Essays on International Economics

Yang, Huan and Soo, Kwok Tong and Chakraborty, Pavel (2021) Essays on International Economics. PhD thesis, Lancaster University.

Text (2021YangPhD)
2021YangPhD.pdf - Published Version
Available under License Creative Commons Attribution-NonCommercial-NoDerivs.
Download (1MB)

Abstract

This thesis has three essays corresponding to the three research projects I undertook in the area of foreign direct investment, international and labor economics. In the first essay, I quantify the welfare and employment effect of international trade both at the aggregate and sector level. I build into a multi-country, multi-sector Ricardian model (Eaton and Kortum, 2002) the imperfect labor market with the search and matching framework (Pissarides, 2000). Welfare and equilibrium unemployment are both associated with production and labor market efficiency. Comparing with the trade gains literature, trade gains generated in our model is magnified by the inverse of labor market matching elasticity. The change in sectoral employment rate resulting from the trade policy change can be decomposed into two parts: the change in the share of domestic expenditure in that sector and the change in sectoral price index via the sectoral linkages. The counterfactual analysis of “The China Syndrome” after China joining the WTO in 2001 provides evidence that there are heterogeneous effect of trade openness on different sectors. The second essay investigates the role of trade liberalization on business investments by manufacturing firms in India. In particular, we look at the drop in output tariffs, as a result of the Indian trade liberalization process in the 1990s and estimate the investments responses of firms. We find that higher degree of product market competition, or a 10% drop in output tariffs reduces business investments of a firm by around 2.5%. Our results show substantial heterogeneity when dividing firms by family-owned and others. The drop in investments is 55–98% less for family firms when compared to non-family firms, especially in R&D-intensive and industries that depend more on external finance. In addition, among family firms, the ones which are a part of a business group or “family-network” (Karaivanov et al., 2019) do the opposite: they increase their investments. We explain this differential behavior between family and non-family firms by their risk-taking behavior and connection to the state-owned banks. Our results highlight two important points, both from theoretical and empirical perspective, how ownership of a firm influences its business decisions and how internal financial markets allocate resources while firms compete with external forces. The third essay analyzes the causal effect of cross-border M&A on the productivity performance of acquiring firms. We compile a unique data set for the analysis using M&A data from UNCTAD cross-border M&A database and company data from OSIRIS and firm annual reports. The result indicates that acquiring firms would achieve an increase of around 1.4% of the productivity growth rate one year after the acquisition, but suggests no lasting effect at two years after the deal. The estimated Average Treatment Effect on Treated (ATT) are larger for acquirers from developing country than these from industrialized economies. Moreover, We find positive effect on acquiring firms productivity growth only if target firm is from developed countries, in the same industry with the acquirers, and 100% ownership acquired. Finally, the cross-border M&A will have significant effect on acquirers productivity performance only when target firm is slightly larger than industry average in respect of firm revenue and much more productive.