FIELDS OF INTEREST
Primary: International trade
Secondary: Industrial organization
WORKING PAPERS
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1.“Exporting, Licensing, FDI and Productivity Choice:
Theory and Evidence from Chilean Data”. (JMP)
Abstract: This paper develops a trade model in which two heterogeneous firms located in two different countries make their productivity choices by choosing their optimal R&D investment levels and then make a mode choice between exporting, licensing and FDI under Cournot competition in an open economy. The ex-ante difference in the cost efficiency of two firms will lead to difference combinations of ex-post productivity difference and mode choice. A small ex-ante difference ends up with the choice of licensing and zero ex-post productivity difference; an intermediate ex-ante difference leads to the combination of exporting and an enlarged ex-post productivity difference; a large ex-ante difference brings the choice of FDI and an even larger ex-post productivity difference. Besides the ex-ante productivity effect, the model also shows how the difference in market demand sizes of two countries causes different preference among mode choices. I test two sets of theoretical hypotheses developed in this paper by using Chilean firm-level panel data from 2001 to 2007. These are how different mode choices are associated with different productivity levels and market shares and how the productivity difference between more productive foreign plants and less productive domestic plants affects the optimal mode choice decision. The empirical results are consistent with the model predictions.
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2.“Heterogeneous Fixed Trade Cost and Firm-level Exporting Performance”.
(coauthored with Ben Li and Luis Castro)
Abstract: The recent literature on trade and firm heterogeneity has two defining notions: productivity and fixed trade costs. Compared to productivity, much less is known about the empirical relevance of fixed trade costs. Using a new data set on Chilean firms, this paper constructs measures of fixed trade costs for each industry, region, and year and estimates the effects of fixed trade costs on firm-level exporting performance. This paper reaches four findings. First, fixed trade costs negatively affect export propensity (firm extensive margin) but not export volume (firm intensive margin). Second, there is an interaction between fixed trade costs and productivity; specifically, the effect of fixed trade costs at the firm extensive margin is weakened by high productivity. Third, the presence of high-productivity non-exporters is associated with high fixed trade costs. Fourth, the interaction between productivity and fixed trade costs applies to firms that switch from not exporting to exporting, but not to firms that export from the start; this suggests that fixed trade costs are more likely to be an exogenous constraint than an endogenous choice.
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3.“Firm's Choice of how to Implement FDI or Licensing: Evidence from Chinese Firms”.
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4.“The Causality between Productivity and Trade: the Choice of R&D Investment”.
Abstract: This paper presents a trade model in which heterogeneous firms choose their productivity levels by R&D investment before and after exposure to trade in an oligopolistic Cournot competition market. This model captures the “self-selection” effect of trade on individual firm’s productivity choice. The change in market size and toughness of competition after trade affect the R&D investment choice of an individual firm, and thus affect the productivity choice of that firm. After exposure to trade, besides the intra-industry reallocation of market shares and profits, larger market size will encourage firms to invest in R&D and improve their productivity, and firms with poorer R&D investment to productivity transformability or lower base productivity level are more likely to exit the market. Letting firms choose their own productivity levels by introducing cost-R&D investment function enhances the trade effect on productivity divergence, profit divergence, profit decrease and social welfare increase in the open economy.
CONFERENCE PRESENTATIONS
Canadian Economic Association Annual Conference (Ottawa, 2011)
Western Economic Association International Annual Meeting (San Diego, 2011)
