Sectoral Heterogeneity Research Articles

Expenditure Elasticity and Inequality Over the Business Cycle

I analyze a new channel through which real labor income inequality can vary over the business cycle arising from heterogeneity in the households exposure to different sectors in their consumption and labor choices. This heterogeneous exposure has two sources of origin both are empirically documented in this paper. First, low income households consume less from sectors with high expenditure elasticity and are therefore less exposed to fluctuations in their prices. Second, low income households tend to work more in service occupations that are used most intensely in sectors with high expenditure elasticity and are therefore more exposed to labor demand fluctuation in these sectors. While the mechanism is relevant to any shock that increases income, I focus my analysis on monetary policy shocks that are reliably identified using high frequency data. In my analysis I establish that as a response to a monetary policy shock the aggregate value added share of sectors with high expenditure elasticity increases. This implies an increase in: (1) the relative prices of goods or services in these sectors (2) the relative income share of employees in these sectors. Both effects result in an increase in the relative real wage of low income households that are less exposed to the increase in prices while more exposed to the increase in wages. I use a TANK model with non-homothetic preferences and sector heterogeneity to quantify the effects of this mechanism and evaluate how it has change over time with changes in sectoral and occupational composition.

Why does China’s carbon intensity decline and India’s carbon intensity rise? a decomposition analysis on the sectors

As more attention paid to global warming, the international community argues that developing countries should take more carbon reduction responsibility. China and India, the top two developing countries confronted heavy pressure to handle the dilemma of “environmental protection or economic increase”. In this context, we switched focus to carbon intensity (defined as carbon emission per unit of economic output) to investigate carbon performance and economic performance simultaneously. In this study, we fully considered the impact of sector heterogeneity on carbon intensity, that is, we decomposed the carbon intensity of the 56 industries, which subsequently reclassified into 18 industries in China and India using the data from WIOD (world-input-output database). The results indicate that: (1) India’s carbon intensity presented a constant increasing trend, while China appeared a stable decreasing trend, and the former exceeded the latter since 2009; (2) all industries of China exerted efforts to decrease carbon intensity, conversely, India only had a few industries decreasing carbon intensity; (3) energy intensity significantly decreased China’s carbon intensity, while increased India’s carbon intensity surprisingly; (4) in general, structure effect made negative contribution to carbon intensity improvement in China, while positive in India. Specifically, economic structure had a positive impact on China and India, though the impact was minor for the former, significant for the latter; energy structure slightly promoted India’s carbon intensity to decrease, on the contrary, it was the largest inhibitor to China. This research will not only promote low-carbon economy development of China and India, but also provide scientific and practical references to other developing countries.

Carbon congestion effects in China's industry: Evidence from provincial and sectoral levels

Investigating carbon congestion effect can help identify congestion in production, which is of great significance for the rational use of resources and the effective promotion of carbon emissions reduction. Under this circumstance, this study uses the dual model of radial DEA to explore both undesirable/desirable congestion, returns to damage and damages to return during 2005–2015 from both provincial and sectoral levels. Combined with window analysis, the technical efficiency and emissions reduction potential of China's industrial sectors are also discussed. The empirical results show that: (1) China's industrial carbon congestion is obvious and the congestion effect witnesses a trend of regional agglomeration and evident regional and sectoral heterogeneity. In particular, undesirable congestion mainly occurs in the eastern region, and desirable congestion mainly occurs in the western region, followed by the eastern region; both undesirable and desirable congestions mainly occur in some sectors in the Manufacturing and Power-Gas-Water industries. (2) If all sectors produce on the production frontier, the average annual potential carbon emissions reduction would reach 722.82 million tons, with the higher potential in western region and Shanxi province of central region, as well as Manufacturing and six high-energy-consuming sectors. (3) To achieve the “win-win” of industrial development and carbon emissions reduction, China's western region should focus on green technology innovation, while the eastern region and Power-Gas-Water industry should focus on both input resources optimisation and green technology innovation.

Gains from Trade: Does Sectoral Heterogeneity Matter?

This paper assesses the quantitative importance of including sectoral heterogeneity in computing the gains from trade. Our framework draws from Caliendo and Parro (2015) and Alvarez and Lucas (2007) and has sectoral heterogeneity along five dimensions, including the elasticity of trade to trade costs, the value-added share, and the input-output structure. The key parameter we estimate is the sectoral trade elasticity, and we use the Simonovska and Waugh (2014) simulated method of moments estimator with micro price data. Our estimates range from 2.97 to 8.94, considerably lower than those obtained with the Eaton and Kortum (2002) price-based method. Our benchmark model is calibrated to 21 OECD countries and 20 sectors. We compute the gains from trade in our benchmark model, and in several re-calibrated versions of the model in which we eliminate one or more sources of sectoral heterogeneity. Our main result is that sectoral heterogeneity does not always lead to an increase in the gains from trade. There are two reasons for this. First, the magnitudes of our estimated sectoral trade elasticities are relatively high, while the magnitude of our estimated aggregate trade elasticity is low. All else equal, this will lead to higher gains for the aggregate, one-sector model. Second, the sectors with low trade elasticities (hence, implying high gains from trade) are not the sectors with low value-added shares and with high initial trade shares (which would magnify the gains). Hence, the sectoral heterogeneity in our calibrated model does not exert complementary gains from trade effects.

