Essays on trade, human capital and industry structure

Abstract

This thesis consists of four chapters, covering a range of economic fields and methodologies. Chapter 1, joint work with Vinzenz Ziesemer, investigates how skill supply incentives and general equilibrium wage effects shape the earnings distribution, connecting two separate strands of the literature on earnings inequality. On the one hand, the literature on skillbiased technological change studies how general equilibrium effects between different types of workers shape relative earnings and thus the income distribution. On the other hand, the literature on taxation suggests that incentives to accumulate human capital drive the earnings distribution. Combining data on occupational skills and US Census data, we first show empirically that job skills can be summarized by two dimensions: manual and cognitive skills. We show further that the latter strongly correlates with traditional measures of schooling, while the former does not. Based on these observations, we build a model featuring both human captial accumulation incentives for cognitive skills and general equilibrium wage effects between manual and cognitive skill prices. We theoretically investigate the response of the earnings distribution to changes in the tax progressivity which alter the incentives to accumulate cognitive human capital. It is shown that changes in tax progressivity like those occurring during the second half of the 20th century can lead to polarization in the labor market. A calibrated version of the model predicts these effects to be relatively small quantitatively. Chapters 2 and 3 empirically investigate the effects of international agreements on import shares in the government sector, focusing on different types of agreements and methodologies. Chapter 2, joint work with Bernard Hoekman, employs a cross-country panel regression framework to study the effect of the WTO Government Procurement Agreement (GPA) on government sector import shares in the aftermath of the 2008 financial crisis. A growing trade policy literature investigates the potential role of international agreements in reducing future policy uncertainty and thereby facilitating trade. This potentially provides an alternative channel for the GPA to impact trade in addition to faciliating reciprocal market access. Our results are suggestive of such international disciplines acting as an effective commitment device: GPA membership is associated with 1 a significantly higher import share following the 2008 financial crisis than is observed for countries that are not members. In addition, there is evidence that the GPA and PTAs that cover public procurement are partial substitutes. Chapter 3 focuses on the relationship between the depth of PTA public procurement provisions and their trade effects. Recently, an increasing number of PTAs include public procurement chapters, characterized by an increasing level of detail. The emergence and proliferation of detailed PP provisions in PTAs raises the question of whether these more substantive types of agreements have a real effects on bilateral trade in a systematic way. In this chapter I study to what extent the proliferation and deepening of PP provisions in recent PTAs leads to tangible changes in the tradeflows they cover, using a bilateral gravity framework. Previous research has not found real effects of PP openness commitments and attributed this to a lack of legal enforceability (Rickard and Kono 2014). I revisit this question using more direct measures of PP imports and a novel classification of PTA PP provisions by Shingal and Ereshchenko (2018), explicitly designed to distinguish PP provisions by their legal enforceability. I find that the presence of deep PP provisions is indeed associated with significantly higher trade volume absorbed by the government sector in the importing country. When looking at government imports disaggregated by economic sector, it becomes clear that this aggregate finding is driven primarily by service sector imports. Furthermore, the real impact of PP provisions seems to be driven primarily by the European Union. The results are not robust to excluding intra-EU bilateral flows. Chapter 4 is joint work with Árpád Ábrahám and T. Kirk White. The chapter describes a research proposal aiming to study the effect of the ownership structures along supply chains on firms’ bargaining power in input markets. Two recent contributions document that (a) supply chain considerations are not the prime focus of vertical integration and (b) input prices display substantial heterogeneity across U.S. firms. In this paper, we propose to empirically test whether vertical integration and input price dispersion are related, using unique features of U.S. Economic Census micro data that have already been employed by Atalay et al. (2014) and Atalay (2014). In particular, we argue that owning productive capacities upstream endows firms with informational or bargaining advantages which result in lower procurement prices for their downstream units. We propose to decompose input price dispersion in a between-supplier and a within-supplier component and investigate how both components contribute to the input price advantage of vertically integrated firms. This project sheds light on the determinants of measured firm productivity. Input price dispersion through the between-supplier component predicts measured productivity dispersion through supplier selection, while within-supplier price dispersion implies that measured productivity dispersion is driven by differences in supplier market power.