ESSAYS ON GEOGRAPHY AND FIRM DECISION ON EXPORTS AND INVESTMENT
Open Access
- Author:
- Li, Kai
- Graduate Program:
- Economics
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- June 07, 2016
- Committee Members:
- Mark John Roberts, Dissertation Advisor/Co-Advisor
Mark John Roberts, Committee Chair/Co-Chair
James R. Tybout, Committee Member
Bee Yan Roberts, Committee Member
Spiro Stefanou, Outside Member - Keywords:
- Geography
Investment
Exports
Dynamic Decision
Location
Destination - Abstract:
- The world is not flat, neither are countries. Geography, in terms of location and destination, plays a key role in firm activity. The thesis is composed of two chapters that are relevant to geography and firms' decisions on exporting and investment. Previous research on export dynamics addresses a firm's tradeoff between generating a profit now or in the future, but it overlooks the importance of a firm's export decisions across markets. In the first chapter paper, I study a firm's dynamic export destination choice over two markets (the North and South) using a structural model in which I take into account of both the selection effect and the learning-by-exporting effect. Using data from the Chinese plastic industry, I distinguish and model two determinants that impact a firm's sales: a general component productivity that affects the firm's (entry) sales in all markets, and a market-specific component demand that influences sales only in that market to which the firm is exporting. I find that a firm's decision to export to the North promotes entry (sales) in other markets through productivity improvement. In contrast, a firm's decision to export to the South merely increases the sales in the South through a market-specific demand impact. Counterfactual analysis shows that omitting the benefits of exporting to the South deters 7% of all exporting firms that may have exported to the North; yet eliminating the benefits of exporting to the North deters 34% of all exporting firms that may have exported to the South. In addition to research on export destinations, the location of the firm also determines the way they make decisions. In the second chapter, I study a panel dataset for firms in the equipment-making industry in China and observe that the investment rates in urban areas are consistently lower than in suburban areas by 6-7 percentage points. Three factors could explain this - the production technology, profit shocks and capital adjustment costs. I build a structural model and quantify the relative importance of three factors in determining the firms' investment rate. The results indicate that while the production technology is similar in urban and suburban areas, profit shocks tend to be more volatile and with higher means among firms in suburban areas. Moreover, urban firms face higher (even if more easily reversible) adjustment costs for capital. The counterfactual analysis reveals that profit shocks are responsible for 70-80% of the differential in investment rates whereas difference in adjustment costs explains only about 20-30%.