Browsing by Subject "Trade liberalization"

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Essays on international trade and financial developmen[t]
(2010-05) Raei, Faezeh; Corbae, Dean; Freitas, Kripa M.; Kuruscu, Burhanettin; Quintin, Erwan; Ramondo, Natalia
The first chapter studies the effects of financial obstacles to productivity improvement in the context of trade reforms, by constructing a dynamic heterogeneous firms model with financial frictions. Trade reforms are considered beneficial because they confront the liberalized country’s firms with more competition from abroad and increase their incentives to become more efficient. This implies that if poor countries do not improve their productivities they might lose the intended gains from liberalization. Financial frictions however have been quoted an important obstacle for firms to improve their productivities. To address these issues, first, using data on 15 trade liberalization episodes, I document that more financially developed countries experienced more productivity growth after their trade liberalization. Second, I construct a dynamic heterogeneous firms model with financial frictions in financing costs for productivity improvement. Calibrated numerical exercises show that if a country does not improve its financial intermediaries at the outset of trade liberalization it may lose as much as %40 of potential output gains and productivity improvements. The result has policy implications regarding the simultaneous reforms in trade and financial intermediaries. The Second chapter is a cross country empirical analysis aiming to provide evidence for the effects of trade openness and financial development on firms decision to upgrade their technology and the impact on the distribution of firm size across countries. The idea is that reduction of trade barriers is likely to affect incentives of bigger firms to grow to export markets as well as incentives of smaller firms to innovate due to increased competition. Financial frictions, however are likely to limit the scope of these decisions and more so for smaller firms and capital intensive industries. This is likely to have heterogeneous effects on firms leading to changes in firm size distribution. I hypothesize that a combination of trade openness and low financial development increases the relative size of big to smaller firms. To test this hypothesis, I take advantage of cross country/industry differences in trade protection and financial development/needs to provide enough variation for identifying these effects. Using establishment level data from OECD countries, I provide evidence for this hypothesis, by performing double difference estimations. In addition using firm level data on 20,000 firms from World Bank’s enterprise survey, I provide more evidence that trade openness promotes productivity growth particularly for bigger firms in less financially developed countries. The finding contributes to the literature on importance of finance for firm growth by focusing on the channel of heightened competition due to trade. It highlights the importance of incorporating financial aspects of a country in trade analysis. The third chapter is an exercise exploring the welfare gains of trade in a North-South trade where counties are asymmetric in their ability to produce more sophisticated goods. The exercise is based on the model by Matsuyama (JPE 2000), where the world is a static Ricardian model with a continuum of goods and unit demand non-homothetic preferences. One country (the south) has comparative advantage in production of goods with lower income elasticity of demand. As a result, over time with uniform global improvement in technology in the form of smaller unit labor requirements, the terms of trade moves against south. The numerical exercise, calibrates stochastic interpretation of the model to for a specific choice of countries and provides evidence that over time, if the patterns of specializations are not changed drastically, the country specialized in production of less sophisticated goods disproportionately grows less than the other one and has the terms of trade moving against it.
The geography of free trade : explaining variation in trade policy in Latin America
(2018-08-14) Awapara, Omar; Madrid, Raúl L.; Wellhausen, Rachel L.; Brinks, Dan; Dietz, Henry; Levitsky, Steve
The backlash against globalization spread across several Latin American countries in the 2000s, yet a few countries such as Peru doubled down on their bets on free trade by signing bilateral agreements with the US and the EU. Why do anti-trade forces in developing countries sometimes fail to effectively exert pressure on their governments? This study uses evidence from three Latin American countries (Argentina, Bolivia, and Peru) to suggest that geography can play a significant role in shaping trade preferences and undermining the formation and clout of distributional coalitions that seek protectionism. Because trade liberalization can have uneven distributional impacts along regional lines, trade liberalization losers can find themselves in unfavorable conditions to associate and engage in collective action. Under these circumstances, few coalitions emerge to battle for protection in the policy arena, and when they do, geographic distance from decision-makers in the capital city can be a significant barrier to realizing their interests. As a result, even where a majority of the population living in regions that have not benefitted from trade elect a leftist president, trade reform reversal will not occur unless protectionist interests are close to the capital city. The cases of Argentina, Bolivia, and Peru in the 2000s highlight the powerful influence geography can have on reversing trade policy or preserving the status quo.
Trade growth, the extensive margin, and vertical specialization
(2010-08) Mostashari, Shalah; Debaere, Peter, 1965-; Corbae, Dean; Abrevaya, Jason; Freitas, Kripa M.; Magee, Stephen P.; Kendrick, David A.
This dissertation consists of three essays in International Trade. The first essay studies the impact of changing tariffs on the range of goods countries export to the United States. The empirical analysis shows that tariffs tend to have a statistically significant but small impact: at best 5 percent of the increasing extensive margin for 1989-1999 and 12 percent for 1996-2006 is explained by tariff reductions. This suggests the extensive margin has not amplified the impact of tariffs on trade flows to such an extent that the relatively moderate tariff reductions since WW II can explain the strong growth of world trade. The second essay investigates the sector and country determinants of the range of goods that countries export to the United States. Besides relating the traditional determinants of comparative advantage, sectors’ factor intensities interacted with countries’ factor abundance to the extensive margin in a sector, the empirical investigation includes interactions between sector-level measures of intermediate intensity and trade frictions. Consistent with hypotheses about fragmentation, the results show that closer countries and countries with lower tariffs imposed on them export a wider range of goods in sectors that have large intermediate cost shares. The impact of trade frictions is, however, far less pronounced for the more skilled-labor intensive sectors that are characterized by use of a greater range of intermediates. The third essay studies the impact of trade liberalizations on U.S. bilateral trade from 1989-2001 with a focus on the influence of exporting country liberalizations which matter when exports are produced with imported intermediates. Guided by extensions of the Eaton and Kortum (2002) model which allows for production to involve the use of imported intermediates, the essay estimates a structural equation that links U.S. bilateral trade flows to both intermediate tariffs imposed by countries exporting to the United States and U.S. tariffs. The empirical estimates suggest that especially for less developed countries their own liberalizations have been quantitatively much more important in explaining bilateral trade growth with an effect 3 times larger than the impact of U.S. liberalizations.