This paper extends the Heckscher-Ohlin-Samuelson framework to allow for heterogeneous firms with capacity constraints. We show that the central theorems of the HOS model (as well as their standard generalizations via duality) carry over to our setting. Each firm has a supply curve that arises from random draws of cost/productivity for each unit of capacity. Units of capacity with costs below a threshold are active, and this threshold is called the selection cutoff. The lower this cost cutoff, the higher the firm's productivity. We show that selection is driven by the capital intensity in entry costs relative to unit production costs in the sector. Such selection is assumed away in previous work, which consequently predicts that trade makes selection in the comparative advantage sector stricter and, hence, productivity in this sector higher. Our model shows that things are less simple and depend on the trade's effect on selection, as well as on the change in factor prices. Finally, we present empirical evidence supporting our predictions about the effect of trade on productivity using Chinese firm-level data, when the U.S. granted permanent normal trade relations (PNTR) to China upon its WTO membership.

We investigate trade reallocations across countries during the US-China trade dispute. Using US import data, we find evidence of trade diversion in a range of industries and products, including products not targeted by US tariffs. We uncover three main underlying mechanisms. First, countries with a greater revealed comparative advantage in a product benefit more from these tariffs. Second, non-targeted products in similar industries are also affected, consistent with colocation effects. Third, countries that export more of a given product to the US because of the tariffs on China also export more of the same product to other countries as predicted by the Melitz model.

Many countries base college admissions on a centrally-administered test. Students invest a great deal of resources to improve their performance on the test, and there is growing concern about the high costs associated with these activities. We consider modifying the test by introducing performance-disclosure policies that pool intervals of performance rankings. Pooling affects the equilibrium allocation of students to colleges, which hurts some students and benefits others, but also affects students’ effort. We investigate how such policies can improve students’ welfare in a Pareto sense, study the Pareto frontier of pooling policies, and identify improvements that are robust to the distribution of college seats. We illustrate the potential applicability of our results with an empirical estimation that uses data on college admissions in Turkey. We find that a policy that pools a large fraction of the lowest performing students leads to a Pareto improvement in a contest based on the estimated parameters. A laboratory experiment based on the estimated parameters generally supports our theoretical predictions.

Meeting Rules of Origin (ROOs) in order to obtain lower tariffs in a Preferential Trading Area (PTA) is costly both in terms of production costs and fixed documentation costs. Using a model-based approach that corrects for endogeneity and a unique exporter-importer matched transaction-level customs dataset from Latin American countries, we show that preference usage patterns suggest that these fixed costs fall with exporters' experience in preference utilization, particularly that in the same product and with the same partner, indicating both the existence and channel of learning. Exploiting a natural experiment, we also show that newly covered products have much more learning as might be expected.

Using data from the Turkish University Entrance Exam, we investigate the extent of the gender gap in college placement, its underlying causes, and potential policy interventions. We estimate preferences using a novel approach which improves our ability to capture substitution patterns and find clear evidence that placement differences are primarily driven by preference differences across gender. We compare stipend subsidies to score bonuses that achieve gender parity. Score subsidies improve the welfare of women almost entirely at the cost of men with similar scores and favor high-income women. Stipend subsidies improve the welfare of women, but at little cost to men and favor low-income women. Our work is the first to show that how gender neutrality is achieved matters to society.

It has been documneted across a number of datasets that a large farction of the new products introduced by incumbent exporters are dropped due to low sales within the first year. This regularity is consistent with firms facing uncertaitny in the export market and has spurred the interest in whether firms learn about their market potential as they gain experience in the export market in a Bayesian manner. In the context of multiproduct firms, learning means updating beliefs about a firm-specific effect as the firms observes the success of the products it has exported into the market. Similarly to a number of other studies we document that as much as 40\% of new products by Chinese manufactures to the United States are droped within the first year due to low sales. However, we also document that firms introduce their best products first: products introduced earlier in a firms' exporting career tend to have higher average sales. Guided by these empirical regularities we develop a model where firms learn about the firm-specific brand effect, but unlike earlier models we allow firms to have private knowledge about which of their products are most likely to succeed in the export market. When we take into account such private knowledge we find that learning plays a less important role in export growth than has previously beeen thought.

We investigate the phenomenon of trade re-allocations across countries as a result of the U.S.- China trade war. Using quarterly data on U.S. imports, we find evidence, as do others, of trade diversion in a range of industries and products, including products not targeted by U.S. tariffs on China. We are however the first to ask what seems to drive these trade reallocation activities. First, we show that they seem to be driven by differences in comparative advantage across countries: countries with a greater revealed comparative advantage in a product benefit (in terms of exports to the U.S.) more from U.S. tariffs on China. Second, we show that there is evidence of spillovers to similar non-targeted products: products in similar industries (as defined by their HS codes) are also similarly affected. This is consistent with the colocation effects. Third, our findings also suggest that bystander countries with greater capital abundance are more heavily impacted in capital-intensive industries, suggesting that a higher proportion of more flexible or transferable assets provides flexibility to alter production to respond to new trade opportunities. Finally, we show that the countries that export more to the U.S. as a result of the tariffs on China also export more to other countries. This suggests that firms are entering these countries and once there, export not just to the U.S. but everywhere.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

PISA is seen as the gold standard for evaluating educational outcomes worldwide. Yet, being a low-stakes exam, students may not take it seriously resulting in downward biased scores and inaccurate rankings. This paper provides a method to identify and account for non-serious behavior in low-stakes exams by leveraging information in computer-based assessments in PISA 2015. Our method corrects for non-serious behavior by fully imputing scores for items not taken seriously. We compare the scores/rankings calculated by our method to the scores/rankings calculated by giving zero points to skipped items as well as to the scores/rankings calculated by treating skipped items at the end of the exam as if they were not administered, which is the procedure followed by PISA. We show that a country can improve its ranking by up to 15 places by encouraging its own students to take the exam seriously and that the PISA approach corrects for only about half of the bias generated by the non-seriousness.

