Working Papers
Global Value Chain and Inflation Dynamics
Joint with Vu Chau, Marina Conesa Martinez and Taehoon Kim
We study the inflationary impacts of pandemic lockdown shocks and fiscal and monetary stimulus during 2020-2022 using a novel harmonized dataset of sectoral producer price inflation and input-output linkages for more than 1000 sectors in 53 countries. The inflationary impact of shocks is identified via a Bartik shift-share design, where shares reflect the heterogeneous sectoral exposure to shocks and are derived from a macroeconomic model of international production network. We find that pandemic lockdowns, and subsequent reopening policies, were the most dominant driver of global inflation in this period, especially through their impact on aggregate demand. We provide a decomposition of lockdown shock by sources, and find that between 20-30 percent of the demand effect of lockdown/reopening is due to spillover from abroad. Finally, while fiscal and monetary policies played an important role in preventing deflation in 2020, their effects diminished in the recovery years.
We develop a quantitative spatial general equilibrium model with heterogeneous households and multiple locations to study households’ vulnerability to food insecurity from climate shocks. In the model, households endogenously respond to negative climate shocks by drawing-down assets, importing food and temporarily migrating to earn additional income to ensure sufficient calories. Because these coping strategies
are most effective when trade and migration costs are low, remote households are more vulnerable to climate shocks. Food insecure households are also more vulnerable, as their proximity to a subsistence requirement causes them to hold a smaller capital buffer and more aggressively dissave in response to shocks, at the expense of future consumption. We calibrate the model to 51 districts in Nepal and estimate the impact of historical climate shocks on food consumption and welfare. We estimate that, on an annual basis, floods, landslides, droughts and storms combined generated GDP losses of 2.3 percent, welfare losses of 3.3 percent for the average household and increased the rate of undernourishment by 2.8 percent. Undernourished households experience roughly 50 percent larger welfare losses and those in remote locations suffer welfare losses that are roughly two times larger than in less remote locations (5.9 vs 2.9 percent). In counterfactual simulations, we show the role of better access to migration and trade in building resilience to climate shocks.
This paper analyzes the domestic and external drivers of local staple food prices in Sub-Saharan Africa. Using data on domestic market prices of the five most consumed staple foods from 15 countries, this paper finds that external factors drive food price inflation, but domestic factors can mitigate these vulnerabilities. On the external side, our estimations show that Sub-Saharan African countries are highly vulnerable to global food prices, with the pass-through from global to local food prices estimated close to unity for highly imported staples. On the domestic side, staple food price inflation is lower in countries with greater local production and among products with lower consumption shares. Additionally, adverse shocks such as natural disasters and wars bring 1.8 and 4 percent staple food price surges respectively beyond generalized price increases. Economic policy can lower food price inflation, as the strength of monetary policy and fiscal frameworks, the overall economic environment, and transport constraints in geographically challenged areas account for substantial cross-country differences in staple food prices.
Climate change poses challenging policy tradeoffs for India. The country faces the challenge of raising living standards for a population of 1.4 billion while at the same time needing to be a critical contributor to reducing global GHG emissions. The government has implemented numerous policies to promote the manufacturing and use of renewable energy and shift away from coal, but much still needs to be done to reach India’s 2070 net zero goal. Reducing GHG emissions will almost certainly have a negative impact on growth in the short run and have important distributional consequences for individuals and communities who today rely on coal. But with the right policies, these costs—which are non-negligible but dwarfed by the cost of climate change over the next decade if no action is taken—can be significantly curtailed. This paper provides an in depth review of the current climate policy landscape in India and models emissions trajectories under different policy options to reduce GHG emissions.
Search Externalities in Firm-to-Firm Trade
Last edited: March 2021
I develop a model of firm-to-firm search and matching to show that the impact of falling trade costs on firm sourcing decisions and consumer welfare depends on the relative size of search externalities in domestic and international markets. These externalities can be positive if firms share information about potential matches, or negative if the market is congested. Using unique firm-to-firm transaction-level data from Uganda, I document empirical evidence consistent with positive externalities in international markets and negative externalities in domestic markets. I then build a dynamic quantitative version of the model and show that, in Uganda, a 25% reduction in trade costs led to a 3.7% increase in consumer welfare, 12% of which was due to search externalities.
