The macroeconomic impacts of international trade and integration

Abstract

The past few decades have seen an unprecedented rise in international trade and integration. In addition to increasing trade flows of final goods and services, the fragmentation of the production process across national borders has resulted in a rise in trade of intermediate inputs. Countries also continue to expand and deepen the rules governing international integration in a growing number of areas that have become standard in modern free trade agreements, such as intellectual property. This research explores three topics related to international trade in a highly integrated world, showing that integration has resulted in some quantifiable benefits. In the first chapter, I examine Western European industries that source intermediate inputs from lower cost countries in Central and Eastern Europe. I use variation in foreign sourcing driven by subsidies received by firms in Central and Eastern Europe to identify the impact on Western European industries. Foreign sourcing is associated with higher employment, wages per worker and higher skill employment. I also discuss some of the potential costs, even though I do not attempt to quantify them. Although every country benefits from foreign sourcing, the gains accrue to countries that are most involved in regional supply chains.

The second chapter analyzes whether restrictive intellectual property provisions improve or hurt access to biological medicines in Chile, finding that strong provisions increase both the volume and unit value of imported medicines. The results indicate that while both a market expansion effect that results in a greater ability to import and market power effect that raises prices are present, the market expansion effect dominates.

In the final chapter, I focus on a negative impact of integration, the potential for imports to surge following job losses in certain occupations during the Great Recession. I analyze whether changes in an occupation’s employment in a state resulted in changes in the content of state imports. I find evidence that these changes might be related, but no causal evidence to suggest that employment changes caused changes in the content of imports.