Welcome to my website

I am a Professor of Economics at the University of Mannheim and a Research Fellow at the Centre for Economic Policy Research (CEPR), London. I hold a PhD in Economics (2009) from Pompeu Fabra University, Barcelona. My main research interests are international trade, international economics, macroeconomics, and organizational economics.
For further information see my curriculum vitae.

On leave during Spring Term 2020.

Contact information

Harald Fadinger
Department of Economics
University of Mannheim
L7 3-5
D-68131 Mannheim

+49 (0) 621 181 3505

Current research

Trade and Domestic Policies in Models with Monopolistic Competition

with Alessia Campolmi and Chiara Forlati. Current version: December 2018. CEPR Discussion Paper 13219, October 2018.

We consider unilateral and strategic trade and domestic policies in single and multi-sector versions of models with CES preferences and monopolistic competition featuring homogeneous (Krugman, 1980) or heterogeneous firms (Melitz, 03). We first solve the world-planner problem to identify the efficiency wedges between the planner and the market allocation. We then derive a common welfare decomposition in terms of macro variables that incorporates all general-equilibrium effects of trade and domestic policies and decomposes them into consumption and production-efficiency wedges and terms-of-trade effects. We show that the Nash equilibrium when both domestic and trade policies are available is characterized by first-best-level labor subsidies that achieve production efficiency, and inefficient import subsidies and export taxes that aim at improving domestic terms of trade. Since the terms-of-trade externality is the only beggar-thy-neighbor motive, it remains the only reason for signing trade agreements in this general class of models. Finally, we show that when trade agreements only limit the strategic use of trade taxes but do not require coordination of domestic policies, the latter are set inefficiently in the Nash equilibrium in order to manipulate the terms of trade. We also show that when trade agreements only limit the strategic use of trade taxes but do not require coordination of domestic policies, the latter are set inefficiently in the Nash equilibrium in order to manipulate the terms of trade. Moreover, the proportional welfare gains from integrating domestic policies into trade agreements rise when physical trade barriers fall.

The Real Exchange Rate, Innovation and Productivity

with Laura Alfaro, Alejandro Cuñat and Yanping Liu. Current version: October 2019. Also NBER Working Paper No. 24633 and CEPR Discussion Paper 12943, May 2018. First version: November 2017.

We evaluate manufacturing firms' responses to changes in the real exchange rate (RER) using detailed firm-level data for a large set of countries for the period 2001-2010. We uncover the following stylized facts: In export-oriented emerging Asia, real depreciations are associated with faster growth of firm-level TFP, higher sales and cash-flow, and higher probabilities to engage in R&D and to export. We find negative effects for firms in other emerging economies, which are relatively more import dependent, and no significant effects for firms in industrialized economies. Motivated by these facts, we build a dynamic model in which real depreciations raise the cost of importing intermediates, affect demand, borrowing-constraints and the profitability of engaging in innovation (R&D). We decompose the effects of RER changes on productivity growth across regions into these channels. We estimate the model and quantitatively evaluate the different mechanisms by providing counterfactual simulations of temporary RER movements and conduct several robustness analyses. Effects on physical TFP growth, while different across regions, are non-linear and asymmetric.

Come Together: Firm Boundaries and Delegation

with Laura Alfaro, Nick Bloom, Paola Conconi, Patrick Legros, Andrew Newman, Raffaella Sadun and John Van Reenen. Current Version: May 2019. Also NBER Working Paper No. 24603 and CEPR Discussion Paper 12923, May 2018.

Little is known about the relationship between firm boundaries and the allocation of decision rights within firms. We develop a model in which final good producers choose which suppliers to integrate and whether to delegate decisions to integrated suppliers, when they are ex-ante uncertain about their ability. In this setting, integration has an option value: ownership rights give producers authority to delegate or centralize production decisions, depending on the realized ability of suppliers. To assess the evidence, we construct measures of vertical integration and delegation for thousands of firms in many countries and industries. Consistent with the model, we find that (i) integration and delegation co-vary positively; (ii) firms delegate more decisions to integrated suppliers of more valuable inputs; and suppliers are more likely to be integrated if (iii) they produce more valuable inputs and (iv) operate in industries with greater productivity dispersion.

