NBER Working Papers by Thibault Fally

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Working Papers

September 2015A Coasian Model of International Production Chains
with Russell Hillberry: w21520
International supply chains require coordination of numerous activities across multiple countries and firms. We develop a model in which the measure of tasks completed within a firm is determined by transaction costs and the cost of coordinating more activities within the firm. The structural parameters that govern these costs explain variation in supply-chain length and gross-output-to-value-added ratios, and determine countries' comparative advantage along and across supply chains. We calibrate the model to match key observables in East Asia, and evaluate implications of changes in model parameters for trade, welfare, the length of supply chains and countries' relative position within them.
May 2015Structural Gravity and Fixed Effects
The gravity equation for trade flows is one of the most successful empirical models in economics and has long played a central role in the trade literature (Anderson, 2011). Different approaches to estimate the gravity equation, i.e. reduced-form or more structural, have been proposed. This paper examines the role of adding-up constraints as the key difference between structural gravity with "multilateral resistance" indexes and reduced-form gravity with simple fixed effects by exporter and importer. In particular, estimating gravity equations using the Poisson Pseudo-Maximum-Likelihood Estimator (Poisson PML) with fixed effects automatically satisfies these constraints and is consistent with the introduction of "multilateral resistance" indexes as in Anderson and van Wincoop (2003).

Published: Fally, Thibault, 2015. "Structural gravity and fixed effects," Journal of International Economics, Elsevier, vol. 97(1), pages 76-85. citation courtesy of

June 2012Skill Premium and Trade Puzzles: a Solution Linking Production and Preferences
with Justin Caron, James R. Markusen: w18131
International trade theory is a general-equilibrium discipline, yet most of the standard portfolio of research focuses on the production side of general equilibrium. In addition, we do not have a good understanding of the relationship between characteristics of goods in production and characteristics of preferences. This paper conducts an empirical investigation into the relationship between a good's factor intensity in production and its income elasticity of demand in consumption. In particular, we find a strong and significant positive relationship between skilled-labor intensity in production and income elasticity of demand for several types of preferences, with and without accounting for trade costs and differences in prices. Counter-factual simulations yield a number of results. We ca...

Published: "International Trade Puzzles: A Solution Linking Production and Preferences" With Justin Caron and James R. Markusen, Quarterly Journal of Economics, August 2014, Vol. 129 (3).

February 2012Measuring the Upstreamness of Production and Trade Flows
with Pol AntrĂ s, Davin Chor, Russell Hillberry: w17819
We propose two distinct approaches to the measurement of industry upstreamness (or average distance from final use) and show that they yield an equivalent measure. Furthermore, we provide two additional interpretations of this measure, one of them related to the concept of forward linkages in Input-Output analysis. On the empirical side, we construct this measure for 426 industries using the 2002 US Input-Output Tables. We also verify the stability of upstreamness across countries in the OECD STAN database, albeit with a more aggregated industry classification. Finally, we present an application that explores the determinants of the average upstreamness of exports at the country level using trade flows for 2002.

Published: Pol Antras & Davin Chor & Thibault Fally & Russell Hillberry, 2012. "Measuring the Upstreamness of Production and Trade Flows," American Economic Review, American Economic Association, vol. 102(3), pages 412-16, May. citation courtesy of

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