Juan C. Cordoba

EDUCATION:

Ph.D., Economics, University of Rochester, 2001
M.Ec., Economics, University of Rochester, 2000
M. Ec., Economics, Colombian National University, 1995
B.A., Economics, Colombian National University, 1993

RESEARCH INTERESTS:

Macroeconomics, Economic Growth and Development, Urban Economics, Market Frictions, Inequality (within countries and across countries); Fertility, Mortality.

PUBLICATIONS:

What Explains Schooling Differences Across Countries?, with Marla Ripoll, Journal of Monetary Economics, forthcoming. Abstract. This paper provides a theory that explains the cross-country distribution of average years of schooling, as well as the so called human capital premium puzzle. In our theory, credit frictions as well as differences in access to public education, fertility and mortality turn out to be the key reasons why schooling differs across countries. Differences in growth rates and in wages are second order. Citations (Google Scholar)

Agriculture and Aggregation , with Marla Ripoll, Economic Letters, October 2009. Abstract. We study the shape of the aggregate production function in the presence of land-intensive agriculture. The traditional Cobb–Douglas formulation is corrected to include a “diversification component.” The implied TFP differences across countries are larger than what Solow residuals suggest. Citations (Google Scholar)

Endogenous TFP and Cross-Country Income Differences, with Marla Ripoll, Journal of Monetary Economics, September 2008. Abstract. This paper explores the quantitative implications of a class of endogenous growth models for cross-country income differences. These models exhibit international spillovers, no scale effects and conditional convergence, and thus they overcome some difficulties faced by the early generation of endogenous growth models. Cross-country income differences arise in the model as the result of different distortions in the accumulation of rival factors of production, the objects, and in the accumulation of nonrival factor of production, the ideas. We show that object gaps play a much larger role to explain income gaps in models with endogenous TFP than in models with exogenous TFP. We also show, using a carefully calibrated version of the model, that most of the cross-country differences in output per worker are explained by barriers to the accumulation of rival factors (physical and human capital) rather than by barriers to the accumulation of knowledge. Citations (Google Scholar)

U.S. Inequality: Debt-Constraints or Incomplete Asset Markets?, Journal of Monetary Economics, March 2008. Abstract. To examine the role of debt constraints and incomplete asset markets (lack of insurance markets) in explaining U.S. inequality, we run horse races between competing models. For a widely used model, we decompose inequality into its fundamental driving forces. The underlying source of inequality in all models is uninsurable idiosyncratic risk. Both debt constraints and incomplete asset markets are needed to account for inequality, but asset market incompleteness is the key friction. It better accounts for the concentration and dispersion of wealth, and is the most costly friction in terms of welfare. Tight debt constraints are important for explaining the lower tail of the wealth distribution.  Click here for the appendix. Citations (Google Scholar)

A Generalized Gibrat's Law, International Economic Review, November 2008. Abstract. Many economic and non-economic variables such as income, wealth, firm size, or city size often distribute Pareto in the upper tail. It is well established that Gibrat's law can explain this phenomenon, but Gibrat's law often does not hold. This note characterizes a class of processes, one that includes Gibrat's law as a special case, that can explain Pareto distributions. Of particular importance is a parsimonous generalization of Gibrat's law that allows size to affect the variance of the growth process but not its mean. This note also shows that under plausible conditions Zipf's law is equivalent to Gibrat's law.  Click here for the appendix. Citations (Google Scholar)

Inequality and Growth: Some Welfare Calculations, with Genevieve Verdier, Journal of Economic Dynamics and Control, June 2008.

Click here for a working paper version with additional exercises (the working paper was No. 1 in the Top 25 Working Papers by File Downloads in the IMF Working papers). Click here for a review of the paper in the israelian newspaper Yedioth Ahronoth. Click here for a link to a discussion group in the Economist's View.

