Working Papers:

• "Consumer Preferences in Monopolistic Competition Models", 2009, submitted

• “Per Capita Income, Market Access Costs, and Trade Volumes ”, 2009

In this paper, I document and analyze several phenomena evident in trade data. First, countries with higher per capita income tend to have greater trade volumes even after controlling for total income. Second, many country pairs in the world do not trade with each other in one or both directions. Finally, trade flows are consistent with substantial costs of access to foreign markets. I construct and estimate a general equilibrium model of trade in an asymmetric world with many countries that squares with the above features of the data. There are two novelties in the paper. First, in my model I introduce a relationship between the costs of access to foreign markets and the exporter's development level. I show that this relationship can account for the effect of per capita income on trade volumes and explain the many zeros in bilateral trade data. Second, I develop an estimation procedure, which allows me to identify the separate effects of variable and fixed costs of trade on trade volumes. The model performs well in fitting the data. The trade elasticities with respect to aggregate and per capita incomes predicted by the model are close to those in the data. In the paper, I conduct counterfactual analysis. I find that eliminating the asymmetries in market access costs increase welfare in all countries with the average percentage change equal to 17% and the gains are greater for smaller and poorer countries.

• “Globalization: Intensive versus Extensive Margin”, 2008

There is empirical evidence that globalization leads to higher income inequality within a country. However, in the economic literature no much attention is paid to the fact that globalization may influence inequality through the consumption channel. As different groups of consumers consume different sets of goods and in different amounts, globalization can change consumption patterns and increase or decrease welfare inequality among the groups. In this paper, I look at two components of globalization, namely trade liberalization and a rise in the number of trading partners, and explore their impact on the economic well-being of different population groups through the consumption channel. I consider a general equilibrium model of monopolistic competition with free entry and trade between symmetric countries in the presence of not only firm heterogeneity, but also consumer heterogeneity. In the paper, there are two types of consumers, rich and poor, that share identical but non-homothetic preferences, so that globalization affects different types of consumers differently. I argue that the impact of globalization on the relative welfare of the rich with respect to the poor depends on the type of globalization. In particular, the relative welfare of the rich has an inverted U shape as a function of transportation costs. As for a rise in the number of trading partners, the rich always gain more than the poor. Moreover, in some cases the rich can be even worse off from trade liberalization, while welfare of the poor and aggregate welfare both increase.

• “Income Distribution, Market Structure, and Individual Welfare”, 2007, accepted with minor revision for publication in "The B.E. Journal of Theoretical Economics (Contributions)"

This paper explores how income distribution influences market structure and affects the economic well-being of different groups. It shows that inequality may be good for the poor via a trickle-down effect operating through entry. I consider a general equilibrium model of monopolistic competition with free entry, heterogenous firms and consumers that share identical but non-homothetic preferences. The general model is solved. The case of two types of consumers, rich and poor, is considered in detail. I show that higher income inequality in the economy can benefit the poor. An increase in personal income of the rich raises welfare of the poor, while an increase in the fraction of the rich has an ambiguous impact on the poor: welfare of the poor has an inverted U shape as a function of the fraction of the rich. At the same time, an increase in the personal income of the rich together with a decrease in the fraction of the rich, keeping the aggregate income in the economy fixed, raises the well-being of the poor. I also analyze the effect of changes in market size and entry cost. I show that the rich gain more from an increase in market size and lose more from an increase in the cost of entry than the poor.

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