This document gives the final readings for the PhD macro reading group for the fall semester 2019 at TSE. The overall topic of the reading group focusses on macro development, although a couple of seminal non-development macro papers will be discussed as well. The schedule of the reading group will consist of a number of semi-independent parts that will all take between 1 to 3 weeks. PhD students wanting to participate in a few sessions of the reading group should seek to commit at least for entire parts. Below, each section will outline readings for a separate part. Readings in bold are required reading before each session. Other readings listed are optional readings that may also be discussed during the sessions or can be read afterwards.

Part 1: Misallocation and Development

Misallocation on factor markets (capital and labor misallocation) provides an important framework with which one can better understand growth and development. Given that any distortion of factor markets can lead to misallocation, numerous different literatures can be framed in terms of “misallocation”. Here, we start with a number of seminal papers, knowing that the idea and discussions of misallocation will come up in different parts of the reading group. The first session will introduce the idea and the second and third sessions focus on misallocations in the capital and labor market respectively.

Session 1 (Date: Friday, 20th September 2019, 9:30-11am, Room: TBA) Introduction

We will intensively discuss:

Hsieh, C. T., & Klenow, P. J. (2009). Misallocation and manufacturing TFP in China and India. The Quarterly Journal of Economics, 124(4), 1403-1448.

As a useful comparison, we can also briefly discuss:

Restuccia, D., & Rogerson, R. (2008). Policy distortions and aggregate productivity with heterogeneous establishments. Review of Economic dynamics, 11(4), 707-720.

which is short and can be easily skimmed before the reading group. Other relevant papers that are not mandatory reading are:

Bartelsman, E., Haltiwanger, J., & Scarpetta, S. (2013). Cross-country differences in productivity: The role of allocation and selection. American Economic Review, 103(1), 305-34.


Restuccia, D., & Rogerson, R. (2017). The causes and costs of misallocation. Journal of Economic Perspectives, 31(3), 151-74.

Session 2 (Date: 25.9.19, 9:30-11am, Room: TBA) Capital Misallocation

We will discuss the following two different papers:

Buera, F. J., Kaboski, J. P., & Shin, Y. (2011). Finance and development: A tale of two sectors. American Economic Review, 101(5), 1964-2002.

Midrigan, Virgiliu, and Daniel Yi Xu. 2014. “Finance and Misallocation: Evidence from Plant-Level Data.” American Economic Review, 104 (2): 422-58.

Make sure to read at least one of the two papers before the meeting. A number of other papers in this literature are closely related, e.g.:

Buera, F. J., & Shin, Y. (2013). Financial frictions and the persistence of history: A quantitative exploration. Journal of Political Economy, 121(2), 221-272.

Moll, B. (2014). Productivity losses from financial frictions: Can self-financing undo capital misallocation?. American Economic Review, 104(10), 3186-3221.

Session 3 (Date: 2.10.19., 9:30-11am, MF323) Labor Misallocation

We are going to discuss the role of labor misallocation by looking at:

Lagakos, D., Moll, B., Porzio, T., Qian, N., & Schoellman, T. (2018). Life cycle wage growth across countries. Journal of Political Economy, 126(2), 797-849.

A number of recent papers have looked at migration/transition costs between sectors/jobs as sources of labor misallocation. As for the case of capital misallocation, plenty of channels are still understudied.

Herrendorf, B., & Schoellman, T. (2018). Wages, human capital, and barriers to structural transformation. American Economic Journal: Macroeconomics, 10(2), 1-23.

Lagakos, D., Mobarak, A. M., & Waugh, M. E. (2018). The welfare effects of encouraging rural-urban migration (No. w24193). National Bureau of Economic Research.

Bryan, G., & Morten, M. (2019). The aggregate productivity effects of internal migration: Evidence from Indonesia. Journal of Political Economy, 127(5), 000-000.

Part 2: Structural Change

In this part of the reading group, we will pick up another important part in the macro development literature: structural change. This refers to employment changes across broad sectors in the economy (e.g. agriculture, industry, services) over the course of development. The first session will review a number of seminal theoretical papers that provide a backbone for further discussions. Session 2 will discuss more recent papers that credibly combine theory and empirics.

Session 1 (Date: 9.10., 9:30-11am, MF323) Theoretical building blocs for structural change

Comin, D. A., Lashkari, D., & Mestieri, M. (2019). Structural change with long-run income and price effects. Working Paper (R&R ECMA)

Kongsamut, P., Rebelo, S., & Xie, D. (2001). Beyond balanced growth. The Review of Economic Studies, 68(4), 869-882.

Ngai and Pissarides (2007): ’Structural Change in a Multisector Model of Growth’, American Economic Review, vol. 97(1), pages 429-443

Boppart, T. (2014). Structural change and the Kaldor facts in a growth model with relative price effects and non-Gorman preferences. Econometrica, 82(6), 2167-2196.

Herrendorf, B., Rogerson, R., & Valentinyi, A. (2013). Two perspectives on preferences and structural transformation. American Economic Review, 103(7), 2752-89.

Buera, F. J., & Kaboski, J. P. (2009). Can traditional theories of structural change fit the data?. Journal of the European Economic Association, 7(2-3), 469-477.

Laitner, John. 2000. “Structural Change and Economic Growth.” Review of Economic Studies 67(3): 545–561.


Herrendorf, B., Rogerson, R., & Valentinyi, Á. (2014). Growth and structural transformation. In Handbook of economic growth (Vol. 2, pp. 855-941). Elsevier.

Session 2 (Date: 16.10., 9:30-11am, MF323) Recent structural change papers

We will read:

Bustos, P., Caprettini, B., & Ponticelli, J. (2016). Agricultural productivity and structural transformation: Evidence from Brazil. American Economic Review, 106(6), 1320-65.

