The first two chapters study the effect of foreign lobbies on trade policy of a country which is a member of a Free Trade Agreement (FTA). They rely on a monopolistically competitive political economy model in which the government determines external tariffs endogenously. In the first paper the effect of foreign lobbying under the FTA is examined empirically using Canadian industry-level trade data that allow differentiating of lobby groups by the country of origin. The analysis suggests that the presence of foreign lobbying has a significant effect on the domestic trade policy: the presence of an organized lobbying group in an FTA partner country tends to raise trade barriers while an organized lobbying group of exporters from outside of the FTA is associated with less protection. The second paper analyses political viability of FTAs and their effect on the world trading system in the presence of lobbying by organized foreign interest groups. I show that the FTA in the presence of an organized lobby group in a prospective partner country may cause an increase in the level of protection against imports from third countries and impede trade with non-member countries. I also find that foreign lobby may encourage the local government to enter a welfare-reducing trade-diverting FTA. Finally, I show that the FTA increases the lobbying power of the organized lobby groups of the member countries, which can potentially obstruct the viability of welfare-improving multilateral trade liberalization. The last paper shows that the reason for a higher capital-labor ratio observed for exporting firms is a higher capital intensity of their production technology. Exporters are more productive, more likely to survive and, hence, more likely to repay loans. A higher repayment probability causes creditors to charge lower interest rate and reduces the marginal cost of the firm when a more capital-intensive technology is used. Here, a reduction in international trade costs stimulates exporting firms to use more efficient capital-intensive technologies, while non-exporters switch to less capital-intensive ones. This within-industry change in the composition of technologies reinforces the productivity advantage of exporters and contributes further to industry-wide productivity improvement. The results of model simulations highlight that to 10% of welfare and productivity gains of trade liberalization come from the adoption of new technologies by existing firms in the industry, thus amplifying the effect of resource reallocation from firms' entry and exit.

The first two chapters study the effect of foreign lobbies on trade policy of a country which is a member of a Free Trade Agreement (FTA). They rely on a monopolistically competitive political economy model in which the government determines external tariffs endogenously. In the first paper the effect of foreign lobbying under the FTA is examined empirically using Canadian industry-level trade data that allow differentiating of lobby groups by the country of origin. The analysis suggests that the presence of foreign lobbying has a significant effect on the domestic trade policy: the presence of an organized lobbying group in an FTA partner country tends to raise trade barriers while an organized lobbying group of exporters from outside of the FTA is associated with less protection. The second paper analyses political viability of FTAs and their effect on the world trading system in the presence of lobbying by organized foreign interest groups. I show that the FTA in the presence of an organized lobby group in a prospective partner country may cause an increase in the level of protection against imports from third countries and impede trade with non-member countries. I also find that foreign lobby may encourage the local government to enter a welfare-reducing trade-diverting FTA. Finally, I show that the FTA increases the lobbying power of the organized lobby groups of the member countries, which can potentially obstruct the viability of welfare-improving multilateral trade liberalization. The last paper shows that the reason for a higher capital-labor ratio observed for exporting firms is a higher capital intensity of their production technology. Exporters are more productive, more likely to survive and, hence, more likely to repay loans. A higher repayment probability causes creditors to charge lower interest rate and reduces the marginal cost of the firm when a more capital-intensive technology is used. Here, a reduction in international trade costs stimulates exporting firms to use more efficient capital-intensive technologies, while non-exporters switch to less capital-intensive ones. This within-industry change in the composition of technologies reinforces the productivity advantage of exporters and contributes further to industry-wide productivity improvement. The results of model simulations highlight that to 10% of welfare and productivity gains of trade liberalization come from the adoption of new technologies by existing firms in the industry, thus amplifying the effect of resource reallocation from firms' entry and exit.

