Essays in International Economics

This dissertation lies at the intersection of international trade and macroeconomics, and it related to topics on economic growth, innovation and productivity, monetary policy, and economic geography. Chapter 1 evaluates and quantifies the importance of production proximity for innovation efficiency. First, using a novel and comprehensive establishment-level dataset from the U.S. Census Bureau, I document that innovation and production activities are coagglomerated in the majority of manufacturing industries. The geographic concentration of innovation and production provides suggestive evidence on the importance of the two activities being colocated. Second, I develop an empirical model that allows for spillovers from local production to innovation and apply it to measure the private returns to R&D investment for a panel of U.S. R&D firms during 2002-2012. My estimates show that the proximity to production raises the returns to R&D, suggesting there are positive spillovers from the local manufacturing to innovation. Third, I evaluate the macroeconomic implications of my empirical findings in a multi-region production and trade model featuring the local spillovers from production to innovation. I find that the relocation of production workers due to the China trade shock leads to a moderate reduction in both process and product innovation. States with a larger decline in manufacturing employment experience a more substantial loss in innovation efficiency. Chapter 2 studies differential responses of prices faced by different consumers following macroeconomic shocks. Monetary shocks have distributional consequences if they affect relative prices across goods consumed by different households. We document that the prices of the goods consumed by high-income households are stickier and less volatile than those of the goods consumed by middle-income households. Following a monetary policy shock, the estimated impulse responses of high-income households' consumer price indices are about one-third smaller than those of the middle-income households. We evaluate the implications of these findings in a quantitative multi-sector New-Keynesian model featuring heterogeneous households. The distributional consequences of monetary policy shocks are large and similar to those in the econometric model. Chapter 3 estimates the impact of foreign sectoral demand and supply shocks on real income. Our empirical strategy is based on a first-order approximation to a wide class of small open economy models that feature sector-level gravity in trade flows. The framework allows us to measure foreign shocks and characterize their impact on income in terms of reduced-form elasticities. We use machine learning techniques to group 4-digit manufacturing sectors into a smaller number of clusters and show that the cluster-level elasticities of income with respect to foreign shocks can be estimated using high-dimensional statistical techniques. We find clear evidence of heterogeneity in the income elasticities of different foreign shocks. Foreign demand shocks in complex intermediate and capital goods have large impacts on real income, and both supply and demand shocks in capital goods have particularly large impacts in poor countries. Counterfactual exercises show that both comparative advantage and geography play a quantitatively large role in how foreign shocks affect real income.PHDEconomicsUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/162932/1/tinglan_1.pd