International Trade Essay

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ESSAYS ON INTERNATIONAL TRADE (Spine title: Essays on International Trade) (Thesis format: Integrated Article) by Kai Xu Graduate Program in Economics SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY SCHOOL OF GRADUATE AND POSTDOCTORAL STUDIES THE UNIVERSITY OF WESTERN ONTARIO LONDON, CANADA OCTOBER 2011 c Kai Xu, 2011 THE UNIVERSITY OF WESTERN ONTARIO SCHOOL OF GRADUATE AND POSTDOCTORAL STUDIES CERTIFICATE OF EXAMINATION Supervisor Examiners Dr. James MacGee Supervisory Committee Dr. David Rivers Dr. Ananth Ramanarayanan Dr. Hiroyuki Kasahara Dr. Daniel Brou Dr. David Rivers Dr. Claustre Bajona The thesis by Kai Xu entitled Essays on International Trade is accepted in partial fulfillment of the requirements for the degree of Doctor of Philosophy Date Chair of the Thesis Examining Board ii Abstract This thesis consists of three chapters on the economic effects of agricultural and non-agricultural trade. The first chapter asks whether the observed low trade intensity of agricultural goods is caused by high trade costs or small gains from agricultural trade. By empirically estimating structural equations from a trade model, I find that it is largely due to high trade costs. I also find large variation in relative efficiency of producing agricultural goods, which suggests that lower agricultural trade costs could lead to large gains from trade. The second chapter asks how large are the gains from lower trade costs in the presence of the “Food Problem”. I extend the Eaton-Kortum trade model to include a tradeable agriculture sector, minimum consumption and home production of agricultural goods. The calibrated model implies much larger gains from trade for poor countries than prior studies. The main reason for these gains is that intra-sectoral trade leads poor countries to
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