Essays in International Economics

Abstract

This dissertation consists of three independent essays that study different topics related to international trade and development: the role of infrastructure in explaining cross-country productivity differences; the impact of foreign acquisitions on target firms in the host country, and the dynamic responses of exporters to a trade liberalization event. For both chapters 2 and 3, I focus on the context of China. Infrastructure is often seen as a bottleneck for economic development. In Chapter 1, I study the importance of two key sectors, electricity and transportation, in shaping the aggregate productivity differences across countries in the presence of input-output linkages. I first document that: 1. both electricity and transportation services are relatively more expensive in poor countries, and 2. industries in poor countries spend a larger fraction of their input expenditure on electricity and transportation sectors despite the higher prices. I then estimate the long-run elasticity of substitution between electricity, transportation and the inputs produced by other sectors, in downstream industries’ production. The estimated elasticity is well below the Cobb-Douglas benchmark of one, indicating a low degree of substitutability. I embed the estimate in a multi-sector general equilibrium model to evaluate its quantitative importance, using a unique dataset of IO tables and sectoral price levels for 39 countries in 2005. For the bottom decile of the income distribution (India, China, Indonesia, and Brazil), I find that closing the productivity gap with the US in electricity and transportation sectors raises aggregate productivity by 33% on average. Relative to the standard Cobb-Douglas assumption, the estimated low input elasticity implies larger aggregate output losses from having low productivity in bottleneck sectors, as industries have limited ability to substitute toward inputs supplied by more productive sectors. Chapter 2 studies how acquisitions by foreign firms affects the target firms' proclivity to export. Using micro-level data from China, I find that foreign-acquired firms experience significant expansions on the extensive margin of exports following ownership change, and they are more likely to enter the markets of their foreign acquirers. This effect is shown to be more profound for firms that export differentiated products and firms that are acquired directly by investors from other countries. These new findings shed light on a potentially important information channel through which FDI could benefit domestic target firms. In Chapter 3, I analyze how Chinese textile and clothing exporters react to the ending of Multifibre Agreement. I find that following quota removals, Chinese exporters make surprisingly quick and permanent adjustments in the three large liberalizing markets. This result challenges the prevailing view in recent international trade literature that firms respond slowly to trade shocks or policy reforms.