Oscar Eduardo FENTANES TELLEZ's PhD Thesis, June 14th,2024

June 14, 2024 Research

Oscar Eduardo FENTANES TELLEZ will defend his thesis on Friday 14 June at 10:00am, Auditorium 5
Title: «Essays on Firm Dynamics and Development»

Supervisors: Pr. Fabrice Collard and Pr. Christian Hellwig

To attend the conference, please contact the secretariat Christelle Fotso Tatchum

Memberships are:

  • Fabrice COLLARD : Senior Researcher, CNRS/TSE-R Directeur de thèse
  • Christian HELLWIG : Scientific Director, TSE-R Co-directeur de thèse
  • Julian NEIRA : Associate Professor of Economics, University of Exeter Rapporteur
  • Martial DUPAIGNE : Professor in Economics, Université Paul Valéry - Montpellier 3 Rapporteur

Abstract :

Firms and their entry, exit, and productivity growth processes are at the heart of economic development. This thesis presents three essays on how key elements of the economic environment shape firm dynamics in developing countries, including infrastructure, adjustment frictions, and regulations.

In the first chapter, Matias Busso and I study what determines the aggregate and regional effects of new transportation infrastructure. A key overlooked channel is the role that infrastructure policy plays in changing the incentives of firms to enter, exit, and grow – in turn generating endogenous changes in local productivity. The chapter documents and quantifies the importance of this channel by using detailed Mexican microdata and a spatial general-equilibrium model incorporating firm dynamics. Leveraging random delays in the construction of highways, we empirically show that productivity grows in places with better transportation infrastructure. Firms play a critical role in driving these results: highways increase firms’ size, entry rates, survival rates, and total factor productivity. Then, by calibrating our model on census data between 1998 and 2018, we find that new highways over this period increased welfare and income by half a percent, similar to its costs in terms of GDP. Moreover, we find substantial spatial reallocation of workers and production. Nearly half of these effects are explained by endogenous changes in local productivity, which is driven by firm dynamics.

In the second chapter, co-authored with Jonas Gathen, we focus on the drivers of growth miracles. We argue that growth miracles are driven by a fundamental race: as the economy tries to catch up to its steady state, changes in the economic environment move the steady state itself and provide new potential for catch-up growth. We quantify this race over the course of development using 40 years of plant-level manufacturing panel data from Indonesia and a structural model of plant dynamics. We estimate the model on the micro data along the observed growth path without assuming that the economy is ever at a steady state. While catch-up growth starting from initial conditions in 1975 accounts for 42% of Indonesia's subsequent industrialization, new changes in the economy induce new catch-up growth. In the end, the economy is in a never-ending race where it never catches up to its full potential.

In the third chapter, Santiago Levy and I study a common growth paradox in developing countries, where fast industrialization might be coupled with low aggregate productivity growth. We argue that the paradox can be explained by two opposing forces. On the one hand, governments introduce policies that promote growth, such as trade liberalization, competition agencies, and regulatory bodies; and on the other hand, policies segment the economy into formal and informal sectors. To shed light on this outcome, we construct a 20-year establishment-level panel dataset for Mexico, a country where manufacturing exports grew from seven to 33% of GDP, but labor informality barely changed, firm informality increased, and TFP growth was negative. We find that many high-productivity formal firms exit; surviving firms' size and productivity hardly grow, and many informalize; entrants are less productive than survivors, mostly because of large informal entry. Finally, we show that while manufacturing performs better, its contribution to TFP is modest because informality persists in the sector; and despite spectacular export growth, the country is now de-industrializing.