Thesis advisor: Peter N. Ireland / This dissertation consists of three essays that examine macroeconomic implications of trade liberalization. There has been a long-lasting debate on how trade openness influences the effectiveness of monetary policy. The first two essays provide a novel empirical and theoretical investigation into this issue. Motivated by recent new phenomena in U.S. labor market, the third essay is a work in progress that seeks to explore the evolution of U.S. manufacturing employment structural dynamics, and its connection with import competition. The first essay uses annual data of US manufacturing industries at 4-digit SIC level from 1972 to 2005 to conduct the empirical analysis. It shows that trade openness is negatively associated with industry-level effect of monetary policy, and at a given degree of trade openness, industries that involve in offshoring don't necessarily exhibit weaker responses. These empirical findings are hard to reconcile with the implications of standard open economy New Keynesian model, which indicates that trade openness strengthens the effectiveness of monetary policy and doesn't model offshoring separately. The second essay provides a new open economy New Keynesian model that can explain the empirical findings in the first essay. The model features endogenously determined international trade pattern based on Ricardian trade theory, and one-way offshoring from the advanced economy to the less developed one. This model highlights a new channel through which trade openness influences the monetary transmission mechanism: a decline in both trade and offshoring costs raises labor demand elasticity. Trade openness weakens the effects of monetary policy changes on output and inflation by dampening the responses of the domestic labor market. The calibrated model indicates that, when the economy moves from trade and financial autarky to a modern trade regime with an incomplete international financial market, the monetary policy shocks have 22% less of an effect on real GDP and consumer price inflation. The third essay provides the motivation on why to explore the evolution of U.S. manufacturing employment structural dynamics, introduces the methodology, and describes the dataset as well as future works. / Thesis (PhD) — Boston College, 2016. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

Thesis advisor: Fabio Ghironi / Chapter 1: Foreign Direct Investment and Contract Enforcement Many developing countries are financially constrained and therefore have to rely on international capital flows to finance economic activity. Empirical evidence shows that Foreign Direct Investment (FDI) as a percentage of total capital flows is higher for less developed countries compared to more developed countries. This chapteruses a dynamic contracting model with human capital to explain why less developed countries receive a greater percentage of capital flows as FDI. I analytically show that countries that are financially constrained have a higher share of FDI in total capital flows, and that the share of FDI in total capital flows is increasing in human capital flows. In addition, the positive association between the share of FDI in total capital flows and human capital flows is decreasing in the degree of financial constraints. I construct a measure of intangible assets of FDI and find empirical support for the analytical results. Chapter 2: Trade Liberalization, Firm Heterogeneity, and Unemployment: An Empirical Investigation This chapter is a joint work with Yoto V. Yotov. We provide empirical evidence for the interaction between firm-level total factor productivity and trade liberalization as key determinants of firm-level job destruction caused by trade. Employing US firm-level data, we find strong empirical support for the following: a) All else equal, a one percent increase in total factor firm productivity decreases trade-induced layoffs by 32%; b) An additional percent of trade liberalization increases the number of firm-level trade-induced layoffs by 2%; c) Trade liberalization results in an increase in the minimum level of productivity required for domestic production; d) Trade liberalization lowers the minimum productivity threshold required for exporting; e) The increase due to trade liberalization in the minimum productivity threshold for domestic production is larger than the absolute decrease in the export productivity threshold. Chapter 3: Do Audit Fees Influence Credit Risk and Asymmetric Information Problems? Evidence from the Syndicated Loan Market This chapter is a joint work with Lewis W. Gaul. We examine whether an increase in the demand for auditing services is associated with a decrease in borrowers' credit risk and asymmetric information problems in the syndicated loan market. In the syndicated loan market, potential accounting errors exacerbate credit risk and asymmetric information problems. The purpose of financial statement audits is to provide reasonable assurance that accounting records are free from material errors. We hypothesize that if audit fees face an upward sloping supply curve for auditing services, an increase in the demand for auditing services increases both the equilibrium price and quantity of auditing services purchased. We interpret the equilibrium quantity of auditing services as the number of auditing hours billed and the price of auditing services as the hourly fee. We assert that an increase in the quantity of auditing services purchased reduces the likelihood of an accounting error because auditors exert more effort verifying the accuracy of accounting records. We present empirical evidence that a demand-induced increase in audit fees is associated with syndicated loans with lower interest rate spreads and shorter maturity lengths, which we interpret as evidence consistent with the assertion that these audit fee increases reduce credit-risk and asymmetric information problems. We empirically identify an increase in the demand for auditing services with instrumental variables that are intended to capture shifts in the demand curve for auditing services, rather than shifts in the supply curve for auditing services. In addition, we find that audit fees are positively associated with the number of lenders in loan syndicates, but are unable to attribute this association to an increase in the demand for auditing services. / Thesis (PhD) — Boston College, 2009. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

