Two Essays in Macroeconomic Development
Open Access
- Author:
- Padmakumar, Kalyani
- Graduate Program:
- Economics
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- April 21, 2023
- Committee Members:
- Fernando Parro, Major Field Member
Edward Jaenicke, Outside Unit & Field Member
Kala Krishna, Chair & Dissertation Advisor
Marc Henry, Professor in Charge/Director of Graduate Studies
Shoumitro Chatterjee, Special Member
James Tybout, Major Field Member - Keywords:
- Misallocation
total factor productivity
size-based regulations
exit barriers
structural estimation
firm-level data
institutions
causal evidence - Abstract:
- This dissertation consists of two chapters on topics in Macroeconomic Development. In Chapter 1, I propose a new approach to quantify the aggregate implications of size-based labor regulations. Firms with employment exceeding a threshold level are more regulated than smaller firms in many countries. Current work gauges such rules' impact based on whether firms bunch at the threshold, with more bunching taken to imply higher regulatory costs. In this chapter, I show that size-based rules can be highly restrictive for firms even with no bunching. I argue using India's employment protection legislation (EPL) that applies to manufacturing plants with more than 100 full-time workers. Although plants do not bunch at 100 workers, I show that EPL restricts the employment growth of plants by lowering their transitions from below to above the regulatory threshold. Plants near the threshold also substitute towards contract workers and capital, to which EPL does not apply. To quantify aggregate implications, I develop and estimate a structural dynamic heterogeneous firm model with multiple factors of production and labor search costs. Counterfactuals suggest that removing EPL would make more firms enter and hire full-time workers faster, raising full-time employment and output by 9% and 4% in the long run. In Chapter 2, joint with Shoumitro Chatterjee, Kala Krishna, and Yingyan Zhao, we quantify the role of exit barriers in the under-development of India's manufacturing sector. Manufacturing firms in India exit at a much lower rate than their counterparts in the US and other developing countries. We argue that Indian institutions create frictions in the exit and adjustment of manufacturing firms. This chapter has two parts. In the first part, we document causal evidence that shows the presence of structural factors driving exit costs in India and how firms respond to these costs. In the second part, we develop and estimate a dynamic heterogeneous firm model with entry, exit, and input adjustment costs. This allows us to pin down the magnitudes of exit and adjustment costs, and their implications for firm development and total factor productivity in the manufacturing sector.