Three essays on networks and trade

Abstract

This thesis comprises three chapters that contribute to the fields of industrial organisation and international trade. The first chapter presents an application of network games to modelling the complex market structures in spatial competition, the second chapter studies how various sources of value added in China’s exports to the US affect employment in import competing sectors, and the third chapter reveals how the use of services in these sectors attenuates the employment effects of import competition. Although they follow different methodologies – the first chapter is applied theory and the latter two are empirical – the chapters have in common an underlying network structure to economic interactions, be it competitive relationships or input-output linkages, that shapes the outcomes of various forms of competition, spatial competition between firms and competition due to exposure to international trade. The first chapter models complex market structures as networks based on geographic or product space proximity. Firms set prices given the information they have of the network structure. I study how the network structure and firms’ knowledge of the network structure jointly determine equilibrium pricing behaviour. The second chapter studies the relationship between increased trade with China and the decline of manufacturing jobs in the US. Value added decomposition of bilateral trade flows allows to differentiate between effects of Chinese and third country drivers of the trade shock. We find that the negative labour market effects of imports are not driven by GVC integration and have greatly diminished by now. Evolving Chinese comparative advantage has extended the adjustment period. We contribute a novel trade exposure measure that accounts for exposure faced by upstream industries. The third chapter presents evidence that the use services inputs by manufacturing industries attenuates the impact of import competition. Potential mechanisms for this finding are explored, revealing significant heterogeneity across different services.