Three Essays in International Economics

Abstract

This dissertation consists of three essays on the impact that import competition and importing opportunities can have on households. Specifically, I aim to quantify the effects that reductions in trade costs and access to new inputs have on income and on the menu of options available to consumers. I achieve these goals by focusing on the differential impact of import competition on workers with different occupations and different skill levels, and by examining the extent to which import opportunities change firms' output decisions.

Chapter 1 examines the role of occupations in understanding who gains and who loses from changes in import costs. From estimating a structural model of the Danish labor market, I find that a substantial portion of the variation in income changes induced by the decline in import costs from 1996 to 2005 is accounted for by one's occupation at the time that costs decrease. Moreover, I find that when workers must engage in costly occupational reallocation, the short run variation in changes to workers' incomes can be substantially larger than in the long run.

While chapter 1 explores how workers' incomes respond to changes in import costs, chapter 2 focuses on how firms respond to new importing opportunities. This chapter, co-authored with Valerie Smeets and Frederic Warzynski, uses data on Danish apparel firms to estimate how firms change the quality of their goods when trade costs decrease. We find that access to imports from poorer countries tends to lead firms that produce lower quality goods to upgrade their products, and firms that produce higher quality goods to downgrade theirs. Thus, import competition tends to reduce the dispersion in quality of domestically produced goods.

Finally, in the third chapter, I return my focus to workers to explore how the elasticity of substitution between imported intermediates and workers of different skill levels varies across industries. I find significant heterogeneity in this parameter across industries and build a model to demonstrate how this elasticity of substitution can affect how wages between skilled and unskilled workers responds to changes in import costs.