Essays in international trade

Chapter 1 develops a theory of multinational firms using an incomplete contract approach. One of the most remarkable features of international trade since World War II is the dramatic increase in the number of multinational firms, especially among developed countries. The prevalence of multinational firms in the modern global economy has resulted in a large literature analyzing their existence and actions. The previous literature, however, has been unsuccessful in addressing a number of crucial points. First, the multinational firm involves the expansion of the boundaries of the domestic firm across the national border. Using the property rights approach, this chapter contributes to the small body of available literature which examines multinational firms from the perspective of the theory of boundaries of firms. While the previous literature relies mostly on “binary” comparison (some entry mode vs. the multinational firm), this chapter presents a model where we can compare various foreign market entry modes: exporting, contract manufacturing, the multinational firm, and technology licensing in a unified framework. We distinguish between these four entry modes by the different asset ownership structure. Secondly, recent empirical evidence shows that foreign direct investment does not tend to be affected by factor endowment conditions. In this chapter, the multinational firm emerges as the optimal mode of entry in foreign markets even among countries with similar production costs. Finally, we consider several applications of our basic model where the optimal entry mode decision is affected by exogenous variables, such as the strength of intellectual property rights and the possibility of expropriation in host countries. These applications distinguish the theory of the firm in the context of international economics. With this model, we can answer the question of why a U.S. firm may choose exporting as the mode of entry into one foreign country but chooses the multinational firm in another.; Chapter 2 studies the influence-driven contribution approach of Grossman and Helpman (1994) in the determination of trade policies under monopolistic competition. The result shows that the equilibrium trade policies are independent of the political power of each special interest group, which differs from the conclusion of Grossman and Helpman (1994). Additionally, I apply this basic setup to various political economy approaches which explain the determination of trade policies.; Chapter 3 analyzes the effects of the introduction of General purpose technologies (GPTs) on the international aspects of the economy. GPTs refer to certain types of drastic technological innovations which are characterized by the pervasiveness in use and innovational complementarities. While the Helpman-Trajtenberg CPT model explores the macroeconomic consequences of GPTs within a closed economy, this paper examines the open-economy implications of a GPT. In particular, we find the implications of GPTs on the pattern of specialization, the relative wage between countries, and the economies of the developing countries. We show that with the introduction of GPTs into the world economy, the developing countries temporarily gain competitiveness in marginal final good industries but end up losing those industries again as a sufficient number of intermediate goods for the new GPT are created in the developed countries. We also analyze the effects of a productivity shock which clearly illustrate this new feature of our dynamic Ricardian model.