Close Encounters of the European Kind: Economic Integration, Sectoral Heterogeneity and Structural Reforms

This paper addresses two main questions: (a) Has European integration hindered the implementation of labour, financial and product market structural reforms? (b) Do the effects of these reforms vary more across sectors than across countries? Using more granular reform measures, longer time windows and a larger sample of countries than previous studies, we confirm that the euro triggered product but neither labour nor financial market reforms. Differently from previous studies, we find that: (a) the Single Market has similar effects to the euro, and (b) sectoral heterogeneity appears less important in explaining the economic impacts of reforms than country heterogeneity.

Close Encounters of the European Kind: Economic Integration, Sectoral Heterogeneity and Structural Reforms

This paper addresses two main questions: (a) Has European integration hindered the implementation of labour, financial and product market structural reforms? (b) Do the effects of these reforms vary more across sectors than across countries? Using more granular reform measures, longer time windows and a larger sample of countries than previous studies, we confirm that the euro triggered product but neither labour nor financial market reforms. Differently from previous studies, we find that: (a) the Single Market has similar effects to the euro, and (b) sectoral heterogeneity appears less important in explaining the economic impacts of reforms than country heterogeneity.

The Great Lockdown and the Big Stimulus: Tracing the Pandemic Possibility Frontier for the U.S.

We provide a quantitative analysis of the trade-offs between health outcomes and the distribution of economic outcomes associated with alternative policy responses to the COVID-19 pandemic. We integrate an expanded SIR model of virus spread into a macroeconomic model with realistic income and wealth inequality, as well as occupational and sectoral heterogeneity. In the model, as in the data, economic exposure to the pandemic is strongly correlated with financial vulnerability, leading to very uneven economic losses across the population. We summarize our findings through a distributional pandemic possibility frontier, which shows the distribution of economic welfare costs associated with the different aggregate mortality rates arising under alternative containment and fiscal strategies. For all combinations of health and economic policies we consider, the economic welfare costs of the pandemic are large and heterogeneous. Thus, the choice governments face when designing policy is not just between lives and livelihoods, as is often emphasized, but also over who should bear the burden of the economic costs. We offer a quantitative framework to evaluate both trade-offs.

The Economic Effects of COVID-19 and Credit Constraints: Evidence from Italian Firms' Expectations and Plans

We investigate the economic effects of the COVID-19 pandemic and the role played by credit constraints in the transmission mechanism, using a novel survey of expectations and plans of Italian firms, taken just before and after the outbreak. Most firms revise downward their expectations for sales, orders, employment, and investment, while prices are expected to increase at a faster rate, with geographical and sectoral heterogeneity in the size of the effects. Credit constraints amplify the effects on factor demand and sales of the COVID-19 generated shocks. Credit-constrained firms also expect to charge higher prices, relative to unconstrained firms. The search for and availability of liquidity is a key determinant of firms' plans. Finally, both supply and demand shocks play a role in shaping firms' expectations and plans, with supply shocks being slightly more important in the aggregate.

Firm and Sector Heterogeneity in the Effects of Innovation Subsidies: Evidence from Horizon 2020

We evaluate the effect of a pan-European innovation funding program on firm growth and innovative output. Using a difference-in-differences estimation on a sample of matched firms, we find that subsidized firms are able to invest more in tangible and intangible assets, achieve higher growth of turnover and employment, and file more patent applications. We then analyze the dynamic treatment effect and find that the effects of subsidization tend to get stronger over time. Moreover, our findings indicate that the effect of subsidization is highly heterogeneous across sectors with different R&D or knowledge intensity and level of competition. Finally, we explore some economic channels to explain how subsidies generate strong effects on firm performance. We show that subsidized firms are able to generate more internal financing and attract more long-term borrowing after receiving the subsidy, yet we find no evidence that subsidized firms are able to attract more external equity-financing than similar unsubsidized firms.

