Featured Working Papers

REsponsible Sourcing? Evidence from Costa Rica

(w/ Benjamin Faber, Cecile Gaubert, Isabela Manelici and José P. Vásquez). New March 2025 Draft.

Status: Revise and Resubmit at the American Economic Review. NBER WP 30683

Media coverage: VoxDev summary, VoxEU summary, Trade Talks.

Research question: What are the average and distributional implications of "Responsible Sourcing" policies by multinationals in host countries?

​Abstract: Multinational enterprises (MNEs) increasingly impose "Responsible Sourcing" (RS) standards on their suppliers, including requirements on worker compensation, benefits and working conditions. Are these policies just "hot air" or do they impact suppliers and their workers? What is the welfare incidence of RS in sourcing countries? To answer these questions, we combine the near-universe of RS rollouts by MNEs with subsidiaries in Costa Rica with firm-to-firm transactions and matched employer-employee microdata. We find that RS rollouts lead to reductions in sales and employment at exposed suppliers, salary increases for their low-wage workers and a decrease in their low-wage employment share. To rationalize these effects and study their implications in general equilibrium, we develop a simple open-economy model of RS. We show that the welfare effect of RS is ambiguous, depending on the interplay between an export tax (+) and a consumption tax (-), and that RS has distributional implications within worker types. Combining model and evidence for counterfactual analysis, we find that RS has delivered significant gains for low-wage workers at exposed suppliers, but led to adverse indirect effects on wages and the price index for the broader low-wage workforce.

Firm Export Dynamics in Interdependent Markets

(w/ Juan Manuel Castro, Sebastian Fanelli and Eduardo Morales)

​Abstract: We estimate a model of firm export dynamics featuring cross-country complementarities. The firm decides where to export by solving a dynamic combinatorial discrete choice problem, for which we develop a solution algorithm that overcomes the computational challenges inherent to the large dimensionality of its state space and choice set. According to our estimated model, firms enjoy cost reductions when exporting to countries geographically or linguistically close to each other, or that share deep trade agreements; and countries, especially small ones, sharing these traits with attractive destinations receive significantly more exports than in the absence of complementarities.

Matching to Suppliers in the Production Network: an Empirical Framework

w/ Paolo Zacchia.

​Abstract: This paper develops a framework for the empirical analysis of the determinants of input supplier choice on the extensive margin using firm-to-firm transaction data. Building on a theoretical model of production network formation, we characterize the assumptions that enable a transformation of the multinomial logit likelihood function from which the seller fixed effects, which encode the seller marginal costs, vanish. This transformation conditions, for each subnetwork restricted to one supplier industry, on the out-degree of sellers (a sufficient statistic for the seller fixed effect) and the in-degree of buyers (which is pinned down by technology and by “make-or-buy” decisions). This approach delivers a consistent estimator for the effect of dyadic explanatory variables, which in our model are interpreted as matching frictions, on the supplier choice probability. The estimator is easy to implement and in Monte Carlo simulations it outperforms alternatives based on group fixed effects. In an empirical application about the effect of a major Costa Rican infrastructural project on firm-to-firm connections, our approach yields estimates typically much smaller in magnitude than those from naive multinomial logit.

The Effects of Joining Multinational Supply Chains: New Evidence from Firm-to-Firm Linkages 

(with Isabela Manelici and José P. Vasquez). 

Quarterly Journal of Economics. Volume 137, Issue 3, August 2022, 1495–1552. Working Paper w/ Online Appendix (link)

Media coverage: VoxDev Summary, IGC Blog, "The Visible Hand" Podcast

​Abstract: We study the effects of becoming a supplier to multinational corporations (MNCs) using tax data tracking firm-to-firm transactions in Costa Rica. Event-study estimates reveal that domestic firms experience strong and persistent gains in performance after supplying to a first MNC buyer. Four years after, domestic firms employ 26% more workers and have a 4 to 9% higher total factor productivity (TFP). These effects are unlikely to be explained by demand effects or changes in tax compliance. Moreover, suppliers experience a large drop in their sales to all other buyers except the first MNC buyer in the year of the event, followed by a gradual recovery. The dynamics of adjustment in sales to others suggests that firms face short-run capacity constraints that relax over time. Four years later, the sales to others grow by 20%. Most of this growth comes from the acquisition of new buyers, which tend to be "better buyers" (e.g., larger and with more stable supplier relationships). Finally, surveys of domestic firms and MNCs provide further insights into the wide-ranging benefits of supplying to MNCs. According to our surveys, these benefits range from better managerial practices to a better reputation.

The Effects of Multinationals on Workers: Evidence from Costa Rica

(with Isabela Manelici and José P. Vasquez). NEW: April 2021 draft.

​Abstract: This paper estimates the effects of multinational corporations (MNCs) on workers. To that end, we combine microdata on all formal worker-firm and firm-firm relationships in Costa Rica with an instrumental variable approach that exploits shocks to the size of MNCs in the country. First, using an event-study design, we find an MNC wage premium of nine percent. This premium reflects above market wages rather than compensation for disamenities. Next, we study the effects of MNCs on workers in domestic firms. As MNCs bring jobs that pay a premium, they improve outside options by altering both the level and composition of labor demand. MNCs can also enhance the performance of domestic employers through input-output linkages. Shocks to firm performance may then pass through to wages. We show that the growth rate of annual earnings of a worker experiencing a one standard deviation increase in either her labor market or firm-level exposure to MNCs is one percentage point higher than that of an identical worker with no change in either MNC exposure. Finally, we develop a model to rationalize the reduced-form evidence and estimate structural parameters that govern wage setting in domestic firms. We model MNCs as paying a wage premium and buying inputs from domestic firms. When hiring workers, firms incur recruitment and training costs. We find that workers are sensitive to improvements in outside options. Moreover, we estimate that the marginal recruitment and training cost of the average domestic firm is 90% of the annual earnings of a worker earning the competitive market wage. This high cost allows incumbent workers to extract part of the increase in firm rents coming from intensified linkages with MNCs.

(Mis)matching to Good Suppliers: Evidence from Transactions Microdata 

                  [Draft available upon request]

w/ José P. Vásquez and Paolo Zacchia.

The Evolution of Labor Earnings and Inequality in Costa Rica: Micro-Level Evidence 

                  [Draft available soon]

w/ Isabela Manelici, José P. Vásquez and Alfredo Mendoza-Fernandez.