Job Market Paper
"The Rise and Fall of India's Relative Investment Price: A Tale of Policy Error and Reform," Joint work with Alok Johri.
Resubmitted to the American Economic Journal: Macroeconomics
The behavior of the relative price of investment in India in recent decades stands in fascinating contrast to the well known continuing decline in the US. In India it rose 44 percent from 1981 to 1991 and fell 26 percent from 1991 to 2006. The sudden change in direction is tantalizingly coincident with a period of rapid economic reform in India and the concomitant increase in the growth rate of GDP. These observations raise a number of questions that we seek to answer in this paper. Why did the relative price of investment rise in India during the 1980s while it fell in the developed world? Did the sudden change in direction in 1991 have something to do with the unexpected change in policies during the reform period that began in 1991? If so, what was the contribution of these policy shifts to the increase in the growth rate of GDP experienced over the next decade and a half? We build a simple dynamic general equilibrium model calibrated to Indian data in order to explore the impact of capital import substitution policies and their reform post-1991, in accounting for this rise and fall. Our model delivers a 23 percent rise before reform and a 28 percent fall thereafter. GDP per worker was 2.9 percent lower in 1991 compared to 1981 due to import restrictions on capital goods. Their removal and a 64 percentage point reduction in tariff rates raised GDP per worker permanently by 17.8 percent.
"The Rise and Fall of India's Relative Investment Price: A Tale of Policy Error and Reform," Joint work with Alok Johri.
Resubmitted to the American Economic Journal: Macroeconomics
The behavior of the relative price of investment in India in recent decades stands in fascinating contrast to the well known continuing decline in the US. In India it rose 44 percent from 1981 to 1991 and fell 26 percent from 1991 to 2006. The sudden change in direction is tantalizingly coincident with a period of rapid economic reform in India and the concomitant increase in the growth rate of GDP. These observations raise a number of questions that we seek to answer in this paper. Why did the relative price of investment rise in India during the 1980s while it fell in the developed world? Did the sudden change in direction in 1991 have something to do with the unexpected change in policies during the reform period that began in 1991? If so, what was the contribution of these policy shifts to the increase in the growth rate of GDP experienced over the next decade and a half? We build a simple dynamic general equilibrium model calibrated to Indian data in order to explore the impact of capital import substitution policies and their reform post-1991, in accounting for this rise and fall. Our model delivers a 23 percent rise before reform and a 28 percent fall thereafter. GDP per worker was 2.9 percent lower in 1991 compared to 1981 due to import restrictions on capital goods. Their removal and a 64 percentage point reduction in tariff rates raised GDP per worker permanently by 17.8 percent.
Baby Bonus, Anyone? Examining Heterogeneous Responses to a Policy" . Joint work with Natalie Malak & Terry Yip, Journal of Population Economics, 32 - 4 (2019): 1205-1246, Winner of the Canadian Population Society Student Paper Award, 2016
We examine the impact of the Allowance for Newborn Children, a universal baby bonus offered by the Canadian province of Quebec, on birth order, sibship sex composition, income, and education. We find a large response for third and higher-order births for which the bonus was more generous. Interestingly, though, we find stronger response if there were two previous sons or a previous son and daughter rather than two previous daughters. We also find, in addition to a transitory effect, a permanent effect, with the greatest increase in one daughter-two son families among three-child households. Moreover, we find a hump shape response by income group, with the greatest response from middle-income families. Also, women with at least some post-secondary education respond more to the policy than those with less. These findings suggest that properly structured pro-natal policies can successfully increase fertility among different segments of the population while simultaneously diminishing the effect of gender preferences and fertility disparity related to women’s education.
We examine the impact of the Allowance for Newborn Children, a universal baby bonus offered by the Canadian province of Quebec, on birth order, sibship sex composition, income, and education. We find a large response for third and higher-order births for which the bonus was more generous. Interestingly, though, we find stronger response if there were two previous sons or a previous son and daughter rather than two previous daughters. We also find, in addition to a transitory effect, a permanent effect, with the greatest increase in one daughter-two son families among three-child households. Moreover, we find a hump shape response by income group, with the greatest response from middle-income families. Also, women with at least some post-secondary education respond more to the policy than those with less. These findings suggest that properly structured pro-natal policies can successfully increase fertility among different segments of the population while simultaneously diminishing the effect of gender preferences and fertility disparity related to women’s education.
"Why is Agricultural Productivity So Low in Poor Countries? The Case of India," 2018 Meeting Papers 1305, Society for Economic Dynamics. Joint work with Oksana Leukhina.
It is well known that poor countries exhibit a large labor productivity gap between urban and agricultural sectors. Furthermore, development economists have pointed out that the low agricultural productivity stems from the persistence of small non-mechanized farms. We propose and quantify one potential explanation for this phenomenon. If residing in a village provides access to a network that effectively insures against income fluctuations, then households are less willing to live in the cities where labor income risk is uninsured. As a result, labor stays cheap in agriculture, and the incentives for switching to capital-intensive methods of farming remain weak. In order to understand the quantitative importance of this mechanism, we calibrate the model to Indian data and study an abstract policy intervention - a provision of complete insurance against earnings risk in the city. The policy intervention decreases the urban-rural gap by 32 percent. This effect comes about because of a 13 percent drop in the agricultural share of employment, which encourages an inflow of capital and raises average farm size by 9 percent.
It is well known that poor countries exhibit a large labor productivity gap between urban and agricultural sectors. Furthermore, development economists have pointed out that the low agricultural productivity stems from the persistence of small non-mechanized farms. We propose and quantify one potential explanation for this phenomenon. If residing in a village provides access to a network that effectively insures against income fluctuations, then households are less willing to live in the cities where labor income risk is uninsured. As a result, labor stays cheap in agriculture, and the incentives for switching to capital-intensive methods of farming remain weak. In order to understand the quantitative importance of this mechanism, we calibrate the model to Indian data and study an abstract policy intervention - a provision of complete insurance against earnings risk in the city. The policy intervention decreases the urban-rural gap by 32 percent. This effect comes about because of a 13 percent drop in the agricultural share of employment, which encourages an inflow of capital and raises average farm size by 9 percent.