- Presentations – UBC, Edinburgh University, Bristol University, Queen Mary, University of London, Stockholm School of Economics, Dartmouth Tuck School of Business, University of Maryland AREC, University of Cambridge, Oxford Development Economics Conference, Uganda Ministry of Finance, Uganda Economic Growth Forum
Network Bottlenecks and Market
Joint with Vasco Carvalho (University of Cambridge) and Matthew Elliott (University of Cambridge)
We consider how a firm’s position in a production network can confer market power. We develop a tractable theory of market power in production networks which introduces the notion of a bottleneck: a firm whose removal from the network leads to a sufficiently large fall in aggregate output such that supply can no longer meet demand. The location of these bottlenecks can depend not only on a firm’s immediate connections, but also on the entire structure of the network. Using the theory, we show that the existence of bottlenecks allows not only bottleneck firms to price above marginal cost, but that these distortions allow other non-bottleneck firms to also price above marginal cost in equilibrium. However, to return the economy to first-best it is sufficient to only intervene in markets with bottleneck firms. Building on the theoretical framework, we develop a network algorithm to identify bottlenecks in an economy wide production-network. The input to this algorithm is all transactions in an economy, the output is the set of bottleneck firms that preclude the economy from operating at first-best. We then apply these tools, at scale, in Uganda. We show that bottleneck firms have significantly larger profits, sales, wage bills, and have higher mark-ups. They are also located in industries which have fewer new entrants. Our method relies only on transaction data, obviating the need, for example, of markup estimation to identify market power.
- Presentations – World Bank, Royal Economic Society Annual Conference, ASSA, European Conference on Networks, Harvard Workshop on Networks in the Macroeconomy, GSE Summer Forum Workshop on Networks, University of Cambridge, Uganda Ministry of Finance
I use a unique, high-frequency Government of Uganda value-added tax administrative dataset motivated by a simple matching model to provide the first evidence on how the decision to export causes firms to alter their supply-chains. I demonstrate that first-time exporting not only leads to growth in exporter output and productivity, but also influences the supply-chain in three main ways depending on the exporters size. First, new exporters replace unproductive suppliers with more productive domestic suppliers. Second, new exporters replace existing suppliers with imported alternatives. Third, exporting leads to pecuniary spillovers passed onto domestic suppliers, observed in higher revenue productivity. The model is identified by exploiting a natural experiment of a reduction in international transportation costs.
- Media – New Vision
- Presentations – University of Cambridge, Central Bank of Uganda, Uganda Economic Growth Forum
Work in progress
The Rwanda-Uganda border closure: Impacts and Adaptation through Production Networks [Slides]
with Andrew Bernard, Arnaud Dyèvre, and Patrick Hitayezu
Publications
Baptista, D.M.S., Farid, M.M., Fayad, D., Kemoe, L., Lanci, L.S., Mitra, M.P., Muehlschlegel, T.S., Okou, C., Spray, J.A., Tuitoek, K. and Unsal, F., 2022. “Climate change and chronic food insecurity in Sub-Saharan Africa.” International Monetary Fund.
Spray, J and Werker, E, 2019. “Price Controls in Liberia,” Economic Development and Cultural Change, University of Chicago Press, vol. 67(3), pages 461-491.
Spray, J and Wolf, S, 2018 “Industries without smokestacks in Uganda and Rwanda“, in Newfarmer, R., Page, J. & Tarp, F. (ed.) Industries without Smokestacks: Industrialization in Africa Reconsidered. WIDER Studies in Development Economics. Oxford University Press
Spray, J and Czaika, M, 2013, “Drivers and Dynamics of Internal and International Remittances“, Journal of Development Studies, Taylor & Francis Journals, vol. 49(10), pages 1299-1315, October.