Three Essays in International Economics

Abstract

The dissertation consists of three essays. The first essay presents a model where policies that reduce frictions in the labor market affect the distribution of welfare changes stemming from trade. I evaluate this mechanism in the context of a set of labor market policies between 2003-2005 in Germany known as the Hartz Reforms. Using establishment-level data from the German Federal Employment Agency, I show how the intersectoral mobility of workers rose in the period following these reforms. I use a multi-sector trade model with heterogeneous workers and intersectoral mobility to quantify the welfare changes from increased Chinese import pressure between 2005-2012. I find that, in the absence of the reforms, the gap in welfare gains between the worst-off and best-off labor markets would have more than doubled.

The second essay is co-written with my adviser, Javier Cravino, and focuses on the empirical fact that aggregate price levels are positively related to GDP per capita across countries. We propose a mechanism that rationalizes this observation through sectoral differences in intermediate input shares. As productivity and income grow, so do wages relative to intermediate input prices, which increases the relative price of non-tradables if tradable sectors use intermediate inputs more intensively. We show that sectoral differences in input intensities can account for about half of the observed elasticity of the aggregate price level with respect to GDP per capita. The mechanism has stark implications for industry-level real exchange rates that are strongly supported by the data.

The final essay concerns the correlation between the advent of the Internet and the global growth in services exports over the last three decades. I present a gravity model with bilateral measures of Internet connectivity to formalize this correlation. To establish bilateral connectivity, I construct a novel dataset based on the undersea fiber-optic cable network responsible for 99% of international data traffic. I measure the degree of bilateral connectivity using information on the capacities of these cables in order to estimate the effect of that connection on export growth between pairs of digitally connected countries. I estimate a positive relationship between Internet connectivity and bilateral exports in data-intensive industries with an elasticity of 0.25 to 2.25 over a variety of possible settings.