Income Distribution, International Trade and Foreign Direct Investment with Heterogeneous Firms

OF THE DISSERTATION INCOME DISTRIBUTION, INTERNATIONAL TRADE AND FOREIGN DIRECT INVESTMENT WITH HETEROGENEOUS FIRMS by Feifei Wang Florida International University, 2016 Miami, Florida Professor Kaz Miyagiwa, Major Professor This dissertation investigates the factors that firms take into consideration when they decide in which manner to expand internationally (i.e. foreign direct investment and international trade). Another component of the investigation focuses on what types of firms benefit the most and what are the associated benefits with expanding internationally. I investigate self-selection and learning-by-exporting hypothesis by applying matched sampling techniques and non-structural econometric models. Using a Chinese firmlevel dataset, I find that firms that start exporting are more productive than nonexporting ones. Additionally, in most industries exporters become more productive in time. I then investigate how income inequality leads firms to make different choices on how they expand internationally. I develop a simple theoretical model by carefully choosing a mean-preserving income distribution. I find that changing the meanpreserving parameter of the income distribution affects market demand for firms’ products and firms’ choosing of strategies for international expansion. Some, but not all firms gain market shares due to larger market size caused by the more concentrated income distribution around the mean. Using Gini coefficient as the proxy for income distribution, I demonstrate empirically that some firms gain market