Federico Esposito. 41 Trumbull Street, Third floor Dept. of Economics, Yale University

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1 Federico Esposito Home Address: Office Address: 41 Trumbull Street, Third floor Dept. of Economics, New Haven, CT Hillhouse Avenue Telephone: Personal web page: Citizenship: Italian, F1 Visa Fields of Concentration: International Trade (Primary Field) International Finance, Macroeconomics (Secondary Fields) Desired Teaching: Undergraduate: International Trade, International Finance, Macroeconomics, Financial Economics Graduate: International Trade, International Finance, Macroeconomics Comprehensive Examinations Completed: 2012 (Oral): International Trade, Financial Economics 2011 (Written): Macroeconomics, Microeconomics Dissertation Title: Essays on International Trade Committee: Professor Costas Arkolakis (chair) Professor Lorenzo Caliendo Professor Samuel Kortum Professor Peter Schott Expected Completion Date: May 2016 Degrees: Ph.D., Economics,, 2016 (expected) M.Phil., Economics,, 2013 M.A., Economics,, 2012 M.Sc., Economics (110/110 Summa cum laude), University of Naples Federico II, 2010

2 B.Sc., Economics (110/110 Summa cum Laude), University of Naples Federico II, 2008 Fellowships, Honors and Awards: Dissertation Fellowship, Raymond Powell Teaching Prize, Annie G. K. Garland Memorial Fellowship Fund, Economic Growth Center Prize, Doctoral Fellowship, Unicredit Group Marco Fanno Scholarship for PhD abroad, Universita di Napoli Federico II, Erasmus Scholarship, Universita di Napoli Federico II, Outstanding student prize, Teaching Experience: Teaching Fellow: International Finance, Prof. Arkolakis,, (Spring 2014, Spring 2015, Spring 2016) Teaching Fellow: Intro Macroeconomics, Prof. Fair,, (Fall 2013) Teaching Fellow: Intro Macroeconomics, Prof. Tsyvinski,, (Spring 2013) Teaching Fellow, Financial Markets, Prof. Shiller,, (Fall 2012) Research and Work Experience: Visiting Researcher at Bank of Portugal, Summer 2015 Research Assistant to Prof. Costas Arkolakis,, Research Assistant to Prof. Robert Feenstra and Prof. Lorenzo Caliendo, Working Papers: Risk Diversification and International Trade, Job Market Paper Endogenous Labor Supply and the Gains from International Trade with Costas Arkolakis Measuring the Gains from Trade: Evidence from the US Embargo Works In Progress: Correlated demand shocks with Andrew Bernard Seminar and Conference Presentations: 2015: Trade Workshop, Bank of Portugal 2014: DEGIT XIX at Vanderbilt University; Midwest Trade Conference at University of Kansas, Trade Workshop Languages: Italian (native), English (fluent), Spanish (beginner)

3 References: Prof. Costas Arkolakis Department of Economics PO Box Phone: (203) Prof. Peter Schott School of Management PO Box Phone: (203) Prof. Lorenzo Caliendo School of Management New Haven, CT PO Box Phone: (203) Prof. Samuel Kortum Department of Economics New Haven, CT PO Box Phone: (203) Dissertation Abstract My dissertation investigates a central question in international economics: how large are the welfare gains from trade? The first chapter explores, both theoretically and empirically, the implications of demand uncertainty for trade patterns and welfare. The second chapter studies how endogenous labor supply affects the welfare gains from trade. The third chapter exploits the Jeffersonian Embargo in 1808 as a natural experiment to estimate the welfare losses from autarky. Chapter 1: Risk Diversification and International Trade [Job Market Paper] Firms face substantial uncertainty about consumers' demand, arising, for example, from the existence of random shocks. Recent empirical evidence has shown that demand-side shocks account for a large fraction of the total variation of firm sales. In presence of incomplete financial markets, firms may not be able to perfectly insure against unexpected demand fluctuations. Therefore, one should expect firms to care about demand risk. However, international trade models usually ignore risk when modeling the firm's production decisions. The key contribution of this paper is to highlight, both theoretically and empirically, the relevance of demand risk for firms' production and exporting decisions, for international trade patterns and aggregate welfare.

