Two Essays on International Trade

Author:

Deng, Jianpeng

Graduate Program:

Economics

Degree:

Doctor of Philosophy

Document Type:

Dissertation

Date of Defense:

May 08, 2018

Committee Members:

James R. Tybout, Dissertation Advisor/Co-Advisor
James R. Tybout, Committee Chair/Co-Chair
Stephen Ross Yeaple, Committee Member
Kim Joseph Ruhl, Committee Member
John Raymond Moran Jr., Outside Member

Keywords:

Processing Trade
International Trade
Growth

Abstract:

This dissertation includes two chapters on international trade. My research focuses on understanding the welfare implication of processing trade policy--an export promotion policy commonly adopted by developing countries, and quantifying these effects. In chapter 1, I build and structurally estimate a multi-country general equilibrium model, and quantify the impact of processing trade policy on welfare. In chapter 2, I extend the model in chapter 1 into a multi-country growth model with idea diffusion through trade, and the calibrated growth model shows that the welfare implication of processing trade policy is reversed in the presence of global idea diffusion. Chapter 1: Processing Trade and International Trade: Evidence from Chinese Firms Processing trade policy is often used by developing countries, and export value-added tax rebate is common for countries at different stages of economic development. I build a multi-country general equilibrium model to investigate these policies. I structurally estimate the model using China's firm-level data, and utilize the additional information from processing trade to identify the elasticity of substitution. In the counterfactual exercise that China eliminates the duty drawback for processing trade, its exports are reduced by about $20\%$, but welfare is increased by about $4\%$. Chapter 2: Processing Trade and Global Idea Diffusion Processing trade allows firms to claim an import duty exemption for imported intermediates used to produce exports. I study the welfare implication of this policy in a multi-country growth model in which ideas diffuse through trade. New potential producers continuously arrive in each country, and learn from all the sellers operating in the country (including foreign sellers). If a country is far from world technology frontier, processing trade affects the welfare in the country through a trade-off between the loss of varieties (static losses) and the increase in aggregate productivity (dynamic gains). The calibrated model shows that China’s welfare decreases by $7.6\%$ if China eliminates the duty drawback for processing trade, and the magnitude of the dynamic gains is about three times larger than that of the static losses.