Income Differences, Productivity and Input-Output Networks

with Mariya Teteryatnikova and Christian Ghiglino. R&R at American Economic Journal: Macroeconomics. Current version: October 2018. Older version available as CEPR Discussion Paper 11547, September 2016.
Video of my presentation at the CEPR-Worldbank Conference on Global Value Chains
Featured in VOX.

We study the role of input-output (IO) linkages and sectoral productivity (TFP) levels for cross-country income differences. Using data on IO tables and sectoral TFPs, we fond important differences in IO structure and its interaction with TFP levels across countries: while highly connected sectors are more productive than the typical sector in poor countries, the opposite is true in rich ones. To quantitatively assess the role of IO linkages in cross-country income differences, we use tools from network theory to build a multi-sector general equilibrium model. Aggregate income is approximated by a simple function of the first and second moments of the joint distribution capturing interactions of IO linkages and sectoral TFPs. We then structurally estimate country-specifc parameters of this distribution and simulate cross-country income differences. Our main finding is that incorporating IO linkages into a model with sectoral TFP differences significantly improves our ability to predict cross-country income variation.

Gravity in Oligopoly

with Holger Breinlich, Volker Nocke and Nicolas Schutz.

We evaluate the consequences of oligopolistic behavior for the estimation of gravity equations for trade flows. With oligopolistic competition, firm-level gravity equations based on a standard CES demand framework need to be augmented by markup terms that are functions of firms' market shares. At the aggregate level, the additional term takes the form of the exporting country's market share in the destination country multiplied by an exporter-destination-specific Herfindahl-Hirschman index. For both cases, we show how to construct appropriate correction terms that can be used to avoid problems of omitted variable bias. We illustrate the quantitative importance of our results for combined French and Chinese firm-level export data as well as for a sample of product-level imports by European countries. Our results show that correcting for oligopoly bias can lead to substantial changes in the coefficients on standard gravity regressors such as distance or the impact of currency unions.

Robot Imports and Jobs: Evidence from French Firms

with Alessandra Bonfiglioli, Rosario Crino and Gino Gancia.

In progress.


Spatial Agglomeration and Superstar firms: Firm-level Patterns from Europe and U.S.

with Laura Alfaro and Maggie Chen.
Conference Proceedings of the ECB Sintra Forum on Central Banking 2019

We characterize the agglomeration patterns of industries and plants in Europe, distinguishing Eurozone countries and the U.S. Using a micro-level index, we quantify the degree of geographic concentration in industrial activities and explore how firm heterogeneity, industry attributes, and location fundamentals jointly explain the observed patterns. Our analysis shows that there is a clear hub-and-spoke structure in the geographic distribution. Larger and more productive plants, especially the superstars of each industry, are more centred than their smaller, less productive counterparts. The greater agglomeration surrounding superstars is particularly pronounced in the Eurozone but not present in the rest of Europe. Location fundamentals also play an important role and can sometimes mitigate the importance of agglomeration economies around large firms. Regions with different levels of economic development, including in education and technology, exhibit distinct agglomeration patterns. The findings suggest heterogeneity in the ability of regional policies to build superstar-centred industry clusters.

Offshoring and Skill-Upgrading in French Manufacturing

with Juan Carluccio, Alejandro Cuñat and Christian Fons-Rosen.
Journal of International Economics, 2019, 118, pp. 138-159.
Older version available as CEPR Discussion Paper 10864, October 2015.
Featured in VOX, in Rue de la Banque and in Le Figaro.

Using French manufacturing firm-level data for the years 1996 to 2007, we uncover a novel set of stylized facts about offshoring behavior: (i) Low-productivity firms obtain most of their inputs domestically. (ii) Firms with higher productivity offshore skill-intensive inputs to skill-abundant countries and are more labor intensive than non-importers in their domestic production. (iii) Firms with even higher productivity also import labor-intensive inputs from labor-abundant countries and are more skill intensive than non-importers. Inspired by these findings, we produce a model in which heterogeneous firms, subject to fixed costs, can offshore intermediate inputs of different skill intensities to countries with different skill premia. Heckscher-Ohlin-like forces operate at the within-industry level, leading to endogenous variation in domestic skill intensities across firms. We provide econometric evidence supporting the factor-proportions channel through which reductions in offshoring costs to labor-abundant countries have increased firm-level skill intensities of French manufacturers.

