Hundanol Kebede

Hello! Welcome to my website!

I am an Assistant Professor at the Economics department of Southern Illinois University, Carbondale.

I graduated from University of Virginia in Economics in August 2020. My fields of interest are International Trade, Applied Microeconomics, and Development Economics. My current research mostly focuses on the effect of trade and infrastructure expansion on spatial distribution of economic activities and welfare in the context of low-income countries. I have strong interest in how trade (both domestic and international) and infrastructure affect manufacturing growth, structural transformation, employment, wages, and welfare in low income countries. However, I also have strong interest in some development topics including how households deal with shocks, such as weather and price shocks, and the effects of forced displacements on the displaced and the hosts.

Research Papers

The gains from market integration: The welfare effects of new rural roads in Ethiopia

Abstract: Developing countries, particularly those in sub-Saharan Africa, often face a trade-off in investing in highways that interconnect cities vs. rural roads that connect rural villages to markets. Prioritization of either roads requires estimation of the welfare gain from each. In this paper, I estimate the welfare gain from rural road construction. To understand how rural roads affect welfare in agricultural villages, I develop a Ricardian trade model that features multiple crops, multiple villages, and heterogeneous land quality. The model gives a number of sharp predictions on how roads affect welfare, which I take to a very rich micro data on agricultural production and crop prices from Ethiopia. I use a large-scale rural road expansion program called Universal Rural Road Access Program (URRAP) as a source of variation to trade costs. To address endogeneity of road placement, I use counterfactual road network predicted from land gradient and location of rivers and lakes to construct instrumental variable. I estimate that the road expansion resulted in about 13% increase in real agricultural income, on average. I show that this increase is attributed to the mechanisms suggested in the Ricardian trade model: the prices of villages’ comparative advantage crops increase and villages allocate more fraction of land towards these crops following decreases in trade costs. The size of the welfare gain varies across villages depending on, e.g., the crop composition of village consumption vis-a-vis production — cash-crop villages gain more than cereal producing villages because the latter face increases in their consumption costs while the former experience the exact opposite.

Market Integration and Separability of Production and Consumption Decisions in Farm Households (Revision submitted to JDE)

Abstract: Separability — whether farm household’s production and consumption decisions can be separately analyzed — has been a subject of significant policy and academic debate. The existing empirical studies looked at the link between on-farm labor demand and household demographic characteristics to examine whether separability holds. One problem with this approach is that on-farm labor demand is likely to be poorly measured in the context of self-employing agricultural households. In this paper, I suggest an alternative and more straightforward empirical test of separability and analyze how it is linked to market integration/trade costs. The new test looks at the link between household land allocation across different crops and the household’s consumption tastes for the crops estimated from their preference functions. I find that households’ tastes for crops significantly affect their land allocation across crops. I also show that this effect significantly decreases with improvement in market integration due to construction of new rural roads.

The pass-through of international commodity price shocks to producers’ welfare: Evidence from Ethiopian coffee farmers (Accepted, WBER)

Abstract: International commodity price shocks may have large impacts on producers in developing countries. In this paper, I use unique household panel data from Ethiopia to show that a decrease in international coffee price has strong pass-through to the consumption of households that rely on coffee production as a main source of livelihood. It also results in decreases in on-farm labor supply (particularly male labor supply) and induces reallocation of labor towards non-coffee fields, but has negligible effect on off-farm labor supply. The decline in consumption has significant consequences on child malnutrition. I find that children born in coffee-producing households during low coffee price periods have lower weight-to-age and weight-to-height z-scores than their peers born in non-coffee households.

Risk aversion and gender gaps in technology adoption by smallholder farmers: Evidence from Ethiopia (Accepted JDS)

Abstract: Adoption of chemical fertilizers is a high-risk and high-return investment option for smallholder agricultural households that heavily rely on rainfall. I document a persistent gap of above 10% in adoption of chemical fertilizer between male- and female-headed smallholder farmers in Ethiopia. This gender gap remains after accounting for household characteristics, access to complementary farm inputs, access to credit, soil quality, and crop selection. Using historical variability of rainfall at district level as a measure of a district’s risk of crop failure, I find strong evidence that the gender gap in fertilizer adoption increases with the level of risk in the district. I explore the role of two competing hypotheses to explain this observation: gender difference in risk aversion and differential access to consumption smoothing by male- and female-headed households. I find strong evidence that both these factors play significant roles but gender difference in risk aversion plays the dominant role. This is consistent with a bulk of lab and field experimental studies that find evidences that women tend to be more risk averse than men.

