Essays on foreign direct investment and income inequality, and cross-price effects in the United States trade balance

This dissertation examines two issues---the impact of foreign direct investment (FDI) on income inequality and cross-price effects in the U.S. trade balance. The first essay investigates the impact of FDI on U.S. income inequality both theoretically and empirically. I present a simple model that predicts that FDI lowers income inequality for an economy where wage earners outnumber capital owners. State-level panel data for the U.S. from 1982 to 1997 are used to test the model's predictions. I use feasible generalized least squares on the panel data. FDI is found to significantly reduce income inequality for the U.S., but with substantial variation across regions and time. When FDI is above the national median, its impact on income inequality becomes stronger.; The next essay tests the same theory for transitional countries in Eastern Europe and Central Asia for the period of 1990 to 2002. Such countries may experience much different effects of FDI than the U.S. Using fixed effects, there is no evidence that FDI inflows affect overall income inequality, though FDI does have a positive impact on wage inequality. Since income inequality stems from both wage and capital income inequality, it follows that FDI must reduce capital income inequality.; The objective of the last essay is to examine the interactions of the import and export markets through cross prices. The idea is that import demand is affected by export prices because imports and exports are likely substitutes in consumption. And import supply is also affected by export prices as exports may be intermediate inputs in the production of imports. The traditional partial equilibrium model of trade is extended to include these cross-price effects in demand and supply. Both reduced form and structural trade equations are estimated using quarterly U.S. and rest of the world data from 1975 to 2002. OLS estimation of the reduced form indicates stickiness in price adjustment, and fully modified general method of moments estimation of the structural equations demonstrates significance of cross-price effects in both demand and supply of trade. These effects tend to impede adjustment of the trade balance to exchange rate changes.