Essays on Macroeconomics
These essays contribute to the literature on Macroeconomics. Chapter 1 provides an endogenous growth model to explain the impact of financial reform on a nation’s growth rate both in the short run and the long run. The current literature focuses only on the transition period right after the reform and therefore, cannot match the long-run growth rate that is higher than the pre-reform growth rate. The model primarily operates through a borrowing constraint on firms that prevents them from optimally allocating resources between capital investment and innovation. Through this mechanism, it can explain all three phases of a country’s growth around a financial reform: A very low growth period before the reform, rapid growth immediately following the reform, and finally a convergence to a moderate growth rate in the long run.
Chapter 2 develops a monopolistic competition model with multi-sector network linkages. In the presence of monopolistic competition, information of firm size is not sufficient information to measure an individual firm's impact on the economy. Therefore, the interaction between firms should be considered to measure the impact properly.
Chapter 3 inspects the impact of input-output linkages on gains from trade. I extend the model from Chapter 2 to an open economy. The conventional issue in the current literature is that the welfare gain from trade is too small. The model is different from existing models with input-output linkages in that it cannot only compare welfare gains with standard models but also enables a counter-factual analysis to examine the importance of network linkages by shutting down the relationship across sectors within the country. In the model, opening trade delivers newly introduced goods to a firm in the country. These newly traded goods will be used to produce other goods in a more efficient way. Through this channel, measured gains from trade are bigger than in the standard literature. The input-output linkages initiate a positive chain reaction through the economy and produce an additional channel for welfare gain that is absent in standard models, thereby increasing measured welfare gain.