| The first chapter of this dissertation revisits the theory and the empirics of the classic Balassa-Samuelson productivity model of cross-country differences in price levels. I incorporate cross-country specialization of production and costly trade into a model of price level differences, and find that terms-of-trade effects and third-country effects are important theoretically. Simulation evidence suggests that they will be important empirically, though econometric evidence is inconclusive. In the second chapter of this dissertation, we make two new points about econometric exploration of the Heckscher-Ohlin model of cross-country specialization of production. We show that productivity differences across countries must be controlled for to obtain unbiased results. We also show that the regression of specialization on endowments cannot identify whether there are Heckscher-Ohlin mechanisms at work, as endowments are endogenous to the development process, and other mechanisms correlated with developed could be driving specialization. In the third chapter of this dissertation, I show that in a small open economy with sticky prices, optimal monetary policy may manipulate the terms-of-trade in such a way as to replicate the outcome under optimal trade policy. |
