Essays on international trade and economic geography

Abstract

This dissertation consists of three chapters in the field of international trade and economic geography.

The first chapter introduces endogenous workplace quality choice into an international trade model with a monopsonistically competitive labour market, in which firms compete for potential employees by offering them a combination of monetary and non-monetary benefits. To attract the workers required to produce for the foreign market in addition to the domestic market, exporting firms have to offer more attractive compensation to their employees than comparable non-exporting firms, which is why they are not only paying higher wages but also offering better workplace amenities. The gains from trade, therefore, not only materialise in terms of a higher purchasing power but also in terms of a higher average workplace quality. Welfare metrics, which exclusively focus on real income gains, might underestimate the gains from globalisation.

The second chapter, co-authored with Lu Wei, studies to what extent trade liberalization affects regional production fragmentation. regional input-output data from the European Union (EU) to study the effect of trade liberalization on regional production fragmentation in the EU. We calculate the regional value-added to gross exports (RVAX) ratio to measure the intensity of production sharing across the EU NUTS2 regions. We exploit a unique policy variation associated with the 2004 EU enlargement – abolishing the trade-related tariffs between the EU states and ten new countries joining the EU. Using a gravity-style specification, we quantify the impact of regional tariff reduction on the RVAX ratio. Our findings reveal that a one percentage point decrease in tariff rate between EU member states leads to a 3.2% increase in regional production fragmentation as measured by RVAX. Our results could be interpreted as follows: EU regions facing higher tariff cuts after the EU enlargement got more engaged in cross-border production sharing and increased their trade with their bilateral partners through the regional value chains.

The third chapter tests the main prediction of Christaller’s (1933) central place property (CPP), which postulates that the smaller cities can always be found between larger cities. By collecting the data on populated volcanic islands, the spatial distribution of economic activity is matched to the key assumption of CCP, which dictates that all economic activity has to take place either on a line or on a circle. The urban areas on each island are identified using the Open Street map’s building data. The findings demonstrate that, on average, 70% of the size distribution of the neighbouring urban areas follows the spatial pattern predicted by CPP. The size distribution of urban areas in the data is then compared to the counterfactual counterpart obtained by randomizing the location of the cities on each island. A simple one tailed statistical test reveals that the observed and counterfactual size distributions of the cities in the data are significantly different.