Manoj
Atolia
Manoj
Atolia
Assistant Professor of Economics, Department of Economics, Florida State University, Tallahassee, FL 32306-2180, U.S.A., tel.: 850.644.7088, email: matolia@fsu.edu.
Curriculum Vitae Teaching Publications Working Papers Programs
Trade Liberalization and
Rising Wage Inequality in Latin America: Reconciliation with HOS Theory
(Revised: August, 2006) [Journal of International Economics, Apr, 2007]
The paper puts forward the hypothesis that the transitory effects of trade
liberalization on wage inequality can differ from the long-run outcome. In
cases where the HOS theory predicts a decline in wage inequality in the long
run, a temporary rise can, nevertheless, occur due to (i) the asymmetries in
the speed of contraction in the import sector and expansion in other
sectors, and (ii) the capital-skill complementarity in production. The
asymmetric contraction and expansion causes a transitory capital
accumulation that boosts the relative and the real wage of skilled labor due
to capital-skill complementarity. Although the long-run HOS fundamentals
are, therefore, dominated in the short run by the transient effects arising
due to capital-skill complementarity, the observed rise in wage inequality
is nonetheless consistent with the HOS theory appropriately extended to a
dynamic setting.
Smart
Forward Shooting [Joint with Ed Buffie] (Revised: April, 2008) [Forthcoming
in Computational Economics]
In this paper we develop a set of innovative
forward-shooting algorithms that solve for the global nonlinear saddle path
in models with 1-3 jump variables. Exploiting the fact that the algorithms
are mechanical and model-free, we have placed canned, fully-automated
programs in the public domain. The programs do not require any substantive
human input. The user’s only responsibility is to type in the equations of
the model correctly.
Public Investment, Tax Evasion, and the Welfare Effects of a Tariff Reform (Revised: October, 2008) [Forthcoming in Contemporary Economic Policy] Contrary to the case considered in literature, experience of developing countries indicates that trade reforms have not been revenue neutral due to the heavy dependence of developing countries on trade taxes and pervasive tax evasion. In contrast to the plausibility of a welfare loss shown by the current literature, when the adverse effect of loss of tariff revenue on public investment is factored in the welfare outcomes of tariff reforms of past few decades turn out to be much more pessimistic. The success of future attempts at tariff reforms would require preceding such reforms with empowerment of governments with ability to fight tax evasion and strengthen domestic tax system. For countries of sub-Saharan Africa where such reforms are likely to be concentrated, this would need planning and capacity building over a longer time horizon.
Variety Trade and Skill
Premium in a Calibrated General Equilibrium Model [Joint with Yoshinori
Kurokawa] (New: October, 2008) It can be theoretically shown that
variety trade can be a possible source of increased skill premium in wages.
No past studies, however, have empirically estimated how much of the
increase in skill premium can be accounted for by the increase in variety
trade. This paper now formulates a static general equilibrium model and then
calibrates it to the Mexican input-output matrix for 1987. In the calibrated
model, our numerical experiments show that the increase in U.S.-Mexican
variety trade can explain about 12 percent of the actual increase in skill
premium in Mexico from 1987 to 2000.
Tax Evasion in an
Overlapping Generations Model with Public Investment (Revised: October, 2008)
The current analysis of the impact of stricter enforcement of tax laws on
tax evasion ignores the most policy revelant case where it has effects
running from public revenue to public expenditure. The paper shows that
existing results in the literature apply to this policy relevant case under
certain restrictions on government policy. Using a dynamic general
equilibrium model, it shows that the benefits of stricter enforcement are
realized immediately but these immediate effects are slightly smaller than
the long-run effects derived in literature. When stricter enforcement is
used as a tool to raise revenue for public investment, the positive impact
on growth from increased public investment is tempered by the negative
general equilibrium effect on private capital accumulation.
How Misleading is
Linearization? Evaluating the Dynamics of the Neoclassical Growth Model
[Joint with Santanu Chatterjee and Stephen. J. Turnovsky] (Revised:
September 2008) The standard procedure for analyzing transitional
dynamics in non-linear macro models has been to employ linear
approximations. This raises the central question of this paper: How reliable
is this procedure in evaluating the dynamic adjustments to policy changes or
structural shocks? This question is significant since one of the basic
objectives of contemporary micro-based macroeconomic models is the analysis
of intertemporal welfare. We analyze this issue in the context of a
neoclassical Ramsey growth model, with two alternative specifications of
productive government spending, by employing both linearization and
non-linear solution techniques. We find that if government expenditure is
introduced as a flow and the dynamic adjustment is fast, linearization may
be a reasonably good approximation of the true dynamics even for fairly
large policy shocks. In contrast, if government expenditure assumes the form
of a stock, leading to more sluggish adjustment, linearization is more
problematic. The linearization procedure may yield misleading predictions,
both qualitatively and quantitatively. These occur at the beginning of the
transition and therefore weigh heavily in intertemporal welfare
calculations. These patterns are verified for temporary shocks as well.
