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Essays on effects of skill mix on productivity and determinants of foreign ownership in developing countries

Tacharoen, Kitjawat (2012) Essays on effects of skill mix on productivity and determinants of foreign ownership in developing countries. PhD thesis, London School of Economics and Political Science.

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The first chapter is titled "Productivity As If Space Mattered: An Application to Factor Markets Across China”. Optimal production decisions depend on local market characteristics. This chapter develops a model to explain firm labour demand and firm density across regions. Firms vary in their technology to combine imperfectly substitutable worker types, and locate across regions with distinct distributions of workers and wages. Firm technologies which best match regional labour markets explain both productivity differences and firm density. Estimating structural model parameters is simple and relies on a two stage OLS procedure. The first stage estimates local market conditions using firm employment and regional data, while the second incorporates regional costs into production function estimation. The method is applied to Chinese manufacturing, population census and geographic data to estimate local market costs and production technologies. In line with the model, we find that labour markets which provide cost advantages explain substantial differences in firm productivity. Furthermore, regions which have lower optimal hiring costs attract more firms per capita. This is a joint work with Wenya Cheng and Dr John Morrow. The second chapter is called “Foreign Ownership Share and Property Rights: Evidence from Thai Manufacturing Firms”. Existing work based on property-rights theories treat ownership as binary and the degree of integration as exogenous. This chapter proposes a property-rights model where the degree of integration is endogenised and treated as a continuous variable. The model makes two predictions for firm behaviour under vertical integration. Firstly, foreign ownership shares should increase with the significance of foreign investors’ investment. Secondly, the effect of investors’ investment on ownership increases with the elasticity of substitution across product varieties. Both predictions find considerable support in firm-level data from Thailand. The third chapter, “Product Quality and Intra-firm Trade”, presents a partial equilibrium model with product quality differentiation where heterogeneous firms choose whether to vertically integrate their foreign suppliers or outsource input production. Quality is non-verifiable by third parties which causes the well-known hold-up problem. The severity of the problem increases with product quality. The model yields closed form expression for the productivity threshold that assigns firms into different ownership structures. The impact of quality related parameters on the threshold is analysed in detail.

Item Type: Thesis (PhD)
Additional Information: © 2012 Kitjawat Tacharoen
Library of Congress subject classification: H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
Sets: Departments > Economics

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