Trade liberalization: Implications for institutional design, intra-industry trade and foreign investment

My doctoral thesis consists of three chapters in which I study three different topics in the area of international trade.;In the first chapter, I study a government's optimal design problem for a particular institution dealing with dumping cases initiated by the domestic industry, and analyze firm behaviour in the presence of such antidumping mules. The government chooses the dumping duties and other costs that foreign and domestic firms incur during an antidumping case. The government's payoff function is a weighted average of domestic profits and consumer surpluses over two periods. Predicted home firm petitioning choices, foreign firm responses and imposed dumping duties are close to observed antidumping procedures in most countries. The modal predicts the domestic industry always uses the existing framework against its foreign competitor and free trade only occurs when the tribunal mules against the home firm's petition. This holds for any relative weight the government places on domestic profits.;The second chapter explains the mechanism through which trade liberalization affects the composition of intra-industry trade and the firms' choices of investment in quality differentiated goods. First, a model of consumer choice with goods differentiated horizontally and vertically is developed. Then the equilibrium of a two-stage game is characterized, in which quality producers choose quality investment in stage 1, and then all firms compete in quantities in stage 2. A trade model involving two countries with ad valorem tariffs yields that quality levels rise and the share of trade in vertically-differentiated goods also rises when tariff protection is lowered and the relative market size of the two countries exceeds a certain threshold.;The third chapter of my thesis is a study of the patterns of FDI in a developing country (Mexico) that forms an FTA with more developed countries (US and Canada) and concludes that location choice for foreign investment differs across economic sectors. A simple economic geography model's predictions are used to interpret a 'gravity equation' for FDI which is estimated using Mexican state-level data for 8 economic sectors between 1999 and 2003. Estimation results for the tradeable goods sector (manufacturing) show that investment is positively correlated with the foreign demand in the rest of NAFTA and clustering at the border with the US is present. For non-tradeable goods sectors (financial services, communal services, transport and communications), foreign investment is driven by local demand and clustering is around Mexico City.