The first two chapters study the effect of foreign lobbies on trade policy of a country which is a member of a Free Trade Agreement (FTA). They rely on a monopolistically competitive political economy model in which the government determines external tariffs endogenously. In the first paper the effect of foreign lobbying under the FTA is examined empirically using Canadian industry-level trade data that allow differentiating of lobby groups by the country of origin. The analysis suggests that the presence of foreign lobbying has a significant effect on the domestic trade policy: the presence of an organized lobbying group in an FTA partner country tends to raise trade barriers while an organized lobbying group of exporters from outside of the FTA is associated with less protection. The second paper analyses political viability of FTAs and their effect on the world trading system in the presence of lobbying by organized foreign interest groups. I show that the FTA in the presence of an organized lobby group in a prospective partner country may cause an increase in the level of protection against imports from third countries and impede trade with non-member countries. I also find that foreign lobby may encourage the local government to enter a welfare-reducing trade-diverting FTA. Finally, I show that the FTA increases the lobbying power of the organized lobby groups of the member countries, which can potentially obstruct the viability of welfare-improving multilateral trade liberalization. The last paper shows that the reason for a higher capital-labor ratio observed for exporting firms is a higher capital intensity of their production technology. Exporters are more productive, more likely to survive and, hence, more likely to repay loans. A higher repayment probability causes creditors to charge lower interest rate and reduces the marginal cost of the firm when a more capital-intensive technology is used. Here, a reduction in international trade costs stimulates exporting firms to use more efficient capital-intensive technologies, while non-exporters switch to less capital-intensive ones. This within-industry change in the composition of technologies reinforces the productivity advantage of exporters and contributes further to industry-wide productivity improvement. The results of model simulations highlight that to 10% of welfare and productivity gains of trade liberalization come from the adoption of new technologies by existing firms in the industry, thus amplifying the effect of resource reallocation from firms' entry and exit. / Arts, Faculty of / Vancouver School of Economics / Graduate

This doctoral dissertation studies the effect of economic integration on the performance of firms. The ongoing process of global economic integration has been characterized by dismantling of trade barriers and openness to foreign direct investments (FDI). These changes have not only brought opportunities to firms in terms of market access and the possibility to learn about foreign technologies brought in by foreign counterparts. The new economic environment has also posed new challenges through a greater competitive pressure urging firms to continuously align their production patterns to more efficient business practices. The agility of firms to adjust to external shocks, and hence the potential of countries to benefit from economic integration, does presumably not only depend on the internal assets of firms but may also be influenced by government policies and national institutional settings. This conceptual background constitutes the storyline of the doctoral dissertation. Chapter 1 of the dissertation is a step forward in understanding the externalities of foreign direct investments on the economic performance of domestic firms. During the late eighties and early nineties, Spain saw an upswing in foreign direct investments that placed the economic at the top of FDI recipients in Europe. To provide fresh insights into the firm-levels responses to FDI, Chapter 1 investigates the effects of foreign direct investment on the productivity of domestic firms within the same sector of activity as foreign firms, and whether FDI externalities differed depending on their level of technology. The empirical results show that foreign presence had an overall positive effect on the productivity growth of domestic firms. The gains were not, however, evenly distributed across firms. Firms closer to the frontier benefited more from FDI than firms far from the technology frontier. A further integration of the world economy with new economic actors, like China and India, has highlighted the need for European firms to climb the quality ladder and shift towards high value added products and greater flexibility in delivering new products in order to survive new competitive threats. Chapter 2 is a theoretical and empirical examination of the role of innovation for the export activities of firms. The intuition is that firms through innovation enhance their access to foreign markets by improving cost competitiveness and the quality of products. The Chapter builds on previous literature to develop a trade model in which firms differ in their propensity to innovate and export based on their underlying productivity. The empirical results, in line with the theoretical model, suggest a positive effect of innovation on the probability of participation in export markets. The innovative activities of firms may not only depend on their internal assets, but presumably also on their relations with other actors in the national innovation systems. To understand better the role of firms’ relations with the science sector, Chapter 3 turns to one of the major producers of knowledge –universities- and investigates the factors that contribute to the successful transfer of knowledge from universities to the market. The results from Chapter 3 show that universities with established technology transfer policies, procedures, and large and experienced technology transfer offices perform better. Previous chapters demonstrate that innovation gives a competitive edge to firms exploring foreign markets. Chapter 4, which is joint work with economists from France’s central bank, investigates how credit market imperfections affect the expansion and survival of firms in foreign markets, which is essential for the design of policies stimulating aggregate trade and competitiveness. Chapter 4 develops a theoretical model to study the impact of credit constraints on the number of newly served export destinations by firms and their exits from the export market and tests it using French firm-level data. The results show that credit constraints negatively affect the number of newly created export relations and have a negative effect on the probability of exit from the export market.

