Essays in Economics

This dissertation consists of four self-contained papers, related in spirit by an interest in applied issues in the economy. In Chapter 2, I investigate wage discrimination of immigrant women in a German labour market. It is true that immigrant women receive lower wages than their native counterparts. It is not a priori clear what part of this wage gap can be attributed to objective labour market characteristics, such as education. One empirical result stands out from my work: endowment effects account for almost all of the observed wage gap between the native and immigrant women in Germany. In Chapter 3, I again look at migration. Migration is able to facilitate international trade through cross-border transfer of information. Migrants know about their host and home markets, and thus can be intermediaries to inter-regional trade. In broad terms, the effect of migrants on trade has been studied before [see, e.g., Rauch, 2001, Wagner et al., 2002]. However, the results of previous studies are open to different interpretations. In this chapter, I investigate the intermediary effect of migrants on trade using the data for Germany on immigrant labour market involvement, to disentangle alternative explanations for the correlation between migration and trade. I find evidence for the importance of white-collar over blue-collar immigrants, and for products that are relatively more complex, as expected. However, when trying to control for endogeneity, the size of the coefficients decreases by up to 16 percent. Staying with the issues of international trade, Chapter 4 looks at the welfare effect that a Free Trade Agreement between several countries can have on non-participating countries; this chapter is joint work with Frank Wachtler. The literature related to the “innocent bystander problem” [Krugman, 1991] predicts that when a subset of countries enters into a free trade agreement (FTA), the rest of the world suffers in welfare. We present a trade model with horizontally differentiated goods, in which in contrast to the literature, we show that under some conditions the non-FTA-participating countries can also gain in welfare. The main drivers behind this positive result are the size asymmetry of the countries and the inability of firms to perfectly price-discriminate across countries. Chapter 5 is again about horizontal differentiation, in which Florian Müller and I show that a duopoly market can have higher equilibrium prices than a single-product monopoly. Conventionally, we think of an increase in competition as weakly decreasing prices, increasing the number of consumers served, thus increasing consumer surplus, decreasing firms profits, etc. Here, we revisit the Hotelling model to discuss how, under some tame circumstances, an increase in competition may lead to a price increase. More importantly, we show this relationship empirically for the petrol market in German cities