Three essays in international economics

Abstract

Are transport markets and associated costs important for international trade? To the present day there is a sparse and fragmented literature pointing towards an affirmative answer. This Thesis reinforces such opinion by accounting for transport markets in general equilibrium models of trade, and providing empirical evidence on the impact of determinants that explain casual trade-and-transport related phenomena. The outcomes of the Thesis promote policy and/or investment activism in developing countries, due to the gains from trade lost to excessive transport costs. Two particular observations are investigated:

i) When and why should a transport hub emerge? Using a simple trade model of monopolistic competition with representative firms incorporating network theory, the determinants governing optimal network formation become the level of transport costs, increasing returns in transportation and centrality. Empirical deduction supports that exports increase more on average if a shipping route passing through a hub is selected relative to a direct route, following a reduction in variable trade costs. Thus geographically disadvantaged countries that absorb high transport costs can ameliorate these by trading via a hub.

ii) Are tariffs and shipping prices complementary? By not assuming this interaction, standard trade models of representative and heterogeneous firms are unable to identify by decomposing the direct and indirect -that is, via adjustments in transport technology- effects of trade liberalisation, resulting in observing large elasticities of import demand. Invoking a model of monopolistic competition with heterogeneous firms that trade using transport services operating under increasing returns, it is the presence of the latter that amplifies the response of trade volumes to tariffs declines. Yet transportation may also dampen such responses, for the shipping price is a function of the factory price of the good and a markup. The empirical experiments provide support to such propositions.

The last chapter is distinct and deliberates on the importance of modeling financial networks that represent real world transaction systems relative to abstract artificial topologies. It is found that the international network of financial exposures exhibits characteristics that are congruent with robust-yet-fragile networks. Employing a common model of contagion illustrates how the robust-yet-fragile network structure absorbs defaults by peripheral countries however becomes susceptible to default cascades when combinations of peripheral countries or a financial centre collapse.

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Identifiers

ORCID for Hector Calvo Pardo: orcid.org/0000-0001-6645-4273

ORCID for Jackline Wahba: orcid.org/0000-0002-0002-3443

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