This study constructs a analytical framework in which the Labor Union has full bargaining power and firms are heterogeneous to analyze the economic effect for adjustment of minimum wage ratio. There are two features in this model. First, every firm shows heterogeneity in productivity and survivors of the market are only those with good productivity. Second, the labor union has sufficient power to bargain wage ratio. The main findings of this study include: 1. Increase in the minimum wage ratio raises the survival threshold and labor wage ratio, but decreases the numbers of firms. 2. Increase in the minimum wage ratio does not necessarily result in decrease of labor demand.

This dissertation investigates how competition among heterogeneous firms affects R&D in quality enhancement in a quality-ladder type framework for a Cournot oligopolistic industry. The research also analyzes the welfare implications of various policies that promotes R&D. Some of the theoretical predictions are then tested empirically using firm-level data for Bangladesh from the World Bank's enterprise survey. Chapter 1 shows that a rise in the cost of production of the competitor will induce a firm to invest more in R&D if and only if the quality difference between the existing product and the product emerging from R&D activities is sufficiently large. Also, welfare-reducing effect of helping a `minor' firm is lower in the presence of possible quality differences. Empirical results supports the theoretical findings. Chapter 2 shows that protecting domestic industry of high quality goods encourages firms to invest more in R&D. The size of the optimal tariff depends on the degree of product differentiation and market share of the foreign firms and is not necessarily positive. Chapter 3 shows that a small tariff imposed by the trading partner on the high quality good will deter R&D. However, as the tariff gets bigger, the relationship changes sign. The size of an R&D subsidy depends on the market share of the firms. Empirical results provide support to the theoretical findings.

This thesis provides four contributions to the literature on the productivity- internationalization nexus by considering some recent developments in the literature. A well-established stylized fact is reported by this literature, which is that exporters are more productive and larger than non-exporters, and two hypotheses attempt to explain this finding. The first, often referred to as the self-selection hypothesis, suggests that more productive firms select themselves into export markets, while the learning-by-exporting hypothesis highlights the role of learning from exporting. In this thesis, first, the self-selection hypothesis is revisited, and it is shown that evidence against self-selection exists in some UK industries. Second, it is demon- strated that some UK firms experience rising marginal costs, although both tra- ditional and new trade theories assume constant marginal cost. It is then shown that the evidence against self-selection that we report can be best explained by the existence of increasing, rather than constant, marginal costs. Third, the learning by exporting hypothesis is tested empirically for UK firms. Highlighting the importance of the scale effect in total factor productivity growth, it is shown that any learning by exporting effects are predominantly attributable to a change in scale efficiency. Unlike Melitz (2003), some recent studies consider some other strategies to access foreign markets, such as foreign direct investment, and cross-border mergers. Finally, following this new branch of the literature, the productivity-internationalization nexus is examined by utilizing a two-country oligopolistic model. It is shown that more productive firm might prefer greenfield investment over cross-border merger, which contradicts the findings provided by the relevant literature.

