This dissertation contains a portfolio of papers in economics. The first paper, ``Vehicle Emissions Inspection Programs: Equality and Impact," presents the results of a study of the Arizona Vehicle Emissions Inspection Program. Using a unique data set, I find that the Arizona Vehicle Emissions Inspection Program is regressive in that it constrains the vehicle repair decisions of people on the low end of the income distribution more than those on the high end. I also find that the social cost of the program in Arizona is more than twice the social benefit, assuming a \$7 million value of statistical life. The second paper is ``Fiat Value in the Theory of Value." Because of advances in information processing technology, it is now technically feasible to have a currency-less monetary system. This paper explores one such system. In the model, prices are in units currency-less fiat money called fiat value, fiat value is a form of government debt, and the services of the stock of fiat value are a factor of production. In this system, the National accounts must be revised to account for money as a production factor, Friedman satiation is possible even with positive inflation, and various monetary policy regimes are explored. The third paper, ``Unconventional Monetary Policy in a Modern Paradigm of Money," uses the model developed in ``Fiat Value in the Theory of Value" to evaluate quantitative easing and interest on reserves policies as a response to liquidity shocks. I find that quantitative easing is an effective response to liquidity crises because it drives the marginal product of money to zero. When the marginal product of money is zero, the business sector does not have to pay to rent the services of money, a production factor that is free to create. I also show that a positive interest on reserve policy hampers the effectiveness of quantitative easing, and that quantitative easing does not cause a high inflation rate.

The dissertation consists of two essays in misallocation and development. In particular, the essays explore how government policies distort resource allocation across production units, and therefore affect aggregate economic and environmental outcomes.

The first chapter studies the aggregate consequences of misallocation in a firm dynamics model with multi-establishment firms. I calibrate my model to the US firm size distribution with respect to both the number of employees and the number of establishments, and use it to study distortions that are correlated with establishment size, or so-called size-dependent distortions to establishments, which are modeled as implicit output taxes. In contrast to previous studies, I find that size-dependent distortions are not more damaging to aggregate productivity and output than size-independent distortions, while the implicit tax revenue approximately summarizes the effects on aggregate output. I also use the model to compare the effects of size-dependent distortions to establishments and to firms, and find that they have different effects on firm size distribution, but have similar effects on aggregate output.

The second chapter studies the effects of product market frictions on firm size distribution and their implications for industrial pollution in China. Using a unique micro-level manufacturing census, I find that larger firms generate and emit less pollutants per unit of production. I also provide evidence suggesting the existence of size-dependent product market frictions that disproportionately affect larger firms. Using a model with firms heterogeneous in productivity and an endogenous choice of pollution treatment technology, I show that these frictions result in lower adoption rate of clean technology, higher pollution and lower aggregate output. I use the model to evaluate policies that eliminate size-dependent frictions, and those that increase environmental regulation. Quantitative results show that eliminating size-dependent frictions increases output by 30%. Meanwhile, the fraction of firms using clean technology increases by 27% and aggregate pollution decreases by 20%. In contrast, a regulatory policy which increases the clean technology adoption rate by the same 27%, has no effect on aggregate output and leads to only 10% reduction in aggregate pollution.

This dissertation consists of three chapters. The first two explore the impact of government policies on human capital accumulation.

Chapter one makes two novel contributions related to the two workhorse models in the human capital literature: Learning by Doing (LBD) and Ben-Porath (BP).

First, I show that BP is much more consistent with empirical life-cycle patterns related to individual earnings growth rates relative to LBD.

Second, I show that the same model features that generate different life-cycle predictions between models also generate different policy implications. In particular, increasing the top marginal labor tax rate, relative to the current US level, generates much larger reductions in lifetime human capital accumulation in the BP model versus the LBD model.

