Essays on International Economics

This thesis consists of three papers that explore the macroeconomic impact of international trade from different angles.;The first chapter surveys the existing literature on the linkage between export diversification and economic growth. Export diversification can be defined in various dimensions and analyzed at different levels. Empirical literature has established a positive association between export diversification and economic growth, although the causal direction is subject to debate. Beyond the empirical level, several lines of research in the theoretical literature are able to generate predictions on the linkage between export diversification and growth, whereas in some models this connection is examined in a broader perspective of the overall economic diversification. Future research is in great need to build richer frameworks and to further explore the policy implications.;Chapter 2 documents cross-sectional evidence for a significantly negative relationship between export product diversification and output volatility, robust to the use of a variety of controls and to different measures of diversification. Diversifying countries of export, surprisingly, does not exhibit significance in determining the cross-country variation in volatility. To explain this empirical regularity, I argue that an open economy is subject to product-specific export shocks. A more diversified export product structure enables the economy to better insure against these shocks and helps to smooth output volatility. I construct a multi-sector dynamic general equilibrium model with shocks to export products to verify this idea. I quantitatively assess the model's prediction in light of the empirical evidence and find that for reasonable parameter values, the model can generate a decline in volatility with level of export product diversification comparable to that in the data. Results in this paper establish and quantify the impact of export product diversification on output volatility.;Finally, the third paper of the thesis investigates the role of import variety in solving the trade comovement puzzle. Recent empirical findings document a positive link between bilateral trade intensity and business cycle comovement of output in a cross-section of OECD country pairs. Since the workhorse model of international business cycle literature cannot replicate this comovement pattern, it is referred to as the trade-comovement puzzle. This paper demonstrates that the endogenous import variety can help account for this puzzle. By incorporating increasing returns to variety in a standard model, the cyclical change in import variety works as an endogenous link between cross-country TFPs and generates a positive effect on the output comovement. As trade grows on the extensive margin, more varieties of intermediate inputs are traded and this strengthens its positive effect on the comovement. These two mechanisms combined will generate the observed trade comovement result. Simulation results reveal that model implied trade-comovement properties are able to match the data. Supporting the importance of import variety in explaining the international business cycle synchronization, I also find empirical evidence for the pro-cyclical behavior of import variety over business cycles and a significantly positive relation between bilateral import variety and pair-wise GDP correlation among OECD countries.