A Heckscher-Ohlin Model of Offshoring and Exporting

with Alejandro Cunat, forthcoming in Kohler, W. Yalcin, E., eds.,
New Developments in Global Sourcing , MIT Press, 2018.

Do Prices Determine Vertical Integration?

with Laura Alfaro, Paola Conconi and Andrew Newman.
Review of Economic Studies, 2016, 83 (3), pp. 855-888 (lead article).

A number of theories in organizational economics and industrial organization suggest that vertical integration, while costly, increases productivity. It follows from firms' maximizing behaviour that higher prices in the product market ought to induce more integration. Trade policy provides a source of exogenous price variation to assess this prediction: higher tariffs should lead to higher prices and, therefore, to more integration. We construct firm-level vertical integration indices for a large set of countries and industries and exploit variation in applied most-favoured-nation tariffs to examine the impact of tariffs on firm boundaries. The empirical results provide strong support for the view that higher output prices generate more vertical integration. Our estimates of the average price elasticity of vertical integration are in the range 0.4-2.

Skill-biased Technological Change, Unemployment and Brain Drain

with Karin Mayr. Journal of the European Economic Association, 2014, 12(2), pp. 397-431.

We develop a model of directed technology adoption, frictional unemployment and migration to examine the effects of a change in skill endowments on wages, employment rates and emigration rates of skilled and unskilled workers. We find that, depending on the elasticity of substitution between skilled and unskilled workers and the elasticity of the matching function, an increase in the skill ratio can reduce the relative unemployment rate of skilled workers and decrease the relative emigration rate of skilled workers (brain drain). We provide empirical estimates and simulations to support our findings and show that effects are empirically relevant and potentially sizable.

Trade Policy: Home Market Effect versus Terms-of-Trade Externality

with Alessia Campolmi and Chiara Forlati.
Journal of International Economics, 2014, 93(1), 92-107.

We study trade policy in a two-sector Krugman (1980) trade model, allowing for wage, import and export subsidies/taxes. We study non-cooperative trade policies, first for each individual instrument and then for the situation where all instruments can be set simultaneously, and contrast those with the efficient allocation. We show that in this general context there are four motives for non-cooperative trade policies: the correction of monopolistic distortions; the terms-of-trade manipulation; the delocation motive for protection (home market effect); the fiscal-burden-shifting motive. The Nash equilibrium when all instruments are available is characterized by first-best-level wage subsidies, and inefficient import subsidies and export taxes, which aim at relocating firms to the other economy and improving terms of trade. Thus, the dominating incentives for non-cooperative trade policies are the fiscal-burden-shifting motives and terms-of-trade effects.

Check out the working paper version for a quite different perspective on the same issue.

Incomplete Contracts, Learning and Export Dynamics: Theory and Evidence from French Firms

with Romain Aeberhardt and Ines Buono
European Economic Review, 2014, 68, pp. 219-249.

We consider a model in which exporting requires finding a local partner in each market. Contracts are incomplete and exporters must learn the reliability of their partners through experience. Export behavior is state-dependent due to matching frictions. Better legal institutions alleviate contracting frictions especially in sectors with large contracting problems, thereby increasing state dependence and reducing hazard rates by more in those sectors. Moreover, hazard rates decline with the age of the relationship, as unreliable partners are weeded out. We find strong evidence in favor of the model's predictions when testing them with French firm-level data.

Trade and Sectoral Productivity

with Pablo Fleiss. The Economic Journal, 2011, 121 (554).
» Supplementary Appendix
» Dataset

Cross-country differences in sectoral total factor productivity (TFP) are at the heart of Ricardian trade theory and of many models of growth and development. Our knowledge of the magnitude and the characteristics of cross-country differences in sectoral TFP is still limited however. This study fills the gap by showing how sectoral TFP differences can be backed out from bilateral trade data using a hybrid Ricardo-Heckscher-Ohlin model. This approach allows us to overcome the data problems that constrained previous studies and to provide a comparable set of sectoral productivities for twenty-four manufacturing sectors in more than sixty countries at all stages of development. Our results imply that TFP differences in manufacturing sectors between rich and poor countries are substantial and far more pronounced in skilled labor and R&D intensive sectors than in others. We also apply our productivity estimates to test development theories that have implications for cross-country industry-level productivity patterns.

