Income Distribution, International Trade and Foreign Direct Investment with Heterogeneous Firms

Authors

Feifei WangFollow

Document Type

Dissertation

Degree

Doctor of Philosophy (PhD)

Major/Program

Economics

First Advisor's Name

Kaz Miyagiwa

First Advisor's Committee Title

Committee chair

Second Advisor's Name

Qiang Kang

Second Advisor's Committee Title

committee member

Third Advisor's Name

Sheng Guo

Third Advisor's Committee Title

committee member

Fourth Advisor's Name

Mihaela Pintea

Fourth Advisor's Committee Title

committee member

Keywords

International Trade, FDI, Income Distribution.

Date of Defense

6-20-2016

Abstract

This dissertation investigates the factors that firms take into consideration when they decide in which manner to expand internationally (i.e. foreign direct investment and international trade). Another component of the investigation focuses on what types of firms benefit the most and what are the associated benefits with expanding internationally.

I investigate self-selection and learning-by-exporting hypothesis by applying matched sampling techniques and non-structural econometric models. Using a Chinese firm-level dataset, I find that firms that start exporting are more productive than non-exporting ones. Additionally, in most industries exporters become more productive in time.

I then investigate how income inequality leads firms to make different choices on how they expand internationally. I develop a simple theoretical model by carefully choosing a mean-preserving income distribution. I find that changing the mean-preserving parameter of the income distribution affects market demand for firms' products and firms' choosing of strategies for international expansion. Some, but not all firms gain market shares due to larger market size caused by the more concentrated income distribution around the mean. Using Gini coefficient as the proxy for income distribution, I demonstrate empirically that some firms gain market shares and benefit from more consumers becoming part of the middle class due to the corresponding change in income distribution.

I also study the aggregate implication of opening the economy in a two-country Dynamic Stochastic Equilibrium in which firms have heterogeneous productivity in the spirit of Melitz (2003). I show that benefits incurred by international engagement are not equally distributed among firms. I separate firms into four categories based on their productivity levels. The highest productivity firms gain the most by breaking into a new market as multinationals. The second highest productivity firms become exporters and obtain the second largest market share. The third highest productivity firms only serve the domestic market, while the lowest productivity firms exit the market.

Identifier

FIDC000691

Recommended Citation

Wang, Feifei, "Income Distribution, International Trade and Foreign Direct Investment with Heterogeneous Firms" (2016). FIU Electronic Theses and Dissertations. 2545.
https://digitalcommons.fiu.edu/etd/2545