Essays in International Trade and growth

Abstract

This thesis is composed of three separate essays.In the first essay of this thesis, Scott Petty and I examine how the industry structure of the transportation industry affects trade. The containerized maritime transportation industry is characterized by oligopolistic competition and economies of scale. We build a model of endogenous transportation costs within a standard Melitz (2003) framework. Countries with large trade volumes face lower transportation costs because they can take advantage of economies of scale and competition in the transportation industry. We assemble a unique dataset on the containerized maritime transportation industry. The dataset includes the freight prices for transporting a container to a foreign port, the number of transportation firms operating between the US and foreign port, and the port-to-port trade flows. We document facts that are consistent with our theory. First, countries with larger trade volumes pay less in transportation costs. Second, countries with larger trade volumes have more and larger transportation firms. We then calibrate our model and estimate a transportation technology to evaluate trade reforms. Our results indicate that transportation costs fall more in smaller markets from tariff reductions. Models that do not consider these features of the containerized maritime transportation industry will fail to capture 60% of the benefits that our model generates. In the second essay, Sewon Hur and I examine the role of entry barriers on firm entry and exit, aggregate productivity and output. Using cross-country data, we document that gross domestic product (GDP) per capita is positively correlated with firm entry rates, and that firm entry rates are positively correlated with barriers to firm entry. We develop a model, based on Asturias, Hur, Kehoe, and Ruhl (2012) where aggregate productivity growth is driven by the endogenous entry of productive firms and the endogenous exit of unproductive firms. Differences in entry policy lead to different levels of entry and output, while all economies grow at a balanced growth path with identical growth rates. In the quantitative extension, we show that reforms to entry costs can generate transition paths that resemble that of high-growth emerging economies. In the third essay, Manuel Garcia-Santa, Scott Petty, and Roberto Ramos and I explore transportation costs and regional differences in scale of operation in India. The large variation in cross-country per capita income is a very important puzzle for economists. Recent works addressing this puzzle have focused on policy distortions that prevent the optimal allocation of resources: an inefficiently large amount of resources is allocated to less productive firms. The result is that we see "too many" small firms in poor countries. We build a new dataset of firm size distribution and prices by districts in India. Our findings indicate that in remote districts, firm size distribution is skewed towards small firms and prices are higher. We propose a method to see how large welfare gains would be if India had lower transportation costs.