THESIS
2013
Abstract
Chapter 1 examines how trade liberalization affects unit value export prices via firms'
import decisions on input quality and the number of imported varieties. In this chapter, we
extend Melitz's (2003) model of trade with heterogeneous firms by introducing endogenous
quality and endogenous number of imported varieties. The key predictions are as follows.
First, an increase in productivity or a reduction in import tariff induces
firms to spend more
on each import variety, tend to choose higher-quality imported inputs (called the quality effect), and tend to import more varieties (called the variety effect). Second, more importantly,
due to the quality effect and the variety effect, there is a clear pattern of quality ladders:
firms importing more varieties or with higher prod...[
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Chapter 1 examines how trade liberalization affects unit value export prices via firms'
import decisions on input quality and the number of imported varieties. In this chapter, we
extend Melitz's (2003) model of trade with heterogeneous firms by introducing endogenous
quality and endogenous number of imported varieties. The key predictions are as follows.
First, an increase in productivity or a reduction in import tariff induces
firms to spend more
on each import variety, tend to choose higher-quality imported inputs (called the quality effect), and tend to import more varieties (called the variety effect). Second, more importantly,
due to the quality effect and the variety effect, there is a clear pattern of quality ladders:
firms importing more varieties or with higher productivity set higher export prices; trade
liberalization further raises export prices set by
firms. However, if one adopts the alternative
assumption that quality is exogenous across firms, then completely opposite results would
be expected: import tariff reduction would decrease export prices, and firms importing more
varieties or with higher productivity set lower export prices. We test two competing theories
using the merged Chinese
firm-product trade data and the tariff data at the HS8 level by
computing
firm specific tariff. My empirical results strongly support all the predictions of
the endogenous-quality model, validate the mechanisms of the quality effect and the variety
effect, and therefore con
firm the pattern of the "quality ladder". Moreover, we
find evidence to support the exogenous-quality model using quality-adjusted price estimates and the
subsample of the goods with more homogeneity of quality.
Chapter 2 examines how credit constraints affect the relationship between export prices
and
firm productivity. The model extends Melitz (2003) by introducing endogenous quality
of variety, credit constraints and marketing costs to a heterogeneous-fi
rm trade model. It predicts a U-shaped relationship between
firm productivity and export prices: the optimal
prices set by
firms decrease with fi
rm productivity if the productivity is lower than the
threshold; the optimal prices set by firms increase with
firm productivity if the productivity
is higher than the threshold. Credit constraints decrease the prices set by the firms with the
productivity higher than the productivity threshold, but do not affect the prices set by the
firms with lower productivity. Furthermore, the productivity threshold, which demarcates
the switching of the relationship between prices and productivity, increases as more severe
credit constraints are faced by firms. The empirical application to Chinese bank loans data,
Chinese
firm-level data from National Bureau of Statistics of China (NBSC), and Chinese
Customs data strongly supports these theoretical predictions, and we
find a signifi
cant impact
of credit constraints on the relationship between export prices and fi
rm productivity.
Chapter 3 modi
fies the models of Eaton-Kortum (2002) and Melitz (2003) by introducing
multiple sectors, tradable intermediate goods and non-tradable sector and applies them to
evaluate of the global welfare impacts of China's trade liberalization occasioned by its accession to the WTO. We
find that all countries or regions will gain during China's accession to
WTO if
firm numbers are assumed to be fixed in these models. Introducing endogenous fi
rm
entry and exit affects the aggregate price indexes and Chinese governments tariff revenue.
Consequently, these adjustments magnify the changes in the welfare of each country/region
in such a way that some countries gained more, and some actually lost as a result of China's
trade liberalization. One notable example is that the adjustment to allow for entry and exit
of firms increases China's estimated welfare gains from 3.788% to 7.159%.
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