College of Behavioral & Social Sciences

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    ESSAYS ON PREFERENTIAL TRADE AGREEMENTS
    (2019) Laget, Edith; Limão, Nuno; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    Preferential Trade Agreements (PTAs) are a prominent feature of current globalization. Over the last decades, country participation in PTAs has become widespread, with each member of the World Trade Organization having signed an average of 10 PTAs, up from 3 PTAs in 1990. Most importantly, the proliferation of PTAs was accompanied by a significant deepening of their scope. Their content now spans diverse behind-the-border disciplines, such as investment, technical barriers to trade (TBT), sanitary and phytosanitary (SPS) measures , intellectual property rights, visa and asylum, labor market laws and environmental regulations. In order to quantify the impacts of the provisions included in PTAs on various outcomes of interest, such as gross trade, foreign direct investment (FDI), global value chains, quality, and so on, trade economists face several empirical obstacles to model Non-Tariff Measures (NTMs). While it is straightforward to model provision, such as an import quota or an export tax with an ad-valorem tariff equivalent, this technique is not suitable for other provisions that do not purely deal with market access. Many NTMs are implemented to address behind-the-border issues rather than to discriminate against foreign businesses. Therefore, it would be misleading to restrict the effect of certain trade policies to their market access dimension only. The objective of this dissertation is two-fold: it is, first, to understand the impacts of the overall content of PTAs on economic outcomes and, second, to shed light on the relationships of specific disciplines included in PTAs with those outcomes. In the first chapter, I review the recent evolution of trade and investment integration and how the content of PTAs has been reshaped over the years. The second and third chapters are dedicated to the analysis of two of the most frequent provisions in PTAs — TBT and SPS provisions. In the theoretical part, I augment the structure of the traditional Melitz model to assess the impact on quality of such provisions. I model TBT/SPS measures as domestic regulations ensuring minimum quality of goods. By integrating these regulations, PTAs change the economic struc- ture of the model (with respect to minimum quality enforcement) from segmented to joint markets. I highlight two potential channels to explain the change in quality of exported goods following the enforcement of a PTA with TBT/SPS provisions. The first channel for quality improvement is driven by the increase in market size. With larger markets to export to, firms have the incentive to differentiate vertically their products in order to capture bigger shares. The second channel depends on the type of provisions implemented. I consider two cases, mutual recognition ver- sus harmonization of TBT/SPS measures. The ultimate impact on quality of this regulatory channel depends on the new reference for minimum quality once a PTA is signed. Then, I empirically test the importance of these two channels using new data on the content of PTAs and estimates of the quality of imported goods. I find that mutual recognition positively impacts quality relatively more than harmoniza- tion. This result is driven by PTAs between developed and developing countries. The effect is heterogenous across sectors, with bigger impact of deep PTAs on goods that have a wider scope for quality differentiation. Finally, I study the impact of PTAs on FDI and find that deep PTAs promote foreign investments. The impact is bigger for projects related to service activities, as well as North-South investment relationships.
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    ESSAYS ON CAPITAL FLOWS IN DEVELOPING COUNTRIES
    (2018) Matsumoto, Hidehiko; Saffie, Felipe; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    In the first chapter, I develop a quantitative small-open-economy model to assess the optimal pace of foreign reserve accumulation by developing countries. The model features endogenous growth with foreign direct investment (FDI) entry and sudden stops of capital inflows to incorporate benefits of reserve accumulation. Reserve accumulation depreciates the real exchange rate and attracts FDI, which endogenously promotes productivity growth. When a sudden stop happens, the government uses accumulated reserve to prevent a severe economic downturn. The calibrated model shows that two factors are the key determinants of the optimal pace of reserve accumulation: the elasticity of the foreign borrowing spread with respect to debt, and the entry cost for FDI. The model suggests that these two factors can explain a substantial amount of the cross-country variation in the observed pace of reserve accumulation. The second chapter is a joint work with Felipe Saffie. In this chapter, we develop a small-open-economy model with endogenous firm and trade dynamics. Aggregate productivity of the economy increases through new firm entry and incumbent firms' innovation. Firms invest in two types of innovation: innovation to acquire new product lines, and innovation to start exporting their products. These innovation activities determine the extensive margins of imports and exports. The economy is also subject to sudden stops of capital inflows. The model can capture some of the empirical regularities of firm and trade dynamics during sudden stops: firms' innovation drops sharply, which causes a persistent decline in productivity and output; imports of goods decline substantially, while exports are almost unaffected; profits for exports increase due to a large real depreciation and lower production cost; the extensive margin of exports gradually expands after sudden stops. The model provides a tractable framework to study optimal capital policies in the context of endogenous firm and trade dynamics.
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    Essays in International Finance
    (2008-01-23) Daude, Christian; Mendoza, Enrique G.; Vegh, Carlos A.; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    Access to private capital markets is the most salient difference between emerging market economies and other developing countries. However, in contrast to developed economies, emerging markets have had a troubled relationship with capital fows. In particular, balance of payments and debt crises have been a recurrent problem. The three chapters of this dissertation contribute to the literature on emerging markets and their relationship with capital markets. Chapter 1 analyzes the effects of volatility on sovereign default risk. Empirically, the paper establishes a concave relationship between spreads and volatility. While for low levels of volatility an increase in volatility is associated with an increase in the sovereign risk premium, the risk premium increases at a decreasing rate. This empirical relationship is robust to different estimation methods, sam- ples and control variables. Furthermore, the relationship between volatility and risk premia is non-monotonic: while at low levels of volatility an increase in volatility implies an increase also in spreads, for sufficiently high levels of volatility this relationship turns negative. The chapter also presents a quantitative model of sovereign debt with default risk consistent with this feature and other characteristics of EME debt. The intuition for this result is the existence of a trade-off between prudential behavior in order to avoid large consumption fluctuations under autarky and the increased likelihood of a default, given default provides some short-run relief under a very bad realization of shocks. Chapter 2 addresses the determinants of the composition of cross-border investment positions. Using a novel database of bilateral capital stocks for all types of investment - FDI, portfolio equity securities, debt securities as well as loans - for a broad set of 77 countries, we show the importance of two key determinants of the composition of cross-border asset positions: information frictions and the quality of host country institutions. Overall, we find that in particular FDI, and to some extent also loans, are substantially more sensitive to information frictions than investment in portfolio equity and debt securities. We also show that the share as well as the size of FDI that a country receives are largely insensitive to corruption in host countries, while portfolio investment is by far the most sensitive to the quality of institutions. Chapter 3 focuses on a related topic to chapter 2. Using bilateral FDI stocks around the world, we explore the importance of a wide range of institutional variables as determinants of the location of FDI. While we find that better institutions have overall a positive and economically significant effect on FDI, some institutional aspects matter more than others do. Especially, the unpredictability of laws, regulations and policies, excessive regulatory burden, government instability and lack of commitment play a major role in deterring FDI. For example, the effect of a one standard deviation improvement in the regulatory quality of the host country increases FDI by a factor of around 2. These results are robust to different specifications, estimation methods and institutional variables. We also present evidence on the significance of institutions as a determinant of FDI over time.