Three Essays on International Economics


Student thesis: Doctoral Thesis

View graph of relations


Related Research Unit(s)


Awarding Institution
Award date5 May 2022


This thesis provides theoretical and empirical evidence for several important questions in international economics, with the focus on global value chains, trade in services, and exchange rate elasticity of trade.

Chapter 1 examines the effect of imported services inputs on the export technological sophistication index, which can measure the technological content of a country-sector’s exports. Imported services inputs refer to services sourced overseas and then used for further domestic production, and they may induce technological advancement via direct support and indirect spillovers. To focus on domestic technological advancement, we construct a modified export technological sophistication index to avoid distortion from foreign contributions embodied in imported inputs. We quantify imported services inputs by decomposing gross exports based on the global value chain (GVC) literature and the World Input–Output Database 2016. We find that higher adoption of imported services inputs boosts the sophistication index and that efficacy magnitudes vary notably across countries and sectors. Interestingly, when high-income countries were hit by the global financial crisis in 2008, the disturbance of imported services inputs originating from these regions led to a 16.7% increase in the effect of adopting domestic services inputs on the index. This study also reveals that the position of a country-sector on the GVC ladder determines its adoption rate of imported services inputs, which is important for understanding the role of exchange rate changes in sourcing services inputs globally.

Chapter 2 focuses on the exchange rate elasticity of trade. The determination of exchange rate elasticity of exports is not simply a bilateral analysis but is heavily impacted by third-country actions. In this paper, we first develop a theoretical model that explicitly captures the third-country effects on the exchange rate elasticity of exports, which, in the model, comprises two major components: the competition effect and the supply chain effect. Next, we empirically test the implications of the theoretical model by employing the Chinese provincial customs data from 2017 to 2020. In particular, we quantify the third-country effects and document the following stylized facts: (1) provinces facing tougher foreign and domestic competition exhibit lower exchange rate elasticity of export price and quantity; (2) the direction of impact of global supply chains on exchange rate elasticity is ambiguous because of the interaction of multiple channels. By scrutinizing recent data, we observe that the third-country effects dampened significantly during the coronavirus disease 2019 (COVID-19) pandemic and the China–US trade war. These third-country effects remain robust to a battery of extensions, including the integration of global value chains, the presence of product and regional heterogeneity, the COVID-19 impacts, and the entry-exit decision.

Chapter 3 investigates the adoption of foreign financial services in domestic manufacturing production. We apply the input-output framework and cutting-edge research on global value chains (GVCs) to construct the first index that captures the role of foreign financial services in facilitating domestic manufacturing developments. The index of foreign financial services adoption in manufacturing (FFSAM) shows that foreign financial services adoption by Asian economies has rapidly caught up with the Western world since the 2008 Global Financial Crisis (GFC). Asian economies tend to rely more on foreign financial services in high-technology manufacturing industries than low-technology manufacturing industries. Driven by the importance of this index, we employ the Poisson pseudo maximum likelihood (PPML) methods to document that, for Asian economies, increasing the GVC position of manufacturing industries would decrease the FFSAM via both the forward-linkage channel and the backward-linkage channel. The effects of GVC integration vary across different types of manufacturing industries based on technology level and different manufacturing activities. Furthermore, our main results remain robust to expansion to the real economy sectors, alternative input-output database, adding trade resistance terms, endogeneity concerns, and a set of additional disaggregation.