Three essays in international trade and development

This dissertation consists of three unconnected empirical works; nevertheless, these three essays generally share the same theme, international trade and development. The first essay explores further evidence that Internet growth has stimulated international trade between the years 1998 and 2004. Using a gravity model, I find that a 10-percentage point increase in the number of web hosts in an exporting country leads to a 0.12-percentage point increase in a country\u27s export volume. However, the web hosts in an importing country are not statistically correlated with the export volume and there is no evidence of proximity-biased export volume. To ensure that the Internet is one of the aggregate trade drivers, this study investigates the impact of the Internet on trade openness. The results indicate that a 10 percentage point increase in the number of web hosts in a country leads to a roughly 0.22-percentage point increase in aggregate trade volume. The second essay examines evidence of multinational firms\u27 transfer pricing behavior in response to inter country difference in corporate tax rates for a selection of 52 countries between the years 1978 and 2002. I use the method proposed by Bartelsman and Beetsma (2003) to disentangle income shifting effects from the effects of tax rates on real production activity. After I find that differences in corporate tax rates induce firms to decrease their transfer prices. This behavior leads to income-shifting that gives rise to a loss in tax revenue. Moreover, by adding transportation costs to the model, I find that country sensitivity of transfer pricing is higher for countries with high wage rates and for those close to their major markets by adding. The third essay explores the roles of transaction costs and monitoring costs in multinational firms\u27 decisions on foreign direct investment (FDI). The model predicts that transaction costs and monitoring costs have a negative effect on FDI. To measure these costs, I use proxies (the corporate tax-rate difference, common culture and language) for transaction costs and for monitoring costs (distance, Internet penetration and time-zone difference). Applying a two-stage-least-squares estimation method to the bilateral FDI stock between 1980 and 1997, I find that transaction costs and monitoring costs are crucial factors determining the amount of inward bilateral foreign direct investment stock