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Tseng Dissertation 04062016.pdf (1.35 MB)

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Trade Costs and Quality: Issues in International Trade

TSENG, ERIC H
http://rave.ohiolink.edu/etdc/view?acc_num=osu1460387677

Abstract Details

2016, Doctor of Philosophy, Ohio State University, Agricultural, Environmental and Developmental Economics.
The first chapter examines the role that trade costs and sunk investment costs play in affecting firm production decisions with respect to quality, market selection, and export selection. Deriving a complete theoretical model that integrates the quality of intermediate inputs and outputs in a food and agricultural setting, this analysis finds that falling trade costs should induce the production of higher-quality goods, the sorting of the most productive non-exporters into the export market, and the least productive firms to select out of the market. Additionally, how sunk investment costs to upgrade quality affect market and export selection depends on the parameters of the capability distribution (i.e., market structure) and the structure of fixed costs. These results are translated into an empirical framework to show strong evidence for firms utilizing input complementarity in production and the impact of sunk investment costs on a firm’s quality choices, market selection and export selection. Some evidence for the role of trade costs on quality choices, market selection, and export selection is presented. The second chapter analyzes the firm’s reshoring choice from a theoretical perspective. Due to uncertainty embedded in the contract that previously fragmented production of the intermediate input, it is possible for final good producers to decide that producing upstream goods domestically is more profitable despite the cost disadvantage. Through this offshoring and reshoring framework, the final good producer’s reshoring decision is analyzed in detail to show when the firm reshores the production of the intermediate input and the economic welfare impact of such a decision. Results show that the quality distortion and welfare loss seen in the offshoring and free-trade equilibrium outcome can be resolved entirely through reshoring. However, reshoring cannot resolve the quantity holdup problem and the resulting welfare loss, even when investments to reduce cost disadvantages and government subsidy are included. Examining the government subsidy problem further reveals that the government may subsidize more or less under political economy, since the cost of the policy’s impact on welfare motivates the government’s decision. The third chapter examines the impact of trade costs and financial constraints on firm performance, as measured by revenue per worker. A heterogeneous-firms framework is used to analyze the impact of these variables by endogenizing the firm’s technological choice, showing that when trade costs fall and when financial constraints loosen, firm performance as measured by revenue per worker will improve for the remaining firms in the market. These theoretical results are translated into an empirical framework that tests out these hypotheses in a cross-sectional firm-level data set from multiple countries, an empirical extension that has not been seen in the prior literature. In addition, this analysis notably introduces firm-level measures and predictors for their level of financial constraints as opposed to the more common industrial-level measures. Overall, the econometric analysis shows reasonable support for the model across six separate specifications, but this is heavily dependent on introducing or excluding various country- and industry-specific effects and additional firm attributes as controls.
Ian Sheldon (Advisor)
Brian Roe (Committee Member)
Abdoul Sam (Committee Member)
124 p.
Agricultural Economics; Economics
International Trade; Industrial Organization; Vertical Differentiation

Recommended Citations

Citations

  • TSENG, E. H. (2016). Trade Costs and Quality: Issues in International Trade [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1460387677

    APA Style (7th edition)

  • TSENG, ERIC. Trade Costs and Quality: Issues in International Trade. 2016. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1460387677.

    MLA Style (8th edition)

  • TSENG, ERIC. "Trade Costs and Quality: Issues in International Trade." Doctoral dissertation, Ohio State University, 2016. http://rave.ohiolink.edu/etdc/view?acc_num=osu1460387677

    Chicago Manual of Style (17th edition)

osu1460387677
518
© 2016, all rights reserved.
This open access ETD is published by The Ohio State University and OhioLINK.