Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2008.Includes bibliographical references.This dissertation consists of three essays on international trade and investment. In the first essay, I study how cross-country differences in labor market institutions shape the pattern of international trade with a focus on workers' skill acquisition. I develop an open-economy model in which workers undertake non-contractible activities to acquire firm-specific skills on the job. I show that protective labor laws, by increasing workers' bargaining power, induce workers to acquire more firm-specific skills relative to general skills. When sectors differ in the dependence on firm-specific skills in production, workers' investment decisions turn a country's labor laws into a source of comparative advantage. Specifically, the model predicts that countries with more protective labor laws export relatively more in firm-specific skill-intensive sectors. To test these hypotheses, I construct sector measures of firm-specific skill intensity using estimated returns to firm tenure in the U.S. over 1985-1993. Using these measures and a cross-country, cross-sector data set of 84 countries in 1995, I find support for the theoretical predictions. In the second essay, I use a firm-level panel data set of 90,000 Chinese manufacturing firms over the period of 1998-2001 to examine whether there exist productivity spillovers from foreign direct investment (FDI) to domestic firms in the same sector (horizontal spillovers), and in sectors supplying intermediate inputs to foreign affiliates (vertical spillovers through backward linkages). I find evidence of negative horizontal spillovers. While I find no evidence of vertical spillovers at the national level, domestic input suppliers' productivity growth decreases with the foreign presence in their downstream sectors in the same province.(cont.) Second, this essay examines whether the ownership structure of foreign affiliates affects the magnitude of spillovers. I find that wholly owned and ethnic-Chinese foreign firms are associated with more negative horizontal spillovers, compared to jointly owned and non-Chinese foreign firms, respectively. I also find that negative spillovers are mostly borne by domestic firms that are state-owned, technologically-backward and located in inland provinces. The third essay studies how government political ideology determines the pattern of trade protection across countries. I hypothesize that left-wing governments are associated with relatively higher protection in labor-intensive sectors, and relatively lower protection in capital- and human-capital intensive ones, than right-wing governments. Using a cross-country, cross-sector data set of 49 countries and 27 manufacturing sectors in the late 90s, I find evidence supporting these predictions.Heiwai Tang.Ph.D
