Three Essays in International Integration

Alexander F. McQuoid

Three Essays in International Integration
McQuoid, Alexander F.
Thesis Advisor(s):
Davis, Donald R.
Permanent URL:
Ph.D., Columbia University.
In this dissertation, I consider multiple dimensions of international integration. In chapter one, I consider the impact of immigration on public finance. In chapter two, I study capacity constrained firms and the transmission of foreign shocks to the domestic market through these firms. In chapter three, I focus on the importing behavior of firms and how macro and micro patterns of trade and production diverge. In the first chapter, I investigate the role diversity plays in the provision of public goods. The conventional wisdom holds that diversity is a significant hindrance to collective action and the provision of public goods. Empirical support for this view comes primarily from the observation that measures of diversity are negatively correlated with provisions of public goods in the cross-section. The generally held conjecture is that this negative relationship is true within countries over time as well. I address this belief directly by exploiting a natural migration experiment and a unique IV strategy to causally identify the impact of diversity on public goods expenditures and revenues. With the political collapse of the Soviet Union in the fall of 1989, mass migration to Israel increased the population there by roughly seven percent over two years. This led to substantial changes in diversity in local communities, with some becoming more homogeneous and others becoming more diverse. I confirm the usual negative relationship in the cross-section by using data on local government budgets at disaggregated levels. However, I find limited evidence that increased diversity leads to lower expenditures on local public goods when I instrument for changes in diversity using historic settlement patterns. Local revenue generating mechanisms do respond to changes in diversity, but are offset by national government transfers. Chapter two challenges a central assumption of standard trade models: constant marginal cost technology. We present evidence consistent with the view that increasing marginal cost is present in the data, and further identify financial and physical capacity constraints as the main sources of increasing marginal costs. To understand and quantify the importance of increasing marginal costs faced by financially and physically constrained exporters, we develop a novel structural estimation framework that incorporates these micro frictions. Our structural estimates suggest that the presence of such capacity constrained firms can (1) reduce aggregate output responses to external demand shocks by 30% and (2) result in welfare loss by around 23%.
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