Essays on international economics

Chapter I develops a model with credit-constrained, heterogeneous firms to explore how financial constraints impact firms' exporting behavior and how these constraints are relaxed as firms mature. This chapter assumes that entrepreneurs finance investment with optimal financial contracts while firms only have limited commitment to the contract, so lenders need to restrain firms' capital level to prevent strategic default. Firms are defined to be financially constrained if their capital is below the optimal level under perfect enforceability. Examining international firm-level data from Enterprise Surveys by the World Bank, this chapter finds strong empirical support for the predictions of the model. Both the probability of exporting and export volume are significantly higher among firms that are not "financially constrained;" these effects decline with firm age. Financial constraints have attenuated effects in financially developed countries.;In Chapter 2, OECD data indicate that output levels are more highly correlated between countries with more intense bilateral trade. Empirical study has revealed a stronger complementarity effect than standard business cycle models imply. Chapter 2 adds an input–output matrix into a standard business cycle model and generates complementarity effects closer to those revealed empirically. A positive productivity shock in one sector can spread to the whole economy via the network of intermediate goods it requires from other sectors; these other sectors compound the process, in turn, through their own input supplies. Multiplier effects from interaction in the input-output table enlarge the complementarity effect. Simulation results from this new model are consistent with data.;Chapter 3 explores the role of relative labor market frictions in explaining real exchange rate movements. It employs a two-county- model with two sectors: service and heterogeneous goods. The service sector is competitive, has no labor market friction, and services are not traded between countries. In the heterogeneous goods sector, idiosyncratic productivity determines a firm's decisions regarding production and exportation. The real exchange rate appreciates when labor market friction decreases or following a productivity improvement. Empirical results using panel data from 16 OECD countries between 1978 and 2009 are consistent with the model's implications.