Postdoctoral Publications

Zhao, D., Chen, Y. & Shen, J.H., 2020. Mortgage Payments and Household Consumption in Urban China. Economic Modelling , 93 , pp. 100-111.Abstract

By exploiting variation both in mortgage payoffs and mortgage interest rate resets, we find that a decline in mortgage payments induces a significant increase in nondurable goods spending, even when households have substantial amounts of liquidity. Following mortgage payoff, households increase consumption expenditures by 61% of the original payment. In comparison, households increase consumption by only 36% in response to a transitory payment adjustment induced by interest rate changes. Households with a higher payment-to-income ratio have a significantly lower marginal propensity to consume (MPC). These results have practical implications for policy markers seeking to design consumption boosting policies and are important for understanding how changes in monetary policy may affect consumer spending patterns.

Coscia, M., Neffke, F. & Hausmann, R., 2020. Knowledge Diffusion in the Network of International Business Travel. Nature Human Behaviour. Publisher's VersionAbstract
We use aggregated and anonymized information based on international expenditures through corporate payment cards to map the network of global business travel. We combine this network with information on the industrial composition and export baskets of national economies. The business travel network helps to predict which economic activities will grow in a country, which new activities will develop and which old activities will be abandoned. In statistical terms, business travel has the most substantial impact among a range of bilateral relationships between countries, such as trade, foreign direct investments and migration. Moreover, our analysis suggests that this impact is causal: business travel from countries specializing in a specific industry causes growth in that economic activity in the destination country. Our interpretation of this is that business travel helps to diffuse knowledge, and we use our estimates to assess which countries contribute or benefit the most from the diffusion of knowledge through global business travel.
Hausmann, R. & Schetter, U., 2020. Horrible Trade-offs in a Pandemic: Lockdowns, Transfers, Fiscal Space, and Compliance.Abstract

In this paper, we develop a heterogeneous agent general equilibrium framework to analyze optimal joint policies of a lockdown and transfer payments in times of a pandemic. In our model, the effectiveness of a lockdown in mitigating the pandemic depends on endogenous compliance. A more stringent lockdown deepens the recession which implies that poorer parts of society find it harder to subsist. This reduces their compliance with the lockdown, and may cause deprivation of the very poor, giving rise to an excruciating trade-off between saving lives from the pandemic and from deprivation. Lump-sum transfers help mitigate this trade-off. We identify and discuss key trade-offs involved and provide comparative statics for optimal policy. We show that, ceteris paribus, the optimal lockdown is stricter for more severe pandemics and in richer countries. We then consider a government borrowing constraint and show that limited fiscal space lowers the optimal lockdown and welfare, and increases the aggregate death burden during the pandemic. We finally discuss distributional consequences and the political economy of fighting a pandemic.

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Schetter, U., 2020. Quality Differentiation, Comparative Advantage, and International Specialization Across Products.Abstract

We introduce quality differentiation into a Ricardian model of international trade. We show that (1) quality differentiation allows industrialized countries to be active across the full board of products, complex and simple ones, while developing countries systematically specialize in simple products, in line with novel stylized facts. (2) Quality differentiation may thus help to explain why richer countries tend to be more diversified and why, increasingly over time, rich and poor countries tend to export the same products. (3) Quality differentiation implies that the gains from inter-product trade mostly accrue to developing countries. (4) Guided by our theory, we use a censored regression model to estimate the link between a country’s GDP per capita and its export quality. We find a much stronger relationship than when using OLS, in line with our theory.

Shen, J.H., et al., 2020. Profit Sharing, Industrial Upgrading, and Global Supply Chains: Theory and Evidence.Abstract

This paper constructed a simple model to illustrate the global supply chain profit sharing and industrial upgrading mechanism, from which it was found that the average profitability distribution in the different supply chain stages was determined by two main factors: (1) the average product of the labor in the firms at each production stage; and (2) the ratio of the output elasticity of capital to the output elasticity of labor in each stage. This paper also proposed a new industrial upgrading mechanism, the ‘inter-supply chain upgrading’, for supply chain firms. Rises in production complexity and increased factor intensity in each production stage were found to be the two essential conditions for the inter-supply chain upgrading. The empirical study results were found to be broadly consistent with the proposed theories.

