Trade Liberalization, Heterogeneous Firms and Industrial Dynamics

This master thesis studies how trade liberalization affects the firm-level productivity and industrial evolution. To do so, I built a dynamic model that considers firm-level productivity as endogenous to investigate the influence of trade on firm’s productivity and the market structure. In the framework, heterogeneous firms in the same industry operate differently in equilibrium. Specifically, firms are ex ante identical but heterogeneity arises as an equilibrium outcome. Under the setting of monopolistic competition, this type of model yields an industry that is represented not by a steady-state outcome, but by an evolution that rely on the decisions made by individual firms. I prove that trade liberalization has a general positive impact on technological adoption rates and hence increases the firm-level productivity. Besides, this endogenous technology adoption model also captures the stylized facts: exporting firms are larger and more productive than their non-exporting counterparts in the same sector. I assume that the number of firms is endogenous, since, according to the empirical literature, the industrial evolution shows considerably different patterns across countries; some industries experience large scale of firms’ exit in the period of contracting market shares, while some industries display relative stable number of firms or gradually increase quantities. The special word “shakeout” is used to describe the dramatic decrease in the number of firms. In order to explain the causes of shakeout, I construct a model where forward-looking firms decide to enter and exit the market on the basis of their state of technology. In equilibrium, firms choose different dates to adopt innovation which generate a gradual diffusion process. It is exactly this gradual diffusion process that generates the rapid, large-scale exit phenomenon. Specifically, it demonstrates that there is a positive feedback between firm’s exit and adoption, the reduction in the number of firms increases the incentives for remaining firms to adopt innovation. Therefore, in the setting of complete information, this model not only generates a shakeout but also captures the stability of an industry. However, the solely national view of industrial evolution neglects the importance of international trade in determining the shape of market structure. In particular, I show that the higher trade barriers lead to more fragile markets, encouraging the over-entry in the initial stage of industry life cycle and raising the probability of a shakeout. Therefore, more liberalized trade generates more stable market structure from both national and international viewpoints. The main references are Ederington and McCalman(2008,2009).

International Portfolio Investments and The Informational Value of Trade

A large volume of literature suggests that information asymmetry resulting from the spatial separation between investors and investments have a significant impact on the composition of investors’ domestic and international portfolios. I show that institutional factors affecting trading in tangible goods help explain a substantial portion of investors’ spatial bias. More importantly, I demonstrate that an information flow medium with breadth and richness directly linked to the bilateral commitment of resources between countries, that I measure by their trading intensity in tangible goods, is consistent with the prevailing country allocation in investors’ international portfolios.

Jatrophanviljely ja maankäyttö Vietnamissa

Biofuels are under discussion all over the world today. There are fears that the farming of biofuel plants hurts food production and weakens the food security of the poor. On the other hand, biofuel production could lessen the green house gas emissions caused by transportation, and it could also spread the profits from fuel markets more evenly between countries. The aim of this thesis is to find out how an oil plant called jatropha curcas L., which is used for biodiesel production, can affect the sustainability of livelihoods in Vietnam from the point of view of land use. Special attention is given to the effects of jatropha farming on food production, land productivity, natural resources of livelihoods and global livelihood. Jatropha belongs to the family Euphorbiaceae, and it grows naturally in tropical and subtropical areas. It can be grown on poor soils, its seeds have high oil content, and it cannot be eaten due to its toxicity. The plant grows naturally in Vietnam, and during the past few years it has also begun to be farmed for making biodiesel. Population growth in Vietnam has slowed down, but the population's standard of living and energy consumption are still rising quickly. An interest in the international biodiesel markets has awoken following Vietnam's opening up to international trade. Jatropha diesel plays a significant part in Vietnam’s clean fuel strategy, and many companies have set up jatropha plantations to produce raw material for biodiesel. Diesel made from jatropha is planned to be used both locally and for export. This thesis uses a theoretical concept of sustainable livelihoods. According to the theory, the resources that people have shape their livelihood possibilities. Farming of jatropha affects the livelihoods of people especially through land use, as land use changes have effects on many of the livelihood resources. In addition to the written sources, the material of the thesis is based on 14 interviews in Vietnam and Finland, and on observation during a field trip to Northern Vietnam in the spring of 2008. The results of the thesis show that jatropha diesel can support the sustainability of livelihoods at different scales if it is produced with deliberation. However, positive results are only possible if decisions are made carefully and more experience is collected. The possibilities of sustainable jatropha farming depend mainly on the previous land use methods and ways of production. Farming of jatropha does not threaten food production in Vietnam if the farming plans are implemented as planned. Jatropha may take some land from cassava, but at the same time, food production can be increased if mixed farming is used on some farms. Plenty of new research information and practical experiences on jatropha farming has to be collected before results of the real sustainability of the farming are ready. Carefully considered continuation and documentation of present and future projects would help to understand the possibilities of jatropha diesel in Vietnam and elsewhere.

Trade Blocs and the Cold War : The CMEA and the EC challenge, 1969-1976

The coherence of the Soviet bloc was seriously tested at the turn of the 1970s, as the Soviet Union and its allies engaged in intensive negotiations over their relations with the European Communities (EC). In an effort to secure their own national economic interests many East European countries began independent manoeuvres against the wishes of their bloc leader. However, much of the intra-bloc controversy was kept out of the public eye, as the battle largely took place behind the scenes, within the organisation for economic cooperation, the Council for Mutual Economic Assistance (CMEA). The CMEA policy-making process vis-à-vis the EC is described in this study with reference to primary archival materials. This study investigates the negotiating positions and powers of the CMEA member states in their efforts to deal with the economic challenge created by the progress of the EC, as it advanced towards the customs union. This entails an analysis of the functioning principles and performance of the CMEA machinery. The study traces the CMEA negotiations that began in 1970 over its policy toward the EC. The policy was finally adopted in 1974, and was followed by the first official meeting between the two organisations in early 1975. The story ends in 1976, when the CMEA s efforts to enter into working relations with the EC were seemingly frustrated by the latter. The first major finding of the study is that, contrary to much of the prior research, the Soviet Union was not in a hegemonic position vis-à-vis its allies. It had to use a lot of its resources to tame the independent manoeuvring of its smaller allies. Thus, the USSR was not the kind of bloc leader that the totalitarian literature has described. Because the Soviet Union had to spend so much attention on its own bloc-politics, it was not able to concentrate on formulating a policy vis-à-vis the EC. Thus, the Soviet leadership was dependent on its allies in those instances when the socialist countries needed to act as a bloc. This consequently opened up the possibility for the USSR s allies to manoeuvre. This study also argues that when the CMEA did manage to find a united position, it was a force that the EC had to reckon with in its policy-making. This was particularly the case in the implementation of the EC Common Commercial Policy. The other main finding of the study is that, although it has been largely neglected in the previous literature on the history of West European integration, the CMEA did in fact have an effect on EC decision-making. This study shows how for political and ideological reasons the CMEA members did not acknowledge the EC s supranational authority. Therefore the EC had no choice but to refrain from implementing its Common Commercial Policy in full.