research
2025
- JOB MARKET PAPER
The Food Problem in an Open EconomyGuido Lamarmora2025Job Market PaperThis paper investigates why low-income countries (LICs) specialise in low-labour-productivity agriculture—the so-called “Food Problem.” I develop a multi-country, multi-sector general equilibrium model with heterogeneous land endowments, non-homothetic preferences, input–output linkages, and trade costs to quantitatively examine the mechanisms driving agricultural specialisation. The analysis shows that relative land scarcity dampens measured labour productivity in agriculture in LICs, while input–output linkages generate economy-wide spillovers. Consequently, these countries display high revealed relative TFP in agriculture, while high trade costs prevent further specialisation. Counterfactual simulations reveal that trade openness deepens agricultural specialisation. Increasing agricultural TFP strengthens this effect, while in a closed economy, the opposite occurs, as labour moves out of agriculture. In contrast, analogous shocks in manufacturing generate larger welfare gains and stronger spillovers to other sectors through input–output linkages. Overall, the Food Problem in an open economy reflects underlying revealed relative TFP, with trade amplifying rather than mitigating agricultural specialisation in low-income countries.
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Floating or Pegged?: Trade Shock Adjustment in Small Open EconomiesGuido Lamarmora and M. Agustina Sampaolesi2025Work in progressWe study how monetary policy and exchange rate regimes shape the adjustment to trade shocks in small open economies (SOEs). The analysis highlights different implications for SOEs under different currency regimes, sovereign risk, and trade exposure. We find evidence of incomplete labour market adjustment, with rising unemployment after negative external demand shocks in SOEs under both pegged and floating regimes, with stronger effects in countries facing high-risk premia. We build a dynamic multi-sector trade model with downward nominal wage rigidity (DNWR), intertemporal consumption–savings decisions, and incomplete markets. The model includes two SOE regimes: floating, with endogenous monetary policy, or pegged. Under a peg, a negative external demand shock generates unemployment in the presence of DNWR. Under a float, unemployment can also arise if the monetary policy response limits the nominal depreciation’s ability to restore full employment. Furthermore, a spike in sovereign risk premia can amplify this effect.