Revised May 2020.
Machine-learned patterns suggest that diversification drives economic development
Gomez, A., et al., 2020. Machine-learned patterns suggest that diversification drives economic development. Journal of the Royal Society Interface , 17 (162). Publisher's VersionAbstract
We combine a sequence of machine-learning techniques, together called Principal Smooth-Dynamics Analysis (PriSDA), to identify patterns in the dynamics of complex systems. Here, we deploy this method on the task of automating the development of new theory of economic growth. Traditionally, economic growth is modelled with a few aggregate quantities derived from simplified theoretical models. PriSDA, by contrast, identifies important quantities. Applied to 55 years of data on countries’ exports, PriSDA finds that what most distinguishes countries’ export baskets is their diversity, with extra weight assigned to more sophisticated products. The weights are consistent with previous measures of product complexity. The second dimension of variation is proficiency in machinery relative to agriculture. PriSDA then infers the dynamics of these two quantities and of per capita income. The inferred model predicts that diversification drives growth in income, that diversified middle-income countries will grow the fastest, and that countries will converge onto intermediate levels of income and specialization. PriSDA is generalizable and may illuminate dynamics of elusive quantities such as diversity and complexity in other natural and social systems.
Schetter, U. & Tejada, O., 2019. On Globalization and the Concentration of Talent.Abstract
We analyze how globalization affects the allocation of talent across competing teams in large matching markets. Assuming a reduced form of globalization as a convex transformation of payoffs, we show that for every economy where positive assortative matching is an equilibrium without globalization, it is also an equilibrium with globalization. Moreover, for some economies positive assortative matching is an equilibrium with globalization but not without. The result that globalization promotes the concentration of talent holds under very minimal restrictions on how individual skills translate into team skills and on how team skills translate into competition outcomes. Our analysis covers many interesting special cases, including simple extensions of Rosen (1981) and Melitz (2003) with competing teams.
The Value of Complementary Coworkers
Neffke, F., 2019. The Value of Complementary Coworkers. Science Advances , 5 (12). Publisher's VersionAbstract

As individuals specialize in specific knowledge areas, a society’s know-how becomes distributed across different workers. To use this distributed know-how, workers must be coordinated into teams that, collectively, can cover a wide range of expertise. This paper studies the interdependencies among co-workers that result from this process in a population-wide dataset covering educational specializations of millions of workers and their co-workers in Sweden over a 10-year period. The analysis shows that the value of what a person knows depends on whom that person works with. Whereas having co-workers with qualifications similar to one’s own is costly, having co-workers with complementary qualifications is beneficial. This co-worker complementarity increases over a worker’s career and offers a unifying framework to explain seemingly disparate observations, answering questions such as “Why do returns to education differ so widely?” “Why do workers earn higher wages in large establishments?” “Why are wages so high in large cities?”

