This study explains the evolution of wage inequality over the last 30 years and supports this explanation with evidence. At each level of schooling, a faster rate of technological progress weakens the link between schooling and work and increases the unknown needed to cope with during one's...

It has been a remarkably difficult empirical task to identify clear-cut real effects of exchange-rate regimes on the open economy. Similarly, no definitive view emerges as to the aggregate effects of capital account liberalizations. The main hypothesis of the Paper is that a direct and an...

The Paper provides a reconciliation of Lucas’ paradox, based on fixed setup costs of new investments. With such costs, it does not pay a firm to make a ‘small’ investment, even though such an investment is called for by marginal productivity conditions. Using a sample of 45 developed and...

The Paper develops a model with lumpy setup costs of new investment, which govern the flows of FDI. Foreign investment decisions are two-fold: whether to export FDI and, if so, how much. The first decision is governed by total profitability considerations, whereas the second is governed by...

We develop a novel model of campaigns, elections, and policymaking in which the ex ante objectives of national party leaders differ from the ex post objectives of elected legislators. This generates a distinction between "policy rhetoric" and "policy reality" and introduces an important role for...

Suppose that an opportunity arises for two countries to negotiate a free trade agreement (FTA). Will an FTA between these countries be politically viable? If so, what form will it take? We address these questions using a political economy framework that emphasizes the interaction between...

Investment in research and development (R&D) affects a country's total factor productivity. Recently new theories of economic growth have emphasized this link and have also identified a number of channels through which a country's R&D affects total factor productivity of its trade partners....

This Economica Coase Lecture reviews research that has revolutionized the field of international trade and foreign direct investment. It explains the motivation behind the development of new analytical frameworks, the nature of these frameworks, and the empirical studies that sprouted from them.

We introduce firm and worker heterogeneity into a model of innovation-driven endogenous growth. Individuals who differ in ability sort into either a research sector or a manufacturing sector that produces differentiated goods. Each research project generates a new variety of the differentiated...

We develop a neoclassical trade model with heterogeneous factors of production. We consider a world with two factors, labor and "managers", each with a distribution of ability levels. Production combines a manager of some type with a group of workers. The output of a unit depends on the types of...