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Browsing by Author "Lee, Sang Min"

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    Essays on International Trade, Growth, and Development
    (2023-07) Lee, Sang Min
    This dissertation consists of two chapters focusing on the role of international trade and foreign direct investment in the growth and development of participating countries. The first chapter studies the effect of globalization, i.e., a reduction in international trade costs, on structural transformation, i.e., the reallocation of GDP from goods to services. I study the topic with a focus on international trade in services, which was largely overlooked in the previous literature, although it accounts for more than one-third of total global trade. First, I construct a multi-country, multi-sector trade model with non-homothetic preferences, where exogenous changes in sectoral productivities and bilateral trade costs generate structural transformation. For the quantitative analysis, I parameterize the model using data for 66 countries from 1995 to 2018. I find that globalization decelerated structural transformation of the countries whose comparative advantage in goods was strengthened by globalization and accelerated that of the countries with weakened comparative advantage in goods. For countries whose comparative advantage wasn’t significantly affected, globalization had a negligible impact on their structural transformation. I show that globalization shifts a country’s comparative advantage if trade costs faced by the country change disproportionately across goods and services. Illustration of the mechanism is as follows: if goods export trade costs fall faster than goods import trade costs for a country, its comparative advantage in goods strengthens. If services export trade costs relative to services import trade costs decline, the comparative advantage in goods weakens. Therefore, if a country’s export trade cost relative to import trade cost for goods and services change at different rates, its comparative advantage shifts. The second chapter investigates the effect of inward foreign direct investment (FDI) on the aggregate productivity growth of China’s manufacturing sector. Many attribute the explosive growth of China’s manufacturing sector to Deng Xiaoping’s economic reform. As part of the reform, China opened itself to foreign investment in 1978. To promote FDI, it gave foreign investors preferential treatments, including lower tax rates, which lasted until 2008. As a result, the FDI inflow to China was the largest among the developing countries from 1992 to 2019. This chapter contributes to the literature by providing a unified framework to study multiple channels through which FDI can contribute to economic growth. First, I develop a firm-dynamics model with heterogeneous productivities and FDI. In the model, a firm can improve its productivity through foreign technology adoption, innovation, and spillovers (imitation). Unlike domestic firms, FDI firms possess foreign technology adoption capabilities. Moreover, they participate in innovation with different rates from domestic firms. These features of the model generate different productivity distributions for domestic and FDI firms. The model is disciplined using the microevidence from Chinese firms and their patents from 1998 to 2007. By calibrating the productivity distributions to the dataset, this study shows that the annual growth rate of aggregate productivity would decrease from 8.42% to 7.50% without the presence of FDI firms. Counterfactual exercises demonstrate that the growth contribution mainly accrues through foreign technology adoption, which explains 0.72p.p. of the total gain of 0.92p.p.