Productivity Differences in an Interdependent World

Journal of International Economics, 2011, 84 (2), pp. 221-232.
» Supplementary Appendix

This paper studies cross-country differences in productivity from an open economy perspective by using a Helpman-Krugman-Heckscher-Ohlin model that embraces the single-cone model and a one-sector economy with factor deepening as particular cases. To estimate the model, I combine tools from development accounting and the factor content of trade literature. When simultaneously fitting data on income, factor prices and the factor content of trade, I find that the one-sector model is by far better supported by the data than the single-cone model. Rich countries have far higher productivities of human capital than poor ones, while differences in physical capital productivity are not related to income per worker. Finally, I estimate an aggregate elasticity of substitution between human and physical capital that is significantly below one.

The Micro-Dynamics of Exporting: Evidence from French Firms

with Ines Buono. Banca d'Italia - Temi di Discussione, 2012, Nr. 880.

This paper investigates the dynamics of export relationships -- defined as shipments by a given firm to a given destination in a given year -- using a panel of almost 25,000 French exporters over the five-year period 1995-1999. We describe how these export relationships evolve over time and present a number of stylized facts, which we relate to different theories of export dynamics, such as a dynamic sunk-cost model and the recent literature on exporting and learning.
We find that export relationships are very dynamic: a large fraction of export relationships are created or destroyed every year and export values within relationships fluctuate substantially. Most of these dynamics are explained by relationship-specific shocks rather than by supply and/or demand shocks. Moreover, upon entry, export values are small but they gradually expand as relationships mature. Finally, while many export relationships are volatile, others are persistent. Having previously exported to a given destination substantially increases the probability of exporting there in the current period. We argue that, taken together, these facts are more in line with a learning model than with the sunk-cost hypothesis.


Superstar Firms

Bloomberg, June 17, 2019.

Article about my work on agglomeration of economic activity around superstar firms presented at the ECB Sintra Forum on Central Banking.

Das Gesicht der Verlierer

Die Zeit, April 11, 2019.

Article on globalization and populism in German newspaper Die Zeit (in German).

Der Westen - (noch) Gemeinschaft der Weltmarktführer?

Hambacher Gespräche, November 2018 (in German).

Public lecture on the impact of trade with low-income countries on labor markets and inequality, voting for populist parties in industrialized economies and the globalization backlash (in German).

Ownership and power structure: Together at last

with Laura Alfaro, Nicholas Bloom, Paola Conconi, Patrick Legros, Andrew Newman, Raffaella Sadun, John Van Reenen. www.voxeu.org, 01 October 2018.

Economists have largely ignored the deep interdependency between integration and delegation. This column describes a new theory of integration and delegation choices aimed at shedding light on how these distinct elements of organisational design interact. Contrary to what is suggested by a naive one-dimensional approach, the model predicts that delegation and outsourcing should be negatively correlated, a prediction that holds up well when the model is applied to data for thousands of firms across many industries and countries.

You can't always get what you want: The real exchange rate and manufacturing performance in a world of global value chains

with Laura Alfaro, Alejandro Cunat and Yanping Liu. www.voxeu.org, 26 September 2018.

Real exchange rate devaluations are typically seen as a viable development strategy, but the effectiveness of the approach may vary over time and across countries. This column explores this issue by focusing on the microeconomics of firm-level responses to exchange rate fluctuations. Results show varying patterns of responses to fluctuations by region and by import/export orientation. These results highlight the crucial role of a firm's integration in global value chains.

La mondialisation a pénaliseé les travailleurs non qualifiés

Le Figaro, November 2017.

Article based on my research "Offshoring and Skill-Upgrading in French Manufacturing" in French newspaper Le Figaro (in French).

Les gagnants et les perdants de la mondialisation : la délocalisation profite aux travailleurs qualifiés et nuit aux travailleurs moins qualifiés. (Winners and losers from globalization: offshoring benefits skilled workers and hurts unskilled workers)

with Juan Carluccio, Alejandro Cunat and Christian Fons-Rosen. Rue de la Banque 51, Banque de France, November 2017.

