Essays on economic liberalization and spatial economics

Abstract

The first essay theoretically studies the impacts of international trade and economic integration on income inequality within a transitional country where workers leave the agriculture sector for the manufacturing sector in order to gain higher income. This essay develops a two-country four-region economic geography model in which the manufacturing sector requires unskilled (and immobile) workers from the agricultural sector as a production input and in which agricultural goods are costly to ship. The model suggests two main results. First, whenever the agglomeration force (i.e., international trade costs and economic integration) becomes relatively stronger, the economic activities follow the pattern of dispersionagglomeration-dispersion as the domestic transport costs gradually drop from improving a country's logistics infrastructure. Second, if the economy involves agglomeration, there exists sustained income inequality within the country. These results suggest a policy implication for the transitional countries that international trade and economic integration are necessary but not sufficient for alleviating income inequality problems. The second essay investigates the structural wage equation derived from the economic geography model. The equation predicts that manufacturing wages are higher in regions having larger market access which is the composition of local market and export market. Micro-level datasets from Thailand's economy are used to test the structural wage equation. Two main contributions of this essay come from the empirical strategy. First, this essay makes a contribution by using micro-level data to study the structural economic geography model. Second, this essay adopts the market access measure from a seminal work of Redding and Venables (2004). The empirical strategy can control for firm and labor heterogeneities across regions. While controlling for firm and labor heterogeneities, this essay is unable to provide strong empirical evidence supporting the relationship in the structural economic geography wage equation by using the micro-level datasets from Thailand's economy. The third essay examines the contribution of firm spatial selection and agglomeration economies to the regional productivity distributions. From the theoretical model developed in this essay, there are two main results. First, the regions with larger market size are associated with a higher central tendency of firm productivity. Second, there exists an incentive for the high-productivity firms to relocate to the regions with larger market size. The empirical work uses the firm-level data drawn from Thailand's industries. The empirical results suggest that Thai provinces with large market access are associated with relatively high levels of average productivity. However, the datasets are unable to support the second theoretical result of relocation tendencies.