Essays in international economics

This dissertation consists of three essays in international economics. The first chapter investigates whether opening up to international financial flows improves aggregate productivity in the presence of limited contract enforceability. I present a model of two countries that differ in terms of the degree of contract enforcement and analyze the consequences of financial market integration among those countries. Then, I test the predictions of the model empirically. The model predicts that aggregate productivity improves after financial integration in economies with strong contract enforcement, while it deteriorates in countries with weak enforcement. The empirical analysis confirms that the effect of capital account liberalization on productivity is different in economies with different degrees of contract enforcement.The second chapter addresses whether foreign firms harm the environment in a host country where environmental standards are not as strict as in the source country. The question as to whether strict environmental regulations in developed economies cause the relocation of pollution-intensive production into developing countries has captured the attention of economists. Instead, we ask whether multinational firms, frequently the target of environmentalists, are in fact harmful for a host country's environment. Using plant-level data from Chile, we find that foreign firms are cleaner than domestic plants. We then propose a model that delivers these features of the data. Using the model we get policy implications regarding environmental regulations and multinational production.The last chapter examines the link between producer's productivity and export participation. Empirical work reveals that exporters have substantially higher productivity than non-exporters. The two explanations proposed for the apparent gap are self-selection of firms into competitive export markets and learning by exporting. Knowing the direction of causality between productivity and exporting has important policy implications. If firms become exporters simply because they are more productive and there are no further gains from being an exporter, then policies that aim to increase the number of exporters are not appropriate. I test these hypotheses by applying matching techniques on plant-level data from the Chilean manufacturing sector. I find clear evidence for self-selection, relatively more efficient firms become exporters. However, I do not detect further improvement of productivity following the entry into export markets.