Sergey Mityakov

Direct Estimation of Hidden Earnings: Evidence From Administrative Data

We estimate hidden earnings by matching car registries to employers’ records of paid earnings for a panel of individuals and households in Moscow. The identification strategy is based on the idea that reported earnings may be falsified, but car registries are accurate. Hidden earnings comprise over 75 percent of actual earnings of the large majority of car owners, at least twice as high as estimated in previous studies using less direct methods. There is also a lot of heterogeneity across employers. Foreign-owned firms, large firms and state-owned firms in capital-intensive industries report earnings more transparently than do small firms and firms in labor-intensive industries, where actual earnings may be more than five times higher than reported earnings. Differentials of similar magnitude are found in public services, especially among educators. Our findings shed new light on the perceived links between firm ownership, size and productivity in countries with large hidden economies.

International Politics and Import Diversification

This paper examines how international politics affects trade in the absence of empires or wars. We first show that deterioration of relations between the United States and another country, measured by divergence in their United Nations General Assembly voting patterns, reduced U.S. imports from that country during 1962–2000. Though statistically significant, the magnitude of the effect of political distance on trade is small. Indeed, we show that except for petroleum and some chemical products, U.S. imports are not affected by international politics. American firms, however, diversify their oil imports significantly away from political opponents of the United States. Oil trade is often associated with backward vertical foreign direct investment that is subject to the expropriation risk. In contrast to the usual claim that oil is a strategic commodity, we provide suggestive evidence that trade in products when rents are appropriable is more likely to be affected by international politics.

Direct Estimation of Hidden Earnings: Evidence from Russian Administrative Data

We employ unique administrative data from Moscow to obtain a direct estimate of hidden incomes. Our approach is based on comparing employer-reported earnings to market values of cars owned by the corresponding individuals and their households. We detect few hidden earnings in most foreign-owned firms and larger firms, especially state-owned enterprises in heavily regulated industries. The same empirical strategy indicates that up to 80 percent of earnings of car owners in the private sector are hidden, especially in smaller companies and industries such as trade and services, where cash flows are easier to manipulate. We also find considerable hidden earnings in government services. Our approach sheds new light on the decline in the gross domestic product (GDP) in Russia after the collapse of communism and subsequent recovery; in particular, we argue that a good deal of these changes might represent changes in income reporting rather than actual changes in GDP.

International Politics and Import Diversification in the Second Wave of Globalization

We provide evidence that deterioration of relations between the United States and another country, measured by divergence in their UN General Assembly voting patterns, reduces US imports from that country during the second wave of globalization. Though statistically significant, such an effect of “political distance” on trade is small compared with the frictions imposed by other trade barriers. Indeed, using sector-level trade data, we show that except for petroleum and some chemical products, US imports are not affected by international politics. American firms, however, diversify their import of crude oil significantly away from the political opponents of the US, even after controlling for wars, sanctions, and tariffs. To explain the distinctive political impact on oil import diversification, we test the strategy commodity hypothesis over the hold-up risk hypothesis, because while oil is widely thought to be a strategic commodity, oil trade is also often associated with backward vertical FDI that is subject to the risks of hold-up and expropriation. Our results suggest both political and economic forces are at work. First, although the political limits on oil import are only significant when American firms import oil from dictators, the effect is even more pronounced when the exporting countries have high expropriation risk. Second, a similar import pattern is observed only for other major powers or countries with oil companies operating overseas. Finally, we show that while the US imports of a few strategic commodities, such as tin, are also discouraged by political distance, a similar political effect is also observed in the import of R&D intensive goods, in which case quasi-rents derived from backward FDI in R&D may be expropriated by a hostile government.

The Stern Review on Climate Change: Inconvenient Sensitivities

Nicholas Sterns Review of “The Economics of Climate Change” (2007) triggered considerable discussion, essentially by condensing a complex problem – the question of how to act in the face of global warming – into juxtaposing two numbers, the cost of mitigation and the cost of climate change. The Review concludes that mitigation today is economically superior to adaptation tomorrow. The review was widely criticized for the assumption of a pure rate of time preference of almost zero, on which its conclusions seemed to depend. In this paper we argue first, that this assumption discriminates against current in favour of future generations. Second, we perform a sensitivity analysis to test for the extent to which the conclusions of the Review are indeed based on the assumption of a rate of time preference of almost zero. We demonstrate that the conclusions of the Review are no longer valid as soon as parameter values are used which are standard in economic analysis. Combined, these results raise a bigger question: how wise is it to base crucial policy choices on a model so dependent on a single, deeply subjective, judgement call?

Bank Confidence Crisis and Information Acquisition by Institutional Depositors

We utilize high-frequency data to study heterogeneity in access to bank-level information by corporate depositors during a banking crisis. We examine a bank panic episode in Russia during Summer-2004 triggered by the Central Bank announcement to liquidate banks for suspicious operations. Our results support the presence of sophisticated market monitoring and discipline. Private information about bank risk is available to depositors with a strong business connection to the bank. Other depositors make withdrawals based on publicly-observable bank characteristics. All corporate depositors are susceptible to rumors floating around the banking community. However, those rumors reflect bank-risk fundamentals. Contagion effects seem to be limited.

Unobserved Inputs in Household Production

With few exceptions, empirical household production studies ignore unobserved inputs. We demonstrate that without additional assumptions, the estimable impacts of the observed inputs cannot provide informative estimates of their marginal products due to contaminating variation in unobserved inputs; not even the sign of marginal impacts can be ascertained. Instrumental variables cannot solve this problem since every candidate for an instrument affecting an observed input, including experimental assignments, would also affect unobserved inputs choices through the budget constraint, invalidating this variable as an instrument. We show that under certain additional assumptions an appropriately specified empirical model can provide bounds for true marginal products. Our main point is that unless one is willing to make assumptions of this nature, estimated effects would have no useful interpretation. Almost all existing empirical studies of health, child development, and job-training programs fail to account for this issue, rendering their conclusions incomplete and possibly misleading.

SPECIAL INTERESTS AND FINANCIAL LIBERALIZATION: THE CASE OF MEXICO

Financial liberalization is often believed to enhance economic growth. Yet in many cases a few powerful incumbents seem to capture most of the gains from the reform. In this paper, I construct a model with endogenous formation of special interest groups that could reap most of the benefits of financial liberalization. In particular, these groups lobby to limit entry by other firms, while taking advantage of improved borrowing opportunities. I then use the model to study the Mexican financial liberalization of 1988. Analysis of firm-level panel data on manufacturing plants reveals patterns suggested by the model. Specifically, large firms in more concentrated or more corrupt sectors benefit more from liberalization. In addition, domestically owned firms gain more than firms with foreign ownership. I also propose a new way to measure corruption at the industry level based on the Mexican 10% profit sharing rule.