We add to recent evidence on deindustrialization and document a new pattern: increasing industry polarization over time. We assess whether these patterns can be explained by a dynamic open economy model of structural change in which the two primary driving forces are sector-biased productivity...

We study optimal dynamic trade policies in an Eaton-Kortum model with technology diffusion through trade. The process of innovation and diffusion is one in which new ideas are combined with insights from others. Trade thus affects technology by determining the distribution from which producers...

We provide a macroeconomic theory where demand for goods has a productive role. A search friction prevents perfect matching between producers and potential customers. Larger demand induces more search, which in turn increases GDP and measured TFP. We embed the product-market friction in a...

What are a country's policy options in the face of emerging technologies development in a global economy? To answer this question, we examine optimal dynamic policies in an open economy where technology is endogenously accumulated through R&D innovation. Our key insight is that a country has...

We provide a general formula for optimal unilateral policies in multi-sector, general-equilibrium Ricardian models with various widely adopted labor market specifications. Sector-specific tariffs are summarized by a matrix of partial supply elasticities and the share of Home's import in foreign...

This paper studies the impact of cross-country variation in financial market development on firms' financing choices and growth rates using comprehensive firm-level datasets. We document that in less financially developed economies, small firms grow faster and have lower debt to asset ratios...

This paper develops a New Keynesian model with sovereign default risk (NK-Default). We focus on the interaction between monetary policy, conducted according to an interest rate rule that targets inflation, and external defaultable debt issued by the government. Monetary policy and default risk...

This paper incorporates firm-level distortions into a Melitz model and characterizes welfare under misallocation. We derive an analogue to the well-known ACR result in an economy with distortions. We highlight a channel through which trade can reduce welfare by exacerbating misallocation. A key...

The COVID-19 epidemic in emerging markets risks a combined health, economic, and debt crisis. We integrate a standard epidemiology model into a sovereign default model and study how default risk impacts the ability of these countries to respond to the epidemic. Lockdown policies are useful for...

We use firm-level data to identify financial frictions in China and explore the extent to which they can explain firms' saving and capital misallocation. We first document the features of the data in terms of firm dynamics and debt financing. State-owned firms have higher leverage and pay much...