Three essays on international trade and economic growth: Export processing zone, colonialism and outsourcing

The objective of the first chapter is to study the welfare effects of foreign direct investment flowing into an export processing zone. Departing from the existing literature, I incorporate two features, imperfect competition and increasing returns technology, with intermediate goods into my three-sector model of a small open developing economy. These features are the key ingredients giving rise to both the demand and pecuniary externalities emphasized in the “Big Push” theory, and the Hirschman-like linkages. The main result is that the establishment of an EPZ is welfare improving when the pecuniary benefits generated by these externalities and linkages dominate the loss of tariff revenue partly due to import substitution.; The second chapter investigates the growth effects of colonialism and its mechanism of influence. First, I find that the performance of colonies varied according to their colonial heritage: the group of former British colonies grew significantly faster from 1960 through 1990 than did the former French and Iberian colonies, and grew no slower than the remaining sample consisting mostly of countries that were never colonized. Next, I show using a cross-country regression analysis that the size of the colonial network matters for post-colonial performance, and also that the different colonial powers provided different institutional (law), trade, and financial linkages. These linkages are important for understanding why the post-colonial experiences vary. I also conduct a comparative case study of Hong Kong and Macau to illustrate how the colonial impact on economic performances operated through institutional, trade and financial channels.; The last chapter, co-authored with Assistant Professor Chang-Tai Hsieh, examines the effect of outsourcing to China on the recent widening of educational and skill wage differentials in Hong Kong. Rapid skill upgrading within manufacturing industries accounts for most of the growth in the relative demand for skilled workers, particularly since the early 1980s. We construct several measures of outsourcing to China and shows that the rate of skill upgrading has been greater in industries that have seen a greater degree of outsourcing to China. Our measure of outsourcing can account for about 45% to 60% of within-industry skill upgrading.