The Demographic Origins of Premature Deindustrialization
Draft coming soon!
This paper studies the consequences of workforce aging earlier in the development process for low- and middle-income economies. I ask whether aging while still industrializing helps explain premature deindustrialization—manufacturing employment peaking at lower shares and incomes than in earlier industrializers—and what it implies for output. Worker-level data document the central mechanism: productive abilities follow different life-cycle profiles and sectors use them with different intensities, shifting comparative advantage from manufacturing toward services as workers age. Younger households also spend more on manufactured durables. Consistent with these mechanisms, larger young-adult cohorts, instrumented with birth rates 25–34 years earlier, predict higher manufacturing employment shares in the aggregate data, while countries with larger young-adult cohorts before their manufacturing peak reach higher peaks at higher income levels. In an open-economy OLG model that embeds both mechanisms, calibrated to Indonesia, replacing only the demographic path—an older one (Thailand) with a younger one (the U.S., historically)—raises peak manufacturing employment by 5.6 percentage points and cumulative output-per-worker growth by 19 points, mainly through worker sorting.
Trade, Financial Frictions, and the Missing Manufacturing Window
with Santiago Etchegaray
Draft | SSRN | CEMFI WP version | Slides
Submitted
Why do some economies experience a pronounced manufacturing phase during structural transformation, while others move more directly into low-skilled services? This paper shows that financial underdevelopment, by shaping export competitiveness and domestic investment demand, is a quantitatively important driver of flat-manufacturing paths. Motivating evidence links financial depth to manufacturing activity and export performance. We then quantify the mechanism in a dynamic multi-country model of structural transformation and trade, where financial underdevelopment both weakens competitiveness in finance-dependent sectors and lowers demand for manufacturing-intensive investment goods. Moving flat-manufacturing economies halfway to the financial frontier closes over a quarter of the observed flat–steep peak gap; it raises real output per worker by 13 to 17 percent and real consumption per worker by 8 to 12 percent. Paired with lower nonfinancial trade costs, the same financial improvement closes almost three quarters of the peak gap, as finance shapes the manufacturing response that openness amplifies.
Tariffs as Taxes on Capital
with Rubén Domínguez-Díaz, José-Elías Gallegos and Javier Quintana
Draft | CEMFI WP version
Submitted
This paper explores the macroeconomic consequences of levying tariffs on imported investment goods, which directly affect the household’s investment Euler equation. First, we construct a new multi-country and multi-sector investment input-output matrix to trace investment goods through international production chains. Second, we embed this in an open-economy New Keynesian model with production networks. In a uniform US tariff experiment, this channel more than doubles the impact contraction in GDP, with investment-goods exposure as the best predictor of aggregate output losses. Holding the average tariff fixed, redesigning its composition to avoid the investment network cuts cumulative domestic output losses by two-thirds.
IMF Governance in a Fragmenting World
with Martín Gonzalez-Eiras
Draft available upon request
We develop a welfare-based theory of IMF governance in which voting weights and contributions reflect economic size, crisis risk, and trade linkages that transmit crises across countries. In the relatively balanced risk environment of Bretton Woods, the efficient voting rule can be implemented by quotas proportional to GDP at PPP and openness. After Bretton Woods, as IMF borrowing shifted toward emerging and developing economies, quotas remain optimal, but vote aggregation must account for unequal crisis risk. In a bipolar world with alliance-dependent trade costs, the model’s efficient allocation gives more voice to China and countries exposed to China-centered trade. Without governance reform, a China-centered coalition may find the Fund less attractive, raising the risk of institutional separation.
The Global Reach of EU Regulation: Evidence from Third-Country Trade
This paper tests the “Brussels effect”: whether EU non-tariff measures (NTMs) shape not only trade with the EU but also third-country trade in the same products. Using UN TRAINS NTM data matched to HS6 bilateral flows from UN Comtrade/WITS, it estimates how changes in EU NTMs affect the comovement between an exporter’s shipments to the EU and its shipments to non-EU destinations, controlling for tariffs and rich fixed effects. The results show a positive and significant propagation effect, consistent with EU regulation influencing firms’ global market choices.