Interlinking essays on trade and industrial policy

Abstract

Chapter 1 This study discusses the understanding of agglomeration and competition's impact on productivity within the context of Myanmar, an economy primarily focused on agriculture but striving to transition from least developed country (LDC) status via industrialization. Utilizing firm-level data from the first nationally representative manufacturing survey in 2017 and 2019, the analysis reveals limited evidence of the effects of agglomeration on productivity while controlling for firm-specific characteristics using fixed-effect empirical specifications. In contrast to earlier research emphasizing spillover productivity gains from agglomeration, the empirical findings indicate that a high concentration of exporters within agglomerations is associated with increased productivity. This finding is attributed to firms' characteristics, particularly their exporting status. Exporting firms expand their portion of industry revenue, whereas a firm that remains non-exporting experiences a decline in market share (Melitz, 2003). This discrepancy in market performance results in a productivity gap, with exporting firms that are clustered together exhibiting elevated productivity levels. However, the estimated results also provide substantial evidence of competition within agglomerations, implying that both exporting and non-exporting firms experience additional higher productivity levels due to the degree of competition. Chapter 2 Examining data from the Myanmar Micro, Small, and Medium Enterprises Survey over a two-year period, this study delves into the impact of firm formalization on potential employment opportunities. It highlights the vital role of registered MSMEs in fostering inclusive economic growth and employment opportunities, particularly in developing nations. However, the process of firm formalization often encounters endogeneity issues, which may result in biased estimations. To address this concern, the study adopts an instrumental variable approach, utilizing the frequency of tax inspector visits as an instrumental variable for firm formalization. The empirical results indicate that increased tax inspector visits significantly influence firms to formalize, consequently leading to enhanced employment opportunities. Thus, addressing the formalization of the informal sector is imperative for fostering employment and driving sustainable economic development within the country. Chapter 3 Extensive empirical research has yet to reach a consensus on the nexus between exchange rate uncertainties and the balance of trade. Most of the associated research and discord has been applied to trade among advanced countries or trade between advanced and developing countries. This paper differentiates itself from most other studies by analyzing intra-regional trade, investment flows, and the impact of exchange rate uncertainty within a single economic bloc. It adds to the current discussions by confining the research to ASEAN, a homogenous socio-economic community comprising 10 member states. These member states use individual currencies, deploy different monetary, trade, and investment policies, and have implemented a regional trade agreement designed to boost internal trade. The empirical findings, utilizing the Error Correction Model for panel data, show that exchange rate uncertainty negatively influences intra-exports in the long term but positively affects Foreign Direct Investment (FDI). However, when counting for the implementation of the ASEAN Free Trade Agreement (AFTA), the results indicate that currency volatility exerts a favorable influence on both intra-ASEAN trade (exports) and FDI. Moreover, it is suggested that within ASEAN, exchange rate uncertainty serves to mitigate the distortion of trade flows, thereby bolstering the region as a more robust trading hub under the free trade agreement.