Additional resources: WebsitePodcast | Video | Media Release

Nedelkoska, L. & Neffke, F., 2019. Skill Mismatch and Skill Transferability: Review of Concepts and Measurements. Papers in Evolutionary Economic Geography , 19 (21). Publisher's VersionAbstract
The notion of skills plays an increasingly important role in a variety of research fields. Since the foundational work on human capital theory, economists have approached skills through the lens of education, training and work experience, whereas early work in evolutionary economics and management stressed the analogy between skills of individuals and the organizational routines of firms. We survey how the concept of skills has evolved into notions such as skills mismatch, skill transferability and skill distance or skill relatedness in labor economics, management, and evolutionary approaches to economics and economic geography. We find that these disciplines converged in embracing increasingly sophisticated approaches to measuring skills. Economists have expanded their approach from quantifying skills in terms of years of education to measuring them more directly, using skill tests, self-reported skills and job tasks, or skills and job tasks reported by occupational experts. Others have turned to administrative and other large-scale data sets to infer skill similarities and complementarities from the careers of sometimes millions of workers. Finally, a growing literature on team human capital and skill complementarities has started thinking of skills as features of collectives, instead of only of individuals. At the same time, scholars in corporate strategy have studied the micro-determinants of team formation. Combined, the developments in both strands of research may pave the way to an understanding of how individual-level skills connect to firm-level routines.
Schetter, U., Gersbach, H. & Schneider, M.T., 2019. Taxation, Innovation, and Entrepreneurship. The Economic Journal , 129 (620) , pp. 1731-1781. Publisher's VersionAbstract
We explore optimal and politically feasible growth policies consisting of basic research investments and taxation. We show that the impact of basic research on the general economy rationalises a taxation pecking order with high labour taxes and low profit taxes. This scheme induces a significant proportion of agents to become entrepreneurs, thereby rationalising substantial investments in basic research fostering their innovation prospects. These entrepreneurial economies, however, may make a majority of workers worse off, giving rise to a conflict between efficiency and equality. We discuss ways of mitigating this conflict, and thus strengthening political support for growth policies.
Schetter, U., 2019. A Structural Ranking of Economic Complexity.Abstract
We propose a structural alternative to the Economic Complexity Index (ECI, Hidalgo and Hausmann 2009; Hausmann et al. 2011) that ranks countries by their complexity. This ranking is tied to comparative advantages. Hence, it reveals information different from GDP per capita on the deep underlying economic capabilities of countries. Our analysis proceeds in three main steps: (i) We first consider a simplified trade model that is centered on the assumption that countries’ global exports are log-supermodular (Costinot, 2009a), and show that a variant of the ECI correctly ranks countries (and products) by their complexity. This model provides a general theoretical framework for ranking nodes of a weighted (bipartite) graph according to some under- lying unobservable characteristic. (ii) We then embed a structure of log-supermodular productivities into a multi-product Eaton and Kortum (2002)-model, and show how our main insights from the simplified trade model apply to this richer set-up. (iii) We finally implement our structural ranking of economic complexity. The derived ranking is robust and remarkably similar to the one based on the original ECI.
Popularity Spikes Hurt Future Chances For Viral Propagation of Protomemes
Coscia, M., 2018. Popularity Spikes Hurt Future Chances For Viral Propagation of Protomemes. Communications of the ACM , 61 (1) , pp. 70-77. Publisher's VersionAbstract
A meme is a concept introduced by Dawkins12 as an equivalent in cultural studies of a gene in biology. A meme is a cultural unit, perhaps a joke, musical tune, or behavior, that can replicate in people's minds, spreading from person to person. During the replication process, memes can mutate and compete with each other for attention, because people's consciousness has finite capacity. Meme viral spreading causes behavioral change, for the better, as when, say, the "ALS Bucket Challenge" meme caused a cascade of humanitarian donations,a and for the worse, as when researchers proved obesity7 and smoking8 are socially transmittable diseases. A better theory of meme spreading could help prevent an outbreak of bad behaviors and favor positive ones.
