Private and Public Health Investment Decisions, with Manoj Atolia and Stephen Turnovsky, June 2017, Download PDF file.
In recent years, there has been an explosive increase in the demand for health products and services by people all around the globe, and particularly in advanced economies. Aiming to enhance longevity but also improve quality of life, individual consumption of pharmaceutical products and services has risen exponentially since the early 1980s. This paper develops a model in which agents invest part of their resources in medical products and time in physical exercise to enhance their health status. In the first part of the paper, we study the steady state and transitional dynamics of the model with special emphasis on the effects of health decisions on aggregate outcomes. In the second part, we explore how public health policies may alter private economic decisions that promote healthier and more productive lives.
Building Resilience to Natural Disasters: An Application to Small Developing States, with Ricardo Marto and Vladimir Klyuev, June 2017, Download PDF file.
We present a dynamic small open economy model to explore the macroeconomic impact of natural disasters. In addition to permanent damages to public and private capital, the disaster causes temporary losses of productivity, inefficiencies during the reconstruction process, and damages to the sovereign's creditworthiness. We use the model to study the debt sustainability concerns that arise from the need to rebuild public infrastructure over the medium term and analyze the feasibility of ex ante policies, such as building adaptation infrastructure and fiscal buffers, and contrast these policies with the post-disaster support provided by donors. Investing in resilient infrastructure may prove useful, in particular if it is viewed as complementary to standard infrastructure, because it raises the marginal product of private capital, crowding in private investment, while helping withstand the impact of the natural disaster. In an application to Vanuatu, we find that donors should provide an additional 50% of pre-cyclone GDP in grants to be spent over the following 15 years to ensure public debt remains sustainable following Cyclone Pam. Helping the government build resilience on the other hand, reduces the risk of debt distress and at lower cost for donors.
What Remains of Cross-Country Convergence?, with Paul Johnson, March 2017. Download PDF file.
Have developing countries made progress on closing the income gap that separates them from advanced economies? If so what has been the speed of convergence? If not, why haven’t we witnessed the catching up effect advocated by the prevalent growth models? Should we even worry about divergence? These are some key empirical questions that have eluded macroeconomists over the last few decades. In our survey we revisit the issue of cross-country income convergence with particular emphasis on what we have learned from recent developments in the literature that can shed light on this perennial and persisting question.
Quality Upgrading and the Stages of Diversification, with Fidel Perez-Sebastian and Nikola Spatafora, March 2017. Download PDF file.
This paper explores the contribution of product quality upgrading in the process of export diversification. To do this, the paper builds a multisector model following Eaton and Kortum (2002) in which product quality is incorporated as a key feature. The model is then calibrated to generate predictions about the degree of export diversification in a number of East Asian countries. It is shown that quality upgrading is a key factor to understand the changes in the degree of export diversification in the majority of countries in our sample.
Using a newly constructed dataset on trade in services for 192 countries from 1970 to 2014, this paper shows that services currently constitute one-fifth of world trade and an increasingly important component of global production. A detailed analysis of patterns and stylized facts reveals that exports of services are not only gaining strong momentum and catching up with exports of goods in many countries, but they could also trigger a new wave of trade globalization. Research applications of the trade in service dataset on structural transformation, resilience, labor reallocation, and income distribution are outlined.
This paper develops new estimates of export quality, far more extensive than previous efforts, covering 178 countries and hundreds of products during the period 1962–2010. It finds that quality upgrading is particularly rapid during the early stages of development, with the process largely completed as a country reaches upper middle-income status. There is significant cross-country heterogeneity in the growth rate of quality. Within any given product line, quality converges over time to the world frontier. Institutional quality, liberal trade policies, FDI inflows, and human capital all promote quality upgrading, although their impact varies across sectors. The results suggest that reducing barriers to entry into new sectors can allow economies to benefit from rapid quality convergence over time.
The Public and Private MPK, with Matt Lowe and Fidel Perez-Sebastian, March 2015. Download PDF file.
Why doesn’t capital flow to developing countries as predicted by the neoclassical model? Is the explanation simply that cross-country marginal productivity of capital (MPK) is equalized, and if so, why? We revisit these issues by unpacking the MPK into its public and private components, since there is good reason to believe that the process of MPK determination is enormously different across the two sectors, especially in developing countries. We do so by calculating MPK schedules for the two sectors in a large sample of advanced and developing countries. The main findings are twofold: using updated investment data shows that the MPK is not only flat but rather slightly positively sloped. More importantly, this finding is mainly driven by the public sector - the public MPK is strongly positively sloped whilst the private MPK is flat. We offer an interpretation of this surprising result and advance new explanations for the Lucas Paradox related to the behavior of the public sector.
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