Abstract.The main lotteries individuals face during their lifetime are first, their place of birth, and the second, their parents. How much consumption level and growth would a new born child be willing to give up in order to avoid these birth lotteries? This paper shows that a child may well be willing to give up all growth to avoid birthplace risk, and a large fraction of growth, if not all, to avoid family risk. The critical elements for the results are time discounting and risk aversion. Both factors downplay the role of growth for welfare while risk aversion enhances the benefits of more equal outcomes. A third key factor is the size of risk involved at birth, which is staggering. Our calculations suggest a research agenda with the following ranking of priorities: inequality, growth, and business cycles.   Citations (Google Scholar)

On the Distribution of City Sizes, Journal of Urban Economics, January 2008. Abstract. The city size distribution of many countries is remarkably well approximated by a Pareto distribution. We study what constraints this regularity imposes on standard urban models. We find that under general conditions urban models must have (i) a balanced growth path and (ii) a Pareto distribution for the underlying source of randomness. In particular, one of the following combinations can induce a Pareto distribution of city sizes: (i) preferences for different goods follow reflected random walks, and the elasticity of substitution between goods in 1; or (ii) total factor productivities in the production of different goods follow reflected random walks, and increasing returns are equal across goods. Citations (Google Scholar)

Credit Cycles Redux, with Marla Ripoll, International Economic Review , November 2004. Abstract. Theoretical studies have shown that under unorthodox assumptions on preferences and production technologies, collateral constraints can act as a powerful amplification and propagation mechanism of exogenous shocks. We investigate whether or not this result holds under more standard assumptions. We find that collateral constraints typically generate small output amplification. Large amplification is obtained as a "kniefe-edge" type of result. Citations (Google Scholar)

Collateral Constraints in a Monetary Economy;, with Marla Ripoll, Journal of the European Economic Association, December 2004.

Reprinted in Liquidity and Crises," edited by Franklin Allen, Elena Carletti, Jan Pieter Krahnen, and Marcel Tyrell, Oxford University Press, December 2010.

Abstract. This paper studies the role of collateral constraints in transforming small monetary shocks into large persistent output fluctuations. We do this by introducing money in the heterogeneous-agent real economy of Kiyotaki and Moore (1997). Money enters in a cash-in-advance constraint and money supply is managed via open-market operations. We find that a monetary shock generates persistent movements in aggregate output, the amplitude of which depends upon whether or not debt contracts are indexed. If only nominal contracts are traded, money shocks can trigger large output fluctuations. In this case a money expansion triggers a boom, while money contractions generate recessions. In contrast, if contracts are indexed amplification is not only smaller, but it can generate the reverse results. When the possibility of default and renegotiation is considered, the model can generate asymmetric business cycles with recessions milder than booms. Finally, monetary shocks generate a highly persistent dampening cycle rather than a smoothly declining deviation. Citations (Google Scholar)

Mesuring Core Inflation in Colombia (In Spanish). Banca y Finanzas, Asobancaria, No. 37, September 1995. Reproduced in Boletin del CEMLA 41(6), Nov/Dec, 1995.

WORKING PAPERS AND FORTHCOMING PAPERS:

Children and the Wealth of Nations, March 2012 (first version, March 2012). Abstract. Life expectancy around the world has increased substantially since 1970. In contrast, consump-tion per capita has fallen in some countries, remained stagnant, or sharply increased in others.What are the welfare gains of the systematic increase in life expectancy around the world? How does a "full measure" of per capita income, one that adjusts for life expectancy, compare to standard measures of world inequality that only consider income? This paper documents how standard models used to answer these questions give rise to a number of predictions that are inconsistent with well-documented evidence, particularly on the value of statistical life. It then proposes a generalized model with non-separable preferences that exhibits a low elasticity of intertemporal substitution and a low degree of mortality aversion. The non-separable model reverts the counterfactual predictions of the standard model, and it also provides plausible measures of changes in welfare and inequality around the world.

Life, Death and World Inequality, March 2012 (first version, June 2010). Abstract. Life expectancy around the world has increased substantially since 1970. In contrast, consump-tion per capita has fallen in some countries, remained stagnant, or sharply increased in others.What are the welfare gains of the systematic increase in life expectancy around the world? How does a "full measure" of per capita income, one that adjusts for life expectancy, compare to standard measures of world inequality that only consider income? This paper documents how standard models used to answer these questions give rise to a number of predictions that are inconsistent with well-documented evidence, particularly on the value of statistical life. It then proposes a generalized model with non-separable preferences that exhibits a low elasticity of intertemporal substitution and a low degree of mortality aversion. The non-separable model reverts the counterfactual predictions of the standard model, and it also provides plausible measures of changes in welfare and inequality around the world.

