Essays on Trade Policies and Foreign Direct Investments

Abstract

My dissertation has four chapters. The first chapter is the introduction. The second chapter is my Ph.D. third-year paper (coauthored with Ming-Jen Lin and Yi-Ting Wang). The third chapter is my Ph.D. job market paper. The last chapter is the conclusion.Chapter 2 studies how liberalizing outward foreign direct investments (FDI) affects manufacturers’ engagement in global production and their domestic workers’ labor market outcomes. Focusing on a liberalization policy in 2001 by the government of Taiwan that allowed 122 electronic products to be produced in China, we estimate its effect on Taiwanese electronic manufacturers and their domestic workers. Employing a matched difference-indifferences strategy, we find that the manufacturers targeted by the policy were on average 16% more likely to invest in China relative to the non-targeted ones. Correspondingly, the domestic workers initially employed by the targeted manufacturers were on average more likely to change their jobs, stay employed for fewer years, and have lower wages in subsequent years relative to those employed by the non-targeted ones. The worker-level effects of the policy exhibited substantial heterogeneity across the initial wage distribution, with the top-decile workers benefiting and the other workers losing on average. Chapter 3 studies the welfare implications of the US–China trade war in Vietnam when foreign-owned manufacturers repatriate their profits. Utilizing an enterprise survey in Vietnam, I provide novel evidence that Vietnam’s positive responses in input sourcing, product export, and employment in 2017–2019 are driven mainly by foreign-owned manufacturers, especially Chinese manufacturers. To further understand the welfare gains of the trade war episode, I develop and estimate a quantitative model of trade participation with foreign ownership, where foreign-owned manufacturers do not retain their profits in the host country. A foreign demand shock to Vietnam of a magnitude similar to that of the trade war raises the real expenditure in the model by 5 percent, predominantly from an increase in labor income.