Essays on international trade and industrial development
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Abstract
This dissertation argues that there are important asymmetries across industries with regard to their role in international trade and economic growth. In the first chapter, I develop a model of growth and trade that operationalizes the idea that the amount of learning diffusion across industries depends on how similar the industries are to each other. Growth in the model arises from occupational learning-by-doing, which partially diffuses across industries. This induces a particular network structure among industries, as a function of their occupational similarity. The model predicts that countries with comparative advantages in industries that are more central in this network will grow more in the aggregate.
In Chapter 2 I document a novel empirical finding consistent with the theory developed in Chapter 1: a country’s growth in comparative advantage in an industry is positively associated with its initial level of comparative advantage in occupationally similar industries. Motivated by this, I use the observed dynamics in comparative advantage, in combination with the structure of the model from Chapter 1, to back out the model-implied amount of occupational learning and the extent to which learning diffuses across industries. Compared to intra-industry learning, I find that cross-industry learning diffusion explains at least four times as much of the dynamics of comparative advantage, as well as 38 percent of the average industry’s contribution to aggregate growth.
The third chapter addresses the question of why industrialization tends to move from country to country, with one country industrializing as another de-industrializes, rather than many countries industrializing simultaneously. I show how a simple three- sector model of trade, growth, and structural change can rationalize this pattern. Due to non-homothetic preferences, as one country’s income increases from industrialization, its demand shifts to services. Since services are less tradable, the country’s production also shifts to services, and it starts importing manufactured goods from poorer countries. But due to increasing returns to scale in manufacturing, this industrialization is concentrated in only a subset of those poorer countries; the others will not industrialize until the currently industrializing countries become sufficiently wealthy themselves.