Research

Trade Policy Shocks and Consumer Prices (Job Market Paper)[PDF]

I examine the pass-through of import prices to consumer prices and explore its heterogeneity across consumers using a novel dataset with both US import prices and barcode-level consumer prices. I find that the import price pass-through is incomplete: a 1% increase in import prices leads to a 0.3 to 0.4% increase in consumer prices. Moreover, the pass-through is heterogeneous: it is higher for consumers with lower income and in markets with higher retail industry competition. To explain these findings, I build on Burstein and Gopinath (2014) to model domestic distribution margin with variable markups and extend it to allow for consumer price heterogeneity. A price decomposition shows the differential expenditure shares across varieties with heterogeneous pass-through rates explain most of the differential pass-through across consumers. In addition to price changes of continuing varieties, I show that the entry and exit of imported varieties has a significant impact on number of varieties in consumption basket and consumer welfare. Lastly, a quantitative exercise shows that a 25% tariff on all consumer goods from China would affect approximately 20% of import expenditures and cause the consumer prices of affected goods to increase 1-2% on average. The increase in consumer prices for lower income consumers is almost 50% higher than that of higher income. Across locations, consumers in the large cities in the Northeast region experience the largest increases in consumer prices while consumers in the South experience the lowest increases.

Comparative Advantage and Horizontal FDI

Working Paper

This paper provides a supply side explanation for North-to-North and South-to-South concentration of horizontal FDI. I incorporate heterogeneous firms into a two-factor, two-sector, multiple-countries model. Countries have different factor endowment and thus different relative factor prices. The model predicts that firms in skill intensive industries has a higher FDI to export ratio to skill abundant destinations compared with unskilled abundant destinations. The opposite is true for unskilled intensive industries. Moreover, the extent of firm heterogeneity within industries interacts with comparative advantage forces. In particular, lower productivity dispersion strengthens the forces of comparative advantage. The predictions are consistent with evidence found in US industrial export and FDI data.

Trade Liberalization and the Quality Upgrading of Intermediate Inputs: Evidence from Chinese Customs Data. China Economic Quarterly, 2015

(with Miaojie Yu)

Using highly disaggregated Chinese import data from the Customs, this paper investigates the impact of trade liberalization on the quality of imported inputs during China’s accession to WTO. We first estimate the quality of imported intermediate inputs to China using the method proposed by Khandelwal (2010). To examine the impact of both input tariff and output tariff reductions on input quality, we employ a difference-in-difference method by using imports in processing trade, which is free of both tariffs, as the control group. The results show that trade liberalization increases the quality of imported intermediates, both through reductions in input tariffs and output tariffs.