Dave Donaldson is an empirical trade economist and recipient of the 2017 John Bates Clark Medal. His research examines the intersection of international trade and development economics. Donaldson’s paper “Railroads of the Raj: Estimating the Impact of Transportation Infrastructure?” (American Economic Review, forthcoming) investigates the economic benefits from building transportation infrastructure studying the case of railways in 19th century India. This paper is widely viewed as both a methodological breakthrough and substantively important paper in the field. The article below provides a summary of his work.
Why currency devaluations are losing economic punch
Competitive devaluations are again becoming a popular macroeconomic policy. For example, a competitive devaluation was one of the three pillars of Abenomics, the economic policy of Shinzo Abe’s administration to fight secular stagnation in Japan. It was also discussed as a potential tool for debt-ridden southern European countries, had they been able to abandon the euro.
But while Japan reduced the value of the yen by 50 percent relative to the US dollar between 2012 and 2015, the impact on trade and employment was underwhelming. The Economist derided the policy as an “uncompetitive devaluation.”[1]
Why small isn’t always beautiful: labor regulations and firm growth
Regulations often have unintended costs as well as intended benefits. France has a large number of labor market regulations that bind when a firm has 50 or more employees. These regulations are intended to help workers, but they also act as a tax on large firms. This discourages firms near the threshold from growing larger and producing more output. We calculate that these French labor regulations depress overall economic output by over 3%.
Disability insurance and the dynamics of the incentive-insurance tradeoff
Recent growth in the number of Disability Insurance claimants has led to calls for substantial scaling back of the program. We evaluate the incentive cost of the DI program against its insurance value to those in need. The main failure of the program is the number of severely work limited who do not receive insurance: the program is badly targeted.
The gender wage gap: how firms influence women’s pay relative to men
Employers’ pay policies can contribute to the gender wage gap if women are less likely to work at high-paying firms or if women negotiate worse wage bargains than men. Analysing data from Portugal’s labour market, this research finds that differences among firms can explain up to 20% of the gender wage gap. Women tend to be employed at less productive firms that offer lower wages to their employees. Moreover, when women are hired by better-paying firms, their wages rise less than men, possibly because they are less effective negotiators. These findings call for renewed attention to equal pay and fair hiring laws.
Reducing the cost of living: how global retailers improve household welfare in Mexico
Big-box retail stores arriving from foreign countries have transformed the way Mexican households shop for goods, sparking a “supermarket revolution”. Traditionally, consumers in developing countries have shopped at street markets and small, independent stores. However, consumers have switched to shopping at foreign retailers, who offer a larger variety of products at cheaper prices. Despite concerns that foreign retailers might adversely affect local employment and household incomes, our evidence shows that allowing them to operate their businesses in Mexico has generated substantial welfare gains for households across the income spectrum by lowering the cost of living, while having limited impacts on total employment, incomes, and local businesses closing.
Hospital competition and patient choice can improve healthcare quality
The introduction of greater choice and competition in healthcare is an increasingly popular model for public service reform. This research shows that once restrictions on patients’ choice in England’s National Health Service were lifted, those requiring heart bypass surgery became more responsive to the quality of care available at different hospitals. This gave hospitals a greater incentive to improve quality and resulted in lower mortality rates. In short – the introduction of choice and competition saved lives.
How much work can the long-term disabled do?
The number of people who receive long-term disability payments has grown rapidly in many countries, raising the question of whether it is possible for some of them to return to gainful employment. Analysing the impact of a major disability reform in the Netherlands, this research finds that long-term recipients of disability insurance were on average able to replace about 60% of lost benefits with labour income. This is evidence of substantial remaining work capacity among recipients and it suggests that there is scope for disability insurance reform to tap into this capacity.
Hurting or helping competition? An examination of exclusive dealing contracts in the European automobile industry
Do European car manufacturers make exclusive dealing contracts with their retailers to keep out new, smaller suppliers (mainly from Asia) and in turn, hurt competition? The manufacturing industry could collectively maintain an exclusive dealing system through a block exemption regulation, which would require exclusive dealing through manufacturers’ retailers. Our research shows that if these exclusive contracts were banned, consumers would benefit from allowing dealerships to have more than one supplier and consequently, more brands of cars in stock. However, consumers would not benefit much through increased price competition, in contrast to what is commonly believed.
The causes and consequences of US workers’ diverging locations by skill
The increase in spatial sorting of college and non-college workers into very different cities calls into question whether the large increases in wage inequality over the past three decades truly represents a similar increase in inequality in economic well-being. Since college graduates are paying much higher housing costs than lower skill workers, it is possible […]
