Essays on International Trade and Multinational Production PDF Download

Author: Zi Wang
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Languages : en
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Book Description
This dissertation includes two chapters on international trade and multinational production. My research focuses on estimating the frictions that impede commodity trades and knowledge transfers across countries, and quantifying the consequences of policies that aim to lower these frictions. In both chapters, I build and structurally estimate multi-country general equilibrium models, conducting policy experiments based on these models. However, they emphasize different economic forces that affect the implications of trade and multinational production liberalization.Chapter 1Multinational firms play a crucial role in international trade and production. I develop a new general equilibrium model that characterizes multinational firms' export behaviors and quantify their implications for trade and welfare. The unique feature of this model is that it allows a multinational affiliate's export cost to each market to depend on how close this market is to its production location (gravity) and to its headquarters (headquarters gravity). I show analytically that in existence of headquarters gravity the standard gravity equation is not enough to characterize trade flows across countries. The model delivers structural gravity equations that allow me to estimate headquarters gravity from Chinese firm data. The estimates suggest that multinational affiliates face much lower export costs to markets closer to their headquarters. I then calibrate the general equilibrium model to the world of 2001 with 28 major economies. The model fits the multinational firms' exports well both in firm-level and aggregate data. Counterfactual experiments show that if foreign affiliates in China have the same export costs as Chinese firms, Chinese manufacturing exports in 2001 would decrease by about a quarter. Furthermore, I show that ignoring headquarters gravity would substantially bias the estimates of welfare gains from multinational production. Finally, I demonstrate the usefulness of my model in quantifying the impacts of regional trade and investment agreements and the spillover effects of domestic policies.Chapter 2I introduce locally external economies of scale in production into a standard multi-country general equilibrium model with trade and multinational production (MP). I provide sufficient conditions for the existence and uniqueness of equilibrium. The model shows that both the elasticity of trade flows with respect to trade costs and the external economies of scale in production are crucial for the welfare implications of trade and MP liberalization. Via the lens of my model, I separate the external economies of scale from comparative advantage using the event of China joining WTO as an instrument. Counterfactual analysis shows that with stronger external economies of scale in production developing countries specalized in production gain more from MP liberalization.