Macroeconomics in the Time of the Corona

For developed market economies, the corona crisis is a new type of crisis, but this crisis has parallels to economies at other times, and to crises at other places. We discuss some mechanisms from the traditional macro literature, and from the literature on macroeconomics for developing countries, which contains economic mechanisms that overnight have also become more relevant to developed market economies. Phenomena such as bottlenecks, rationing, forced savings, production constrained by access to inputs, liquidity constraints, sector heterogeneity, and costs running despite production being shut down, are all permanent phenomena in developing countries. During the corona crisis, however, they have also emerged as key mechanisms in developed market economies. We discuss some of these well developed, but partially forgotten mechanisms, by extending simple textbook descriptions, and we provide some examples of how the effects of fiscal and monetary policy are modified in a time of crisis.

Determinantes da ecoinovação nas empresas brasileiras: uma análise empírica

O objetivo deste trabalho é analisar, por meio do método econométrico logit ordenado multinível e da Pesquisa de Inovação (PINTEC 2014), os determinantes da ecoinovação na indústria de transformação brasileira. Os resultados indicaram a importância das heterogeneidades setoriais na probabilidade das empresas ecoinovarem, além dos fatores individuais das firmas. Nesse sentido, sugere-se que o fortalecimento de ações de P&D, os investimentos públicos, a maior interação entre instituições de pesquisa e ensino comas empresas e instrumentos regulatórios específicos podem contribuir para se ter uma indústria de transformação mais aberta a práticas eficientes de gestão ambiental.

Input-Output DSGE Model for the Czech Republic

This study questions the importance of accounting for sectoral heterogeneity in a DSGE model for the Czech Republic. The benchmark DSGE model originally developed by the Czech Ministry of Finance benefits from features such as wage and price stickiness, habit formation in the utility function and capital adjustment costs. The Input-Output DSGE model extended hereby proves to provide more precise estimates for the evolution of aggregate variables and to supply a more detailed structure of the economy. The set of variables the dynamics of which significantly improve consists of inflation rate and nominal interest rate. The disaggregated model also fits data well in terms of sectoral production functions. Finally, the absence of industrial heterogeneity in the model is shown to lead to an underestimation of the impact of the technology shock on the Czech gross domestic product.

Sector heterogeneity and wage inequality

ABSTRACT This paper takes heterogeneity between different skilled sectors into account and analyzes how sector heterogeneity affects wage inequality through the general equilibrium approach. We find that under both the wage efficiency hypothesis and the fair wage hypothesis, an increase in the degree of sector heterogeneity will conditionally expand wage inequality between skilled workers in the high-productivity skilled sector and the low-productivity skilled sector and that between skilled and unskilled labor.

Gains from domestic versus international trade: Evidence from the US

Using varieties of a rich model that considers sectoral heterogeneity and input-output linkages, this paper shows that the overall welfare gains of a region within a country can be decomposed into domestic versus international welfare gains from trade. Empirical results based on sector- and state-level data from the US suggest that about 94 percent of the overall welfare gains of a state is due to domestic trade with other states. The ocean states gain from international trade about two times the Great Lake states and about three times the landlocked states.

A Quantitative Trade Model with Unemployment

I employ search-and-matching to a multi-country and multi-sector Ricardian model with input-output linkages, trade in intermediate goods, and sectoral heterogeneity, in order to quantify the welfare effects from tariff changes. The paper shows that labor market frictions can be a source of comparative advantage in the sense that better labor market conditions contribute to lower cost in production. Labor market frictions play a critical role in determining the probability of exporting goods to trading partners, and interact with bilateral trade share, price, expenditures, etc. Unemployment and changes in unemployment rates due to tariff reductions contribute welfare changes across countries, implying that welfare effects based on quantitative trade models with full-employment are likely to be biased. I confirm the biased welfare effects by revisiting Caliendo and Parro (2015), who conduct an analysis of the welfare effects from the NAFTA from 1993 to 2005. I show that the welfare gap between theirs and mine has a positive correlation with changes in observed unemployment rates across countries. With the constructed model, I further conduct counterfactual exercises by asking what would happen if China’s tariffs remain unchanged from 2006 to 2015. It turns out that there are mild welfare effects to trading partners in the world trading system.

