Essays on structural change, trade, and development.

Abstract

The essays in this dissertation employ models of heterogeneous agents or firms to focus on these two aggregate-level issues: (1) structural change and labor market outcomes, and (2) trade and foreign direct investment. Chapter 1 surveys the literature on industrial and sectoral wage differentials. It begins with a review of the empirical evidence and methods to estimate wage differences. Later, it shows estimates of these differentials for the United States using Current Population Survey (CPS) data from 1968 to 2008. The presence of interindustry wage differentials is reported for a number of different specifications. A key finding is that while wage differentials have monotonically decreased for male workers over the period analyzed, the inclusion of female workers disrupts this trend. Chapter 2 studies the reasons why services became the dominant sector in industrialized economies. I argue that institutional differences which affect the degree of competition in labor and goods markets explain: (a) the rise in the service sector share of output and employment, (b) international differences in sectoral structure, and (c) changes in relative sectoral wages. I use evidence on market imperfections to calibrate a two-sector model where household unions bargain with firms for wages. The least competitive sector pays higher wages, and employment is restricted accordingly. The model produces time series consistent with the service revolution as it happened in the United States and European economies between 1950 and 2000. The model's contribution is to offer an explanation for relative wage differences, in the context of structural change. In particular, while generating changes in shares of output and employment, the model offers an explanation for relative wage differences, which the standard literature misses. Chapter 3 (co-authored with Katherine Lande-Schmeiser) studies the striking differences in industry level data on ratios of exports to sales of foreign affiliates (i.e., FDI sales). We determine what is needed to endogenously generate this pattern of export and FDI sales. By calibrating a model of monopolistic competitive firms, we find that tradability of goods is not enough to capture the observed sectoral differences, as is commonly assumed. We explore variants of the model and show that sector-specific taxes on multinationals and home bias allow us to replicate these differences.