Ce Rue de la Banque, fondé sur l'exploitation de données détaillées relatives à l'industrie manufacturière francaise, démontre que la délocalisation vers des pays à bas salaires a largement déterminé la situation des travailleurs peu qualifiés sur le marché du travail en France au cours de la période allant de 1995 à 2007. Les résultats confirment la vision largement répandue selon laquelle le commerce international engendre des gains de productivité, en permettant notamment d'obtenir des biens intermédiaires moins chers, ces gains n'étant toutefois pas répartis de facon égale entre les différents acteurs économiques. Pour tirer le meilleur parti de la mondialisation, il est par conséquent nécessaire de mettre en oeuvre des politiques publiques, en matière notamment de formation professionnelle afin d'accompagner la transition vers des emplois plus qualifiés.

Trump.... Na und?!

KALKÜL, September 2017.

Interview on the potential impact of the planned U.S. border adjustment tax on German exporters with German magazine KALKÜL (in German).

Input-output linkages and income differences across countries: New evidence

with Christian Ghiglino and Mariya Teteryatnikova. www.voxeu.org, 24 December 2016.

Economists are just starting to understand how observed input-output linkages and productivity differences are connected. This column investigates how differences in the distribution of sectoral input-output multipliers interact with sectoral productivities to determine cross-country differences in aggregate income. It finds that the impact of the linkages on productivity are substantial, which in turn has significant implications for policy.

Macht, Kontrolle und die Optionen der ÖVP

Commentary on the Austrian presidential election in the Austrian newspaper der Standard (in German).
der Standard, 24 November 2016.

Britisches Rosinenpicken kann die EU nicht zulassen

Commentary on Brexit in the Austrian newspaper die Presse (in German).
die Presse, 30 June 2016.

Offshoring and unskilled labour demand: new evidence

with Juan Carluccio, Alejandro Cunat and Christian Fons-Rosen. www.voxeu.org, 14 December 2015.

The increase in the skill premium - wages of skilled workers relative to unskilled workers - has prompted research on its causes and potential remedies. This column presents new evidence suggesting that the impact of globalisation on the income distribution in industrialised countries is much stronger than initially thought. The productivity gains from having access to cheaper inputs through offshoring are not being distributed equally between the different economic actors in our rich societies.

Die Troika muss Griechenland mehr anbieten

Commentary on the economic crisis in Greece in the Austrian newspaper derStandard (in German).
derStandard, 9 July 2015.

Public Lecture on the Eurozone crisis

University of Mannheim, March 2015 (in German).

TTIP - eine Analyse aus europäischer Perspektive

Policy article on the economic effects of TTIP for the Austrian Society for European Politics (in German). OeGfE Policy Brief, 2015.08, 26 February 2015. Also featured on euractiv.de

Der vorliegene Policy Brief argumentiert, dass die direkten ökonomischen Effekte von TTIP unsicher sind und diese sich erst über einen Zeitraum von 10 bis 20 Jahren einstellen würden. Trotzdem handelt es sich um ein wichtiges strategisches Projekt, da TTIP gleichzeitig die bilateralen Beziehungen zu den USA stärken und neue internationale Standards für Freihandelsabkommen schaffen würde. Damit könnten potentiell Produkt-, Umwelt-, und Investitionsstandards in vielen Teilen der Welt positiv beeinflußt werden.

Nicht blind der EU-Kommission vertrauen

Interview on the consequences of the Transatlantic Trade and Investment Partnership (TTIP) with Austrian newspaper derStandard.at (in German).
derStandard.at, 27 March 2014.

Firm organisation: What we know and why we should care

with Laura Alfaro, Paola Conconi, Patrick Legros and Andrew Newman. www.voxeu.org, 02 December 2012.

Increasingly, people are pointing the finger of blame for economic woe at large firms. This column argues that organisation design is often affected by government trade policy. If firm organisation design has implications for consumer welfare (in terms of prices and quality of product), evidence suggests that governments should make sure that in future, trade policy and corporate governance policy are more complementary.