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Income, Trade Barriers, and International Trade (JOB MARKET PAPER)

Abstract:

This paper argues that when rich countries export, per capita income differences with the trading partner act as trade barriers. I develop and quantify a multi-country general equilibrium model with non-homothetic preferences and heterogeneous firms with no fixed trade barriers. In my model, per capita income level is a key determinant of trade patterns. With non-homothetic preferences, countries, depending on their income, potentially demand different sets of varieties as well as different quantities for a given variety. As a result, rich countries have different demand patterns than poor countries, and trade between rich countries is more intense. I compare my model with a benchmark model with homothetic preferences and bilateral fixed trade barriers. For rich countries the estimated variable trade barriers for exporting to other rich countries are lower in the benchmark model than in my model. Conversely, for rich countries the estimated variable trade barriers for exporting to poor countries are higher in the benchmark model than in my model. A quantitative comparison between the two models shows that they predict similar trade patterns even with different estimated inputs for the variable trade barriers, implying that when rich countries export, income differences with the trading partner in my model play a similar role as additional trade barriers in the benchmark model. The model with non-homothetic preferences generates unit price variation across different import markets conditional on same exporter and variety while the standard models do not.



Reputation, Learning, and International Trade, with John T. Dalton, July 2007

Abstract:

Asymmetric information impacts the decisions of importers and exporters engaged in international trade; as such, learning and reputation building are some of the key determinants of the dynamics of international trade patterns.This paper incorporates learning and reputation building into a simple stochastic dynamic model of international trade with asymmetric information.We use the model to study two bilateral trade flows influenced significantly by learning and reputation, namely United States imports of Japanese and French cars over the period 1961-2005. Numerical simulations of the model are capable of replicating these events. In addition to matching these events, we explore further implications of our framework for understanding international trade patterns. Since learning and reputation building require time, predicted short run trade patterns can be quite different than those predicted in the long run. Sectorial differences in the speed of learning and reputation building affect predicted trade patterns. The extent of asymmetric information existing between importers and exporters also changes under different trade policies.



Work in Progress

Financing Frictions, Exports, and Trade

Abstract:

I develop a model with financing frictions in a model of international trade with firm heterogeneity and endogenous market access cost. This model gives opportunities to firms to reduce their market access cost endogenously in order to satisfy the financing constraints, allowing firms to enter the market with suboptimal levels. The model predicts that financing frictions not only determine a firm's export status but also its export volume. I also offer a potential explanation for the data observation that a large proportion of exporting firms export small amounts. This model also encompasses existing literature as special cases.