Essays on International Economics

In these essays, I examine quantitatively some of the classic questions in the field of International Economics: What is the impact of international trade on consumption and productivity? How does international trade affect income inequality? How do exchange rates movements affect real output and productivity? This dissertation is composed of three chapters, each covering one of these topics.The first chapter, based on my paper "Measured Gains from International Trade" with Ariel Burstein, revisits the measurement of welfare gains from trade liberalizations. Economists so far have measured these gains using one of two alternative approaches. A first approach uses structural models to infer unobservable welfare gains from changes in trade costs or in trade patterns. A second approach documents the empirical link between the level or the change in international trade and aggregate indicators of economic activity. This chapter connects these two approaches by studying the relationship between the theoretical welfare gains from trade and observable aggregate measures of economic activity, such as real GDP and real consumption, as constructed by national statistical agencies. Across a wide range of models, we find that measured real GDP and productivity rise in response to reductions in variable trade costs if GDP deflators capture the decline in trade costs. On the other hand, welfare gains from tariffs reductions are only reflected on real GDP if tariff revenues at constant prices rise. The second chapter analyzes the impact of capital equipment imports on income inequality across 53 countries. The chapter is based on my paper "Importing Skill Biased Technology" with Ariel Burstein and Jonathan Vogel. Capital equipment, such as computers and industrial machinery, is mostly operated by skilled workers and generally takes on routine tasks that are otherwise performed by unskilled workers. When a country imports capital equipment, it raises the relative demand of skilled versus unskilled workers, increasing income inequality. The chapter develops a tractable model of international trade in capital goods to quantify these effects. In doing so, it provides sufficient statistics and transparent formulas that will enable development practitioners to independently assess how trade in capital goods affects income inequality. We estimate that imports of equipment account for 16 percent of the income gap between skilled and unskilled workers in the median country in our sample, and for a much larger magnitude in economies that heavily rely on imported capital equipment. We also show that imports of capital equipment are essential to increase productivity and income in developing countries, both for skilled and unskilled workers, although my findings suggest these imports will disproportionately benefit the skilled segment of the population. In the third chapter, "Exchange Rates, Aggregate Productivity and the Currency of Invoicing of International Trade", I use a novel dataset on prices and quantities from Chilean customs and a model of international prices with nominal rigidities to study how movements in nominal exchange rates can impact aggregate output and productivity. Empirically, I show that export prices are rigid in the currency in which exports are invoiced, so the relative price of firms invoicing in different currencies fluctuates with the exchange rate. I exploit this feature of the data to estimate how quantities of firms invoicing in different currencies selling in a common destination move with the exchange rate. I find this elasticity to be low, indicating that exchange rate movements have limited expenditure switching effects. I then ask how the observed variation in markups generated by exchange rate movements affects aggregate productivity by affecting the allocation of production across firms. Guided by a quantitative open economy model disciplined by some features of my data, I show that a 10 percent change in the exchange rate changes productivity in the tradable sector by 0.5 percent. Alternative parameterizations that do not account for the observed heterogeneity in invoicing predict changes in productivity at least five times smaller. This implies that taking heterogeneity into account is key for understanding the quantitative effects of exchange rates on productivity