Working Papers
Diversification for survival: Effect of Foreign Competition on Related Diversification (Under preparation)
Abstract:
This study examines whether foreign competition affects related diversification. To obtain exogenous variation in product market competition, I exploit a quasi-natural experiment provided by large currency appreciation that occurred between 2005 and 2010 in the manufacturing sector of commodity-exporting countries. This paper examines the impact of a significant real appreciation of the Colombian Peso in the 2000s at the product-firm level. A currency appreciation shock affects a firm through two different channels: (1) Firms adjust their product portfolio by reducing sales and dropping products affected by an appreciation shock; (2) firms are more likely to add products when they have higher levels of relatedness to the core products under competitive pressure. These findings provide the first evidence on how foreign competition affect corporate diversification at the product level.gn competition in a firm’s product reallocation and diversification with respect to the firm’s core competence. Recognizing the importance of human capital as a non-scale free resource, a firm’s choice of diversification targets will depend on whether these targets offer opportunities for leveraging existing human resources. If one product line is affected by foreign competition, a multi-product firm may be able to deploy its resources back into a related product. Using information on cross-industry labor flows, this study shows that: (1) Firms are more likely to drop product affected by an appreciation shock; (2) firms are more likely to reallocate products when they have higher levels of relatedness; (3) productivity measured at product- and firm- levels decreases after an appreciation shock. These findings provide the first evidence that increased foreign competition had a positive effect on related diversification while an arguable negative effect on performance, at least in the short run.
Abstract:
The natural resource boom of the 2000s spurred growth in income and consumption in commodity-exporting nations. However, this paper brings together a previously unused combination of data sets from Colombia to document evidence of a downside -- the currency appreciation associated with this boom led to a significant decline in the R&D and technological upgrading of Colombian manufacturing firms. Our empirical strategy exploits differences in firms’ sales across products and export destinations to create firm-specific measures of exchange rate appreciation that gauge firms’ exposure to exchange rate shocks abroad and at home. We link these new measures of exposure with Colombian micro data on R&D investment and technology upgrading. The key finding is that real exchange rate appreciation drives significant reductions in firm-level R&D investment and a broader measure of technology upgrading that includes expenditure on machinery, equipment, and ICTs. The estimated effects are quite large: a one-standard deviation increase in the real exchange rate (a shift that lies well within the experience of some firms over our sample period) induces a reduction of R&D investment of 12% to 43% and a reduction in technology upgrading of 18.8% to 37.6%, depending on the specification. Currency appreciation generally exposes Colombian manufacturing firms to greater foreign competition, but we find that those firms which experienced greater exposure to Chinese competition saw even greater declines in R&D. Our estimated effects suggest that the resource boom and associated appreciation could have a significant and persistent negative effect on the productivity growth and technological development of Colombian manufacturing firms. Similarities between Colombia and other commodity-exporters suggest that these effects may be widespread.
When Science Strikes Back - Does having a scientific background help leaders save lives under uncertainty?
Abstract:
This paper investigates the impact of a scientific background on leaders' ability to generate value in uncertain situations. Specifically, we examine a natural experiment during the Covid pandemic, where politicians with scientific expertise were responsible for making critical decisions regarding public health. By employing a regression discontinuity design, we focus on closely contested mayoral races at the municipal level in Brazil, comparing candidates with STEM (science, technology, engineering, and math) backgrounds to those without. Our findings reveal that the election of STEM mayors is associated with a reduction of Covid deaths and hospitalizations, through the implementation of non-pharmaceutical interventions (NPIs) such as mandatory face mask usage. Furthermore, we find suggestive evidence that the observed impact was influenced by the scientific intensity of the leaders. Importantly, we demonstrate that these results are not attributable to other observable mayoral characteristics, including years of education, ideology, or gender. The results of our study suggest that municipal leaders with STEM training were better equipped to handle the challenges presented by a crisis situation characterized by limited data and evidence. We discuss the implications of our findings, highlighting that investment in science and technology-related human capital can generate unintended positive externalities, such as improvements in public decision-making. By examining the specific context of the Covid pandemic and leveraging a rigorous research design, this study contributes to our understanding of the role played by leaders' scientific backgrounds in crisis management. It underscores the potential benefits of training in scientific education for leaders, highlighting their capacity to effectively navigate emergencies and make informed decisions with limited information.
Work in Progress
“Are Geographical Indications a good differentiation strategy? The D.O.C. effect on performance”
"Doomed after the Scandal: Career options under stigma"