Research
Working Papers
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Distortions and the Life Cycle of Immigrant-Owned Firms
Using administrative data covering the universe of Canadian incorporated firms, we document systematic differences between immigrant and native owned firms over the life cycle. At entry, immigrant firms have lower sales, employment, and capital. Although these gaps narrow with age, they persist even after 20 years of operation. Immigrant-owned firms face substantially higher capital distortions at entry, but these differences disappear within 15 years, whereas labor distortions are smaller yet persist throughout the life cycle. We develop a quantitative general equilibrium model in which immigrants face tighter collateral constraints, higher labor costs, and lower wages than natives. Together, these frictions replicate the observed life-cycle dynamics and cross-sectional differences between immigrant and native firms. While immigrant entrepreneurs gradually overcome financial constraints through self-financing, early-life capital distortions, persistent labor frictions, and wage gaps leave lasting disparities in firm outcomes. These barriers reduce immigrant job creation, lower aggregate productivity, and diminish welfare for both immigrants and native workers.
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Labor Supply and Firm SizeR&R, International Economic Review
Larger firms feature i) longer hours worked, ii) higher wages, and iii) smaller (larger) wage penalties for working long (short) hours. We reconcile these patterns in a general equilibrium model, which features the endogenous interaction of hours, wages, and firm size. In the model, workers willing to work longer hours sort into larger firms that offer a wage premium. Complementarities in hours generate wage penalties that increase with the distance from the usual hours. We use the model to argue that variation in average hours across firms contributes significantly to wage inequality.
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Gender Gaps in Time Use and EntrepreneurshipR&R, Journal of the European Economic Association
The prevalence of entrepreneurs, particularly low-productivity non-employers, declines as economies develop. This decline is more pronounced for women. Relative to men, they are more likely to be entrepreneurs in poor economies but less likely in rich economies. We investigate whether gender gaps in time dedicated to non-market activities, which narrow with development, can account for this pattern. We develop a quantitative framework in which selection into occupations depends on one’s ability and time, and features gender-specific distortions and social norms around market work. When calibrated to match cross-country data, we find that differences in social norms are almost entirely responsible for the patterns of gender gaps in both time use and entrepreneurship. Through these channels, social norms account for a substantial part of cross-country differences in output per worker and firm size, and have significant welfare implications for women.
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Financial Development Beyond the Formal Financial Market
This paper studies the effects of financial development, taking into account both formal and informal financing. Motivated by empirical evidence, we build a general equilibrium model with heterogeneous entrepreneurs and the coexistence of the two types of financing. With the improvement of the formal financial market, the supply of informal financing increases, while the demand for it declines, generating a hump-shaped pattern in the incidence of informal financing over the development process. Our quantitative analysis shows that informal financing contributes more to the aggregate output of the richer countries in our sample than poorer countries, which suggests that at the early stage of economic development, the output loss from financial frictions could be reinforced by the low supply of informal financing.
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Firm Dynamics and Economic Development with Corruption and Financial Frictions
We build a firm dynamics model with corruption to study its impact on firm entry and exit, capital accumulation, and innovation. The effect of corruption depends on the degree of financial frictions and the stage of economic development. In the model, corruption serves as an endogenous entry barrier that reduces firm churning and protects the incumbent firms, allowing them to accumulate capital more quickly and grow out of financial constraints. Corruption can therefore have a positive effect when economic growth relies mainly on capital accumulation. However, as the economy develops, corruption can lead to increasing productivity losses when capital becomes abundant and technological progress is the main driver of growth. In addition, more corruption at the early stage could lead to a highly skewed distribution of firms later on, making it easier for asset-rich incumbent firms to bribe the government officials and prevent successful innovators from entering the market. We test the predictions of our theory using the Chinese firm-level data from 1998 to 2007. Our theory alsohas implications for the optimal anti-corruption policy over the development process.
Publications
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Economic Reforms and Industrial Policy in a Panel of Chinese CitiesJournal of Economic Growth 21, no. 4 (December 2016): 305–349.wp
We study the effect of place-based industrial policy on economic development, focusing on the establishment of Special Economic Zones (SEZ) in China. We use data from a panel of Chinese (prefecture-level) cities from 1988 to 2010. Our difference-in-difference estimation exploits the variation in the establishment of SEZ across time and space. We find that the establishment of a state-level SEZ is associated with an increase in the level of GDP of about 20 percent. This finding is confirmed with alternative specifications and in a sub-sample of inland provinces, where the selection of cities to host the zones was based on administrative criteria. The main channel is a positive effect on physical capital accumulation, although SEZ also have a positive effect on total factor productivity and human capital investments. We also investigate whether there are spillover effects of SEZ on neighboring regions or cities further away. We find positive and often significant spillover effects.