Barro-Becker with Credit Frictions, Oct 2012 (first version, January 2010). Abstract. The Barro-Becker model of fertility has three controversial predictions: (i) fertility and schooling are independent of family income; (ii) children are a net financial burden to society; and (iii) individual consumption is negatively associated to individual income. We show that introducing credit frictions into the model helps overturn these predictions. In particular, a negative relationship between fertility and individual wage income can be obtained when the intertemporal elasticity of substitution is larger than one. The credit constrained model can also explain the quantity-quality trade-off: individuals with higher wage income choose more schooling and fewer children.

A Contribution to the Economic Theory of Fertility, November 2011 (first version, April 2010). Abstract. Altruistic individuals regard fertility as a form of longevity. As a result, standard time-separable altruistic models of the type commonly used in macroeconomics cannot account for the evidence of increasing longevity but decreasing fertility as income rises, a puzzle. We show that a non- separable formulation of preferences that allows for a low elasticity of intertemporal substitution (EIS) but a high elasticity of intergenerational substitution (EGS) can explain the longevity- fertility puzzle. The model with a single elasticity cannot account for both. Our results suggests a major role for a new parameter in macro, the EGS. While the EIS mostly influences short-term economic decisions, the EGS influences mostly long-term economic choices.

Malthus to Romer: On the Colonial Origins of the Industrial Revolution, August 2007. Abstract. We propose a unified theory to explain the diverse paths of economic and institutional development of colonized and colonizers following the great discoveries at the end of the XV century. In our theory, the institutional and economic divergence between Spain and England observed during the age of colonization obeys to the same forces put forward by Engerman and Sokoloff (1997) to explain the divergence between Latin America and North America: factor endowments at the moment of the conquest.

The Role of Education in Development, with Marla Ripoll, February 2007. Abstract. Most education around the globe is public. Moreover, invest rates in education as well as schooling attainment differ substantially across countries. We contruct a general equilibrium life-cycle model that is consistent with these facts. We provide simple analytical solutions for the optimal educational choices, which may entail pure public provision of education, and their general equilibrium effects. We calibrate the model to fit cross-country differences in demographic and educational variables. The model is able to replicate a number of key regularities in the data beyond the matching targets. We use the model to identify and quantify sources of world income differences, and find that demographic factors, in particular mortality rates, explain most of the differences. We also use the model to study the role of public education, and the effects of the HIV/AIDS pandemic in development. Citations (Google Scholar)

Agriculture, Aggregation, Wage Gaps, and Cross-Country Income Differences, with Marla Ripoll, February 2006. Part of this research was published in Economic Letters as "Agriculture and Aggretation." Abstract. In spite of its low productivity, agriculture employs most of the labor force in countries in the lower part of the world income distribution. Moreover, agriculture differs from other activities in its intensive use of land. We show that ignoring agriculture, as most one-sector aggregate models do, gives rise to substantially biased results regarding the sources of cross-country income differences. We first show that standard Solow Residuals underestimate underlying productivity differences across countries. Specifically, Solow residuals are less disperse than both agricultural and nonagricultural TFPs. More importantly, we show that the large labor productivity gap between agriculture and non-agriculture is not accounted for by migration costs or schooling differences. Instead, the gap seems to be explained by the particularly low quality of human capital in rural areas. This finding implies that most of the income dispersion across countries is not due to TFP differences but to differences in factor endowments, particularly human capital in rural areas. Citations (Google Scholar)

Supply Side Structural Change. Abstract. The interest rate and the rate of economic growth are often regaded as roughly constant as economies growth. Moreover, the agricultural sector and rural population typically shrink. We show that an otherwise standard growth model that includes a backward and an advanced sector can account for these regularities. The mechanism works as follows. As the economy accumulates capital, labor flows from the backward sector to the advanced one. This migration prevents the usual disminishing marginal returns of capital. As a result, the interest rate and the growth rate of the economy remain constant during the transition to the steady state. Citations (Google Scholar)

Lucas vs. Lucas: On Inequality and Growth, with Genevieve Verdier, IMF Working Paper, July 2007. This paper was published in the JEDC as "Inequality and Growth: Some Welfare Calculations." Citations (Google Scholar)