My research focuses on the effect of firms' strategic behavior and market power on international trade.
Price Discrimination and Gains from Trade
A surprising finding from firm-level customs data is that, in violation of the Law of One Price, different buyers of imported inputs pay different prices. The literature has attributed this fully to differences in quality of inputs. Instead, in this paper I argue that this phenomenon can be explained by price discrimination in the input market. Using a unique dataset that identifies both the sellers and the buyers and provides detailed descriptions of the transacted products, I find substantial variation in prices charged by the same seller for the same product. I rationalize this finding by introducing oligopolistic input producers to a standard trade model, and show that the ability to backwards integrate allows larger buyers to obtain lower input prices. My analysis suggests that productivity gains from trade differ across firms and depend on the prices, quality and variety of inputs imported by a firm. It also implies that consumer gains from trade are larger under price discrimination in input markets.
Vertical FDI and Global Sourcing Strategies of Multinational Firms
I study global organization of production by multinational firms along two dimensions - geography of their inputs suppliers and their ownership structure. I build a multi-country general equilibrium model of trade in intermediate goods, which features two vertically related industries with heterogeneous firms. Importantly, when making their sourcing decisions, final goods producers face fixed costs of importing and fixed costs of vertical integration with their suppliers. As a result, the model shows that ownership over inputs suppliers magnifies any exogenous differences in firms productivity and thus affects their endogenous outcomes, such as prices and sales. The proposed framework allows to study the determinants of intra-firm trade between countries and quantify the effects of trade liberalization or increased protectionism on both intra-firm and between-firm trade. Moreover, it provides rational for investment climate as separate margin of welfare gains from trade.
Spillover Effects of Global Value Chains (with Vladimir Tyazhelnikov)
We model a global production network as a fractal structure with an important property: an intermediate good from the same industry can be used in production both directly and indirectly as a part of another intermediate good. We find that this structure generates interdependence between sourcing decisions at different stages of production process and leads to the formation of production clusters. This clustering effect leads to non-trivial spillovers across both industries and countries. We embed this fractal structure in a Ricardian framework, where the technology in each country is characterized by both costs of production and input requirements. We use world input-output tables and trade flows in final and intermediate goods to estimate the model and find what effect the rise of China had on the development of East Asia. We decompose this effect in two channels - higher demand for final goods from Chinese consumers and higher degree of integration in global production networks.