Chapter two examines reforms to the Social Security taxable earnings cap in the context of a human capital model. Old age Social Security benefits in the US are funded by a 10.6% payroll tax up to a cap of $118,500. There has been little work examining the likely outcomes of such a policy change. I use a life-cycle BP human capital model with heterogeneous individuals to investigate the aggregate and distributional steady state impacts of several policy changes the earnings cap. I find that when I eliminate the cap: (1) aggregate output and consumption fall substantially; (2) the role of endogenous human capital is first order; (3) total federal tax revenues are lower or roughly unchanged; (4) about 1/3 of workers are made worse off.



The final chapter studies the existence and optimality of equilibria in the presence of asymmetric information. I develop an equilibrium concept which corresponds to the presence of mutual insurance organizations for a class of adverse selection economies which includes the Spence (1973) signaling and Rothschild-Stiglitz (1976) insurance environments. The defining features of a mutual insurance organization are that policy holders are also the owners of the organization, and that the organization can write policies for which the terms depend on the experience of the mutual members. In general the equilibrium exists and is weakly Pareto optimal. Further, all equilibria have the same individual type utility vector.

The dissertation consists of three essays that deal with variations in economic growth and development across space and time. The essays in particular explore the importance of differences in occupational structures in various settings.

The first chapter documents that intergenerational occupational persistence is significantly higher in poor countries even after controlling for cross-country differences in occupational structures. Based on this empirical fact, I posit that high occupational persistence in poor countries is symptomatic of underlying talent misallocation. Constraints on education financing force sons to choose fathers' occupations over the occupations of their comparative advantage. A version of Roy (1951) model of occupational choice is developed to quantify the impact of occupational misallocation on aggregate productivity. I find that output per worker reduces to a third of the benchmark US economy for the country with the highest level of occupational persistence.

In the second chapter, I use occupational prestige as a proxy of social status to estimate intergenerational occupational mobility for 50 countries spanning the breadth of world's income distribution for both sons and daughters. I find that although relative mobility varies significantly across countries, the correlation between relative mobility and GDP per capita is only mildly positive for sons and is close to zero for daughters. I also consider two measures of absolute mobility: the propensity to move across quartiles and the propensity to move relative to father's occupational prestige. Similar to relative mobility, the first measure of absolute mobility is uncorrelated with GDP per capita. The second measure, however, is positively correlated with GDP per capita with correlations being significantly higher for sons compared to daughters.

The third chapter analyses to what extent the growth in productivity witnessed by India during 1983--2004 can be explained by a better allocation of workers across occupations. I first document that the propensity to work in high-skilled occupations relative to high-caste men increased manifold for high-caste women, low-caste men and low-caste women during this period. Given that innate talent in these occupations is likely to be independent across groups, the chapter argues that the occupational distribution in the 1980s represented talent misallocation in which workers from many groups faced significant barriers to practice an occupation of their comparative advantage. I find that these barriers can explain 15--21\% of the observed growth in output per worker during the period from 1983--2004.

This dissertation consists of two essays that deal with the development of open developing economies. These economies have experienced drastic divergence in terms of economic growth from the 1970s through the 2010s. One important feature of those countries that have lagged behind is their failure to build up their domestic innovation capacity.

Abstract The first chapter discusses the policies that may have an impact on the long-run innovation capacity of developing economies. The existing literature emphasizes that the backward linkage of foreign-owned firms is a key to determining whether FDI is beneficial or detrimental to a domestic economy. However, little empirical evidence has shown which aspects of FDI policies lead to a strong backward linkage between foreign-owned and domestic firms. This paper focuses on the foreign ownership structure of these foreign-owned firms. I show that joint ventures (i.e, firms with 1%-99% foreign share) have stronger backward linkages than MNC affiliates (i.e, firms with 100% foreign share) with domestic firms. I also find that the differences in backward linkages are strong enough to translate into a positive correlation between domestic innovation and the density of joint ventures and a negative correlation between domestic innovation and the density of MNC affiliates. Finally, I find that the channel through which foreign ownership structure affects domestic innovation raises innovation TFP in domestic firms. My results suggest that policies that affect the foreign ownership structure of foreign-owned firms could have a persistent effect on domestic innovation because they shift the comparative advantage of an developing economy towards the innovation sector in the long run.