O objetivo desta tese é identificar a contribuição dos efeitos de aglomeração e do sorting espacial, associado às heterogeneidades não observadas dos trabalhadores e firmas, para a determinação dos salários individuais e dos salários locais nos arranjos populacionais do Brasil. Os dados do mercado de trabalho (RAIS-MTE) mostram que existe um diferencial espacial de salários, o qual pode ser explicado pelas distintas composições produtivas e de trabalhadores entre os locais e pelos diferenciais de custo de vida. A disponibilidade crescente de micro dados longitudinais permitiu a inclusão das habilidades não observadas individuais na equação de salários. Os estudos da Economia do Trabalho mostram que as habilidades são responsáveis por uma grande parcela dos diferenciais de salários. No entanto, os estudos nacionais ainda encontram um diferencial significativo, mesmo após o controle dos componentes individuais e do custo de vida, sugerindo a existência de efeitos específicos associados à localização das firmas e dos trabalhadores. A Economia Urbana considera as economias de aglomeração como um determinante salarial relevante nos mercados de trabalhos densos, particularmente a partir dos trabalhos de Glaeser e Maré (1994; 2001). Por sua vez, a maior produtividade das áreas densas pode ser atribuída à concentração de trabalhadores e firmas mais produtivos, o que ficou conhecido nessa literatura como sorting. Os estudos da Economia Urbana controlam somente o sorting dos atributos individuais não observados. Este trabalho contribui com a literatura ao considerar o sorting espacial dos atributos não observados das firmas e dos trabalhadores na determinação dos salários e dos efeitos de aglomeração. O estudo utiliza um modelo de decomposição salarial para lidar com múltiplos efeitos fixos no painel pareado de trabalhadores e firmas. Os efeitos puros da aglomeração (densidade) sobre os salários locais serão estimados em um modelo de dois estágios. O primeiro estágio estima uma equação salarial incluindo as características observadas dos trabalhadores e do emprego e os efeitos de localização, com um painel de micro dados da RAIS (2002-2014). O segundo estágio realiza a decomposição dos efeitos de localização em componentes associados às características locais dos arranjos e aos atributos não observados das firmas e dos trabalhadores. A estratégia de identificação propõe o controle dos efeitos fixos dos trabalhadores e firmas e o uso de variável instrumental para identificar os efeitos da aglomeração. Ademais, os dados de satélite sobre a luminosidade noturna são usados para estimar a proporção da área total dos arranjos habitada, a qual é utilizada para calcular a densidade. Os resultados mostraram que os efeitos do trabalhador foram mais relevantes do que os efeitos da firma para explicar a variação dos salários individuais e locais. O modelo principal, que utiliza o instrumento Bartik e a área iluminada, encontrou um efeito da densidade sobre os salários locais de 4,9%, o qual é superior ao lower bound da literatura prévia (3%). Os resultados sugerem que ignorar as limitações indicadas neste estudo pode levar a uma subestimação nas estimativas dos efeitos da densidade / The goal of this study is to identify the contribution of agglomeration effects and spatial sorting for the determination of individual and local wages in Brazilian urban agglomerations. Administrative records from the Ministry of Labor (RAIS-MTE) show a spatial differential in wages, which can be explained by the different productive structures and compositions of workers across cities, and by differentials in cost-of-living. The longitudinal microdata allowed the inclusion of unobserved individual skills in the wage equation. Studies in Labor Economics show that skills are responsible for a large portion of the wage differential. However, the available studies on Brazil still find a significant differential, even after controlling for the individual components and the cost of living. This suggests the existence of specific effects associated with the location of firms and workers. The literature on Urban Economics considers the economies of agglomeration as a relevant wage determinant in dense labor markets. The higher productivity of dense areas can be attributed to the concentration of more productive workers and firms more productive, which became known in this literature as sorting. Studies in Urban Economics only control the sorting of unobserved individual attributes. This dissertation contributes to the literature by considering the spatial sorting of unobserved attributes of firms and of workers in the determination of wages and of the effects of agglomeration. The study uses a wage decomposition model to deal with multiple fixed effects in a matched panel of workers and firms. The pure effects of agglomeration (density) on local wages are estimated in a two-stage model. The first stage estimates a wage equation including the observed characteristics of workers and firms and the effects of location, with a microdata panel of RAIS (2002-2014). The second stage decomposes the location effects into components associated to local characteristics and to unobserved attributes of firms and workers. The identification strategy involves controlling for fixed effects of workers and firms, and using an instrumental variable to identifying the effects of agglomeration. Satellite data on illumination are used to estimate the proportion of the overall area occupied with population and firms in each local labour markets. The results indicate that the worker effects are more relevant to explain wage variation than the firm\'s effects. The model of preference indicates a density effect on wages of 4.9%, much higher than the literature lower bound (3%). This suggests that ignoring the variables included in this study can lead to an underestimation of the effects of agglomeration

