Economics Theses and Dissertations
Permanent URI for this collectionhttp://hdl.handle.net/1903/2763
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Item Trade Policy and Industrial Concentration(2020) Graziano, Alejandro Gustavo; Limão, Nuno; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)I examine the interrelationship between industrial concentration, the CES industry price index and trade policy when a subset of firms in the market takes the effect of their decisions on industry aggregates into account. In the first chapter, I develop a hybrid model that augments the standard monopolistic competition approach in the international trade literature to include an oligopolistic margin: a set of foreign and domestic heterogeneous granular firms competing in quantities. This margin predicts novel effects of trade liberalization on trade, consumer welfare, and industrial concentration. Specifically, trade liberalization generates lower consumer gains when foreign firms are more concentrated than domestic, and higher domestic industrial concentration of granular firms. In the second chapter, I study the implications of hybrid competition for the gravity equation. I show that the trade cost elasticity is attenuated by foreign firm concentration and I test the novel oligopolistic margin using diff-in-diff variation from trade policy changes in Colombia. I find robust evidence for this margin. I also show that the aggregate impact of trade liberalization can be substantially reduced by oligopolistic behavior. Moreover, foreign concentration heterogeneity across origin countries suggests a highly heterogeneous impact of trade liberalization: imports from countries in the top decile of concentration had 13 log points lower growth on average than imports from countries in the bottom decile. In the third chapter, I explore the implications of the hybrid model when there is trade policy uncertainty. When firms are uncertain about future tariffs and exporting involves sunk investments, the value of waiting increases. In the setting I propose, potential entrants also consider the strategic reaction of oligopolistic competitors: when domestic granular firms are highly concentrated, the impact of trade policy uncertainty on foreign entry is mitigated since the eventual increase in tariffs is predicted to be partially offset by an increase in domestic markups. When foreign granular exporters are highly concentrated, the impact is amplified since the increase in tariffs is predicted to not be fully passed to the price index. I discuss an empirical application in the context of Brexit uncertainty and potential ways forward.Item Essays in Trade and Uncertainty(2015) Carballo, Jeronimo Rafael; Limao, Nuno; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Firms face uncertainty on many different dimensions: demand level, productivity and input prices, taxes and regulations. Furthermore, some argue that uncertainty is higher in recessions (cf. Bloom et al. (2012)) and one of the causes of the slow recovery during the recent Great Recession (cf. Stock and Watson (2012) and Baker et al. (2012)). However, most trade models assume uncertainty away by considering a deterministic framework or introduce uncertainty in a very limited way. In this dissertation, I argue that uncertainty can be particularly important for two topics in international trade: (i) firms’ global sourcing decisions and (ii) firms’ exports decision when facing multiple sources of uncertainty. Firms’ decisions to enter new foreign markets, exit from foreign markets that they are currently serving and whether to vertically integrate or outsource with foreign firms (i.e. their global sourcing decisions). Not only do these decisions require high sunk costs (cf. Roberts and Tybout (1997) and Antras and Helpman (2004)) but they are also subject to an additional set of uncertain conditions, e.g. exchange rates, foreign market conditions, and foreign policies. In particular, these potential multiple sources of uncertainty can work as an amplification mechanism, specially during recessions. The first chapter discusses the key insights that motivates my dissertation. The second chapter develops a dynamic model of international trade with heterogeneous firms who endogenously decide when to start exporting to foreign markets, under which sourcing scheme, and when to exit foreign markets in a framework with foreign demand uncertainty. The third chapter focuses on empirically evaluating the theoretical model of the previous chapter using U.S. firm-level data. I find that integration reduces the probability that a firm exits by as much as 8%, while uncertainty increases this probability by 23%. The fourth chapter looks into the interaction between demand and policy uncertainty during the Great Trade Collapse and is joint work with Kyle Handley and Nuno Limao. We examine if the resulting change in policy uncertainty initially deepened the collapse and then helped reverse it, when the worst fears of protection were not realized.Item MODELING INTERNATIONAL TRADE UNDER THE THREAT OF TARIFF HIKES IN GENERAL EQUILIBRIUM(2014) Deason, Lauren; Limao, Nuno; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)There is mounting evidence that an important element in explaining the impact of trade policy on trade patterns and the behavior of firms is the role of policy uncertainty in shaping this behavior. In a setup where firms must incur a fixed cost to export, uncertainty over future profits will decrease the incentive of firms to enter into the export market. While uncertainty over any number of factors playing into export decisions (such as demand, productivity, exchange rate, etc.) may affect exporters' incentives to export, I focus here on trade policy uncertainty, specifically tariff rates, as this allows me to quantify the impact of one particular type of policy uncertainty, and can provide insight into the effects of broader policy uncertainty. Unlike most other forms of uncertainty, it is something that can be measured empirically using tariff rates. Further, understanding the effects of uncertainty over future tariff levels is important in its own right, as there is debate over whether trade agreements that do not substantially change applied tariff rates are of any value to exporters. My dissertation will address this question, arguing that there is indeed additional value to some trade agreements beyond that simply obtained by liberalizing tariffs: namely, that there is value in reducing uncertainty over future trade policy. In order to try to quantify this additional value, I develop a general equilibrium framework consistent with the types of Computable General Equilibrium (CGE) models that are often used to evaluate the potential value of proposed trade agreements, where my model takes into account this additional uncertainty-reducing benefit of entering into a trade agreement. Chapter 1 introduces the topic and discusses broader implications of studying tariff uncertainty. In order to motivate the inclusion of tariff uncertainty in a general equilibrium framework, I begin in Chapter 2 by presenting empirical evidence, based on a partial equilibrium framework, of a negative impact of future tariff uncertainty on exports. In this chapter, I extend previous empirical analysis of tariff uncertainty (via tariff bindings) to a large set of countries and find a negative significant effect of policy uncertainty arising from binding overhang, and that this effect is heterogeneous across importing countries. On average, I find that the ad valorem tariff equivalent imposed by uncertainty arising from binding overhang for the set of countries in my sample is 8.2%. In Chapter 3, I extend the theoretical analysis of tariff uncertainty in general equilibrium to a setting with endogenous entry not only into exporting but also into production with multiple countries and sectors. Based on this model, I obtain numerical results for the impacts of an (exogenous) threat of reverting to a permanent non-cooperative tariff level. In a symmetric two-country setting, the effects are a 4.55% reduction in trade and a 0.02% reduction in welfare. I am further able to derive the effect of a tariff threat on third-countries and outside sectors not directly targeted, and find these effects to be small. In Chapter 4, I use the model developed in Chapter [chap:DSGE] to analyze the trade and welfare impacts of a particular agreement: the Chile-US Free Trade Agreement (FTA). This extends and complements econometric analysis of the impact of uncertainty in the context of other FTAs. I find that a model without the tariff threat effect predicts that Chilean exports to the United States should increase by 5.78% and number of exporting firms should increase by 2.80% as a result of the FTA, while the model with the effect of a tariff threat predicts that exports should increase by 6.98% and the number of exporters by 7.43%.