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Free trade or preferential trade areas (PTAs) allow importers who belong to the area to export to each other while paying zero or preferential tariffs as long as Rules of Origin (ROOs) are met. Meeting them is costly not only in terms of production costs but also in terms of documentation costs. We ask if these fixed costs of documentation change over time with the experience of the firm in obtaining preferential tariffs. We explore this using a unique importer-exporter matched transaction-level customs data set on a group of Latin American countries. Our estimating equation is model-based and shows that these fixed costs depend on the history of preference utilization. Most of the effect comes from experience in the same product and same partner, with some spillover to other partners buying the same product. There is little learning from experience in other products and other partners. When considering products that have been under preferences for a while, some learning might have occurred prior to the start of our data. Using a natural experiment in Argentina, where some products were newly brought under preferences, we show that learning is indeed larger for such products. As facilitating preference use today also makes it easier to use preferences in the future, interventions early on in the life of the FTA to reduce such costs would be more effective.

PISA is seen as the gold standard for evaluating educational outcomes worldwide. Yet, being a low-stakes exam, students may not take it seriously resulting in downward biased scores and inaccurate rankings. This paper provides a method to identify and account for non-serious behavior in low-stakes exams by leveraging information in computer-based assessments in PISA 2015. Our method corrects for non-serious behavior by fully imputing scores for items not taken seriously. We compare the scores/rankings calculated by our method to the scores/rankings calculated by giving zero points to skipped items as well as to the scores/rankings calculated by treating skipped items at the end of the exam as if they were not administered, which is the procedure followed by PISA. We show that a country can improve its ranking by up to 15 places by encouraging its own students to take the exam seriously and that the PISA approach corrects for only about half of the bias generated by the non-seriousness.

Placement, both in university and in the civil service, according to performance in competitive exams is the norm in much of the world. Repeat taking of such exams is common despite the private and social costs it imposes. We develop and estimate a structural model of exam retaking using data from Turkey`s university placement exam. Limiting retaking results in all agents gaining ex-ante, and most gaining expost. This result comes from a general equilibrium effect: retakers crowd the market and impose negative spillovers on others by raising acceptance cutoffs.

This paper develops a new model with heterogeneous firms under perfect competition in a Heckscher-Ohlin setting. We derive a novel prediction regarding the effect of minimum wages on selection, namely that a binding minimum wage will raise (or lower) TFP at the firm and industry level depending on whether the capital intensity of entry costs exceeds (falls short of) that of production. Exploiting rich regional variation in minimum wages across Chinese counties and using firm level production data, we find robust evidence in support of causal effects of minimum wages consistent with our theoretical predictions.

What do applicants take into consideration when choosing a high school? To what extent do schools contribute to their students' academic success? To answer these questions, we model students' preferences and obtain average valuation placed on each school. We then investigate what drives these valuations by carefully controlling for endogeneity using a set of creative instruments suggested by our model. We find that valuation is based on a school's location, its selectivity as measured by its cutoff score, value added and past performance in university entrance exams. However, cutoffs affect school valuation an order of magnitude more than does value added. © 2016 Elsevier B.V.

This paper shows that how firms export (directly or indirectly via intermediaries) matters. We develop and estimate a dynamic discrete choice model that allows learning-by-exporting on the cost and demand side as well as sunk/fixed costs to differ by export mode. We find that demand and productivity evolve more favorably under direct exporting, though the fixed/sunk costs of this option are higher. Our results suggest that had China not liberalized its direct trading rights when it joined the WTO, its exports and export participation would have been 26 and 33% lower respectively.

