Research

Working Paper
Daniel Ramos-Menchelli and Bernardus Van Doornik. Working Paper. “The Spatial Consequences of Financial Frictions: Evidence from Brazil (JOB MARKET PAPER)”.Abstract

What are the regional and distributional consequences of government subsidies in credit markets? We provide theory and evidence to answer this question using detailed administrative data from Brazil. We build a dynamic spatial general equilibrium model with working capital constraints in which a government can subsidize credit across sectors and locations. We show that spatial linkages through trade, migration, and input-output relationships are crucial to understand the long-run consequences of such policies. Guided by the model, we evaluate the long-run sectoral and skill composition effects of a credit place-based policy in Brazil. We exploit the fact that treatment intensity varied discontinuously across a geological border. Using a dynamic regression discontinuity design, we find that, after the credit shock, treated municipalities become more agricultural-oriented and less skill-intensive. We estimate the model by matching the reduced-form moments and perform counterfactual simulations to evaluate the regional and distributional effects of credit subsidies. These simulations indicate that credit subsidies differentially increase welfare in richer regions with smaller effects on poorer ones. An alternative policy that improves bankruptcy procedures through court reform, decreasing the cost of credit in local labor markets, differentially improves welfare in poorer regions.

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Daniel Ramos-Menchelli and Diana Sverdlin-Lisker. Working Paper. “Fragmented Markets and the Proliferation of Small Firms: Evidence from Mom-and-Pop Shops in Mexico”. Link To PaperAbstract
Developing countries are characterized by the prevalence of small firms in the retail sector. We explain this phenomenon through a spatial model in which high transport costs lead to small effective market sizes and, consequently, to the proliferation of smaller and lower quality firms. We show that low costs of entry are key for this result. By obtaining a new, confidential panel of firm-level data surveying the universe of mom-and-pop shops in Mexico, we test the implications of our model. We exploit the deregulation of the Mexican gasoline market in 2017 as an exogenous shock on consumer transport costs. Where gas prices increased, the number of mom-and-pop shops differentially increased while their average size and quality fell. We give evidence of fragmentation and localized demand as the mechanism behind these effects. With our estimated model, we evaluate the welfare consequences of a licensing program in Mexico City which increased costs of entry for mom-and-pop shops. We show there are modest efficiency gains from having less stores in the market.
[Diana's JMP]
Gaurav Khanna, Carlos Medina, Anant Nyshadham, Daniel Ramos-Menchelli, Jorge Tamayo, and Audrey Tiew. Working Paper. “Spatial Mobility, Economic Opportunity, and Crime”.Abstract
 Neighborhoods are strong determinants of both economic opportunity and criminal activity. Does improving connectedness between segregated and unequal parts of a city predominantly import opportunity or export crime? We use a spatial general equilibrium framework to model individual's decision of where to work and whether to engage in criminal activity, with spillovers across the criminal and legitimate sectors. We match at the individual level various sources of administrative records from Medell\'in, Colombia to construct a novel, granular dataset recording the origin and destination of both workers and criminals needed to identify key parameters of the model. We leverage the roll out of a cable car system to identify how changes in transportation costs causally affect the location and sector choices of workers and criminals. Our counterfactual exercises indicate that overall criminal activity in the city is reduced and total welfare is improved for almost all neighborhoods when their connectedness is improved.
 
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