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Chapter 1 develops a two-period general equilibrium trade-theoretic model to examine if foreign aid discourages the recipient countries from pursuing trade liberalization. In the model, foreign aid is given to the recipient in period two and its amount is negatively related to the period-one real income. The recipient optimally chooses a tariff on imports. It can also choose domestic investment endogenously in period one, and this choice has an important bearing on our main result. We consider two variants of the model depending upon whether the recipient can or cannot have access to international borrowing. In the case without international borrowing, when domestic investment is exogenous, optimal tariff is zero. In contrast, when domestic investment is endogenous, optimal tariff is positive. This positive optimal tariff is induced by the link of aid negatively to the period-one real income. In the case with international borrowing, even though domestic investment is exogenous, optimal tariff is positive. But the reason for the positive tariff is its beneficial effect on an improvement in the terms-of-trade of international borrowing. When, in addition, domestic investment is endogenous, the tying of aid increases positive optimal tariffs further. Chapter 2 develops a microeconomic model of health policies and the optimal allocation of health aid in a poor recipient country. In the model, each poor household in the country chooses the optimal number of sick children taken to hospitals to maximize its lifetime utility. There are three policy options for policymakers to improve public health: raising the quality of health care, providing more preventive care and reducing the cost of health care. We examine how three policy options influence the optimal number of sick children who are medically treated. Also, the country's health authority allocates health aid for three policy options to support poor households' lifetime utility maximization. We find that more health aid should be allocated for cost reduction in health care so as to help poor households maximize their lifetime utility. Chapter 3 primarily examines the hypothesis that there is heterogeneity in health aid, that is, different types of health aid work differently for health outcomes in aid-recipient countries. In order to test our hypothesis, we first disaggregate health aid per capita data into three policy options: health aid per capita for improving the quality of health care, health aid per capita for providing preventive care and health aid per capita for reducing the cost of health care. Then, we empirically examine the effects of disaggregated health aid on three different health indicators: child mortality, life expectancy and death rate. Using a panel data set of 119 aid-recipient countries from 1975 and 2010, we find supporting evidence for the hypothesis of heterogeneity in health aid. We find no empirical evidence of the beneficial effects of health aid on reducing child mortality. In contrast, we find that an improvement in life expectancy and a reduction in death rate are driven mostly by health aid for reducing the cost of health care. We also find that there is heterogeneity in the allocation of health aid. Health aid for preventive care and the cost reduction of health care is allocated by the needs of the recipients. However, more health aid for the quality of health care flows to countries with better health status.

Since South Africa entered the international markets and opened its borders to international trade, the economy has undergone a gradual process of trade reforms ensuring that the South African economy becomes competitive. It is recognized globally that trade liberalization is a key factor to enhancing economic welfare, trade, and efficiency. Trade liberalization aims to reduce import protection and enable easy flow of resources from sectors that are less competitive to sectors with a comparative advantage. Hence, trade liberalization is believed to play an important role in spurring growth and improving household welfare through various channels. This study analyses the impact of South Africa's trade liberalization on household poverty between 1996 and 2001 at a local level using regional level indicators of trade exposure. The study uses household income as a proxy for household poverty. The results using the simple OLS estimator leads to some interesting findings. We find that there is a positive relationship between household income and sectorial weighted average tariff in region, that is, trade liberalization led to a reduction in household income in the region. We also find that increased exposure to tariff reductions translates to an increase in the number of individuals employed in a household. However, this does not appear to be the case with employment in the manufacturing sector. We find that tariffs reductions reduced employment opportunities in the manufacturing sector, leading to reductions in individuals employed in the manufacturing sector. Lastly, we find that household income of households that have a high share of family in the manufacturing sector are negatively affected by tariff exposure. These results illustrate structural changes in response to tariff liberalization led to varied impacts across households and regions in South Africa.

