Andrei Levchenko, University of Michigan

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Date: Monday, March 2, 2020 – 12:30pm to 1:50pm

Location: Rafik B. Hariri Building – Room 370, McDonough School of Business

Presenter: Andrei Levchenko, University of Michigan

Paper: Scaling Agricultural Policy Interventions: Theory and Evidence from Uganda

Abstract: This paper uses a dataset covering the universe of French firm-level sales, imports, and exports over the period 1993-2007, and a quantitative multi-country model to study the international transmission of business cycle shocks at both the micro and the macro levels. The largest firms are both important enough to generate aggregate fluctuations (Gabaix, 2011), and most likely to be internationally connected. This implies that the largest firms are the key channel through which foreign shocks are transmitted. We document a novel stylized fact: larger French firms are significantly more sensitive to foreign GDP growth. Our quantitative framework is calibrated to the observed firm- and country-level trade data, capturing the full extent of firm level heterogeneity in size, exporting, and importing. We simulate the propagation of foreign shocks to the French economy, and report one micro and one macro finding. At the micro level heterogeneity across firms predominates: 40−85% of the impact of foreign fluctuations on French GDP is accounted for by the “foreign granular residual” – the term capturing the fact that larger firms are more affected by the foreign shocks. At the macro level, firm heterogeneity dampens the impact of foreign shocks, with the GDP responses 10 − 20% larger in a representative firm model compared to the baseline model.

The International Economics Seminar series is presented jointly with the Walsh School of Foreign Service and the Economics Department of Georgetown University.