Essays on Firm Heterogeneity, Product Quality, and International Trade

Whang, Un Jung

Graduate Thesis Or Dissertation

Essays on Firm Heterogeneity, Product Quality, and International Trade Public Deposited

Analytics

Citations

Citeable URL: https://scholar.colorado.edu/concern/graduate_thesis_or_dissertations/ms35t8663

Abstract

Thesis consists of three different chapters: i) Who Exports Better Quality Products to Smaller or More Distant Markets? ii) Skilled-Labor Intensity Differences across Firms, Product Quality, and Wage Inequality, and iii) Structural Transformation and Comparative Advantage: Implications for Small Open Economies. In the first chapter, I examine the role of product quality heterogeneity and firms competition in determining the spatial patterns of within-product unit values across destinations. Using product-level export data, it is shown that the average export unit value of a product shipped from the US or Korea increases in distance and decreases in destination market size. However, within-product average unit value for products sourced from China and India decreases (increase) in distance (market size). To interpret these different spatial patterns of unit values across exporting countries, model of quality heterogeneity is developed in which firms differ in their workers' skill level and more skilled workers are more productive in performing tasks that improve on product quality. The model predicts that in relatively skill-abundant countries, exporting firms specialize in high quality varieties using relatively cheap skilled labor, whereas, in relatively skill-scarce countries, firms with lower quality goods are more competitive. The second chapter proposes a theory to explain the relative wage-rate increase for skilled labor that results from trade liberalization that relies on within-sector reallocations of production resources (skilled and unskilled labor) across firms. Motivated by some stylized facts, in a model with firm heterogeneity, including firms that differ in their skill intensity even within a narrowly defined industry, firms with relatively high skill intensity that are more likely to be exporters, and a positive association between a firm's skill intensity and its product quality, I develop a general equilibrium model where firms with a higher skill intensity endogenously choose a higher-quality product, and tend to be more profitable. In this framework, a reduction in trade costs allows members of the workforce to reallocate to more efficient firms that produce higher-quality products, using their skilled labor more intensively, resulting in a rising skill premium. The main sources of the increasing wage inequality that followed trade openness are a positive link between a firm's skill intensity, its product quality, and quality competition. My researches mainly include, but are not limited to, the microeconomic aspects of international trade. I also investigate economic development and growth and in particular, the effect of such trade-related mechanisms as comparative advantage on the structural transformation of economies. In the third chapter, I use data from the last half century to show that revealed comparative advantage in agriculture (manufacturing) is negatively (positively) associated with the rate of decline in labor share in agriculture. Motivated by this finding, we construct and calibrate a simple open-economy model, where there is learning-by-doing in manufacturing and industry supplied inputs to agricultural production. We focus on the effects of comparative advantage and learning-by-doing on structural transformation and calibrate our model to the US and the UK data to estimate key parameters of the model. Our quantitative experiments show that holding constant other factors a small difference in a country's comparative advantage can account for a large variation in structural transformation for small open economies, which does not require nearly as much differential productivity growth as in closed economy models.

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