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The Econometrica Session: Question-Driven Approaches in Applied Microeconomics
Friday, Jan. 7, 2022
10:00 AM - 12:00 PM (EST)
London School of Economics
Out of Agriculture? Measuring and Removing Constraints to Structural Change
The movement of people away from rural/agricultural lives to urban/manufacturing/services lives is a constant correlate of economic development. Are there barriers that slow this process, and if so how important are they and how can they be removed? I will review recent work on this question including quantitative structural, field experiment, lab experimental and reduced form work, emphasizing the unique contribution that each method can make to building our understanding of the constraints to structural change.
Misallocation and Capital Market Integration: Evidence from India
We show that foreign capital liberalization reduces capital misallocation and increases aggregate productivity in India. The staggered liberalization of access to foreign capital across disaggregated industries allows us to identify changes in firms' input wedges, overcoming major challenges in the measurement of the effects of changing misallocation. For domestic firms with initially high marginal revenue products of capital (MRPK), liberalization increases revenues by 25%, physical capital by 57%, wage bills by 27%, and reduces MRPK by 35% relative to low MRPK firms. There are no effects on low MRPK firms. The effects of liberalization are largest in areas with less developed local banking sectors, indicating that foreign capital partially substitutes for an efficient banking sector. Finally, we develop a novel method to use natural experiments to bound the effect of changes in misallocation on treated industries' aggregate productivity. Treated industries' Solow residual increases by 4-17%.
Empirical Market Design
This paper reviews some of the recent results and approaches in the empirical analysis of matching markets. We will consider approaches for diagnosing market failures, evaluate and compare the performance of various matching mechanisms, and design new mechanisms to remedy the market failures.
Teacher Compensation and Structural Inequality: Evidence from Centralized Teacher School Choice in Peru
This paper studies how increasing teacher compensation at hard-to-staff schools can reduce structural inequality in the access to high-quality teachers. We first document dramatic inequities in schooling inputs and teacher quality to which students have access in the context of a large and diverse developing country: Peru. We then leverage a change in teacher compensation to show causal evidence that increasing salaries at less desirable public schools attracts better quality applicants and improves subsequent student test scores. We finally estimate a model of teacher preferences over local community amenities, school characteristics and wages using detailed job posting and application data from the country-wide centralized teacher assignment system. The fitted model is able to replicate the main features in the data, including the sorting patterns of teachers around the policy change in teacher wages. Model estimates indicate that while current pay bonuses in less desirable regions are helpful, the current policy is woefully insufficient to compensate teachers for the lack of school and community amenities, especially in school vacancies that are distant to the teachers’ home town or the location of their current job. Counterfactual experiments taking into account equilibrium sorting show that budget-neutral changes in the current wage schedule can achieve a remarkably more equitable distribution of teacher quality across regions.