Essays on International Trade, Productivity and Firm Heterogeneity

Abstract: The thesis consists of three papers, summarized as follows.”Trade, Intra-Industry Reallocations and Aggregate Productivity: A Bridge between Theory and Data in Öresund”The paper aims at estimating the causal effect of trade liberalisation on aggregate productivity through firm selection as in Melitz (2003). The natural experiment used is the construction of a bridge in the year 2000 across the Öresund Strait linking Copenhagen, the capital of Denmark, with Malmö, the third largest city in Sweden. Substantial, though not entirely conclusive, evidence is found for the model. Firms based in Malmö raise their exports substantially, mainly by firms selecting into exporting. There is also an increase in the aggregate productivity in Malmö and this is mostly due to the reallocation of production from less productive to more productive firms.”Country Size, Productivity and Trade Share Convergence: An Analysis of Heterogenous Firms and Country Size Dependent Beachhead Costs”This paper introduces a market size dependent firm entry cost in the Melitz (2003) model, which leads to several new predictions that are in line with the data. Exporters as well as non-exporters based in a large market are, on average, more productive than those based in a smaller market. Moreover, as the fixed entry cost of exporters into each market declines, for instance as the result of economic integration, export shares converge. This result is supported by the empirical part of this paper. Finally, we use a multicountry version of our model to derive a gravity equation.”Industry Location in Export Processing Zones with Vertical Linkages and Agglomeration”This paper provides a rationale for the common use of Export Processing Zones (EPZs) in third world countries, as an alternative to liberalising foreign trade for all regions. Using a model from the New Economic Geography literature with vertically linked industries (to account for the fact that EPZ industry is typically characterised by the assembly of intermediate goods), I analyse the effect of an EPZ policy on the location of industry.