Essays on International Trade and Financial Economics

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Noel, Antoine
Economics , International trade , Financial economics
This dissertation examines two important aspects of economics: international trade and financial economics. In the part of the thesis which focuses on international trade, I analyze the impact of preferential trade agreements in boosting global trade liberalization. I find that permitting countries to sign preferential trade agreements fails to reduce global tariffs when countries only differ in their levels of production structure. Regarding financial economics, we provide an exact algorithm for efficient computation of models that have an ARCH(?) representation, a technique often used to estimate the volatility of exchange rates. Finally, we develop a model for analysis of information transparency of optimal financial contracts. In Chapter 2, I examine the effects of differences in production structure across countries on the liberalization of global tariffs in the coalition-proof Nash equilibrium sense. Using a static tariff-setting game with endogenous trade agreements, I develop a competing exporters model with three countries and consider three settings that are differentiated by the type of trade agreements that countries can sign: free trade agreements, customs unions, and trade agreements that comply with the most-favour-nation (MFN) clause, i.e. MFN trade agreements. Using two analytical exercises involving symmetric and asymmetric changes in production structure, I find that preferential trade agreements incentivize countries to have higher global tariffs than if they could not sign such agreements, for sufficiently large differences in production structure. Chapter 3 provides an exact algorithm for efficient computation of the time series of conditional variances of models that have an ARCH(?) representation. The efficiency of the algorithm allows estimation of ARCH(?) models, even with very large data sets and without the truncation of the filter commonly applied in the literature. This reduces the bias of the quasi-maximum-likelihood estimators and improves out-of-sample forecasting. Chapter 4 proposes a theory on information transparency of optimal financial contracts. Our model nests adverse selection and agency costs. We demonstrate that there exists a unique perfect Bayesian equilibrium with novel features. First, three types of optimal contracts can arise endogenously: equity, transparent debt, and opaque debt. The former two require firms to take on a costly verification technology while opaque debt does not. Second, the unique equilibrium is either pooling on opaque debt, or mixing with transparent and opaque financing. Third, firms with sufficiently high quality and intermediate levels of internal funds find it optimal to use a transparent contract.
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