Does joint production within firms link up aggregate outcomes across industries? I exploit exogenous variation in foreign demand faced by US multi-industry manufacturers to identify this transmission mechanism. I find that a positive demand shock in one industry of a firm increases its sales in another the more that both industries share knowledge inputs--including R&D, IT, and other professional services. I develop a general equilibrium model of joint production and estimate that properties of knowledge inputs generate economies of scale and scope within the firm. An expansion of market size in one industry lowers prices in not only that same industry but also others. These cross-industry spillovers account for 20 percent of the aggregate response of prices to market size and manifest disproportionately among knowledge-intensive industries.
(Click here for old version titled Intangible Economies of Scope: Micro Evidence and Macro Implications)
“Structural Change Within Versus Across Firms: Evidence from the United States” (joint with Teresa Fort, Steve Redding, and Pete Schott)
US manufacturing's employment share fell from 27 to 9 percent between 1977 and 2016. A third of this reallocation is driven by a shift towards services—particularly professional services and retail— within continuing manufacturers. We show that firms with in-house professional service establishments are larger, grow faster, more likely to survive, and more diversified than firms without such plants. These trends motivate a model of within-firm structural transformation in which non- manufacturing workers complement physical production, and where physical input price reductions induce firms to reallocate towards services. This mechanism is consistent with US firms' responses to growing trade with China.
“The Costs of Market Disintegration: Evidence from the India-Pakistan Border” (joint with Robin Burgess, Dave Donaldson, and Steve Redding)