Essays on International Trade, Productivity, and Growth

This thesis investigates the role of institutions and firm behaviours in international trade. Chapter 1 estimates a dynamic general equilibrium model of entry, exit, and endogenous productivity growth. Productivity is endogenous both at the industry level (firms enter and exit) and at the firm level (firms invest in productivity-enhancing activities). Three key findings emerge. First, there is no evidence of learning by exporting: the observed positive correlation between exporting and productivity operates entirely via the impact of exporting on productivity-enhancing investments. Restated, exporting decision raises productivity, but only indirectly by making investing in productivity more attractive. Second, there is evidence of learning by producing multiple products: product-mix raises productivity directly in addition to the investment channel. Third, there are strong complementarities among the product-mix, exporting and investment decisions. Finally, we simulate the effects of reductions in foreign tariffs. This increases exporting, investing, and wages. Productivity rises at the economy-wide level both because of the between firm reallocation effect and because of within firm increases in productivity. Chapter 2 incorporates credit constraints into amodel of global sourcing and heterogeneous firms. Following Antras and Helpman(2004), heterogeneous firms decide whether to source inputs at arm’s length or within the boundary of the firm. Financing of fixed organizational costs requires borrowing with credit constraints and collateral based on tangible assets. The party that controls intermediate inputs is responsible for these financing costs. Sectors differ in their reliance on external finance and countries vary in their financial development. The model predicts that increased financial development increases the share of arm’s length transactions relative to integration in a country. The effect is most pronounced in sectors with a high reliance on external finance. Empirical examination of country-industry interaction effects confirms the predictions of the model. Chapter 3 examines whether financial development facilitates economic growth by estimating the effect of financial development on reducing the costs of external finance to firms. The data reveal substantial evidence of decreasing returns to the benefit of financial development in industries that are more dependent on external finance and countries with less financial frictions.Ph