Essays in international trade

Abstract

This thesis tackles three topics in international trade: (i) the motives behind restrictions on Foreign Direct Investments (FDI) and the role of investment agreements, (ii) the determinants of services trade policies, and (iii) the role of domestic institutions in affecting trade flows and the gains from trade. Tariffs have almost completely disappeared but various barriers that restrict FDI still remain. Many trade agreements and Bilateral Investment Treaties (BITs) have been signed to lower tariffs and reduce the risks of expropriation whereas few agreements have been signed to lower entry barriers. The first chapter looks at the interaction between political and economic motives for protectionism. Lobbies give contributions to the governments to affect the policies. The repatriation of profits by foreign affiliates leads governments to restrict the entry of multinationals. Given these two motives, the cooperative outcome, which differs from the chosen policy, can be implemented through an agreement. However I highlight two reasons that can explain why such agreements might be unnecessary. First foreign lobbying counteracts domestic lobbying and, under certain conditions, can push the government to choose the cooperative outcome without signing an agreement. Second the presence of tax havens where firms shift their profits removes the gains from cooperation and makes an agreement unnecessary. The second chapter focuses on the determinants of services trade agreements. Most of the literature on trade policy and agreements has focused on goods, tariffs and trade agreements whereas, in this paper, we study services, foreign direct investment and services agreements. We provide a rationale for governments to commit to liberalize. The third chapter contributes to the debate on the role of various institutions in affecting economic exchanges. We focus here on the role of contract enforcement in shaping the optimal organization of firms and the allocation of entrepreneurs across sectors. Different institutional qualities are a source of comparative advantage and export specialization. We find that liberalization leads to asymmetric gains of trade in terms of productivity and reallocation of resources. The country with the poorest institutions benefits less from trade than the country with the best institutions.