This paper identifies a new reason for giving preferences to the disadvantaged using a model of contests. There are two forces at work: the effort effect working against giving preferences and the selection effect working in favor of them. When education is costly and easy to obtain (as in the United States), the selection effect dominates. When education is heavily subsidized and limited in supply (as in India), preferences are welfare reducing. The model also shows that unequal treatment of identical agents can be welfare improving, providing insights into when the counterintuitive policy of rationing educational access to some subgroups is welfare improving. (JEL H52, H75, I23, I28, J15, O15)

Obtaining lower generalized system of preferences (GSP) tariffs requires meeting costly Rules of Origin (ROOs). Growing coffee in the shade is more costly, but yields a price premium. This paper analyzes the effects of such restrictions in a general equilibrium setting and shows that such policies may have unanticipated effects. It is shown that in a world with capital mobility, the GSP could result in capital outflows rather than inflows and consumer preferences for shade grown coffee end up hurting labor in developing countries. Even small subsidies that are contingent on the use of domestic intermediates can result in specialization in the targeted good. Value added contingent policies can easily lead to multiple equilibria despite the absence of externalities or market imperfections.

Using detailed data on the 2008 graduating class from an elite engineering institution in India, we evaluate the impact of affirmative action policies in higher education focusing on three issues: targeting, catch up, and mismatch. We find that admission preferences effectively target minority students who are poorer than average displaced nonminority students. Moreover, we find that minority students, especially those in more selective majors, fall behind their same-major peers in terms of grades as they progress through college. We also identify evidence in favor of the mismatch hypothesis: Once we control for selection into majors, minority students in more selective majors end up earning less than they would have had if they had chosen a less selective major.

This paper builds a tractable partial equilibrium model to help explain the role of trade preferences given to developing countries, as well as the efficacy of various subsidy policies. The model allows for firm level heterogeneity in demand and productivity and lets the mass of firms that enter be endogenous. Trade preferences given by one country have positive spillovers on exports to others in this model. Preferences given by the European Union to Bangladesh in an industry raise profits, resulting in entry, and some of these firms also export to the United States. The parameters of the model are estimated using cross sectional customs data on Bangladeshi exports of apparel to the United States and European Union. Counterfactual experiments regarding the effects of reducing costs, both fixed and marginal, or of trade preferences offered by an importing country are performed. The counterfactuals show that reducing fixed costs at various levels has very different effects and suggest that such reductions are more effective in promoting exports when applied at later stages when firms are more committed to production. A subsidy of 1.5 million dollars to industry entry costs raises exports by only 0.4 dollars for every dollar spent, but when applied to fixed costs of production, it raises exports by $25 per dollar spent.

Why do developing countries fail to specialize in products in which they appear to have a comparative advantage? We propose a model of agricultural trade with intermediation that explains how hold up resulting from poor contracting environments can produce such an outcome. We use the model to explore the role of production subsidies, support prices, easing sanitary and phytosanitary (SPS) requirements, and the creation of local markets in resolving the hold up problem. The model highlights the importance of infrastructure in aligning production outcomes with comparative advantage and sheds light on the pass-through of the world price to the producer. (JEL F11, O13, Q11, Q17, Q18)

The importance of Total Factor Productivity (TFP) in explaining output changes is widely accepted, yet its sources are not well understood. We use a proprietary data set on the oor-level operations at the Bhilai Rail and Structural Mill (RSM) in India to understand the determinants of changes in plant productivity between January 2000 and March 2003. During this period there was a 35% increase in output with minimal changes in the stock of physical capital or the number of employees, but sizable reductions in the number and duration of various types of production delays. We model interruptions to the production process as a function of worker characteristics and find that a large part of the avoidable delay reductions are attributable to training. Overall, changes in all delays account for over half the changes in productivity. Our results provide some explanation for the large within-industry di erences in productivity observed in developing countries and also suggest that specic knowledge-enhancing investments can have very high returns. Our approach also provides an example of how detailed data on production processes can be fruitfully used to better understand TFP changes, which have typically been treated as residuals in growth-accounting exercises.

Placement, both in university and in the civil service, according to performance in competitive exams is the norm in much of the world. Repeat taking of such exams is common despite the private and social costs it imposes. We develop and estimate a structural model of exam retaking using data from Turkey`s university placement exam. Limiting retaking results in all agents gaining ex-ante, and most gaining expost. This result comes from a general equilibrium effect: retakers crowd the market and impose negative spillovers on others by raising acceptance cutoffs.

