Working Papers

2024

Booming Sector, Multinationals, and Local Economic Development (JMP)

Can a resource boom induce long-term local economic development? Do multinational companies (MNCs) foster such equilibria or move away the economic gains from the booming sector? This study examines the heterogeneous economic impacts of MNCs and domestic firms on the characterization of the contemporaneous and long-term effects of resource booms in local labor markets. Informed by a spatial equilibrium model that features a pre- and post-booming economy with productive linkages and endogenous amenities, the empirical analysis exploits predetermined geology to identify the average and heterogeneous local economic impacts of a resource boom in an emerging resource-oriented country. Consistent with the model’s predictions, the evidence suggests that spillovers from local productive linkages of the booming sector can prevent productivity losses by crowding-out effects in the form of local Dutch-Disease, with higher productivity spillovers for MNCs in comparison to domestic firms. However, these spillovers are mediated by dis-amenities rising from externalities in production, and limited by the MNCs’ propensity to offshoring.

The Material Basis of Innovation Value (draft coming soon)

New substances and materials provide new elements for the recombination of technological innovation, achieving new technical functions. This study uses rare earth elements as an example to explore the relationship between the use of these materials and patent value, measured by citation counts, thereby revealing the crucial role of material usage changes in the process of technological evolution. Our study finds that, overall, using rare earth elements significantly enhances patent value. By constructing an instrumental variable using exogenous global rare earth deposit geographic information, we confirm that this effect is significant. Furthermore, we discover that this effect follows a cycle, reflecting the presence of a “material usage lifecycle” in frontier technology dynamics. This lifecycle consists of an initial period (increasing returns), a maturity period (peak value), and a decline period (diminishing marginal returns) for the utilization of a new material. At the scale of technological subgroups, we find that there is a specific time window for rare earth materials to enhance patent value. Furthermore, using the event study of the 2010 rare earth crisis caused by China’s supply disruption, we find that the value-added effect of materials on technological innovation is significantly influenced by material availability.

Urbanization and the Optimal Routes to Structural Transformation

How urbanization shapes structural change out of agriculture? To what extent this is mediated by productivity shocks in agriculture? How transport infrastructure development can be better designed to account for these effects? This article estimates the effects of urbanization and road infrastructure development on the structural transformation of rural villages in Chile. Following a market access approach derived from a spatial quantitative model of structural transformation that is informed by the elasticities of urban market access on the population, and farm and non-farm employment of rural villages. The results support the hypothesis of the diversification of the rural economy which is also consistent with the intensification of agriculture. Moreover, the evidence suggests important heterogeneous effects across rural areas, that reveal that transport infrastructure development can be better designed to take advantage of areas with better conditions for agricultural production.

Commodity Price Shocks and Illicit Supply Chains (new version coming soon)

This paper studies how informal and illegal supply chains of raw materials respond to global demand shocks, by exploring the case of the small-scale gold mining during the gold rush in the Peruvian Amazon. For this purpose, this paper estimates the heterogeneous responses of small-scale gold mining to variations in the international price of gold. Using a combination of medium-resolution satellite images and official geographical information of mining sites, this paper provides evidence that differences in mining activity between illegal and non-illegal producers disappear in the wake of high prices. The results suggest that price booms induced a more than proportional proliferation of illegal mining activity in relation to non-illegal gold mining, which might be associated with a rise in the relative profitability of these producers. This might lead to a reconsideration of the current policy approach to limit the profitability of illegal gold producers in the area studied that underestimates the importance of price shocks.

2023

Global Value Chains, Industrial Upgrading, and Local Labor Markets

Moving from the production of low-processed commodities to downstream basic manufacturing activities within a value chain is a popular policy strategy in emerging resource-rich economies. However, the welfare and productivity gains from this “route to industrialisation”, and its distributional impacts in local labor markets are not unambiguous. This study exploits variation in the upgrading from low-processed mine copper to smelting and refined copper exports in Chile, the world’s largest copper producer, with two main objectives:(1) identifying the role of resource endowments and export competition in inducing industrial upgrading in local labor markets; and (2) estimating the local welfare and productivity gains from this process of industrial upgrading. The results suggest that:(1) competition in global value chains plays a major role in shaping the development of downstream industries in the smelting and refinement of minerals;(2) the local welfare and productivity gains from industrial upgrading in local labor markets are small; and (3) due to comparative advantages given by resource endowments, the potential gains from industrial policy are largely concentrated in the primary segment of mineral extraction.

Juan Soto-Diaz, PhD