Since the conclusion of world War II, Taiwan, the Republic of China (ROC), has developed into an industrialized country following a long period of severe inflation. Taiwan has produced a successful example of economic development through export expansion. Exports and imports of Taiwan increased from approximately 10 percent of the gross national product (GNP) in the 1950s to more than 45 percent in the 1980s. The role of Taiwan's foreign exchange rates and traderelated policies on exports and imports was examined in this study. Trade-related policies implemented by the government of ROC were documented from 1950 to 1980 by categorizing the past 30 years into import substitution, export promotion, external shocks, and the 1980s trade liberalization periods. In addition, this study analyzed quarterly import and export data from 21 sectors between 1981 and 1991 to measure the effects of changes on the exchange rate. variables included in the regression analysis were GNP of Taiwan and exchange rate for import demand functions and GNP of the U.S. , export price index in Taiwan and Korea, and exchange rate for the export demand function. Partial auto- correlation functions were estimated and examined for 21 export and import commodity groups to determine the appropriate number of lags in the demand function. In sectors in which regressions were found to be significant, an econometric partial adjustment model was used for estimating short- and long-run exchange rate elasticities.

Liberalization of the Indian economy in 199I increased the intensity of international competition and changed the internal information needs of Indian managers. This paper explores the evolution of a broad range of management accounting practices in 14 firms using a contingency theory framework. Differences in management accounting practices in 1996 are examined in relation to firms' experience and exposure to world markets prior to liberalization and as a function of contemporaneous differences in competitive strategy. We find evidence of changes associated with shifts in the external environment. / University of Michigan Business School

Liberalization has been, for the past three decades, one of the most prominent strategies used in the developing world to promote growth and foster development. Haiti, as many other least developed countries, has implemented the liberalization policies over the past two decades. The poor socioeconomic conditions of the Haitians, today, have pushed to question the effectiveness of the neoliberal plan. Agriculture being a pivotal sector of the Haitian economy, the study goal is the evaluation of liberalization on the agricultural production. The findings are that trade liberalization is detrimental to agriculture in Haiti. The food crops production, a major component of the agricultural production, in terms of providing income to the rural poor and ensuring food security, suffered the most from trade liberalization. Also, cash crops production has not increased with liberalization.

This dissertation investigates the role of public support for R&D in product innovation. In particular, I consider the role of matching grant programs and develop a theoretical model to analyze optimal private and public choices in a game-theoretic framework. This research develops-theoretical models to examine welfare implications of various policies that promote R&D. The first chapter of my dissertation develops a theoretical model of product innovation where R&D effort is endogenous and its outcome uncertain. The government attempts to aid such efforts with a matching grant. I consider different scenarios depending on whether two parties act simultaneously, act sequentially, or take part in a dynamic cooperative game with a trigger strategy. I also consider the case when the products are exported and when they are not. I analyze situations when government intervention increases the chances of product innovation and when it does not. The second chapter introduces foreign competition in a goods market, and analyzes the effects of foreign competition on domestic private and public incentives to product innovate. Government uses matching grant programs to aid private attempts to develop new goods. The government also tries to protect the domestic firm by imposing import tariff. Two policies are then considered simultaneously to investigate the effect of trade liberalization on product innovation. The third chapter considers technological partnerships between private and public sectors as R&D promoting policy. I assume increasing returns in R&D, and study whether government should support product innovation by helping with fixed costs or variable costs associated with product R&D.

