Essays on international trade in knowledge-based services

This dissertation presents a theoretical analysis of digitally empowered world trade and growth in which knowledge-based services play a distinctive role.; The first essay examines the effect of trade in knowledge-based services on the factor markets. The analysis develops a simple two-sector general equilibrium model of non-comparative advantage trade. The model is used to confirm and illustrate that recent changes in the distribution of income in advanced economies primarily reflect intraindustry trade with other advanced economies rather than inter-industry trade with developing economies. The knowledge-based services as intermediate inputs are used only intensively in the technology sector. In order to highlight the effects of trade in knowledge-based services in the presence of digital markets, we employ the Chamberlinian monopolistic competition theory of intra-industry trade in intermediate inputs. The analysis reveals that there are gains from intraindustry trade in services without intersectoral trade. The intraindustry trade raises wage inequality between skilled and unskilled labor and increases the use of the skilled labor in the service/technology sector.; The second essay examines the creation of comparative advantage of the service-embedded goods by endogenous knowledge-based innovation and the dynamic evolution of the pattern of world trade over time. The essay develops a simple dynamic two-sector general equilibrium model for service development and international trade. The model provides a relationship between a steady endogenous growth and the trade pattern which is inherently dynamic in nature. Endogenous technological change in knowledge-based services results from the investment decisions made by profit-maximizing firms. International trade has interindustry components, and the different incentives that face agents in different countries for investment and savings decisions give rise to intertemporal trade. This essay incorporates the dynamics of trade patterns into the standard Heckscher-Ohlin-Samuelson (HOS) model. In so doing the analysis successfully keeps the characteristics of the HOS model along the dynamic path of trading equilibrium under endogenous growth.; The third essay examines the implications of economic integration in the presence of endogenous growth in knowledge-based services. We analyze a simple dynamic two-sector general equilibrium model, which is used to provide in further detail the nexus of increased productivity in the advanced economies in the 1990s. Endogenous technological change in knowledge-based services results from the profit maximizing behavior of the innovating firms. The knowledge-based services as intermediate inputs are used most intensively in the service sector and in the ‘service’ functions of the manufacturing sector. This essay shows that, under alternative scenarios of economic isolation and international integration, a sequence of comparisons of a country's equilibrium growth paths provides some support for a positive relationship between integration performance and economic growth.; The fourth essay investigates post-industrialization and trade in the presence of endogenous technological change in knowledge-based services in a small open economy. The analysis develops a simple dynamic two-sector model of endogenous growth and trade in which the economy produces two final outputs, manufactures and services. Knowledge-based services are service-sector specific intermediate inputs. Thus, diversity of knowledge-based services contributes to the total factor productivity in the production of services. The analysis characterizes the relationship between economic growth and the structure of the economy. The theory developed implies that growth leads to a comparative advantage of services and a comparative disadvantage (deindustrialization) of manufactures. (Abstract shortened by UMI.)...