Date of Award

1-24-2024

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

Advisor(s)

Devashish Mitra

Subject Categories

Economics | Social and Behavioral Sciences

Abstract

This dissertation analyzes how firms can mitigate the influence of trade shock and benefit from openness and diversification. It is composed of three chapters. Chapter 1 and 2 analyze the impact of U.S. import tariffs on the export value of Chinese firms and the differential response of firms that vary in market sizes outside of the U.S. In Chapter 1, I develop a model assuming fixed capital for each firm and fixed cost of entering into new markets. This model shows that the negative impact of a U.S. tariff on the total export value of Chinese firms exporting to more markets is lower than for those with less diversified sales, as they can reallocate their exports from the U.S. market to other markets. I empirically test this hypothesis using Chinese Customs Trade Statistics (CCTS) from 2000-2013, a time period that encompasses wide variation in U.S tariffs imposed on China. I show that there is a negative relationship between U.S. tariffs and Chinese firm-level export value to the U.S., and this effect is larger for firms with larger relative sales in countries outside of the United States. At the same time, U.S. tariff increases raise Chinese export values to non-U.S. markets, and this influence is larger for firms with larger relative sales outside of the United States. Together, these results indicate that diversifying export markets allows firms to mitigate the negative impact of unilateral trade shocks. Chapter 2 uses a structural model to predict how firms with varying degrees of dependence on the U.S. market adjust their export decisions in response to the trade war tariff. I estimate the parameters in the model developed in Chapter 1 using Chinese Customs Trade Statistics (CCTS) 2013 and use the estimates to evaluate the impact of 2018-2020 tariff increases. I find that during the trade war, the export value to the U.S. has decreased more for firms with more markets, while the total export value has decreased less for these firms. Chapter 3 analyzes how the firm location influences price-cost markup charged by Chinese manufacturers using firm-level data from China. Places such as coastal areas or large cities are more trade-intensive, and locating in these places can affect firms' markup. I find that the trade intensity influences a firm's price-cost markup through three channels: a positive export benefit effect, as better access to foreign markets can increase the product price; a positive cost reduction effect, since locating in a place with cheaper and greater imports of intermediate goods can decrease the firm's marginal cost of inputs; and a negative pro-competition effect, as a more trade intensive location provides more competition in output markets. I identify these three channels by measuring trade intensity using export intensity, import intensity of inputs, and import intensity of outputs and estimate their impacts on firms' price markups.

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