Access to adequate and nutritionally balanced food to achieve a productive and healthy life for all individuals, on a daily basis, has been an elusive challenge in several parts of the world. In many developing countries such as Botswana, increasing per capita food consumption has been hampered by poverty as well as poor access to marketable skills and employment opportunities. Experience and studies elsewhere indicate that international trade liberalization based on comparative cost advantage in the goods sectors, can greatly improve per capita food consumption through improved export market access and reduction in tariffs. The purpose of this study is to analyze the effects of international trade liberalization on food security/household welfare and the competitiveness of the agricultural sector in Botswana. In undertaking this study basically two hypotheses were made. Firstly, it is hypothesized that trade liberalization within SACU through the reduction of agricultural tariffs on food commodities can improve per capita consumption by reducing domestic food prices. Currently, products like maize grain, beef, dairy and wheat grain attract an import duty which partly increases their domestic prices within SACU. Poor households in Botswana, in particular, spend a disproportionate share of their disposable income on food most of which is imported. Secondly, this study also hypothesizes that improved market access of agricultural exports for Botswana based on WTO rules could generate additional foreign earnings that could be used to import more food. Globally, agricultural trade is characterized by distortions that restrict free commerce based on comparative advantage. Direct producer price and input subsidies together with export subsidies to farmers especially in major trade players like the EU, USA and Japan constitute barriers to trade and disadvantage developing countries like Botswana which have comparative advantage in several farm commodities. Subsidies by major industrialized countries create an artificial comparative advantage for their farmers as without direct farmer assistance, it is doubtful if some of them could invest in agriculture! Secondary data on international trade and social accounting matrix (SAM) were used in this study. Trade data were used to conduct policy simulations in order to determine the effects of trade liberalization on food security and competitiveness of the agricultural sector in Botswana. SAM data for 1993/94 were modified and used to generate income and price multipliers to undertake policy simulations. Data from SAM captures the income and demand linkages in the economy. Using partial equilibrium and economy-wide approach (SAM multiplier analysis), this study shows that Botswana can improve its household welfare or per capita food consumption through an increase in export earnings which in turn could be used to import more food at competitive prices. Except for meat products especially beef, Botswana is a net-importer of most food items. Based on a partial equilibrium agricultural trade policy model, this study found that the country’s agricultural sector enjoys global comparative advantage in beef exports if there was global trade liberalization. The model advocates for the reduction of direct producer price, input and export subsidies in the agricultural sector by WTO members. Beef earnings including those from other goods like textiles and minerals are used to purchase imported food to increase domestic supply. Through a SAM income multiplier analysis, policy simulations on improved export market access for beef and textiles indicated that households, factors and activities gained from global trade liberalization. However, poor households without assets or factors such as capital and skills marginally benefited from improved export market access. This finding also indicates the potential negative income distributional effects which require policy support to benefit poor households during trade liberalization. Beef and textiles exports were chosen when undertaking policy simulations based on improved market access. With a SAM price multiplier analysis, policy simulations based on SACU tariff reduction on maize grain, beef, powdered milk and wheat grain was made. Applied tariffs were used for policy simulations. A reduction in tariffs not only improves household welfare, factors and activities also benefit through lower domestic food costs/prices. This study found that SACU tariff reduction indeed contributed to welfare improvements among households in Botswana as their cost of living declined. Poor households, in particular, benefited most from tariff reduction in imported food commodities. Factors including low-wage workers also gained from a reduction of import duties on selected food commodities. However, government loses tariff revenue when import duties are cut while producers of exports enjoying preferential markets such as the beef producers in Botswana lose when trade-distorting agricultural subsides are removed/reduced. Like government, consumers of imported food items are, in short term, adversely affected by an increase in food prices following the reduction of trade-distorting agricultural subsidies (producer price, input and export subsidies). The results of the SAM price multiplier analysis also indicated limited price/cost transmission in the economy following tariff reduction. Limited price transmission or circular flow of cost reduction in the economy imply weak competition in the market, poor information dissemination, institutional rigidities, etc hence the need for an effective competition policy and law. An effective competition policy and authority minimizes unfair trading practices and provides consumers and the economy with choice and possibly maximum net-value for money. In addition to improving welfare and reducing cost of living, etc, this study also found that when policy simulations/shocks were made, income and demand linkages in the economy were identified. In some simulations the linkages demonstrated a strong circular flow of income/price transmission while in others the multiplier effects were weak indicating limited economic integration/competition, a policy challenge that requires efforts for sustained diversification. Based on the results from SAM multiplier analysis, this study has provided Botswana with useful information to design policies that enhance economic integration and diversification. To maximize her benefits from international trade liberalization, Botswana also needs to implement complementary policies to address supply-side constraints and improve infrastructure, competition, information technology, etc. Safeguard mechanisms are still necessary to protect the agricultural sector and the economy in Botswana from unfair trade practices including market failure. / Thesis (PhD (Agricultural Economics))--University of Pretoria, 2007. / Agricultural Economics, Extension and Rural Development / PhD / unrestricted