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Luis Portes

Professor, Economics

School of Business 557
BA, Instituto Tecnologico Autonomo de Mexico
MA, Georgetown University
PhD, Georgetown University
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Luis is an Associate Professor at the Department of Economics and Finance at Montclair State University. His research focuses on macroeconomics and international economics. Using computational techniques he takes a theoretical approach in the study of business cycles, international trade and inequality.


International Economics
Development Economics


Research Projects

On the Distributional Effects of Trade Policy: Dynamics of Household Saving and Asset Prices

(Abstract) This paper studies the effect of trade liberalization on inequality. We develop a theoretical framework that generates economy-wide distributions of wealth and income for different levels of trade protection. The model unambiguously determines the short-term and long-term effect of liberalization on inequality; and rationalizes why larger inequality can be the outcome of a welfare enhancing policy, as households reduce their buffer savings when liberalization lowers the price of food. The framework reconciles the increase in inequality, the fall in the value of land, and small farmers' opposition to freer trade, that have featured in different liberalization episodes. We also present empirical support for the model's predictions.

Quarterly Review of Economics and Finance, Vol. 49 (3), 2009.

Remittances, Poverty, and Inequality

(Abstract) This paper explores the effect of remittances across the distribution of income. Based on a panel of 46 countries that covers the period between 1970 and 2000, we find that the effect of remittances is non-monotone across the distribution of income and strongest in low income countries. The impact of remittances is positive and decreasing in income for the bottom 70 percent of the population, and negative and increasing in income in the top 20 percent of the population. All else equal, remittances decrease inequality as their effect is mostly felt among the poor and they are negatively related to the income of the rich. We estimate that for low income countries a 1 percent increase in remittances would increase the first decile's income by approximately 0.43 percent, while the same change would increase the seventh decile's income by only 0.04 percent. In contrast, a 1 percent increase in remittances is associated with a 0.10 percent decrease in the income of the top 10 percent of the population.

Journal of Economic Development, Vol. 34 (1), 2009.

On Balance Sheets, Idiosyncratic Risk and Aggregate Volatility (with Deniz Ozenbas)

(Abstract) Since the mid-1980s firm level financial volatility has increased, while the U.S. economy has experienced a sharp decline in the volatility of GDP growth. Do firms adjust their capital structure in response to higher idiosyncratic risk? And if so, could that affect the performance of the aggregate economy? Using a dynamic general equilibrium model we show that in the presence of larger firm-specific risk, firms shift the composition of their balance sheets towards more self-financing and away from debt. In the presence of financial accelerator-like frictions, larger idiosyncratic risk translates into greater external financing costs, steering firms to borrow less to counteract larger premia. Model simulations suggest that larger idiosyncratic risk dampens the financial accelerator and can lead to a reduction in output volatility of up to 40 percent; and up to a 16 percent decline in firm leverage.

B.E. Journal of Macroeconomics, Vol. 9 (1), 2009.

Aggregate Gains of International Diversification through Foreign Direct Investment: An Inquiry into the Moderation of U.S. Business Cycles

(Abstract) Over the last 20 years the U.S. economy has experienced a strong reduction in the volatility of GDP growth. This paper documents and models the rapid growth of multinational corporations as a source of gradual decline in output and investment volatility. The paper introduces internationally diversified multinational firms into the financial accelerator framework; where international operations provide multinational firms with smoother paths of net worth that result in less volatile financing costs, investment and production. Model simulations suggest that larger multinational corporations can account for up to a 19 percent and 27 percent decline in output and investment volatility, respectively.

Global Economy Journal, Vol. 7 (4), 2007.

Foreign Direct Investment and Aggregate Volatility (with Dong-Kyoon Kim)

(Abstract) In the last 30 years most developed economies have experienced a strong reduction in the volatility of their economic cycles. Yet, the causes are not fully understood. This study documents and shows how the expansion of multinational corporations around the world has mitigated the propagation of shocks within host and home economies over time, leading to smoother business cycles. Based on sample of 178 countries we find that Foreign Direct Investment inflows and outflows are significantly associated with lower output volatility. The underlying channel is that international diversification provides multinational firms with smoother paths of sales and earnings that result in less volatile investment and production. Our findings provide new insights into the benefits of globalization as well policy prescriptions for more stable growth in both developing and developed economies.

International Journal of Business Research, Vol. 7 (3), 2007.