspectives and enables counterfactual analysis that accounts for both individual and spatial heterogeneity. We relate the framework to the recent literature and discuss several extensions and directions for future research.

Human capital is central to efforts to promote growth, convergence, and the elimination of poverty. Drawing on the seminal macroeconomic frameworks by Nelson-Phelps, Lucas and subsequent developments, alongside macro and microeconomic evidence, we examine the role of human capital in driving innovation and growth. We highlight how different types of human capital, characterized by education level, matter in different stages of development. Despite documented increases in years of schooling, the world’s poorest regions still see stagnating outcomes in learning and education quality, potentially creating poverty traps where investments in neither physical nor human capital materialize. We discuss obstacles to human capital accumulation through a simple analytical framework and present evidence from randomized interventions spanning early childhood programs to school-age initiatives, assessing policies that can effectively remove barriers to skill acquisition and establish foundations for sustained growth.

Globally women’s labor force participation lags that of men and women, on average, have lower labor market earnings than men. Does economic growth reduce gender disparities in labor market outcomes between women and men? Conversely, do gender inequalities in the labor market impede growth? To inform these questions, we conduct two analyses. First, we estimate regressions using harmonized data on gender gaps in a range of labor market outcomes from 153 countries spanning two decades (1998-2018). Second, we conduct a systematic review of the recent economics literature on gender gaps in labor markets, examining 16 journals over 21 years. Our empirical analysis demonstrates that growth is not a panacea. The relationship between growth and labor market gaps is mixed, and results vary by specification. This result reflects, in part, the gendered nature of structural transformation, in which growth leads men to transition from agriculture to industry and services while many women exit the labor force. Disparities in hours worked and wages persist despite growth, and heterogeneity in trends and levels between regions highlight the importance of local institutions. Newly harmonized microdata further show substantial heterogeneity by education level and marriage status. To better understand whether gender inequalities impeded growth, we explore a nascent literature that shows that reducing gender gaps in labor markets increases aggregate productivity. Our broader review highlights how traditional explanations for gender differences do not adequately explain existing gaps and how policy responses need to be sensitive to the changing nature of economic growth. We conclude by posing open questions for future research.

This paper estimates the consumer surplus from using alternative payment methods. We use evidence from Uber rides in Mexico, where riders have the option to use cash or cards to pay for rides. We design and conduct three large-scale field experiments, which involved approximately 400,000 riders. We also build a structural model which, disciplined by our new experimental data, allows us to estimate the loss of private benefits for riders when a ban on cash payments is implemented. We find that Uber riders who use cash as means of payment either sometimes or exclusively suffer an average loss of approximately 40–50% of their total trip expenditures paid in cash before the ban. The magnitude of these estimates reflects the intensity with which cash is used in the application, the shape of the demand curve for Uber rides, and the imperfect substitutability across means of payments. Welfare losses fall mostly on the least-advantaged households, who rely more heavily on the cash payment option.

We exploit a unique event to study the extent to which popular attitudes towards trade are driven by economic fundamentals. In 2007, Costa Rica put a free trade agreement (FTA) to a national referendum. With a single question on the ballot, 59% of Costa Rican adult citizens cast a vote on whether they wanted an FTA with the U.S. to be ratified or not. We merge disaggregated referendum results, which break new ground on anonymity-compatible voting data, with employer–employee, customs, and firm-to-firm transactions data, and data on household composition and expenditures. We document that a firm’s exposure to the FTA, directly and via input–output linkages, significantly influences the voting behaviour of its employees. This effect dominates that of sector-level exposure and is greater for voters aligned with pro-FTA political candidates. We also show that citizens considered the expected decrease in consumer prices when exercising their vote. Overall, economic factors explain 7% of the variation in voting patterns, which cannot be accounted for by non-economic factors such as political ideology, and played a pivotal role in this vote.

We exploit a unique event to study the extent to which popular attitudes towards trade are driven by economic fundamentals. In 2007, Costa Rica put a free trade agreement (FTA) to a national referendum. With a single question on the ballot, 59% of Costa Rican adult citizens cast a vote on whether they wanted an FTA with the U.S. to be ratified or not. We merge disaggregated referendum results, which break new ground on anonymity-compatible voting data, with employer–employee, customs, and firm-to-firm transactions data, and data on household composition and expenditures. We document that a firm’s exposure to the FTA, directly and via input–output linkages, significantly influences the voting behaviour of its employees. This effect dominates that of sector-level exposure and is greater for voters aligned with pro-FTA political candidates. We also show that citizens considered the expected decrease in consumer prices when exercising their vote. Overall, economic factors explain 7% of the variation in voting patterns, which cannot be accounted for by non-economic factors such as political ideology, and played a pivotal role in this vote.

