- International trade in services
- Macro economy with emphasis on the service sector
- Business cycles
“Why Direct Counter-Terror (CT) Measures May Not Work? Direct and Preventive CT Measures,” coauthored with Sajal Lahiri, International Journal of Economic Theory, December 2021.
Abstract: We present a model of three-period game between a terrorist organization (Org) and a defending state (State), where the Org chooses aggregate terror input and the State chooses (a) the level of preemptive measures which shift the marginal cost curve facing the Org and hence affect the supply curve of terror, and (b) the level of redressal of grievances of the Org’s population which affects the derived demand for terror as a means to an “end,” or demand. (a) and (b) are interpreted respectively as direct and preventive counter-terrorism (CT) measures (equivalently as stick and carrot policies). There is two-sided asymmetric information: the Org and the State do not fully know each other’s preferences. A central result is an “impossibility theorem” that the State cannot win the war on terror with preemptive measures only as long as the marginal cost of preemptive measures is increasing. In general, the optimal response of the State to an exogenous increase in terrorism or militancy is to increase preemption as well as grant more grievance redressal. Hence, direct and preventive CT measures complement each other towards countering terrorism: they are not substitutes. The core model is extended to consider an increase in terrorism due to anger and frustration arising from collateral damage associated with preemptive strikes, the presence of heterogeneous groups within a terrorist organization such as moderates and hardliners, a piecemeal conciliatory offer of less preemption and more grievance redressal by the State, and Bayesian learning by the Org of the preference of the State if the State grants any further grievance redressal.
Work in Progress
1. “Country Size, Per-Capita Income and Comparative Advantage: Services Versus Manufacturing,” coauthored with Scott Bradford and Anuradha Saha
Abstract: The paper explores the differences in the trade pattern of manufacturing and services. It shows that larger (respectively smaller) countries, both in terms of total size and per-capita income, are likely to have comparative advantage in manufacturing (respectively services). The paper builds a multi-country theoretical trade model featuring non-homotheticity of preferences and differences in the degree of national product differentiation between manufacturing and services and uncovers two reasons behind such differential trade patterns: demand bias in consumption towards services away from manufacturing, and, a higher degree of national product differentiation in services than in manufacturing. Based on data on trade over 2005-2016, indices of comparative advantage in manufacturing and services are, respectively, shown to be positively and negatively related with the measures of country size and per-capita income, supporting the theoretical predictions.
2. “Determinants of Bilateral Trade in Manufacturing and Services: A Unified Approach“, coauthored with Vinicios Sant’Anna
Abstract: This paper studies how and why the bilateral trades in manufacturing and services differ in their response to changes in the determinants — both theoretically and empirically. We build a unified theoretical framework that incorporates a demand bias towards services and a difference in the degree of national product differentiation between the two sectors. The estimation results support the theoretical predictions. Furthermore, the empirical model includes, among other standard determinants, two non-standard trade-cost variables: a measure of internet penetration and virtual proximity (the number of bilateral hyperlinks). Empirical findings illustrate that virtual proximity—thus far ignored in most gravity models—is a strong predictor of aggregate trade in both services and manufacturing. We also find that physical distance is an important determinant of bilateral trade in manufacturing and services, even while controlling for virtual proximity.