We investigate the effects of human capital accumulation on trade and productivity by integrating a micro-founded education and fertility decision of households into a model of international trade with firm heterogeneity. Our theoretical framework leads to two testable implications: i) the export share of a country increases with the education level of its population, ii) the average profitabil...

According to the World Investment Report 2004, the structure of FDI has shifted towards services. Further, the composition of services FDI is also changing from trade and finance to such industries as electricity, water, telecommunications, storage and transportation. In the latter sector the value of FDI stock rose 16-fold between 1990 and 2002. Incorporating a transport sector dominated by mu...

This paper investigates the relationship between international trade and the quality of economic institutions. We model institutions as fixed costs of entry, in a framework that has two key features. First, preferences over entry costs differ across firms and depend on firm size. Larger firms prefer to set higher costs of entry, in order to reduce competition. Second, these costs are endogenous...

This paper examines the impact of the outsourcing of production on the volume and composition of the home country’s research and development. We find that outsourcing decreases the process R&D of the multinational firm in large markets when it only conducts process R&D (the substitution effect between outsourcing and process R&D). Outsourcing tends to emerge as a complementary factor to product...

FDI has received surprisingly little attention in theoretical and empirical work on openness and growth. This paper presents a theoretical growth model where MNCs directly affect the endogenous growth rate via technological spillovers. This is novel since other endogenous growth models with MNCs, e.g. the Grossman-Helpman model, assume away the knowledge-spillovers aspect of FDI. We also presen...

In this note, we examine how trade liberalization affects the profits of firms in the presence of network effects. We will show that, contrary to conclusions in the previous literature, trade liberalization between identical countries increases firms’ profits despite intensified competition. (JEL Classification: D43, F12, L13) ∗e-mail: [email protected] †We would like to thank David And...

We investigate a dynamic Cournot duopoly with intraindustry trade, where firms invest in R&D to reduce the level of iceberg transportation costs. We adopt both open-loop and closed-loop equilibrium concepts, showing that a unique (saddle point) steady state exists in both cases. In the open-loop model, optimal investments and the resulting efficiency of transportation technology are independent...

We explore the effects of trade costs on markups by building a new model consistent with three stylized facts: exporters charge higher markups, markups increase when starting to export, and domestic and foreign sales are negatively correlated, which suggests decreasing returns. We calibrate the model to Chilean data, and simulate reductions in trade costs. Most markups increase along the intens...

The main purpose of this study is to illustrate, with a simple two-factor (skilled and unskilled labor) model, how a time-saving improvement in business-services trade benefitting from differences in time zones can have an impact on national factor markets. In doing so, we intend to capture the situation where the night-shift work in one country is replaced by the day-shift work in another coun...

A simple two-country model of economic geography is constructed in order to examine the effect of tariff competition on the spatial distribution of manufacturing activities as well as on welfare. We show that when the transport cost is sufficiently small, tariff competition with firm migration leads to a core-periphery economy, where one of the two countries imposes no tariff in Nash equilibriu...