Welcoming new faculty member to Berkeley Economics: Chenzi Xu

Mendoza-Fernández: Can you share a bit about your journey into the field of economics and what inspired you to pursue this career?
Xu: My introduction to economics was actually in high school European history. The different time periods/major events in that class (for example, the French Revolution) were often broken down by facets: political, social, economic, etc. I always found the "economic" component of the textbooks to be too short and poorly explained—they made sense if you understood economics, but were often confusing if you didn't. I decided to take an actual economics course so that I would be less confused, and I had 1 semester of basic micro as an independent study. I loved it and I just felt like I had learned a new language and way of seeing the world. From there, I read some popular books in economics (Jeff Sachs' "End of Poverty") and decided I wanted to try being an economics major in college. In college, I liked the classes where we read papers, and I liked RA work, so I thought I'd try out doing a PhD. 

Mendoza-Fernández: Your research focuses on International Economics, and you emphasize historical settings before the 19th century when the world economy was very different from our times. How would you explain to a non-researcher why it is still valuable for economists to understand those settings?
Xu: First, one of my favorite things about economics is that at the end of the day, there are a few elements that run through everything: for example, firms are (mostly) profit-maximizing, individuals (mostly) respond to incentives, and frictions can (often) explain a lot of the interesting variation in the data. These elements are time-invariant, and so we can learn as much from history as from the modern world. In fact, history can be so much more illuminating precisely because it sheds light on which frictions are important over time. Second, I think that empirically, there is a lot of persistence in the world, and so in order to understand many things about the world today, we actually have to acknowledge/understand the relevant history. 

Mendoza-Fernández: In a recent working paper with Antonio Coppola and Arvind Krishnamurthy, you provide an explanation for why currencies such as the British pound sterling rose and fell as the world’s dominant currency. Considering current geopolitics, with China trying to challenge the dominance of the U.S. dollar by issuing loans in the Chinese renminbi, what predictions does your theory provide about the future of the dollar?
Xu: That paper makes the specific argument that financial market depth is the seed for currency dominance, and that international trade (and trade invoicing) is a by-product of financial market depth. At the moment, China is pursuing a path of gaining currency dominance by pushing trade invoicing onto its trade partners; while that may work to an extent, our model says that it would only lead to the currency being used to the extent that there are real trade flows. In contrast, the US dollar is used in volumes that are many multiples of real trade volumes. So until China invests significantly in its financial market depth (which requires capital mobility), we would predict it's unlikely to be successful in overtaking the dollar. 
 

Mendoza-Fernández: What advice would you provide to a graduate student interested in combining Economic History with International Economics?
Xu: These are two great fields to be in! They are very welcoming and nurturing fields, and there are natural synergies. Some of the best historical data are trade data (because trade was historically a source of tax revenues, and so governments were incentivized to document these flows very well), and trade is so intricately linked to questions related to economic growth/development/structural transformation/industrial policy, all of which are "long run" questions that need a historical approach. 

Mendoza-Fernández: Looking ahead, are there any specific topics you are eager to explore in the near future?
Xu: I have some ongoing projects that are quite data-collection intensive, and I'm very excited about what these data. They are about international finance and trade, but they span a variety of sources: purely textual sources, balance sheets, new archival records, etc. These are all related to the overarching questions in my research, which is how financial market integration impacts the flows of goods and people, and ultimately how it impacts economic growth.