But the following other papers are also very interesting:

Gollin, D., Hansen, C. W., & Wingender, A. (2018). Two blades of grass: The impact of the green revolution (No. w24744). National Bureau of Economic Research.

Moscona, J. (2019). Agricultural development and structural change within and across countries. Working Paper

Alvarez-Cuadrado, F., & Poschke, M. (2011). Structural change out of agriculture: Labor push versus labor pull. American Economic Journal: Macroeconomics, 3(3), 127-58.

Lee, D., & Wolpin, K. I. (2006). Intersectoral labor mobility and the growth of the service sector. Econometrica, 74(1), 1-46.

Rodrik, D. (2012). Unconditional convergence in manufacturing. The Quarterly Journal of Economics, 128(1), 165-204.

Rodrik, D. (2016). Premature deindustrialization. Journal of Economic Growth, 21(1), 1-33.

Part 3: Growth & Economic history

Building on the readings on structural change, a natural follow-up question would be why there has been so little structural change in history, or at least so little permanent structural change. There is a large literature at the intersection of Economic History and Growth Economics who look at this in the context of Malthusian models and the transition to more modern growth regimes as captured in Unified Growth theory. While much of this literature is fairly old, the recent surge in good empirical work on Economic History could also offer potentials for quantitative macro approaches combining previous macro models with more recent empirical evidence to give more systematic accounts of development in history.

General background reference is: Acemoglu, D. (2009). Introduction to Modern Economic Growth. Princeton University Press.

Session 1 (Date: 23.10., 9:30-11am, MF323) The Economic Takeoff and the Demographic Transition: Unified Growth Theory

Galor, Oded. 2004. “From Stagnation to Growth: Unified Growth Theory.” Chapter 4 in Handbook of Economic Growth.

Galor, Oded and David N. Weil. 2000. “Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond.” American Economic Review 90(4): 806–828.

Hansen, Gary D. and Edward C. Prescott. 2002. “Malthus to Solow.” American Economic Review 92(4): 1205–1217

Chatterjee, S., & Vogl, T. (2018). Escaping malthus: economic growth and fertility change in the developing world. American Economic Review, 108(6), 1440-67.

We could also look at more recent papers that use demography to explain phenomena in the US. E.g.:

Karahan, F., Pugsley, B., & Şahin, A. (2019). Demographic origins of the startup deficit (No. w25874). National Bureau of Economic Research.

Session 2 (Date: 6.11., 9:30-11am, Room: New building?) Accounting for growth paths

In this part, we could look at good applications of models that explain long-run growth of a particular country. A seminal paper is:

Song, Zheng, Kjetil Storesletten, et al. “Growing like China.” The American Economic Review 101, no. 1 (2011): 196–233.

Part 4: Trade and its role for development

There is a huge literature on trade; in this reading group we are interested in how trade fits into the broader picture of development: how does trade effect development. We will try to touch a number of subliteratures.

Session 1 (Date: 13.11., 9:30-11am, Room: new building) Consequences of Globalization

One subliterature we are interested in is asking what are the downstream effects of globalization on developing countries. Globalization has primarily reduced transportation costs and amplified access to global markets. We will read:

Atkin, D., & Donaldson, D. (2015). Who’s getting globalized? The size and implications of intra-national trade costs (No. w21439). National Bureau of Economic Research. (R&R Econometrica)

This paper is interesting to assess how individuals in developing countries even far away from global markets are affected by globalization.

Further references are:

Donaldson, D. (2018). Railroads of the Raj: Estimating the impact of transportation infrastructure. American Economic Review, 108(4-5), 899-934.

Goldberg, P. K., & Pavcnik, N. (2007). Distributional effects of globalization in developing countries. Journal of economic Literature, 45(1), 39-82.

Goldberg, P. K., Khandelwal, A. K., Pavcnik, N., & Topalova, P. (2010). Imported intermediate inputs and domestic product growth: Evidence from India. The Quarterly journal of economics, 125(4), 1727-1767.

McCaig, B., & Pavcnik, N. (2018). Export markets and labor allocation in a low-income country. American Economic Review, 108(7), 1899-1941.

Pavcnik, N. (2017). The impact of trade on inequality in developing countries (No. w23878). National Bureau of Economic Research.

Session 2 (Date: 20.11., 9:30-11am, Room: new building) International Macro Puzzles

In the second session, we will look at some standard international macro puzzles and see how the literature has developed since Obstfeld and Rogoff’s famous 6 puzzles and the puzzle of capital flows. We will read:

Obstfeld, M., & Rogoff, K. (2000). The six major puzzles in international macroeconomics: is there a common cause?. NBER macroeconomics annual, 15, 339-390.

Further references:

Eaton, J., Kortum, S., & Neiman, B. (2016). Obstfeld and Rogoff’s international macro puzzles: a quantitative assessment. Journal of Economic Dynamics and Control, 72, 5-23.

Mendoza, E. G., Quadrini, V., & Rios-Rull, J. V. (2009). Financial integration, financial development, and global imbalances. Journal of Political economy, 117(3), 371-416.

Ohanian, L. E., Restrepo-Echavarria, P., & Wright, M. L. (2018). Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America. American Economic Review, 108(12), 3541-82.

Gourinchas, P. O., & Jeanne, O. (2013). Capital flows to developing countries: The allocation puzzle. Review of Economic Studies, 80(4), 1484-1515.

Part 5: End of semester

Towards the end of the semester, the reading group ran out of steam due to upcoming exams, presentation and people leaving early. The last session of the semester was on:

Rodrik, D. (2016). Premature deindustrialization. Journal of economic growth, 21(1), 1-33.