Coscia, M., 2018. Using arborescences to estimate hierarchicalness in directed complex networks. PLoS ONE , 13 (1). Publisher's VersionAbstract
Complex networks are a useful tool for the understanding of complex systems. One of the emerging properties of such systems is their tendency to form hierarchies: networks can be organized in levels, with nodes in each level exerting control on the ones beneath them. In this paper, we focus on the problem of estimating how hierarchical a directed network is. We propose a structural argument: a network has a strong top-down organization if we need to delete only few edges to reduce it to a perfect hierarchy—an arborescence. In an arborescence, all edges point away from the root and there are no horizontal connections, both characteristics we desire in our idealization of what a perfect hierarchy requires. We test our arborescence score in synthetic and real-world directed networks against the current state of the art in hierarchy detection: agony, flow hierarchy and global reaching centrality. These tests highlight that our arborescence score is intuitive and we can visualize it; it is able to better distinguish between networks with and without a hierarchical structure; it agrees the most with the literature about the hierarchy of well-studied complex systems; and it is not just a score, but it provides an overall scheme of the underlying hierarchy of any directed complex network.
Birds of a feather scam together: Trustworthiness homophily in a business network
Barone, M. & Coscia, M., 2018. Birds of a feather scam together: Trustworthiness homophily in a business network. Social Networks , 54 (July 2018) , pp. 228-237. Publisher's VersionAbstract
Estimating the trustworthiness of a set of actors when all the available information is provided by the actors themselves is a hard problem. When two actors have conflicting reports about each other, how do we establish which of the two (if any) deserves our trust? In this paper, we model this scenario as a network problem: actors are nodes in a network and their reports about each other are the edges of the network. To estimate their trustworthiness levels, we develop an iterative framework which looks at all the reports about each connected actor pair to define its trustworthiness balance. We apply this framework to a customer/supplier business network. We show that our trustworthiness score is a significant predictor of the likelihood a business will pay a fine if audited. We show that the market network is characterized by homophily: businesses tend to connect to partners with similar trustworthiness degrees. This suggests that the topology of the network influences the behavior of the actors composing it, indicating that market regulatory efforts should take into account network theory to prevent further degeneration and failures.
The Mobility of Displaced Workers: How the Local Industry Mix Affects Job Search
Neffke, F., Otto, A. & Hidalgo, C., 2018. The Mobility of Displaced Workers: How the Local Industry Mix Affects Job Search. Journal of Urban Economics , 108 (November 2018) , pp. 124-140. Publisher's VersionAbstract
Are there Marshallian externalities in job search? We study how workers who lose their jobs in establishment closures in Germany cope with their loss of employment. About a fifth of these displaced workers do not return to social-security covered employment within the next three years. Among those who do get re-employed, about two-thirds leave their old industry and one-third move out of their region. However, which of these two types of mobility responses workers will choose depends on the local industry mix in ways that are suggestive of Marshallian benefits to job search. In particular, large concentrations of one’s old industry makes it easier to find new jobs: in regions where the pre-displacement industry is large, displaced workers suffer relatively small earnings losses and find new work faster. In contrast, large local industries skill-related to the pre-displacement industry increase earnings losses but also protect against long-term unemployment. Analyzed through the lens of a job-search model, the exact spatial and industrial job-switching patterns reveal that workers take these Marshallian externalities into account when deciding how to allocate search efforts among industries.
The workforce of pioneer plants: The role of worker mobility in the diffusion of industries
Hausmann, R. & Neffke, F., 2018. The workforce of pioneer plants: The role of worker mobility in the diffusion of industries. Research Policy. Publisher's VersionAbstract