4 I first develop a general equilibrium trade model characterized by monopolistic competition, heterogeneous firms and fixed costs, as in Chaney (2008). Consumer demand is subject to country-variety specific random shocks, which for each variety are imperfectly correlated across countries. Risk-averse entrepreneurs have mean variance preferences over business profits: they do not simply maximize profits as in traditional trade models, but they are willing to give up a portion of the profits in order to lower their variance. Financial markets are absent, thus firms cannot hedge unexpected demand fluctuations with financial securities. In such a risky environment, the entrepreneurs perform a global diversification strategy. They exploit the fact that markets have imperfectly correlated demand to diversify risk through international trade. The result of this portfolio strategy is that both the firms' decision to enter a market and the intensity of trade flows depend directly on the riskiness of that market. For example, if demand in a country is relatively stable and is negatively correlated with demand in other destinations, then firms can export there to hedge the fluctuations coming from other locations. I study the implications of this novel source of demand complementarities and show that: i) the decision of a firm to export to a market does not obey a hierarchical structure, as in standard models with fixed costs, because it depends on the global diversification strategy of the firm; ii) the intensity of trade flows to a market are affected by its risk-return profile. International trade is not only an opportunity to increase profits, but also to diversify business risk. To study the aggregate implications of this new mechanism, I calibrate the parameters of the model with the Method of Simulated Moments using data on Portuguese firm-level trade flows between 1995 and One of the counterfactual exercises shows that welfare gains from trade can be significantly higher than the gains predicted by trade models which neglect firm level risk. After a trade liberalization, risk-averse firms increase exports to countries offering better diversification benefits. Hence, in these markets the increase in foreign competition is more intense, lowering the price level more. Therefore, safer countries gain more from trade. The main conclusion of my paper is that the amount a country gains from international trade hinges crucially on its ability to attract foreign firms looking for risk diversification benefits. Thus, policy makers should implement policies that stabilize a country s demand, in order to improve its risk-return profile. Chapter 2: Endogenous Labor Supply and the Gains from International Trade (with Costas Arkolakis) This paper incorporates elastic labor supply into a standard gravity model of trade and characterizes the implications for welfare. We show that gains from trade can be computed using only a few sufficient statistics: the share of expenditure on domestic goods, the trade elasticity, and the elasticity of labor supply. Introducing the consumption-leisure choice delivers gains that may be substantially different from what models with inelastic labor supply predict. In particular, in a setting with a fixed number of varieties, gains from trade are always higher than in trade models with inelastic labor supply and are increasing in the Frisch elasticity of labor. In addition, when the number of varieties is endogenous and income effects are small, the increase in labor supply can raise the number of varieties and thus can lead to sizeable gains. Quantitatively, we

5 find that, for the median country in our sample, gains from trade are up to 23% higher than in models featuring constant labor supply. Chapter 3: Measuring the Gains from Trade: Evidence from the US Embargo The international trade literature usually computes the gains from trade as the difference between welfare at the observed equilibrium and welfare at the autarky equilibrium. However, in practice an autarky equilibrium is never observed. This study uses the United States Embargo of , a rare case of autarky in history, as a natural experiment to estimate the effects of trade on welfare. Following Arkolakis et al. (2012), I compute the gains from trade (or losses from autarky) by means of two sufficient statistics: the share of expenditure on domestic goods and the elasticity of substitution between domestic and imported goods. This work is the first to estimate this elasticity by using price and quantity data from the early 19th century. To mitigate the bias due to the co-determination of prices and quantities, I adopt an identification strategy that uses tariffs and shipping costs as instrument for prices. The empirical findings suggest an elasticity of substitution of 3.64 and gains from trade of about 4.2% of total income.