Current Projects

Investment and Saving along the Development Path

with Manuel García-Santana, Lucciano Villacorta


Health, Consumption, and Inequality

with Jay Hong, Víctor Ríos-Rull


Healthy Habits and Inequality

with Dante Amengual, Jesús Bueren

Working Papers

Macroeconomic Development, Rural Exodus, and Uneven Industrialization

with Tomas Budí-Ors

Downloads: Working paper (CEPR Discussion Paper DP17086, July 2022, first version March 2022) 


Abstract: Economic development and industrialization are typically led by a few regions within a country. The initially agrarian regions may catch up and industrialize —as in the U.S. 1880 to 1940— or they may fail to industrialize, experience a population exodus, and help industrialization elsewhere —as in Spain 1940 to 2000. To understand the emergence and consequences of each pattern, we build a simple model of structural change with multiple locations and sectors where both internal migration and internal trade are costly. In the model, internal migrations change the relative demand across sectors and hence act as a force of within-region structural change. We calibrate the model to the development experience of Spain, and find that its large rural exodus and uneven industrialization were originated by a combination of increased economic opportunities in more industrial regions together with a decline in migration costs towards them. More importantly, the rural exodus in Spain completely explains the lack of industrialization in laggard areas. This is because manufactures in those regions were largely dependent on the vanishing local demand and because the most advanced regions managed to lever up their industrial comparative advantage thanks to the massive inflow of cheap labor. The rural exodus also accelerated growth and structural change at the aggregate level thanks to a better allocation of labor across locations.

Government Procurement and Access to Credit: Firm Dynamics and Aggregate Implications

with Julian di Giovanni, Manuel García-Santana, Priit Jeenas, Enrique Moral-Benito

Downloads: Working paper (CEPR Discussion Paper DP17023, June 2022, first version February 2022); Online Appendix


Abstract: We provide a framework to study how different allocation systems of public procurement contracts affect firm dynamics and long run macroeconomic outcomes. We start by using a newly created panel dataset of administrative data that merges Spanish credit register loan data, quasi- census firm-level data, and public procurement projects to study firm selection into procurement and the effects of procurement on credit growth and firm growth. We show evidence consistent with the hypotheses that there is selection of large firms into procurement, that procurement contracts provide useful collateral for firms —more so than sales to the private sector— and that procurement contracts facilitate firm growth beyond the contract duration. We next build a model of firm dynamics with both asset-based and earnings-based borrowing constraints and a government that buys goods and services from private sector firms. We use the calibrated model to quantify the long-run macroeconomic consequences of alternative procurement allocation systems. We find that granting procurement contracts to small firms, either by directly targeting them or by slicing large contracts into smaller ones, helps these firms grow and overcome financial constraints in the long run. However, we also find that reducing the average size of contracts —or making it less likely for large firms to access them— removes saving incentives for large firms, whose negative effects on capital accumulation can overcome the expansionary consequences for small firms and hence generate a drop in aggregate output.

Dual Labor Markets and the Equilibrium Distribution of Firms

with Pau Roldan-Blanco

Downloads: Working paper (July 2022)


Abstract: We study the effect of a dual labor market structure on firm dynamics, the firm size distribution, and aggregate productivity. Using rich Spanish administrative data, we document that the usage of fixed-term (FT) contracts is very heterogeneous across firms within narrowly defined sectors, and that the share of temporary workers increases monotonically with firm size. We write an equilibrium search-and-matching model of firm dynamics with FT and open-ended (OE) contracts to understand the choice of contract type by heterogeneous firms and the equilibrium joint distribution of employment and temporary share across firms. A key feature of the calibrated economy is that matching efficiency is much larger in the FT than in the OE market. Because of this, firms face a trade-off between the lower costs of attracting workers to FT contracts and the higher turnover of FT vacancies. With decreasing returns to scale, the opportunity cost of unfilled vacancies is lower for larger firms, so these firms hire a higher fraction of temporary workers. In equilibrium, the dual labor market structure makes it difficult for firms to become large because of the high turnover of FT contracts and the strong competition of smaller firms for OE contracts. In counterfactual exercises, we find that limiting the duration of FT contracts decreases the share of temporary employment and the unemployment rate, but at the expense of firm destruction and lower aggregate productivity. Instead, making FT contracts more similar to OE contracts by increasing their duration allows the economy to expand through a reduction in the unemployment rate and an increase in aggregate productivity.

Old Working Papers

Durable Goods, Borrowing Constraints and Consumption Insurance

with Enzo Cerletti

Downloads: Working paper (March 2014, first version June 2012) 


Abstract: We study the different transmission of income shocks into consumption goods of different durability. We show that binding borrowing constraints lead to a substitution between goods upon arrival of an unexpected income change. The sign of this substitution depends critically on the persistence of the shock, whereas its size depends on the durability of goods and on their role as collateral for borrowing. An important consequence is that the response of non-durable consumption to income shocks is an imperfect measure of household insurance against labor market risk. We use a life-cycle model with labor market uncertainty and incomplete markets to quantify the actual amount of insurance implied by the observed transmission of income shocks to non-durable consumption. We find that young households have substantially less insurance against transitory shocks and more insurance against permanent shocks than implied by the transmission of the shocks into non-durable consumption expenditure.

The Effects of Labor Market Conditions on Working Time: the US-EU Experience

with Claudio Michelacci

Downloads: working paper (September 2008)


Abstract: We consider a labor market search model where, by working longer hours, individuals acquire greater skills and thereby obtain better jobs. We show that job inequality, which leads to within-skill wage differences, gives incentives to work longer hours. By contrast, a higher probability of losing jobs, a longer duration of unemployment, and in general a less tight labor market discourage working time. We show that the different evolution of labor market conditions in the US and in Continental Europe over the last three decades can quantitatively explain the diverging evolution of the number of hours worked per employee across the two sides of the Atlantic. It can also explain why the fraction of prime age male workers working very long hours has increased substantially in the US, after reverting a trend of secular decline.