ESSAYS ON FIRM-LEVEL DYNAMICS IN THE GLOBAL ECONOMY

Abstract

While standard trade models are built on static settings with stable aggregate environment, data show that firms exit and enter international markets over time, suggesting that these decisions are dynamic in nature. The existence of irreversible investments and uncertainty about future profits creates a well-studied phenomenon called exporter hysteresis, i.e., firms will delay entering a new market even in favorable conditions and exiting an old market even during low profitability periods. In my dissertation, I bring this idea to explore important but understudied aspects of international trade with a focus on the impact of trade policies on firm-level dynamics. The first chapter develops a theoretical framework and estimation method to investigate a firm’s decision to source intermediate goods across international markets using Chinese customs data and firm-level surveys. In the second chapter, I examine how anticipation of a trade agreement affects firm-level productivity in the context of the Trans-Pacific Partnership and Vietnamese manufacturing firms. The final chapter studies the interaction between exports and export promotion services using data on private firms in Denmark. Taking stock, the findings in my dissertation show that there are substantial costs of participating in international trade, and part of those costs is often sunk. Moreover, firm-level decisions across international markets are interdependent in the sense that when a firm decides whether to enter a particular market, it will consider the conditions not only in the targeted market but also in other markets. Finally, firms respond to not only policy implementation but also policy announcement, suggesting that the timing and information about future policies can be important in determining the effects of trade policy changes on firm-level behavior and aggregate outcomes.