2025 Theses Doctoral

Essays in Regional and International Economics

Kong, Sang Hoon

This dissertation includes three essays in Regional and International Economics.

In Chapter 1 I ask, does greater access to domestic higher-income markets lead to quality upgrading and gains in productivity among local firms? Taking advantage of a major highway project in India, I find that firms responded differently to large and small increases in access to higher-income markets. When shocks were large, local firms produced higher-quality output by using more skilled labor, capital, and expensive materials, leading to productivity gains. For small shocks, local firms also produced higher-quality output but only by using more quantities of input and without any signs of productivity gains. Seen through the lens of the model, these results suggest that firms face substantial adjustment costs that prevent them from adopting more sophisticated production processes when shocks are small. Since income differences found within India are relatively narrow, my analysis suggests that developing countries do not need to rely solely on demand from high-income countries to incentivize quality upgrading and to capture associated productivity benefits.

In Chapter 2, I examine county-level outcomes of the 2018 U.S. House elections to investigate whether voters electorally responded to the economic impacts of the trade war tariffs in 2018. I find causal evidence that votes for the incumbent president's party (Republican) increased in counties that benefited from the domestic tariffs while those votes decreased in counties that were harmed. The median net effect is negative but economically insignificant. In contrast, I do not find comparable effects on the votes for Democratic candidates, which suggests the domestic tariffs largely impacted the turnout among Republican supporters but did not lead to switching of parties. Finally, I do not find any substantive responses to the retaliatory tariffs.

In Chapter 3, with David Weinstein, Mary Amiti, and Matthieu Gomez, we document that tariff announcements made during the U.S.-China trade war had broad effects on financial variables. Announcements systematically decreased stock prices and raised nominal and real bond prices. We use a specific factors model to show that the welfare impact of the tariffs can be identified from the policy-induced movement in the present value of firm cash flows: a variable that can be estimated from financial data. Using this framework, we find that the U.S.-China trade war lowered U.S. welfare by three percent. We show that these cash flow movements can be further decomposed into market expectations about how tariffs affect current and future prices and productivity. Seen through the lens of our model, the market reactions to tariff announcements can be explained by expectations that tariffs lead to large, negative future price and TFP shocks that play an important role in dynamic, but not static, models.