Year: 2016
Type: dissertation
Abstract: My dissertation consists of two chapters where I study the role of financial frictions and openness \nto trade on several macroeconomic variables such as gross domestic product or total factor \nproductivity. \nIn the first chapter, I study the effects that trade and multinational production barriers have \non countries of different size. The gains from openness to trade and multinational production \n(MP) depend largely on country size. A large country may attract more foreign firms by closing \nitself to trade, while a small country may attract a larger amount of MP if trade costs with its \nneighbors are low because it can be used as an export platform. I develop a model to study \nthese effects, where firms face non-convex decisions of whether to serve a foreign country by \nexporting from the home country, exporting from a third country, or producing in the foreign \ncountry. I calibrate the model separately for South America and Europe. I find that the gains \nfrom openness in Europe double those in South America, and that the distribution of these gains \nvaries less with size in South America. I also find that MP is more important in explaining the \ngains from openness in large countries, but the export platform mechanism is more important \nin small countries. Finally, I find that trade and MP have important implications for the size \ndistribution of firms.In the second chapter, which is joint with Andrés Erosa, we study the effects of financial frictions \non occupational choice decisions and on economic inequality. To address this question, \nwe develop a quantitative theory of entrepreneurship, income inequality, and financial frictions \ndisciplined with household data from Brazil. Our theory extends Lucas (1978) by modeling \nheterogeneity in two skills: −working and managerial skills. Consistently with the evidence, \nthe theory implies three occupational categories: workers, employers, and self-employed entrepreneurs. \nWe find that the removal of financial frictions decreases self-employment rates from \n24% to 11% (with small effects on the number of employers), increases aggregate output by \n48%, and has non-trivial effects on the distribution of income. We also find that while most \nhouseholds benefit from a reform that eliminates enforcement problems, the majority of employers \n(about two thirds) lose from the reform. By depressing the demand for labor, limited \nenforcement depresses the equilibrium wage rate, increasing the profits of employers. Our theory \nthus suggests that employers in Brazil may have a vested interested in maintaining a status quo \nwith low enforcement.
Author: Lian Allub
Language: English
Topic: Global trade and economics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2184295686