Essays on the Effects of Trade Liberalization.

Abstract

This dissertation studies the impact of trade liberalization, at the firm level and at the industry level, on the economy of the liberalizing country.

The first chapter demonstrates that in a two-tier production model the liberalization of imports of input varieties weakens local input linkages. In the model, the availability of a larger number of input varieties can enhance the productivity of a composite good. Increasing the number of imported varieties reduces the positive impact of the availability of local inputs on firm productivity. I then test this result using a panel of Hungarian manufacturing firms in the period 1995-2002, when imports of manufactures soared following trade liberalization with the European Union. I find evidence that firm productivity depends less on the availability of local inputs as firms see imports of their supplier industries increase.

The second chapter is concerned with the impact of external trade liberalization on the internal geographical concentration of industries. The existing theoretical models predict that industries should further concentrate during trade liberalization. However these results hinge on specific initial conditions. I therefore answer the question empirically using the case of Hungarian industries. Using a dataset of county-industry level employment as well as trade flow data, I find evidence that higher exports in an industry increase the level of geographical concentration of the industry, particularly for industries that were initially dispersed, and at the same time reduce the share of the capital region in total employment in this industry.

The third chapter investigates the effects of trade liberalization on the size distributions of exporting and non exporting plants. I consider a period of policy changes in Colombia, between 1981 and 1990, and find evidence in favor of the long-run predictions of two heterogeneous-firm models, Melitz (2003) and Melitz and Ottaviano (2008). The size distribution of exporters has shifted left and that of non-exporters has lost its tails during a period of real depreciation and of unilateral tariff increases. The leftward shift of the distribution of exporters is due to massive entry of small exporters into the export market.