Sectoral patterns of innovation cooperation in Polish industry

Research background: Contemporary research on industry concentrates on the relations between enterprises and their environment. Research on industrial structures conducted throughout the world, including Poland, are not extensive and limited due to the confidentiality of statistics. K. Pavitt (1984) was the first researcher who evaluated the relationship between industry structure and innovation activity. According to Pavitt, innovation dynamics and trajectory depend on the structure of domestic industry and is unique. In Poland T. Rachwal (2010) determined that over the studied years, changes in the indicator defining diversification in industrial divisions were minimal, but at the same time there was an observable fall in the importance of traditional divisions, such as the production of clothing, textiles, and the leather. In contrast, divisions as the production of metal, rubber, and plastic goods increased their share in terms of employees, as did furniture and vehicle manufacturing.
 Purpose of the article: The purpose of the paper is to identify sectoral patterns of innovation cooperation as revealed by data on about 5209 Polish enterprises. The authors attempt to find the answer to the following three questions: (1) Is the domestic aggregation sufficient for stimulating innovation cooperation in the Polish industry? (2) Is there any sectoral heterogeneity in innovation cooperation? (3) Are enterprises representing high technology industries the most involved in innovation cooperation? The main goal of the study was an attempt to seek out the directions and influence of various industries on the innovation cooperation of enterprises in Poland.
 Methods: Empirical data that served as the basis for conducting calculations were collected with the help of a questionnaire survey sent to industrial companies throughout Poland. A total of 5,209 properly completed forms were collected. The average rate of return was 11,6%. The collection was held over the years 2008?2013. The methodological part of the study was developed using the logistic regression method based on probability theory of the study.
 Findings & Value added: The study has shown that the higher the technology, the more often enterprises cooperate in the area of innovation. The research has not only shown the specifics of the domestic industrial system as well its level of technological advancement, but it has also taken into account the significance and input into the analyzed system.

Multinational production and comparative advantage

This paper shows analytically and quantitatively how omitting the striking sectoral heterogeneity of multinational production (MP) and its relationship with countries' comparative advantage leads to understate the gains from MP and openness. By construction, one-sector models of trade and MP, ignore the conflicting effects that a reduction in MP frictions has on the sectoral dispersion of MP and trade shares. On the one hand, freer MP increases the dispersion of MP shares across sectors, and with it, the gains from MP. On the other hand, it reduces the heterogeneity of trade shares, since MP erodes sectoral level Ricardian comparative advantage, diminishing therefore gains from trade. These effects are driven by the disproportional allocation of MP in industries where local firms are relatively less productive, which generates an uneven productivity boost favoring comparative disadvantage sectors, lowering the differences in observed sectoral productivities. To assess the welfare implications of this mechanism, this paper assembles a novel industry-level dataset of bilateral foreign affiliate sales for 32 countries, 9 tradable sectors and 4 non-tradeble sectors.

Urban water demand for industrial uses in Spain

ABSTRACTThis study estimates the demand for urban water in Spanish industry, with particular attention to differences between sectors. A panel dataset for the Spanish Autonomous Communities in the period 1993–2013, broken down into 11 sectors, was used. The results indicate that water pricing policy can be used effectively as a mechanism to encourage reduced water use (elasticity of −0.66), but there is a strong sectoral heterogeneity that recommends the additional use of other types of instruments. In general, sectors where water represents a larger proportion of total costs present greater elasticity.

The heterogeneous dependence between global crude oil and Chinese commodity futures markets: evidence from quantile regression

ABSTRACTThis paper explores the dependence between global crude oil and Chinese commodity futures markets across different quantiles of the return distributions. Based on weekly data from 11 June 2004 to 7 July 2017, we address this issue by applying a quantile regression method. This technique provides a more detailed investigation of the dependence. Moreover, considering the structural breaks caused by market turmoil or financial crises, we divide the full period of every commodity sector market into sub-periods based on these break dates to further explore the dependence changes. The empirical results indicate that the dependence between global crude oil and Chinese commodity futures markets is different across quantiles in different commodity sectors. The dependence is significantly positive, except in markets with high expected returns. Additionally, the effects caused by structural breaks are distinctly heterogeneous across quantiles. The effect of the same break on the degree of dependence exhibits an increasing tendency as the quantile level increases, which suggests that markets with high expected returns are more susceptible to crises. Finally, we apply a prediction analysis to further verify the heterogeneity of the commodity sectors, which may be the cause of the heterogeneous dependence.

The Effects of US Sectoral Shocks Through the World Input-Output Network

In this paper, I estimate the global effects of hypothetical 1% changes in US sectoral productivity. To do that, I formulate a multi-sector Armington trade model with import tariffs, trade in intermediate goods, sectoral heterogeneity, and input-output linkages. Because a closed form for changes in welfare is not available in the model, as opposed to Ossa (2015), I solve for equilibrium to conduct the counterfactual exercises. In particular, knowing that the gravity equations in this model are identical to Caliendo and Parro (2015) once we calibrate the trade elasticity and industry level productivity to the corresponding data, I modify their computation approach to estimate the counterfactual productivity changes. The model predicts that the primary channel through which the sectoral shocks affect welfare is terms of trade. I also find that both US productivity’s direct effect and effects through export prices are substantial for countries such as the US, Canada, Chile, and Mexico. On the other hand, changes in volume of trade are small and their directions of changes are also mixed across countries.