“Regional Policy in a Multiregional Setting: When the Poorest are Hurt by Subsidies” Regional subsidies have a positive short-term effect on the recipient regions, but as they alter migration patterns the long-term effects are less clear. This paper demonstrates using a three-region general equilibrium model that subsidising the poorest region may be to its detriment in the long term and thereby increase inter-regional inequality, if the subsidy draws firms from a nearby region that would function better as a production centre. The result has important implications for the design of regional policies, which are often applied simply according to per-capita incomes.  “Learning to Export and the Timing of Entry to Export Markets” Standard trade models are essentially static and do not explain why entry to export markets would be delayed after the instant a firm is formed. This paper proposes a model that endogenously generates the timing of entry to new markets through a learning mechanism. Firms in the model gain experience by entering markets, which eases entry to subsequent markets. The mechanism motivates delays in entry to some markets. More productive firms are less sensitive to the learning effect and thus enter markets sooner and begin by exporting to larger markets. These predictions are confirmed using Swedish firm-level data.  “Airports and the Production of Goods and Services” This paper estimates the effects of airport infrastructure on local employment in certain sectors, using data from the United States. Airport sizes are instrumented for using the 1944 National Airport Plan of the Civil Aeronautics Administration. Airport size is found to have a positive effect on local employment in tradable services, with an elasticity of approximately 0.1, and a negative effect on manufacturing. There is no measurable effect on non-tradable services. The results are relevant to the evaluation of airport improvement projects, which are often carried out using public funds.

Using firm-level data of manufacturing sector during the period 1989-2010, this thesis explored the export behavior of firms in Turkey. Up to date, Turkey&rsquo / s export performance has been analyzed from macro perspective extensively. However, far too little attention has been paid to firm-level analysis contrary to ongoing and growing empirical literature. The preliminary analysis revealed the superiority of exporting firms. Both self-selection and learning-by-exporting are found to be valid explanation for the source of this observed export premium. Dynamic discrete choice model results provide supportive evidences for the existence of sunk-costs. Besides, it is observed that sunk-costs varied during the crises. Sunk-costs not only shape export decision but also affect timing decision. The exit and entry dynamics of the firms has been studied using duration analysis. Results showed self-selection of less profitable firms into export markets and importance of non-price competition for the survival of exporters. Impact of crises on export behavior has been examined by regarding extensive and intensive margins of exports separately. The findings implied that for 1994 crisis increase in extensive margins, for the case of 2001 crisis increase in intensive margin and for 2008 crisis decline both in extensive and intensive margins of exports dominated. This thesis makes several noteworthy contributions to the existing literature. First, it contributed to the ongoing and growing empirical literature using Turkish data. Secondly, unlike, existing studies that investigate single feature of the export behavior, in this thesis, using different approaches the issue has been analyzed extensively. Moreover, using advantage of the data set and Turkish economy, the impact of different types of crisis on export behavior has been analyzed and contributed to the literature that studies the impact of shocks on export behavior.