Does technology require labour mobility to diffuse? To explore this, we use German social-security data and ask how plants that pioneer an industry in a location – and for which the local labour market offers no experienced workers – assemble their workforces. These pioneers use different recruiting strategies than plants elsewhere: they hire more workers from outside their industry and from outside their region, especially when workers come from closely related industries or are highly skilled. The importance of access to experienced workers is highlighted in the diffusion of industries from western Germany to the post-reunification economy of eastern German. While manufacturing employment declined in most advanced economies, eastern German regions managed to reindustrialise. The pioneers involved in this process relied heavily on expertise from western Germany: while establishing new manufacturing industries in the East, they sourced half of their experienced workers from the West.

Originally published as CID Working Paper 310
Kosack, S., et al., 2018. Functional structures of US state governments. Proceedings of the National Academy of Sciences of the United States of America. Publisher's VersionAbstract

Governments in modern societies undertake an array of complex functions that shape politics and economics, individual and group behavior, and the natural, social, and built environment. How are governments structured to execute these diverse responsibilities? How do those structures vary, and what explains the differences? To examine these longstanding questions, we develop a technique for mapping Internet “footprint” of government with network science methods. We use this approach to describe and analyze the diversity in functional scale and structure among the 50 US state governments reflected in the webpages and links they have created online: 32.5 million webpages and 110 million hyperlinks among 47,631 agencies. We first verify that this extensive online footprint systematically reflects known characteristics: 50 hierarchically organized networks of state agencies that scale with population and are specialized around easily identifiable functions in accordance with legal mandates. We also find that the footprint reflects extensive diversity among these state functional hierarchies. We hypothesize that this variation should reflect, among other factors, state income, economic structure, ideology, and location. We find that government structures are most strongly associated with state economic structures, with location and income playing more limited roles. Voters’ recent ideological preferences about the proper roles and extent of government are not significantly associated with the scale and structure of their state governments as reflected online. We conclude that the online footprint of governments offers a broad and comprehensive window on how they are structured that can help deepen understanding of those structures.

Visualizations and datasets available on project website >>


Patterson-Lomba, O. & Gomez-Lievano, A., 2018. On the Scaling Patterns of Infectious Disease Incidence in Cities.Abstract
Urban areas with larger and more connected populations offer an auspicious environment for contagion processes such as the spread of pathogens. Empirical evidence reveals a systematic increase in the rates of certain sexually transmitted diseases (STDs) with larger urban population size. However, the main drivers of these systemic infection patterns are still not well understood, and rampant urbanization rates worldwide makes it critical to advance our understanding on this front. Using confirmed-cases data for three STDs in US metropolitan areas, we investigate the scaling patterns of infectious disease incidence in urban areas. The most salient features of these patterns are that, on average, the incidence of infectious diseases that transmit with less ease– either because of a lower inherent transmissibility or due to a less suitable environment for transmission– scale more steeply with population size, are less predictable across time and more variable across cities of similar size. These features are explained, first, using a simple mathematical model of contagion, and then through the lens of a new theory of urban scaling. These frameworks help us reveal the links between the factors that determine the transmissibility of infectious diseases and the properties of their scaling patterns across cities.
Nedelkoska, L., Diodato, D. & Neffke, F., 2018. Is Our Human Capital General Enough to Withstand the Current Wave of Technological Change?.Abstract

The degree to which modern technologies are able to substitute for groups of job tasks has renewed fears of near-future technological unemployment. We argue that our knowledge, skills and abilities (KSA) go beyond the specific tasks we do at the job, making us potentially more adaptable to technological change than feared. The disruptiveness of new technologies depends on the relationships between the job tasks susceptible to automation and our KSA. Here we first demonstrate that KSA are general human capital features while job tasks are not, suggesting that human capital is more transferrable across occupations than what job tasks would predict. In spite of this, we document a worrying pattern where automation is not randomly distributed across the KSA space – it is concentrated among occupations that share similar KSA. As a result, workers in these occupations are making longer skill transitions when changing occupations and have higher probability of unemployment.

The globalisation of scientific mobility, 1970–2014
Czaika, M. & Orazbayev, S., 2018. The globalisation of scientific mobility, 1970–2014. Applied Geography , 96 (July).Abstract
This article provides an empirical assessment of global scientific mobility over the past four decades, based on bibliometric data. We find (i) an increasing diversity of origin and destination countries integrated in global scientific mobility, with (ii) the centre of gravity of scientific knowledge production and migration destinations moving continuously eastwards by about 1300 km per decade, (iii) an increase in average migration distances of scientists reflecting integration of global peripheries into the global science system, (iv) significantly lower mobility frictions for internationally mobile scientists compared to non-scientist migrants, (v) with visa restrictions establishing a statistically significant barrier affecting international mobility of scientists hampering the global diffusion of scientific knowledge.