Three essays in the theory of trade and development: Economic integration and endogenous growth

The first essay explores the mechanism through which the knowledge-based producer services as an assortment of horizontally differentiated inputs enhance the productivity of the final goods production. We show that producer services are a critical part of the increasing returns due to specialization. The formation of multinationals in this essay is not necessarily associated with the failure of factor price equalization. We find that similar economies in terms of factor endowments engage in two-way intra-industry foreign direct investment. However, we also find that the notion of comparative advantage is crucial in predicting the direction of trade and foreign direct investment when two countries differ in factor endowments. We also shed some light on issues and consequences of trade liberalization in the context of North-South trade.;The third essay constructs a dynamic general equilibrium model of North-South trade where the quality-upgrading of vertically differentiated products is endogenous and the product life cycle results from an endogenous process of technology transfer from North to South. Our major concern is how imitation in the South affects not only the world trade pattern between North and South, but also the worldwide growth rate. We examine three main implications. First, we discuss a source of uneven income distribution between North and South. Second, we show how imitation plays an important role in redistributing the expenditure share more favorably toward the South. Third, we find a condition under which the "outward-oriented" regime will outperform the "inward-oriented" one. (Abstract shortened by UMI.).;The second essay extends the static monopolistic competition model of service multinationals to examine under what conditions liberalization of trade and foreign direct investment will generate both static and dynamic gains. We assume the knowledge-driven specification of R&D, in which new designs build on general technical knowledge. Under this specification, we find that the degree of knowledge spillovers will be a critical part in enhancing economic growth when trade in both goods and services is liberalized. With respect to dynamic gains, we also find an additional growth effect from specialization based on comparative advantage only in the case of complete specialization where factor price equalization does not hold.