GEOGRAPHY, TRADE, AND MACROECONOMICS

• Main Author: Guo, Hao
• Format: Others
• Published: UKnowledge 2017
• Subjects: external integration; internal liberalization; coastal agglomeration; the border effect; the Multi-fiber Arrangement (MFA); International Economics; Regional Economics
• Online Access: http://uknowledge.uky.edu/economics_etds/31; http://uknowledge.uky.edu/cgi/viewcontent.cgi?article=1028&context=economics_etds

This dissertation studies the effects of external integration and internal liberalization on the economic geography within a country when regions within the country have different access to the world market. The first paper introduces internal geography into the Melitz (2003) model to examine how external and internal liberalizations affect the economic geography within a country. By dividing a country into a coastal region and an inland region, the model shows that trade leads the coastal region have a higher than proportional share of industry, and causes firms in the coastal region to be larger and more productive than firms in the inland region. Both external and internal liberalizations encourage industry agglomeration in the coastal region. However, external trade liberalization leads to firm divergence, and internal liberalization leads to firm convergence, between coastal and inland regions. This allows me to test the relative importance of internal and external liberalization. Using Chinese data from 1998 to 2007, I find that the manufacturing sector grew faster in the coastal region than in the inland region after the WTO accession in 2001. Firms also converged between coastal and inland regions, indicating that internal liberalization had stronger effects during this period. In the second paper, I document large economic discontinuities across the east/non-east provincial borders in China and argue that the border effects are largely due to preferential policies that give the east advantages in international trade and economic development. Using counties contiguous to the borders of 4 plain provinces, I find that manufacturing activities (output, employment, and export) increase abruptly from the west to the east of the borders. The counties in the east also have a lower share of agricultural population and a higher share of output by foreign firms. The economic discontinuities are larger for non-state sectors than for the state sector and are stronger in non-mountain regions than in mountain regions. The large economic discontinuities are unlikely to be explained by geographic and cultural differences across the borders, and can be accounted for by the policy differences between east and non-east provinces. I find that the openness level and the index of market liberalization can account for a large part of the east/non-east divide. In the third paper, I use the ending of the Multi-fiber Arrangement (MFA) to study the effects of an external trade liberalization on Chinese textile and clothing industry. After the Multi-fiber Arrangement ended in 2005, Chinese textile and clothing exports in products that faced quotas before experienced significant boom. The effects are stronger in the coastal region than in the inland region. Using distance to the seaport as a measure of world-market access, I show that the external trade liberalization (the quota removal) had larger effects on regions with better access to the world market. A further analysis of firm entry shows that the large adjustment of export after the expiration of the MFA was largely due to destination and product expansions by existing firms.