Thesis title: A trilogy on the in(put)s and out(put)s of international trade
This thesis presents my academic research production during the course of the Ph.D. in Economics at Sapienza University of Rome. The main field of my work and research is international trade and as the result of it, I have produced three articles on the analysis of interlinked topics regarding what countries and firms gain and lose when they engage in trade. Although the mainstream literature has largely focused on the gains of trade, only a narrower share has addressed the risks, the loses and the drivers of different potential outcomes when connecting to global value chains.
This research adds evidence in the field of international economics, global value chains and the heterogeneous effects of participation in world trade, by focusing on three specific topics addressed separately and presented here in three chapters. Those topics are i) the risk exposure caused by the concentration of the import and export relations of a country, ii) the harmful effects of trade wars when already engaged in global value chains, and iii) the heterogeneous effects of mechanisms to signal quality when facing different trade barriers and information asymmetries. My work discusses hypotheses on three topics in light of the existing literature and derives benchmark results from variations and specific applications of the gravity model for international trade. It also applies accounting and econometric methods to test those hypotheses using input-Output tables, export data and data about firms' characteristics and investments.
Chapter 1 argues that it is not only connectivity with the global economy but also its characteristics what increases exposure to systemic shocks and brings excessive volatility to businesses and the economy. Using a general equilibrium model of international trade, embedded in an input-output structure, the proposed theoretical model of analysis shows that shocks affecting supply and demand of intermediate and final goods travel through value chains and are reflected in the volatility of output. It also shows that the systemic component of shocks can be transmitted through specific propagation mechanisms: the squares of backward and forward total linkages (Leontief and Ghosh coefficients). Using both types of coefficients, measures of GVC participation and its concentration (in the fashion of the Herfindahl-Hirschman Index) are derived to test whether they can predict a share of the transmitted output volatility. Results are tested through a direct panel econometric estimation of output volatility covering the period of the global financial crisis of 2009. Estimations show that there is a correlation of shocks with the variance of the exports of intermediate and final goods (both upstream and downstream), evidencing the role of existing GVC linkages in propagating shocks.
Chapter 2 claims that trade tensions and tariff increases can not only hurt businesses the most in the countries directly involved, but can also cause large indirect harm to businesses located elsewhere through linkages in the supply chain. Using an international trade model embedded in an input-output framework, the presented research derives indicators to measure the supply chain effects on the suppliers of the directly-involved parties, both when suppliers are third parties and when providers of inputs for processed goods are the same countries engaged in war and imposing tariffs on the imports of processed goods. These are presented here as general supply-chain effects and as self-inflicted effects or \comillas{shoot oneself in the foot} effects. The proposed indicators are tested using data from the trade conflict between the USA and China. Direct effects show to be milder than expected in early estimations of the impact of the USA-China war due to measures' anticipation by importers. Furthermore, results show strong evidence that the additional tariffs levied during escalation of the conflict have hurt not only each other directly, but also each other's partners upstream, as well as themselves by inducing less own exports of inputs needed by their counterparts.
Chapter 3 explains that trade is hampered when buyers have incomplete information about the offered products and that firms then need to resort to instruments that can help them navigate barriers to trade. The effectiveness of quality-signalling instruments on promoting trade is not necessarily homogeneous across firms and destination markets, and particularly when facing different levels of trade barriers and information asymmetries. This research provides a theoretical model to show that the relative effect of those instruments increases in the trade barriers faced. The hypothesis is tested using innovation and export data from Colombian manufacturing firms between 2011 and 2018. The method is the estimation of the average treatment effect on the treated on the common support estimated on the propensity score of adopting three possible mechanisms: innovation practices, distinctive signs and certification of process standards. While results by firm size are inconclusive, this research provides evidence of the effectiveness of the three instruments on export value and particularly for innovations only for firms with previous exporting experience.
The research presented in this document has been widely fed by the courses and lecturers of the Programme, externally advised by Professor Gianmarco, internally monitored by Professor Massimiliano Tancioni. It has also been discussed with and used inputs from economists of the United Nation's International Trade Centre and members of the Study group on the impact of economic policies, GDS17. This research also benefited from the Sapienza's Fellowship of Foreign Nationals Educated Abroad, and funds from the Sapienza's School of Economics to treat and work with confidential data from Colombian manufacturing firms.