Empirical essays on economic globalization with heterogeneous producers

Abstract

This dissertation is a collection of empirical essays that investigate the impacts of economic globalization through trade and Foreign Direct Investment (FDI) on the survival and growth of firms, aggregate productivity, and economic development. Inspired by recent advances in international trade emphasizing the role of firm heterogeneity, this dissertation exploits rich sources of micro-level data and rigorously examines the impacts of globalization with a firm-centric approach. Chapter 2 examines the impacts of FDI globalization by applying the simulation framework developed by Eaton, Kortum, and Kramarz (2011). A firm heterogeneity model is structurally estimated on micro-level data of Japanese multinational firms and used to simulate how multinationals respond to changes in FDI barriers. Using the calibrated general equilibrium model, the macroeconomic consequences of FDI globalization are assessed through the aggregated outcomes of individual firm activity. The counterfactual simulations suggest that the disproportionate expansion of highly productive multinationals over the last decade generated spectacular improvements in aggregate productivity. The simulations also suggest that further reductions of FDI policy-related barriers would lead to significant improvements in global aggregate productivity but a substantial displacement of domestic firms. Chapter 3 examines what is driving the recent growth of South-South FDI. A recent literature advocates that Emerging Market Multinational Enterprises [EMNEs] are more adept at operating in poor institutional quality environments. Econometrically testing the determinants of FDI with a gravity model, the empirical results show there is no evidence that there is more South-South FDI because of EMNE institutional advantages. Chapter 4 examines the economic viability of local farms facing increasing globalization pressures. It examines the open island economy case of Hawaiʻi and econometrically investigates the impact of import competition on the growth and survival of heterogeneous farms. The empirical results suggest that rising imports significantly hinders farm growth; however, the findings are less robust on farm survival. The work suggests that in a comparatively disadvantaged agricultural economy like Hawaiʻi that suffers from high labor and land costs, continued globalization will lead to a decline in local farm production with non-commercial farm production being less affected.