Essays on International Trade and Development
Open Access
- Author:
- Zhao, Yingyan
- Graduate Program:
- Economics
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- April 23, 2019
- Committee Members:
- Stephen R. Yeaple, Dissertation Advisor/Co-Advisor
Stephen R. Yeaple, Committee Chair/Co-Chair
Kala Krishna, Committee Member
James Tybout, Committee Member
Edward Jaenicke, Outside Member - Keywords:
- International Trade
Information Asymmetry
Location-based Policy
Class Size - Abstract:
- My studies focus on the welfare implications of market frictions and policy distortions. This dissertation includes three chapters on international trade and development economics. Based on empirical evidence found in data, I build and estimate theoretical models which can be used further to quantify policy implications. My research includes both positive and normative analysis. In Chapter 1, I study how information asymmetry affects trade and what is the policy implication. The problems of moral hazard and adverse selection can seriously impede the development of export markets for firms from less developed countries. Importing firms have little recourse in developing country courts should their suppliers provide sub-quality goods, and they face great difficulty in distinguishing good firms from bad ones. My paper is the first to develop and estimate a dynamic structural model that incorporates both features of asymmetric information, namely moral hazard and adverse selection. In the model, the information asymmetry is high for new entrants but then gradually fades as idiosyncratic fixed cost shocks drive inefficient firms from the market. Thus, a firm's tenure in export markets is a signal of its efficiency, and consequently the price that it can obtain rises with tenure. Market-wide shocks to fixed costs, as occur when product safety regulations are imposed, flatten the price-tenure gradient as they disproportionately induce inefficient firms to exit. Using a triple-difference strategy, I show that these predictions hold in firm-level Chinese export data. This variation in the data also allows me to estimate my model and use it for counterfactual analysis. I show that the problem of information asymmetry is severe for Chinese entrants into export markets and that the problem is made worse by government export subsidies. Reducing these subsidies would raise aggregate export profits for Chinese firms. In Chapter 2, I study the welfare implication of location-based policies in a general equilibrium framework. Location-based policies are put in place in many countries to promote local economies. Based on Chinese Manufacturing Survey data, we see that there exist significant differences in corporate income tax rates across regions and across industries within a region. Hence, the location-based policy that we study here is the preferential corporate income tax rate that is offered by local Chinese governments to attract firms. We use a general equilibrium model, that takes into account both the creation and diversion of economic activity across space, to study the welfare implications of this policy in China. Our model is characterized by two agglomeration forces: Marshallian externalities and input-output linkages. Heterogeneous firms choose their production locations based on the above forces of agglomeration, the corporate income tax rate, wages and market access. After calibrating the model to the data, we find that this policy reduces aggregate welfare by 0.26% relative to the scenario in which corporate income taxes are equal across regions and across industries within a region. Both agglomeration forces play an important role. Preferential tax rates in underdeveloped areas attract firms away from more developed areas, thereby preventing them from exploiting the efficiency gains due to agglomeration. If agglomeration was not considered, then the welfare loss would have been underestimated by 59%. In Chapter 3, using high quality administrative data on Greece we show that class size has a hump shaped effect on achievement. We do so both nonparametrically and parametrically, while controlling for potential endogeneity and allowing for quantile effects. We then embed our estimates for this relationship in a dynamic structural model with costs of hiring and firing. We argue that the linear specification form used in past work may be why it found mixed results. Our work suggests that while discrete reductions in class size may have mixed effects, discrete increases are likely to have very negative effects while marginal changes in class size would have small negative effects. We find optimal class sizes around 27 in the absence of adjustment costs and achievement maximizing ones around 15, and firing costs much larger than hiring costs consistent with the presence of unions. Despite this, reducing firing costs actually reduces achievement. Reducing hiring costs raises achievement and reduces class size. We show that class size caps are costly, and more so for small schools, even when set at levels well above average.