We study the role of information in Bertrand competition with differentiated goods and heterogeneous production costs. When producers know their costs and consumers know their values, consumer surplus and total surplus are aligned, in the sense that the information and equilibrium that maximize consumer surplus also maximize total surplus. Alignment may fail if consumers do not know their values: Partial information about values makes purchases less efficient but intensifies price competition. We illustrate this within a Hotelling duopoly framework.

Substantial advances toward global decarbonization have been made in areas such as electricity generation and the electrification of building heat and road transport, yet the decarbonization of energy-intensive industries remains a formidable but crucial challenge. Decarbonization of the industrial sector, whose direct emissions account for about 25% of global carbon dioxide, is essential for transitioning the world economy toward a sustainable growth path. With present technologies and policies, such decarbonization appears technically possible, but difficult and costly. Here, we highlight the pressing need for new lines of research on two emerging frontiers. The first quantifies how industrial decarbonization technologies and policies interact with the broader economy. The second builds on growing data availability and policy experience with industrial decarbonization to provide broad-scale ex post quantifications of its impacts as an essential empirical complement to a largely modeling-based literature to date.

We examine how labor market disruptions following childbirth relate to intra-household consumption inequality in the long run. Novel survey data from Germany shows that women less educated than their partners are more likely to report child-related career interruptions and receive a smaller share of household consumption, relative to women more educated than their spouses. Moreover, conditioning on partners’ relative education, female career disruptions correlate with higher male consumption, suggesting that child-rearing may shape gender disparities not only in labor outcomes but also in long-term consumption—an overlooked aspect of the “motherhood penalty.”

State formation through secession often requires two critical steps: building mass support for independence, and engaging in violent conflict against a state resisting territorial loss. Combining satellite data with archival sources, we statistically document how exposure to the 1970 Bhola cyclone in East Pakistan which killed 350,000 people led to a rise in separatist sentiments expressed in voting booths, and later induced citizens to take up arms against the government and engage in guerrilla warfare. We identify the cyclone as a focal point that helped galvanize dispersed separatist sentiments into an organized political movement and war, in part by revealing the Pakistan government’s indifference to Bengalis’ suffering. This important historical case identifies the specific causal channels by which a climate shock produces armed conflict (Hsiang et al., 2013).

This paper revisits the relationship between international trade, trade policy, and development in light of the structural, policy, and geopolitical shifts that have transformed globalization over the past decade. While trade has historically supported development through both static and dynamic channels, we argue that the latter—those inducing structural transformation and institutional change—have been far more consequential for long-run development. Through access to global markets, participation in global value chains, and knowledge and technology transfers, and by providing an anchor for reform, trade and trade agreements have contributed to productivity gains, technological progress, quality and skill upgrading, and institutional change in many low- and middle-income countries. Yet, the conditions that enabled these effects—technologically driven declines in transportation and communication costs, fragmentation of the production process, liberal trade regimes, multilateralism and geopolitical stability—are changing. Automation, digitization, climate change, the return of industrial policy in advanced economies, and the rise of geopolitical rivalry are reshaping the global trade environment. In this new context, the scope for replicating past export-led growth successes is unlikely as two key growth mechanisms, access to the lucrative markets of advanced economies and knowledge sharing, are under threat. We discuss whether trade in services and the green transition may offer new opportunities, emphasizing that future prospects will depend on policy choices in large economies and the adaptability of developing countries.

This paper presents the first numbers on Spanish migration to Spanish America for the colonial period (1492-1830). We analyze quantitative patterns, geographic origins and destinations, gender, and migrant human capital. Drawing on a wide array of primary and secondary sources, we provide the first comprehensive dataset covering for the entire colonial period. This dataset opens new avenues for research on migrant networks, elite formation, social mobility, and the links between migration and long-run economic development.

The extent to which women participate in the labor market varies greatly across the globe. If such differences reflect distortions that women face in accessing good jobs, they can reduce economic activity through a misallocation of talent. In this paper, we build on Hsieh et al. (2019) to provide a methodology to quantify these productivity consequences. The index we propose, the "Global Gender Distortions Index (GGDI)", measures the losses in aggregate productivity that gender-based misallocation imposes. Our index allows us to separately identify labor demand distortions (e.g., discrimination in hiring for formal jobs) from labor supply distortions (e.g., frictions that discourage women’s labor force participation) and can be computed using data on labor income and job types. Our methodology also highlights an important distinction between welfare-relevant misallocation and the consequences on aggregate GDP if misallocation arises between market work and non-market activities. To showcase the versatility of our index, we analyze gender misallocation within countries over time, across countries over the development spectrum, and across local labor markets within countries. We find that misallocation is substantial and that demand distortions account for most of the productivity losses.