Xiaochen Xie
Published: 2021
Total Pages:
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Chapter 1: Re-exploring Markups and the Gains from International Trade This article investigates the welfare implication of trade liberalization, with variable markups, using evidence from the global smartphone industry. Higher trade exposure imposes forces on firms' markups from two directions: more competitive markets induce firms to lower their markups, while lower delivery costs motivate firms to lower their prices to an extent smaller than the decline in costs with the higher market demand and enhance their markups. To date, most structural work in international trade has ignored the potential welfare gains of trade liberalization through the markup channel by alleviating price distortions or has otherwise failed to track both of the directional forces that international trade imposes on markups. Accounting for the smartphone markets of 40 countries, I build a model of supply and demand in which both firms' product portfolio and pricing strategies are endogenous. I find that an increase in tariff rates would prompt mostly low-quality goods producers to exit the affected markets while increasing the price-to-cost margins of the remaining low-quality goods producers; meanwhile, the markups of the high-quality goods incumbents vary only little, or even reducing slightly to offset the market demand slump that the higher costs generate. My results suggest that if researchers only focus on the loss of variety when examining the impacts of higher trade barriers following traditional methods of measurement without paying attention to the markup channel, then the average consumer surplus loss could be underestimated by 7% to 10% through the price distortion. Chapter 2: Export Dynamics This paper studies firms' export dynamics using evidence from the global cellphone industry. Exporters tend to enter foreign markets that are geographically close or culturally similar to their previous export destinations. Most structural work of international trade has ignored firms' sequential export decisions across countries when estimating entry costs or has failed to build a framework in which firms' export-dynamic actions can be tractable or in which entry costs can be accurately estimated. I build a dynamic model in which firms first sequentially choose global regions for penetration and then spread out over the countries in the regions. I estimate firms' region- and country-level entry sunk costs for starting a business and the country-specific fixed costs for maintaining operation. I find that entering a new region with consumer characteristics similar to the previous export regions could reduce the entry costs as drastically as 81%. Relatedly, adding countries after penetrating a region would incur much lower entry costs than the costs associated with entering the first country in that region. Stricter trade regulation in large countries, such as the G7 group, would also reduce importers' entry margins and their trade value in the surrounding, smaller European countries. Moreover, conditional on the same productivity level, the geographical location of a firm's headquarters could determine as much as 70% of the variation in global expansion and sales. My model primitives predict a world with more advanced infrastructure, which can shorten the world's distance by half, could reduce delivery cost, and greatly enhance the consumer surplus in the mobile phone market by 1.3% to 3.87%. Compared to a static model, my dynamic model reports a gradual and less volatile increase in consumer surplus and market competition.