CEU Electronic Theses and Dissertations, 2019
| Author | Maduko, Franklin Okechukwu |
|---|---|
| Title | Three Essays in International Trade |
| Summary | This thesis consists of three single-authored chapters. Each chapter employs theoretical and empirical approaches to investigate a different aspect of the effect of trade policies on the economy. In the first two chapters, I focus on Hungarian manufacturing firms, and in the third chapter, I focus on US product-level exports to 119 countries. In the first chapter, I study the effects of import competition faced by Hungarian manufacturing firms during the period 1996-2003 on their efficiency. I start by arguing that existing methods of estimating productivity cannot be applied in my setting. So, I proposed a new framework for estimating physical productivity and study the effects of import competition on the productivity of firms. In the second chapter, I challenge the conventional assumption of production with a constant marginal cost using matched manufacturing firm-product-destination dataset from Hungary. I show that when a firm faces an exogenous export demand shock, the firm scales down its domestic sales in order to increase its exports and this effect persists even after taking longer differences of exports and domestic sales, suggesting the presence of production capacity constraints. To investigate whether this finding is innocuous for welfare, I introduce an increasing marginal cost structure in a traditional trade model and show a new channel for welfare losses from trade liberalization. In the third chapter, I study the relationship between an improvement in intellectual property rights (IPR) in a country and the industry exports it receives from the US using product-level panel datasets of US exports to 119 countries during the period 1989-2006. I show both theoretically and empirically that an improvement in patent laws is associated with an increase in US exports, and industry-level product life-cycle length determines the sensitivity of US exports to IPR reforms. Chapter 1: Quality-Adjusted Productivity and The Effect of Trade Liberalization on Productivity. In this chapter, I study the effects of the reduction in import tariffs charged on EU imports in Hungary during the periods (1996-2003) on the efficiency of Hungarian manufacturing firms. Since I do not observe firm-level output quantity, I propose a structural framework that enables me to estimate quantity productivity from revenue data. This framework involves integrating the demand systems faced by a firm in both the foreign and domestic markets with the firm's production function, and by this, I derive a new structural estimable equation that estimates quantity productivity. Using a matched firm-product level datasets and product tariffs, and applying the structural methodology, I find that a 10-percentage point reduction in average tariffs faced by a firm raises firm level quantity productivity by 0.97 percent and revenue productivity by 2.1 percent. This large differences between revenue and quantity productivity imply that revenue productivity overstates the effects of trade liberalization and calls for re-evaluations of numerous studies that have attributed large efficiency gains to trade liberalization. In addition, I offer a more general framework that can be easily applied to estimating firm-level physical productivity from revenue data when firms sell in both domestic and export markets. Chapter 2: Increasing Marginal Cost and Welfare Implications In this chapter, I use a matched firm-product-destination dataset for manufacturing firms in Hungary and exploit the exogenous variations in the foreign demand addressed to a firm using an instrumental variable approach and a structural methodology to study the relationship between a firm's domestic and foreign sales while controlling for the firm's supply determinants. I find that a 10 percent exogenous increase in foreign sales leads to approximately 1.6 percent decrease in domestic sales. This finding suggests the presence of an increasing marginal cost of production, contrary to the assumption of constant marginal costs in most trade models. To shed some lights on the implications of our findings for aggregate welfare, I introduce an increasing marginal cost technology into a traditional trade model and show that liberalizing trade results to a new channel of reductions in potential welfare gains not accounted for in previous studies. Thus, it implies that the constant marginal cost assumption in trade models is not innocuous. As increasing marginal costs is a consequence of capacity constraints at the firm level (Ahn and McQuiod 2016), the findings provide support for concurrent policies that reduce trade barriers and eases capacity constraints in order to ensure the full realization of gains from trade. Chapter 3: Exports and Intellectual Property Policies: Does Product Life-Cycle Length Matter? In this chapter, I ask the following questions: How do US exports in the high technology sector react to a change in intellectual property rights (IPR) reforms in destination countries? What determines the industry sensitivity of exports to IPR reforms? To answer these questions, I build a partial equilibrium model where a profit-maximizing firm in the North has acquired patents on its output and then, decides when and which countries to export. Countries are heterogeneous in their level of IPR regulation, imitation risk, and economic size. The firm faces a trade-off between market expansion and market power. By exporting to all countries, the firm increases its sales and profit but faces the risk of imitation on its output which robs it of its market power. The model predicts that: strengthening IPR laws in countries in the South leads to increased exports especially in sectors with relatively longer product life-cycle length. However, this relationship is non-monotonic as products in sectors at the topmost distribution of product life-cycle length are less sensitive to stricter IPR reforms compare to sectors at the median. I use yearly panel datasets (1989-2006) consisting of US product-destination information, country-level IPR index and cross-sectional product life-cycle length data to test the predictions of the model. I find our empirical results are consistent with the predictions of the model. The results point to the importance of IPR policies in determining sectoral patterns of trade flows between countries. |
| Supervisor | Koren, Miklós |
| Department | Economics PhD |
| Full text | https://www.etd.ceu.edu/2019/maduko_franklin.pdf |
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