International Trade With Heterogeneous Firms And The Gravity Equation

Author : Konstantin Kucheryavyy
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (927 download)

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Download or read book Essays on International Trade written by Konstantin Kucheryavyy and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three chapters.Chapter 1 is devoted to a theoretical analysis of the interaction between comparative advantage and international risk sharing in the presence of uninsured total factor productivity shocks (TFP). The overwhelming consensus in the theoretical literature is that access to international risk sharing in the presence of uninsured TFP shocks induces a country to specialize more in its comparative advantage industries. In Chapter 1 of my dissertation I demonstrate that the effect of financial integration on production patterns depends on preferences and on the structure of the variance-covariance matrix of TFP shocks present in the economy. Using a variant of the standard 2x2 Ricardian model with TFP shocks by Helpman and Razin (1978), I show that if TFP shocks affect each industry in all countries the same way, the standard assumption, then financial integration indeed leads to a more specialized production structure. However, if shocks are not correlated across countries and affect all industries in a country the same way, then the effect of financial integration is ambiguous. I also show that in the absence of international risk sharing the Helpman-Razin model generally has (discrete) multiple equilibria - an overlooked phenomenon. I build a framework with a continuum of goods in the spirit of Eaton-Kortum and show how the multiple equilibria can be numerically bounded. Using this framework I explore the welfare effects of financial integration through its impact on the production structure. This work can be seen as a first attempt to bring together the discussion of international risk sharing and trade in the context of quantitative trade models of comparative advantage.Chapter 2 is a joint work with Gary Lyn and Andres Rodriguez-Clare. This Chapter studies the implications for trading economies of industry-level external economies of scale, also known as Marshallian externalities. This fundamental question has received little attention in the recent trade literature because of the large number of equilibria that typically occur in trade models with Marshallian externalities. In this work we build a version of such a model that yields a unique equilibrium and a standard gravity equation. The underlying structure of our model is isomorphic to that of a multi-industry Krugman model of firm-level economies of scale and so our uniqueness result extends to this setting as well. The welfare analysis reveals that if the conditions for uniqueness are satisfied then all countries gain from trade even when the strength of scale economies varies across industries. Moreover, the presence of scale economies tends to decrease the gains from trade but increase the gains from trade liberalization.Chapter 3 is devoted to a theoretical analysis of a model with a nested constant elasticity of substitution utility function and heterogeneous firms involved in price competition. Models of this type have become popular in the international trade literature in recent years. I show the continuity of the model as the elasticity of substitution between goods goes to infinity. This result contrasts with the conjecture of prior literature. Continuity of the model ensures consistency of its outcomes when the elasticity of substitution approaches infinity. Therefore, researchers who were reluctant to use this model because of the lack of proof of continuity can now rely on the result of my work to employ the model in their research.