| This thesis is a collection of essays in International Economics. In it we discuss optimal lending arrangements in the presence of limited enforcement, the dynamics of trade reforms and the behavior of the income distribution, and optimal hedging of downside risks by firms facing exchange rate exposure.;In Chapter 2, we develop a general model of endogenous financial constraints based on two premises, limited liability and limited commitment. We then characterize the constrained-efficient lending contract and its implications for firm survival, growth, equity share and dividend distribution policies. One application of this theory of debt is in the context of sovereign debt, where enforcement problems arise quite naturally.;The empirical evidence on trade reforms suggests that these have a surprisingly small impact on the country's industrial configuration. In Chapter 3 we develop a two-sector industry dynamics model in which industrial composition inertia arises naturally. This industrial structure inertia is difficult to rationalize in standard trade models. The model is then used to study the consequences of different types of trade reforms (e.g. permanent, temporary, gradual, pre-announced) on investment, employment composition and income distribution.;Chapter 4 characterizes optimal currency hedging strategies for a risk neutral firm in two different settings: (i) an all equity firm that faces a convex tax schedule; and (ii) a firm that chooses optimally its debt-equity ratio and exit strategy in addition to its hedging policy in the presence of bankruptcy costs. Contrary to conventional wisdom we show that forwards dominate options in the presence of a tax convexity or a concern over downside risk. We also show that the effects of bankruptcy costs on firm policy are significantly different from those emphasized in the literature when the firm jointly optimizes its debt policy and its hedging strategy. In particular, the model is capable of rationalizing the empirical finding that firms with high bankruptcy costs do not choose significantly higher hedge ratios than firms with low bankruptcy costs. |