Abstract The second chapter provides a unified theory to study what causes the divergence in economic growth of developing economies and how the innovation sector emerges in the developing countries. I show that open developing economies become trapped at the middle-income level because they tend not to specialize in sectors that generate spillover or factor accumulation (the innovation sector). Using a dynamic Heckscher-Ohlin (H-O) model, I show that the fast growth of developing economies tends to end before they can fully catch up with the developed world, and the innovation sector will not operate in the developing countries. However, the successful growth stories of Korea and Taiwan challenge this view. In order to explore the economic miracle that happened in Korea and Taiwan, I generalize a dynamic Heckscher-Ohlin (H-O) model by introducing technology adoption and explore how it generates spillovers to domestic innovation. I show that countries with policies that encourage technology adoption will benefit most from FDI: in addition to the fact that foreign technology raises productivity in the host country, the demand for skilled labor to adopt these technologies raises the education level in equilibrium, which benefits domestic innovation and leads to catch-up in the long run.

This dissertation consists of three essays that broadly deal with the international economics and development. The first chapter provides empirical evidence of the prevalence and importance of intangible capital transfer within multinational corporations (MNCs). Using a unique data set of Korean multinational foreign affiliates, I find that most of the foreign affiliates have managers transferred from their parent, while almost half are isolated from the parent in terms of physical trade. Furthermore, the transferred managers are positively associated with labor productivity, while physical trade from the parent is less so. I consider two possibilities for this productivity effect: (1) the managers transferred from the parent are simply more efficient than native managers; and (2) they provide knowledge that increases the productivity of all inputs. I find that the latter is consistent with the data. My findings provide evidence that transferring managers from the parent is a main source of benefit from foreign direct investment (FDI) to foreign affiliates because the managers transfer firm-specific knowledge. The second chapter analyzes importance role of service or other sectors for economic growth of manufacturing. Productivity in agriculture or services has long been understood as playing an important role in the growth of manufacturing. In this paper we provide an endogenous growth model in which manufacturing growth is stimulated by the non-manufacturing sector that provides goods used for both research and final consumption. The model permits to evaluatation of two policy options for stimulating manufacturing growth: (1) a country imports more non-manufacturing goods from a foreign country with a higher productivity; or (2) the country increases productivity of domestic non-manufacturing. We find that both policies increase welfare of the economy, but depending on the policy the manufacturing sector responses differently. Specifically, employment and value added in manufacturing rise with policy (1), but contract with policy (2). Therefore, specialization through importing non-manufacturing goods explains how some Asian economies experience fast growth in the manufacturing sector without progress in the other sectors. The third chapter tests for the importance of composition effects in affecting levels and changes of education wage premiums. In this paper I revisit composition effects in the context of Korea. Korea's large and rapid expansion of education makes it an ideal place to look for composition effects. A large, policy-induced increase in attainment in the 1980s offers additional scope for identifying composition effects. I find strong evidence that the policy-induced expansion of education lowered education wage premiums for the affected cohorts, but only weak evidence that the trend expansion of education lowered education wage premiums.

This dissertation consists of three essays on education and macroeconomics. The first chapter analyzes whether public education financing systems can account for large differences among developed countries in earnings inequality and intergenerational earnings persistence. I first document facts about public education in the U.S. and Norway, which provide an interesting case study because they have very different earnings distributions and public education systems. An overlapping generations model is calibrated to match U.S. data, and tax and public education spending functions are estimated for each country. The benchmark exercise finds that taxes and public education spending account for about 15% of differences in earnings inequality and 10% of differences in intergenerational earnings persistence between the U.S. and Norway. Differences in private education spending and early childhood education investments are also shown to be quantitatively important. The second chapter develops a life-cycle model to study increases in college completion and average ability of college students born from 1900 to 1972. The model is disciplined with new historical data on real college costs from printed government surveys. I find that increases in college completion for 1900 to 1950 cohorts are due primarily to changes in college costs, which generate large endogenous increases in college enrollment. Additionally, I find strong evidence that post-1950 cohorts under-predicted large increases in the college earnings premium. Modifying the model to restrict perfect foresight of the education premia generates a slowdown in college completion consistent with empirical evidence for post-1950 cohorts. Lastly, I find that increased sorting of students by ability can be accounted for by increasingly precise ability signals over time. The third chapter assesses how structural transformation is affected by sectoral differences in labor-augmenting technological progress, capital intensity, and capital-labor substitutability. CES production functions are estimated for agriculture, manufacturing, and services on post-war U.S. data. I find that sectoral differences in labor-augmenting technological progress are the dominant force behind changes in sectoral labor and relative prices. Therefore, Cobb-Douglas production functions with labor-augmenting technological change capture the main technological forces behind post-war U.S. structural transformation.

