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 develop a general equilibrium Roy model that puts three forces in play: non-homothetic preferences, income effects, and government endogenous transfers through taxation and subsidies. I implement the model in Nigeria in order to evaluate the incidence of the 2016 global oil price shock that hits the Nigerian economy in 2016 and the subsequent removal of oil subsidies, otherwise financed through tax revenues. I find that the oil shock forces a current account adjustment which in turn leads to differentiated negative price adjustments in the other traded sectors, the magnitude of which depend on the sectoral openness to trade. The resulting changes in the relative prices and wages led to a semi-reverse Dutch disease characterized by the expansion of the manufacturing sector and a contraction of the agricultural sector. Further, I show that the shock causes welfare losses that are concentrated in low income groups, as they specialize mostly in the agricultural sector because of their comparative advantages. Next, using a series of government budget-balancing tax and deficit counterfactuals, I first find that the removal of the subsidy was the best response to the shock, and then show that fiscally neutral progressive tax redistribution schemes could lessen the extent of the observed welfare losses particularly on poor population. Finally, I show that not accounting for non-homotheticity generally undervalues the magnitude of the welfare losses.
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.