We model and estimate the decision to answer questions in multiple choice tests with negative marking. Our focus is on the trade-off between precision and fairness. Negative marking reduces guessing, thereby increasing accuracy considerably. However, it reduces the expected score of the more risk averse, discriminating against them. Using data from the Turkish University Entrance Exam, we find that students' attitudes towards risk differ according to their gender and ability. Women and those with high ability are significantly more risk averse: nevertheless, the impact on scores of such differences is small, making a case for negative marking.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

This paper provides a new heterogeneous firm model for trade where firms differ in their productivity and experience different market demand shocks. The model incorporates variations in trade policy, trade preferences, and the rules of origin needed to obtain them, to reflect real world differences faced by Bangladeshi garment exporters in the US and EU. We estimate firms' productivity using an extension of the Olley Pakes procedure that accounts for the biases arising from both demand shocks and productivity being unobserved. Predictions of the model are then tested non-parametrically and are shown to be supported empirically.

This paper revisits the effects of tariffs and quotas in a competitive setting where three results are thought to hold. These are: that quotas are equivalent to specific tariffs, the form of tariffs—specific or ad valorem—does not matter, and that the way in which a quota is allocated has no real effects as it only affects the allocation of rents, not their size. We show that all three of these results are false when entry/exit is endogenous. Equivalence holds only if the initial level of entry is set at the long-run level under the quota.

In this paper we develop a general equilibrium model where credit constraints limit the ability of agents with heterogeneous abilities and wealth to acquire skills. We identify a new effect, the induced Rybczynski effect, that works in the opposite direction from the normal supply response and may result in relative supply being downward-sloping. We analyze the effects of trade and show that under some conditions trade may reduce welfare. Finally, we study the effects of trade on income distribution and inequality.

This paper critically and selectively surveys the literature on protection for sale and discusses directions for future research in this area. It suggests that the standard approach needs to be augmented to provide more compelling tests of this model. © 2008 Elsevier Inc. All rights reserved.

This paper shows that the result of Ju and Krishna [Ju, J., Krishna, K., 2002. Regulations, Regime Switches and Non-Monotonicity when Non-Compliance is an Option: An Application to Content Protection and Preference. Economic Letters 77, 315–321, Ju, J., Krishna, K., 2005. Firm Behavior and Market Access in a Free Trade Area with Rules of Origin. Canadian Journal of Economics 38 (1), 290–308], i.e., the non-monotonicity in the comparative statics across regimes, disappears, if exporters differ in their productivities, which provides very different predictions about the results of policy changes.

This paper looks at the predictions of a standard heterogeneous firm model regarding the exports of firms across markets in response to a particular trade policy "experiment" and compares these predictions to the data. A unique feature of our data is that it has information on the exports of the same firm to different markets which allows us to look for a new set of predictions of such models. We argue that while certain predictions seem consistent with the data, others are not. We then describe the patterns found in the data and argue that firm and market specific demand shocks help explain a number of these anomalies. These parsimoniously capture factors, like business contacts or networks, or even fashion shocks, that make buyers more attracted to one firm rather than another in a particular market.

This paper shows that the results of Venables (1987) depend critically on the assumption that there are no fixed costs of trade. The introduction of fixed costs of exporting, while making the model more consistent with the empirical evidence, leads to the opposite conclusion that technological progress in one country cannot harm the welfare of its trading partner. However, the results can be obtained in a richer setting with heterogeneous firms.

We present a simple model where complementarities between wages and demand due to factor market distortions can make a transition economy worse off from trade. Prior to trade, a virtuous circle prevails: high wages in industry support a high demand for indivisible industrial goods, which in turn supports high wages. However, factor market distortions in the transition economy create a comparative disadvantage in industry. Opening up to trade results in the import of indivisibles and a fall in manufacturing wages, breaking this virtuous circle. Consequently, trade liberalization without structural reform can have serious adverse effects in a transition economy. D 2005 Elsevier B.V. All rights reserved.