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Are Working Hours Complements in Production?Journal of Economic Dynamics and Control 153 (August 2023), article 104696.wp
This paper studies the degree of complementarity in working hours among coworkers in production. Using matched employer-employee data, we first present facts on the within-establishment relationship between wages and hours worked that are consistent with the presence of complementarities in working hours. Next, we estimate the elasticity of substitution in working hours and find it to be 0.69 in the aggregate and between 0.52 and 1.03 across industries. We validate our elasticity estimates by showing that industries with higher elasticities exhibit greater flexibility in hours. Our results suggest that working hours are gross complements in production rather than perfect substitutes, as is typically assumed. An accounting exercise using our model estimations suggests that hours-wage penalties, due to complementarities in hours, can explain 5 to 30 percent of the gender wage gap over the life-cycle.
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Aggregate Fluctuations and the Role of Trade CreditReview of Economic Dynamics 56 (April 2025), article 101258.wp
This paper studies the aggregate implications of trade credit in a dynamic, general equilibrium model where heterogeneous entrepreneurs choose their lending and borrowing of trade credit in the presence of financial frictions. Motivated by empirical evidence, the model shows how trade credit flows from less constrained firms to more constrained ones, both in the cross-sectional distribution and in firms' response to heterogeneous financial shocks. In the face of an aggregate financial shock, entrepreneurs reduce their trade credit lending, further tightening their customers' borrowing constraints, resulting in an amplification of the initial shock. In contrast, when the financial shock only affects some, but not all, entrepreneurs, trade credit facilitates the flow of financing to entrepreneurs in financial distress, thereby mitigating its negative impacts. This mechanism, however, is only effective when the shock affects a sufficiently small number of entrepreneurs.
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Assessing the Impact of Demographic Composition on ProductivityCanadian Public Policy 51, no. S1 (May 2025): 22–40.wp
This paper examines how demographic factors affect potential output, focusing on how the age distribution of the working-age population and old-age dependence affect aggregate productivity. Based on Feyrer (2007), we emphasize that the contribution to aggregate productivity varies by age group, with middle-aged individuals (aged 40-49) being the most productive. According to our analysis, changes in demographic composition could explain some of the productivity trends observed in China, the U.S. and Canada, indicating the importance of incorporating the impact of demographic composition when estimating potential output. In particular, demographic factors are expected to narrow the differential in trend labour productivity (TLP) growth between China and the United States by nearly 1 percentage point over the remainder of the decade (2024-2030). On average, TLP growth in China could be reduced by 0.8 percentage point, while that in the United States could rise by 0.1 percentage point. Moreover, Canadian demographic factors tell a similar story to those of the United States. After averaging about 1 percentage point per year from 2010 to 2019, demographic headwinds are expected to dissipate fully through the 2020s, which could signal an upside risk to Canadian TLP growth.
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Allocative Efficiency and the Productivity SlowdownCanadian Journal of Economics 59, no. 1 (February 2026): 184–207.wp
This paper evaluates the contribution of cross-sector allocative efficiency to the productivity slowdown in the US during the 1970s and 2000s. We extend the framework of Oberfield (2013) to derive sufficient statistics for allocative efficiency and decompose aggregate productivity growth in a multi-sector economy with or without input-output linkages. We find approximately two-thirds of the productivity slowdown can be explained by the lack of improvement in allocative efficiency. Furthermore, data shows that increased sector-level volatility is associated with the deterioration of allocative efficiency.
Policy Writings
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Why was the Decline in U.S. Trade Larger This Time? A Global ViewThe Regional Economist
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Discouraged Workers: What Do We KnowEconomic Synopses
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Accounting for Discouraged Workers in the Unemployment RateEconomic Synopses
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Have Labor Costs Slowed the Recovery?Economic Synopses
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Complementarities Between Fiscal Policy and Monetary Policy—Literature ReviewBank of Canada Staff Discussion Paper
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