Essays in international trade and financial economics

by Lai, Huiwen

Essay in international Trade and Financial Economics Ph.D. Thesis (2000) by Huiwen Lai Department of Economics University of Toronto This thesis includes three essays related to international economics and financial economics. The first essay presents a mode1 of trade in the presence of multinationals, asymmetric trade barriers, and international differences in production costs. The first part of the essay presents the rnodelrs implications for bilateral trade. The estimation reveals more reasonable parameters for elasticity of substitution and trade costs than that suggested by previous research. The simulation indicates that tariff liberalization will shift trade f rom rich countries to poor countries and from preferential trading areas to inter-continental trading partners. The second part of the essay derives the multinational production and export equations Fmplied by the mode1 and estimates these equations simultaneously by recognizing the cross-equation restrictions on parameters and error terms. It suggests that the elimination of tarif f s would substantially increase U. S. exports, but would not affect U.S. production abroad. The second essay models general equilibrium product price effects using the CES monopolistic competition model in international trade. We then estimate the model and, mimicking computable general equilibrium (CGE) models, use the model to estimate the compensating variation associated with trade liberalization. We find gains from trade liberalization that are much larger than those usually reported. In addition, extensive specification testing is conducted to evaluate the performances of this model and its alternatives. The results point to the types of model specifications needed before the model can usefully be applied to policy questions. The third essay studies the properties of Canadian interest rates relative to those of U.S. In sharp contrast to the U.S. evidence, the conditional variances of Canadian macroeconomics variables are found to be insignificant predictors of term premia in the Canadian T-bill term structure. However, the conditional variances of U.S. macroeconomic variables are found to be important deteminants of Canadian premia.