Essays in international trade

Abstract

In this dissertation, I investigate two obstacles that a firm faces in the international market. The first is financial frictions, which limit the amount of financing that a firm can access. The second obstacle is uncertainty about market demand: firms do not know the true demand for a product in a destination market. I analyze how these obstacles affect the firm decisions and firm dynamics, particularly in the context of developing countries. The first chapter examines the effect of firm level financial constraints on exporters' decisions and the role of trade intermediaries in facilitating trade and alleviating financial frictions. These intermediaries provide an alternative channel for the financially constrained firms to participate in the global markets. Therefore, understanding their role in global trade is important, particularly in developing countries where access to finance is limited. I use a dataset on Vietnamese firms from 2005 to 2015 to study how financial frictions affect firm’s export mode choice. The second and third chapters use a model of demand uncertainty and learning to explain how firms decide which products to export. The second chapter examines the demand learning mechanism where firms observe signals about the demand for a product from other firms and, when applicable, from themselves. The third chapter extends the learning mechanism in the second chapter to allow exporters to observe signals across geographic locations. Information from previously exported markets can help exporters predict the demand in subsequent destinations. I test the results of the models in these chapters using the Chinese Customs dataset from 2000 to 2006 at the HS-6 product level. I find that the theoretical results hold in the empirical analysis.