Industrial characteristics, the size of countries, and the extensive margin of trade

Nguyen, Ha Manh

Graduate Thesis Or Dissertation

Industrial characteristics, the size of countries, and the extensive margin of trade Pubblico Deposited

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Citeable URL: https://scholar.colorado.edu/concern/graduate_thesis_or_dissertations/6t053f99d

Abstract

This dissertation consists of three chapters exploring some issues in International Trade. Chapter 1 explains how home-market effects change across industries in a model of monopolistic competition with heterogeneous firms. The home-market effect hypothesis (Krugman (1980)) states that a large country has more firms (or products) in an increasing return sector than does a small country. However, the large country's share of firms (or products) across industries in an increasing return to scale may vary with industry characteristics. This chapter builds a model of monopolistic competition with heterogeneous firms to investigate which industry characteristics have effects on that change. The model includes two countries with many industries of differentiated products and one industry of homogeneous goods. The model predicts that industries with low trade costs, high fixed-domestic costs, low fixed-export costs, and high productivity dispersion will tend to concentrate in a large country. Chapter 2 demonstrates empirical evidence to support the first chapter's predictions. As the characteristics of an industry are assumed to be homogeneous across countries, I use a sample of 28 developed countries. This ensures that industry characteristics are similar across countries. In addition, I use the four-digit ISIC industrial classification to categorize countries' industries and use the method of Hummels and Klenow (2002) to measure the relative number of products (or firms) between two countries. The empirical evidence is found to support the predictions from the theoretical model. Chapter 3 examines how the extensive and intensive margins of trade in developing countries respond to changes in trade barriers through import and export demand functions. The study finds that trade liberalization has a significant impact on both the extensive and intensive margins of trade in developing countries. However, only the intensive margin of trade responds significantly to the yearly change of import and export duties, while the extensive margin responds insignificantly to this. These results are consistent with the theoretical predictions of Ruhl (2008). The method of Hummels and Klenow (2002) is used to measure the extensive and intensive margins and the dynamic-panel regression method is used to estimate models in this paper.

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