This dissertation consists of three essays that broadly deal with the growth and development of economies across time and space. Chapter one is motivated by the fact that agricultural labor productivity is key for understanding aggregate cross-country income differences. One important proximate cause of low agricultural productivity is the low use of intermediate inputs, such as fertilizers, in developing countries. This paper argues that farmers in poor countries rationally choose to use fewer intermediate inputs because it limits their exposure to large uninsurable risks. I formalize the idea in a dynamic general equilibrium model with incomplete markets, subsistence requirements, and idiosyncratic productivity shocks. Quantitatively, the model accounts for two-thirds of the difference in intermediate input shares between the richest and poorest countries. This has important implications for cross-country productivity. Relative to an identical model with no productivity shocks, the addition of agricultural shocks amplifies per capita GDP differences between the richest and poorest countries by nearly eighty percent. Chapter two deals with the changes in college completion in the United States over time. In particular, this paper develop a dynamic lifecycle model to study the increases in college completion and average IQ of college students in cohorts born from 1900 to 1972. I discipline the model by constructing historical data on real college costs from printed government reports covering this time period. The main finding is that that increases in college completion of 1900 to 1950 birth cohorts are due primarily to changes in college costs, which generate a large endogenous increase in college enrollment. Additionally, evidence is found that supports cohorts born after 1950 underpredicted sharp increases in the college earnings premium they eventually received. Combined with increasing college costs during this time period, this generates a slowdown in college completion, consistent with empirical evidence for cohorts born after 1950. Lastly, the rise in average college student IQ cannot be accounted for without a decrease in the variance of ability signals. This is attributed the increased precision of ability signals primarily to the rise of standardized testing. Chapter three again deals with cross-country income differences. In particular, it is concerned with the fact that cross-country income differences are primarily accounted for by total factor productivity (TFP) differences. Motivated by cross-country empirical evidence, this paper investigates the importance individuals who operate their own firms because of a lack of other job opportunities (need-based entrepreneurs). I develop a dynamic general equilibrium labor search model with with entrepreneurship to rationalize this misallocation across occupations and assess its role for understanding cross-country income differences. Developing countries are assumed to have tighter collateral constraints on entrepreneurs and lower unemployment benefits. Because these need-based entrepreneurs actually have a comparative advantage as workers, they operate smaller and less productive firms, lowering aggregate TFP in developing countries.

This dissertation consists of two essays. The first measures the degree to which schooling accounts for differences in industry value added per worker. Using a sample of 107 economies and seven industries, the paper considers the patterns in the education levels of various industries and their relative value added per worker. Agriculture has notably less schooling and is less productive than other sectors, while a group of services including financial services, education and health care has higher rates of schooling and higher value added per worker. The essay finds that in the case of these specific industries education is important in explaining sector differences, and the role of education all other industries are less defined. The second essay provides theory to investigate the relationship between agriculture and schooling. During structural transformation, workers shift from the agriculture sector with relatively low schooling to other sectors which have more schooling. This essay explores to what extent changes in the costs of acquiring schooling drive structural transformation using a multi-sector growth model which includes a schooling choice. The model is disciplined using cross country data on sector of employment and schooling constructed from the IPUM International census collection. Counterfactual exercises are used to determine how much structural transformation is accounted for by changes in the cost of acquiring schooling. These changes account for small shares of structural transformation in all economies with a median near zero.