Using high quality administrative data on Greece we show that class size has a hump shaped effect on achievement. We do so both nonparametrically and parametrically, while controlling for potential endogeneity and allowing for quantile effects. We then embed our estimates for this relationship in a dynamic structural model with costs of hiring and firing. We argue that the linear specification form used in past work may be why it found mixed results. Our work suggests that while discrete reductions in class size may have mixed effects, discrete increases are likely to have very negative effects while marginal changes in class size would have small negative effects. We find optimal class sizes around 27 in the absence of adjustment costs and achievement maximizing ones around 15, and firing costs much larger than hiring costs consistent with the presence of unions. Despite this, reducing firing costs actually reduces achievement. Reducing hiring costs raises achievement and reduces class size. We show that class size caps are costly, and more so for small schools, even when set at levels well above average.

This paper develops a new model with heterogeneous firms under perfect competition in a Heckscher-Ohlin setting. We derive a novel prediction regarding the effect of minimum wages on selection, namely that a binding minimum wage will raise (or lower) TFP at the firm and industry level depending on whether the capital intensity of entry costs exceeds (falls short of) that of production. Exploiting rich regional variation in minimum wages across Chinese counties and using firm level production data, we find robust evidence in support of causal effects of minimum wages consistent with our theoretical predictions.

Placement, both in university and in the civil service, according to performance in competitive exams is the norm in much of the world. Repeat taking of such exams is common despite the private and social costs it imposes. We develop and estimate a structural model of exam retaking using data from Turkey's university placement exam. Limiting retaking results in all agents gaining ex ante and most gaining ex post. This result comes from a general equilibrium effect: Retakers crowd the market and impose negative spillovers on others by raising acceptance cutoffs.

In this paper aggregate labour quality and the first order quality indices of education, age and gender have been estimated using the JGF (1987) methodology for the Indian economy, its broad sectors, disaggregated 27 Indian industries and for the organized and unorganized manufacturing industries. The objective is to find out the changes which have taken place in different labour characteristics over time. It is important as all employed persons are not homogeneous and any change over time in its characteristics has its effect on its marginal product and hence on productivity and growth of GDP. The period covered for the analysis is 1980-81 to 2014-15, which is divided into three-sub-periods, 1980-81 to 1993-94, 1994-95 to 2002-03 and 2003-04 to 2014-15, and the period covered for the organized and unorganized manufacturing industries labour quality indices is 2000-01 to 2014-15. The main results of the analysis are (a) growth of aggregate index of labour quality in India during the period of 1980-2014 grew at an annual average growth rate of 1.4%, which is almost comparable to the growth in persons employed and could contribute significantly to the growth of GDP (b) the main driver of its growth has been the growth in the education Index which contributed 1.23 percentage points to its growth (c) growth of aggregate labour quality during 1980-2014 is relatively high in Mining, Electricity, Manufacturing and Services sectors and is low in Agriculture and Construction and (d) the growth of labour quality is higher in organized manufacturing as compared to unorganized manufacturing.

Do minimum wages affect economic outcomes beyond low-skill employment? This paper develops a new model with heterogeneous firms under perfect competition in a Heckscher-Ohlin setting to show that a binding minimum wage raises product prices, encourages substitution away from labor, and creates unemployment. It reduces output and exports of the labor intensive good, despite higher prices and, less obviously, selection in the labor (capital) intensive sector becomes stricter (weaker). Exploiting rich regional variation in minimum wages across Chinese prefectures and using Chinese Customs data matched with firm level production data, we find robust evidence in support of causal effects of minimum wage consistent with our theoretical predictions. Xue Bai Department of Economics Brock University 1812 Sir Issac Brock Way St. Catharines, ON L2S 3A1 Canada xbai@brocku.ca Arpita Chatterjee Australian School of Business School of Economics UNSW, SYDNEY, 2052 chatterjee.econ@gmail.com Kala Krishna Department of Economics 523 Kern Graduate Building The Pennsylvania State University University Park, PA 16802 and NBER kmk4@psu.edu Hong Ma Tsinghua University Department of Economics Beijing, China mahong@sem.tsinghua.edu.cn

This paper shows that how firms export (directly or indirectly via intermediaries) matters. We develop and estimate a dynamic discrete choice model that allows learning-by-exporting on the cost and demand side as well as sunk/fixed costs to differ by export mode. We find that demand and productivity evolve more favorably under direct exporting, though the fixed/sunk costs of this option are higher. Our results suggest that had China not liberalized its direct trading rights when it joined the WTO, its exports and export participation would have been 30 and 37 percent lower respectively.

Why do developing countries fail to specialize in products in which they appear to have a comparative advantage? We propose a model of agricultural trade with intermediation that explains how hold up resulting from poor contracting environments can produce such an outcome. We use the model to explore the role of production subsidies, support prices, easing sanitary and phytosanitary (SPS) requirements, and the creation of local markets in resolving the hold up problem. The model highlights the importance of infrastructure in aligning production outcomes with comparative advantage and sheds light on the pass-through of the world price to the producer. (JEL F11, O13, Q11, Q17, Q18)

We model and estimate the decision to answer questions in multiple choice tests with negative marking. Our focus is on the trade-off between precision and fairness. Negative marking reduces guessing, thereby increasing accuracy considerably. However, it reduces the expected score of the more risk averse, discriminating against them. Using data from the Turkish University Entrance Exam, we find that students' attitudes towards risk differ according to their gender and ability. Women and those with high ability are significantly more risk averse: nevertheless, the impact on scores of such differences is small, making a case for negative marking.