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Essays on Firms in International Trade

  • Author(s): Pustilnik, Brian Gabriel
  • Advisor(s): Burstein, Ariel T
  • et al.
Abstract

This document contains a series of studies that were inspired by the international activity of firms in the rubber and tire industries. Several aspects of the production and commercialization of tires make these firms face challenges that are essential problems studied in the field of international trade. This industry has been at the core of my family's business practice for decades, allowing for a frequent interaction with many stakeholders in the production, wholesale and retail stages. Such interaction proved this industry to be a rich source of debate that can inform research on international trade.

Some of the challenges facing these firms include the imposition of stringent and non-conventional trade barriers, the constant need for new export destinations and, from the production perspective, the volatility of rubber prices. These challenges are addressed in this dissertation. The first chapter uses tire industry data only, while chapters two and three analyze a wider range of industries. Overall, these studies draw insights and policy recommendations for a broad scope of industries.

The welfare effects of trade policy crucially depend on import allocations and price effects. In chapter one, I show that these outcomes depend on whether importing firms are matched with multinational suppliers or with single-country producers. I study an antidumping duty imposed by Colombia on the imports of Chinese truck tires. In the data I observe the full network of Colombian importers and global exporters, some of which are multi-origin and some of which are single-origin. Due to the policy, imports of Chinese tires were almost fully reallocated into other origins. Moreover, the bulk of this reallocation was undertaken by importers matched with multi-origin exporters. Estimating a quantitative trade framework to match the reallocations and price changes that I see in the data, I find that under a counterfactual network without multinational suppliers, the increase in prices from the policy would have been twice as large than in the data.

Chapter two explores the dynamics of Mexican exports when firms expand to new destinations in foreign markets. I document a decline in average growth and failure rates as firms enter new export destinations. These patterns reflect that in their initial set of destinations, exporters adjust their sales more than they do in subsequent markets. I develop a model of multi-market demand learning that rationalizes this behavior through knowledge accumulation and the delay in expansion to new destinations. Under the assumption that knowledge can be carried over destinations according to their market similarity, a trade-off arises. A larger number of destinations targeted upon entry can provide firms with a faster understanding of foreign market conditions. However, such strategies might be prohibitively expensive to some exporters. Therefore, few initial destinations might be used by exporters to “test the grounds” for subsequent similar markets. The patterns of entry and market similarities between destinations in the data suggest the possibility that a learning mechanism is an underlying part of the dynamics that we observe.

In the third chapter (with Alvaro Boitier), we study how the use of supply contracts with fixed prices by firms can shape the transmission of input price shocks to aggregate macroeconomic variables. Input price shocks typically have negative consequences for developed economies that rely heavily on imported materials. However, firms employ risk management instruments to reduce their exposure. We rely on a novel dataset on supply contracts to document two empirical findings. First, we find a large exposure reduction to input price risk from firms using these contracts. Second, sector output and labor compensation have a smaller negative correlation with input price shocks when firms trade larger contracts. We assess the quantitative role of these contracts by introducing and calibrating a tractable general equilibrium model. In particular, we find that the use of these hedging instruments can substantially reduce the transmission of input price shocks to aggregate variables.

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