Working Paper 1/3 (Job Market Paper)
Title. Quantifying the incidence of a global oil price shock in Nigeria: a Roy model with non-homothetic preferences and endogenous transfers (download HERE)
Abstract. In this paper, I explore the distributional effects of a negative terms-of-trade shock to an oil-exporting country. Specifically, I begin by developing a computable Roy model of the Nigerian economy with non-homothetic preferences, after-tax income effects, and government endogenous transfers through oil subsidies. I then use this model to simulate the impact of the global oil price shock that hits the Nigerian economy in 2016. In doing so, I focus on differential impacts across workers due to their different skills, locations, and comparative advantages. I find that the oil shock led to a reverse Dutch disease characterized by increases of real output, relative wage and labor in the manufacturing and agricultural sectors. Further, the combination of the shock and subsidies removal affected poor and rich income groups differently, in accordance with their labor specialization patterns across sectors and differences in the consumption bundles they consumed. More precisely, I show that the shock causes aggregate welfare losses that are concentrated in high-income groups, as they tend to specialize in the crude oil and service sectors, the most hit by the shock. Next, using a series of government budget-balancing tax policy counterfactuals, I first show that the removal of the subsidies was the best response to the shock regarding the welfare outcomes of low-income workers. Second, I show that while removing the subsidies, the government can use fiscally neutral progressive tax redistribution schemes to lessen the extent of the welfare losses, particularly on the poor populations. Finally, I show that not accounting for heterogeneity in the expenditure behavior would introduce biases in the magnitude of the welfare changes.
Working Paper 2/3
Title. Residual Inequality and Comparative Advantage
Co-author: Han Yang
Abstract. We investigate the distributional impact of trade on within and across country residual inequality. We develop a structural real business cycle model capturing the behavior of heterogeneous workers (in labor productivity) and firms (in technology) in a multi-country multi-sector Ricardian trade framework and introduce a highly efficient computational technique in solving for a path of stationary equilibrium. We explore two channels in linking trade-induced shocks and counterfactual to the within-and-across country residual inequality: the within-country precautionary savings and the across-country comparative advantage.
Working Paper 3/3
Title. Child Labor and Future Human Capital: Disentangling Correlation and Causality Through Selection
Abstract. In this paper, I challenge the new emerging view on the role of child labor as a two-way contributor to human capital when considering normal forms of labor (Dessy and Pallage, 2005; Sugawara, 2011). I show that this view is valid but only in a static framework. Indeed, when introducing dynamic and analyzing future earnings, child labor (including normal forms of labor) negatively impacts children's lifetime earning. I show through a theoretical argument that the apparent positive role played by child labor in a mincer-type regression either reflects a disguised positive role of the children's ability, or a mere positive correlation between child labor and human capital that doesn't have any causal implication. A logical consequence from this argument is that there is no such distinction to be made between normal and worst forms of child labor regarding their (opposite) contribution to human capital as claimed by Dessy, Pallage et al. Furthermore, I show that the equilibrium where child labor gives rise to higher future wages is sub-optimal and is characterized by an oversupply of (child) labor, low education levels and relatively small returns to education, a scenario observed in many developing countries.