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Abstract
This dissertation consists of three essays on "new new" trade theory, which sheds more light on firm-level empirical facts in international trade. In particular, l develop simple models that focus on both the positive and normative aspects of vertical specialization where upstream and downstream firms bargain over contracts for intermediate inputs.
The first essay explores the positive features of international trade by questioning why the fraction of firms that export varies with countries' comparative advantage. To answer this question, I develop a general-equilibrium Ricardian model of North-South trade in which both institutional quality and firm heterogeneity play an important role in determining trade patterns. Because of contractual frictions that vary across countries and sectors, North with better institutions produces relatively more in the sectors where production is more institutionally dependent. In addition, institution‐induced comparative advantage makes it relatively easier for Northern heterogeneous firms to incur export costs in the more contract-dependent sectors, thereby leading to the higher exporters' percentage.
The second essay investigates the normative and policy implications of offshoring by addressing how the bargaining power of firms affects trade policy. We show that, if the number of firms is fixed, the welfare-maximizing Home tariff rate is strictly decreasing in the bargaining power of Home firms, and that an increase in Home firms' bargaining power can raise Foreign profits. In an endogenous
market structure setting with free entry and matching, the relationship between the tariff and bargaining power is U-shaped (inverted U-shaped) if the demand function is strictly concave (convex), whereas free trade is optimal irrespective of the bargaining power if the demand function is linear.
The third essay returns to the positive side of international trade, developing a North-South trade model in which the firm's organizational form for input acquisition in global sourcing is endogenously determined by sectoral characteristics. We show that industries in the economy are divided into seven classes of sectors in terms of the prevalence of organizational forms, Specifically, the coexistence of different organizational forms is less likely as the sectoral input intensity is more extreme, thereby letting intra-industry heterogeneity be less relevant to organizational choices.