Essays on international trade policy and international outsourcing

Abstract

This thesis analyzes two issues in international trade: trade policy determination and international outsourcing. The first three chapters introduce the firm as a novel unit of analysis in the political economy of trade policy. Chapter 1 takes a standard model of political economy of trade policy in the presence of lobbying. It shows that, in the presence of heterogeneity in the participation of firms in political activity, the level of protection is determined, among other factors, by the intensity of lobbying in a given sector. Chapter 2 analyzes the strategic interaction among firms in a given sector and shows how lobbies are formed when protection from foreign competition represents a public good. This chapter offers different criteria that lobby formation might obey and analyzes the impact of the characteristics of the distribution of firm size on the level of protection of industrial sectors. Chapter 3 presents a new dataset which allows me to test the theoretical predictions derived in Chapter 1 and Chapter 2. In particular the empirical results show how ,the level of protection depends positively on the intensity of lobbying as measured in Chapter 1 and how the intensity of lobbying, called here Participation Shares, depend positively on simple characteristics of the distribution of firm size, such as mean and standard deviation.

(cont.) The fourth chapter offers a novel perspective on the decision of firms to outsource part of their production activities and looks at the impact of individual firms' decisions on incentive of other firms to outsource. Outsourcing firms face a potential loss of product differentiation, but achieve economies of scale at the level of the intermediate good producer. Interaction among firms in a sector can lead to waves of outsourcing.