Three Essays in International Integration

In this dissertation, I consider multiple dimensions of international integration. In chapter one, I consider the impact of immigration on public finance. In chapter two, I study capacity constrained firms and the transmission of foreign shocks to the domestic market through these firms. In chapter three, I focus on the importing behavior of firms and how macro and micro patterns of trade and production diverge.;In the first chapter, I investigate the role diversity plays in the provision of public goods. The conventional wisdom holds that diversity is a significant hindrance to collective action and the provision of public goods. Empirical support for this view comes primarily from the observation that measures of diversity are negatively correlated with provisions of public goods in the cross-section. The generally held conjecture is that this negative relationship is true within countries over time as well. I address this belief directly by exploiting a natural migration experiment and a unique IV strategy to causally identify the impact of diversity on public goods expenditures and revenues. With the political collapse of the Soviet Union in the fall of 1989, mass migration to Israel increased the population there by roughly seven percent over two years. This led to substantial changes in diversity in local communities, with some becoming more homogeneous and others becoming more diverse. I confirm the usual negative relationship in the cross-section by using data on local government budgets at disaggregated levels. However, I find limited evidence that increased diversity leads to lower expenditures on local public goods when I instrument for changes in diversity using historic settlement patterns. Local revenue generating mechanisms do respond to changes in diversity, but are offset by national government transfers.;Chapter two challenges a central assumption of standard trade models: constant marginal cost technology. We present evidence consistent with the view that increasing marginal cost is present in the data, and further identify financial and physical capacity constraints as the main sources of increasing marginal costs. To understand and quantify the importance of increasing marginal costs faced by financially and physically constrained exporters, we develop a novel structural estimation framework that incorporates these micro frictions. Our structural estimates suggest that the presence of such capacity constrained firms can (1) reduce aggregate output responses to external demand shocks by 30% and (2) result in welfare loss by around 23%.;Chapter three contributes to the understanding of a long-running puzzle in international trade. For more than 40 years, economists have analyzed the phenomenon that trade is excessively volatile relative to GDP, with a recent revival of interest following the “Great Trade Collapse”. This well-documented phenomenon of excess sensitivity of trade has been observed in numerous countries and across multiple time periods. A variety of explanations have been considered, but none have satisfactorily solved the puzzle. The point of departure for the present study is to match theory and empirics explicitly by using plant level data on imported intermediate inputs and production to evaluate the theory. Bringing both macro and micro data from Indonesia to bare on the question, I find the import elasticity puzzle is more accurately characterized as an aggregation puzzle. While aggregate national accounts data exhibit the typical excess sensitivity of trade, I find no such excess sensitivity of imports at the plant level. I estimate the income elasticity of imports to be one, precisely as standard theory predicts. Explanations for this aggregation puzzle are considered.