Three essays on international trade

This dissertation includes three chapters that cover topics on international trade. The first chapter focuses on various production strategies of multinational firms and presents a complex global sourcing model. Multinational firms have been the driving force of growing global production over the past decades. With multinational firms’ Foreign Direct Investment (FDI), international trade is engaged on the firm level, rather than on a country or industry level. However, their production strategies are not limited to FDI. One option would be arms’ length contracts, so-called outsourcing, even though firm productivity determines the sourcing strategies. In this paper, we extend the range of complex global sourcing strategies used by multinational firms, in which they utilize outsourcing as an additional strategy and connect it to the location choice. The analysis reveals that the equilibrium regime of firms is determined by industry characteristics such as the relative fixed costs and the outsourcing related parameter. Along with firm productivity, the results show the implications of self-selection into FDI versus outsourcing.The second chapter provides the welfare implication of heterogeneous multinational firms by using a general equilibrium simulation model. We extend the model presented in the first chapter to the general equilibrium and quantify the gains from trade, comparing them with the trade-only model. The gains from trade liberalization can be higher with both trade and multinational firms than with only trade. The income path induced by multinational firms is a significant factor in explaining the gap of gains across models. FDI by multinational firms can re-organize the foreign factor market that drives the welfare gains to respond more sensitively in our model than with the trade-only model. Additionally, our model implies that welfare responses differ, depending upon the production boundaries.In the last chapter, we discuss the recent Korea-Japan trade dispute in 2019. This work primarily focuses on quantifying the economic impacts of the dispute and how much it creates trade diversion with their major trading partners. Using the GTAPinGAMS model calibrated to the latest GTAP 10 database, we consider the non-tariff barriers in our model—the export controls by the Japanese government and boycotts by Koreans. We control bilateral trade shocks to reflect the observed trade responses in the Korea Customs Service data. We analyze the impacts of the trade dispute on welfare, sectoral outputs, and trade patterns. Our results show that the trade dispute impacts Korea the most, and Japan is followed. The welfare impacts estimated in this study would be 0.14% ($1033.71 million) for Korea and 0.01% ($345.69 million) for Japan. Additionally, the trade dispute between the two countries creates slight trade diversion with their major trading partners, such as China, the United States, the EU, and Asian countries. Consequently, Japan loses by 2.46% of its trade flow to Korea while slightly increasing exports to other countries. On the other hand, Korea’s imports from Japan decrease moderately, but the trade flow with other countries increases, so that the total percent changes in imports would be 0.18%. Even though the dispute might be initiated and justified by the complicated historical and political reasons between two countries, the results in this work show that the economic impacts are not negligible, which have direct trade policy implications for understanding and restoring the relations.