The Effects of Refugee Camps on Children of Host Communities: Evidence from Ethiopia (with Caglar Ozden)-R&R European Economic Review Plus

We study the impact of refugee crisis on child outcomes in Ethiopia, one of the largest hosts for refugees escaping from civil war and violence in their home countries. To address endogeneity in the location of refugee camps, we use a district’s ethno-linguistic and geographic proximity to the refugee source countries to predict probability of camp locations in a district and use this as instrument for actual camp location. We find that Ethiopian children with higher exposure to refugee camps have lower weight-to-age and weight-to-height z-scores. The key mechanisms include higher likelihood of contacting infectious diseases such as diarrhea, lower probability of receiving crucial vaccinations, and hikes in prices of essential food items in areas with higher refugee population. However, higher exposure is also associated with increased primary school enrollment and higher likelihood of progression to secondary school for the Ethiopian children, particularly for female students. Host community children are benefiting from additional resources provided for the refugee children, such as school facilities.

Works in Progress

Openness, Markups, and Misallocation

Abstract: Recent studies stipulate that large fraction of cross-country differences in productivity could be accounted for by within-industry dispersion in productivity, and misallocation of inputs, across firms. The literature has focused on the role of frictions in credit market in driving such misallocation. In this paper, I explore the role of distortion in the output market, in particular markups, in explaining cross-country difference in the extent of within-industry misallocation. Using firm level data from over 50 countries, I show there large cross-country difference in the the average level and dispersion of markups across firms within an industry. Similarly, there is large cross-country difference in the extent of productivity dispersion among firms within an industry, implying large cross-country differences in the extent of within industry resource misallocation. I show that openness to import trade reduces the extent of misallocation by reducing the average level and dispersion of markups as well as dispersion of revenue productivity among plants within-industry.

International trade and firm capacity utilization (with Margaret McMillan)

Abstract: Empirical studies in international trade find that exporting/importing increases plants’ productivity — also known as Learning by Exporting/Importing(LBE/I). In the situation when constraints in the product and inputs markets force firms to utilize only a fraction of their available capacity, one potential benefit of foreign trade is relaxing these constraints and allowing firms utilize more of their capacity — in addition to the traditional productivity enhancement effect. These two effects are disparate, but empirically difficult to disentangle. As a result, the effect of trade on plant capacity utilization is considerably overlooked. In this paper, I use a very rich firm level data from Ethiopia to separately quantify the effect of international trade on firm productivity and capacity utilization. The result shows that some of what is considered as productivity gain from trade is attributed to firms being able to utilize more of their installed production capacity (capital) due to more access to international product and input markets.

Trade, Markups, and Firm Investment

Abstract: In this paper, I study the link between import competition, markups, and firm investment using data on manufacturing firms from Ethiopia. I find that 87% of firm investment is financed from the firm’s own profits, implying stringent credit constraints. I estimate firm level markups using both accounting approach (using balancesheet information) and using the approach suggested in DeLocker and Warzynski (2012). I find that firms with higher markups have higher investments. This result is robust to conditioning on firm’s TFP, and using within industry variations. I show that exposure to import competition from low-wage high-tech countries (India and China) significantly decreases firms’ markups, leading to lower firm investments and higher firm deaths. Exposure to imports from advanced countries does not have similar effects.

Ethnic Heterogeneity and Domestic Trade Frictions

Abstract: Ethnic heterogeneity is associated with conflict, lower provision of public goods, and economic underdevelopment in many contexts. In this paper, I use spatial variation in prices of crops within and across ethnic borders in Ethiopia and show that: (i) ethnic borders explain significant fraction of spatial price variation conditional on road distance and spatial productivity gaps, and (ii) shocks to agricultural production have significantly weaker effect on prices across ethnic borders than within ethnic borders, conditional on road distance. I explore the role of two competing explanations–language barrier and inter-ethnic tensions, and find that both play important roles but the latter tends to have stronger effect.