Relative Wealth Concerns and Entrepreneurship [Joint with Kislaya Prasad] (Revised
and Resubmitted: May, 2008)
We develop a model of occupational choice and
entrepreneurship in the presence of relative wealth concerns. A concern for
relative standing arises even though individuals care only about consumption
of standard commodities. We assume that entrepreneurial returns are not
diversifiable, which results in less entrepreneurship than would be the case
with complete markets. Relative wealth concerns are shown to lead to an
increase in entrepreneurship and risk-taking, mitigating this difficulty
substantially. When we change the profile of the economy to include more
risk-averse people, we find that there is a greater increase in
entrepreneurship. We examine the effects of uncertainty about economic
policies such as market-based reforms on entrepreneurship.
Solving the Unit Root
Problem in Models with an Exogenous World Market Interest Rate [Joint with
Ed Buffie] (Revised: December, 2007) The standard model of the small open
economy is saddled with a unit root that greatly complicates numerical
computation of the global saddle path. In this paper we solve the unit root
problem by developing a set of innovative forward-shooting algorithms.
Exploiting the fact that the algorithms are mechanical and model-free, we
have placed canned, fully automated programs in the public domain. The
programs do not require any substantive human input. The user’s only
responsibility is to type in the equations of the model correctly.
Reverse Shooting Made
Easy: Automating the Search for the Global Nonlinear Saddle Path [Joint with Ed Buffie] (Revised:
September, 2007) [Earlier title: Solving for the Global Nonlinear Saddle
Path: Reverse Shooting vs. Approximation Methods] We present the blueprints
for a set of innovative reverse shooting algorithms that trap the global
saddle path in systems with 2-4 state variables. The solution procedure is
built around a new distance mapping and refined simplex algorithms. Since
the algorithms are completely reliable and always work in the same way, we
have been able to develop canned problems that solve for the global
nonlinear saddle path in any model with 2-4 state variables. The programs
are written in the spirit of plug and play: the user types in the equations
of the model and then waits for the solution. (Link
to the longer version of the paper)
Resurrecting the Weak Credibility Hypothesis in Models of
Exchange-Rate-Based Stabilization [Joint with Ed Buffie] (Revised: August, 2007)
We analyze how weak credibility affects the volatility of consumption
spending in a model of exchange-rate-based stabilization that allows for
both durable and nondurable goods. The inclusion of durables greatly
improves the explanatory power of the weak credibility hypothesis. The
hypothesis can account for the main qualitative properties of the boom-bust
cycle provided the elasticity of durables expenditure with respect to
Tobin’s q is greater than the intertemporal elasticity of substitution.
Moreover, the quantitative effects are very large. In numerical simulations
based on conservative assumptions about the expenditure share of durables
(20%) and wealth effects (none), aggregate consumption increases 12-28%
during the low-crawl phase and the real exchange rate appreciates 24-26%. In
variants of the model that incorporate supply effects, the consumption boom
is equally strong but appreciation of the real exchange rate rises to
30-40%.
A Simple Model of Sectoral and Firm-Level Heterogeneity (New: Feb, 2007)
The
paper takes a first step in the direction of simultaneously incorporating
sectoral and firm-level heterogeneity to analyze issues in international
trade and macroeconomics. It does so in a tractable manner without
increasing the complexity of numerical computation of the equilibrium
compared to the existing models with heterogeneity in one dimension. The
paper presents an example where it necessary to simultaneously introduce
heterogeneity in both dimensions (trade costs and productivity) to obtain
correct results. If one considers heterogeneity in one dimension at a time
and pieces together the results, one would conclude that a reduction in
trade costs would make more goods tradable and more varieties of every
tradable good traded. However, in the correctly specified model with
heterogeneity in both dimensions, although more goods indeed become tradable
but in almost 50% of the previously traded sectors the number of traded
varieties falls.
Exchange-Rate-Based
Stabilization, Durables Consumption, and the Stylized Facts [Joint with Ed
Buffie] (New: December, 2005) In this paper we show that a model
featuring durables consumption, weak credibility, and sticky prices can
explain many of the stylized facts associated with exchange-rate-based
stabilization, including the quantitative variation exhibited by key
macroeconomic variables. In standard models, the boom phase of ERBS is
nothing more than a tepid expansion – changes in spending, real output, and
the real exchange rate are unexceptional. But when durables are part of the
choice set, the boom is truly a boom: following a temporary reduction in the
crawl, total consumption spending rises 12-20%, the real exchange rate
appreciates 40-55%, and the current account deficit swells to 5-7% of GDP.
None of these results requires easy intertemporal substitution in
consumption.
Productivity-Enhancing
Reforms, Private Capital Inflows and Real Interest Rates in Africa
(Revised: June, 2005)
The paper uses a currency substitution model to explain the stylized
macroeconomic facts associated with productivity-enhancing reforms in
countries of Africa. The model, when calibrated to Ghana and Uganda results
in current account deficit and private capital inflows as well as changes in
real interest rate, real exchange rate, and inflation comparable to those in
data. Thus, currency substitution is important to understand macroeconomic
dynamics in countries of Africa as many of them are currently undertaking
such reforms.
The paper also implements a new technique to solve for global
nonlinear saddlepath for perfect foresight models with two state variables.
The technique combines reverse shooting with the bisection method in two
dimensions to systematically shoot for the trajectory in the state space
that corresponds to the desired saddlepath.