Essays on Firms in Global Markets and the Labor Share of Income

Abstract

This dissertation studies how firms make location, production, investment, export and sales decisions in global markets, and the relationship between the labor share and the price of materials in the economy. Chapter 1 examines how the increase in frequency and severity of natural disasters caused by climate change will affect the spatial organization of firms. With data on the global car industry and using an event-study design, I find that floods close to an assembly plant significantly reduce car production. This loss is partially offset by reallocating production to other unaffected plants within the same firm. I develop a quantitative model in which firms choose the location and capacity of their plants to maximize expected profits under uncertainty about potential weather disruptions. In response to the heightened risk, firms invest in additional plants to hedge against disruptions, resulting in smaller sites with larger spare capacity. The spatial reorganization of plants entails productivity losses, resulting in higher consumer prices. Chapter 2, coauthored with Alonso Alfaro-Ureña, Sebastian Fanelli, and Eduardo Morales, introduces a model of firm export dynamics which features cross-country export complementarities, and provides an algorithm for solving problems with static and dynamic complementarities. We use customs data from Costa Rica to estimate the model and find that firms enjoy cost reductions when exporting to countries that are geographically or linguistically close to each other or have deep trade agreements. We show that countries sharing these traits with attractive destinations receive more exports than in the absence of complementarities.

Chapter 3, coauthored with Benny Kleinman, explores the relationship between the labor share and the price of materials. Our theory suggests that, under imperfect competition and complementarity between materials and primary inputs, there is a negative relationship between the labor share and the price of materials. We show that fluctuations in the price of materials align with aggregate trends in the US labor share. We provide causal evidence for the negative effect of materials prices on the labor share and decompose changes in the labor share to identify the separate role of materials prices relative to other explanations proposed in the literature.