Essays on international trade and intergenerational human capital transmission

First chapter aims to quantify the role of trade in capital goods in cross country income differences. I construct a multi-country general equilibrium model of trade along the line of Eaton and Kortum (2002) and Alvarez and Lucas (2007) and introduce trade in capital goods and capital accumulation. In this framework, comparative advantage and the costs of international trade determine the pattern of production, specialization, and trade. I calibrate the model for 53 countries by estimating trade barriers and calibrating productivity parameters to match the bilateral trade data in 1996. The model is used to analyze full trade liberalizations. I find that removing barriers on investment goods accounts a large portion of reducing cross-country income differences and welfare gain. Counterfactual exercises suggest that developing countries gain relatively more than developed countries. In the second chapter, I focus on the impact of free trade on exportimport ratios in two different sectors. I employ a multi-country general equilibrium model of bilateral trade patterns along the line of Eaton and Kortum (2002) and Alvarez and Lucas (2007). I calibrate the model for 20 countries by estimating trade barriers and calibrating productivity parameters to match the bilateral trade data in 1996. The model is used to analyze full trade liberalizations. The impacts of free trade are predicted to be an increase in the export-import ratios in the comparative advantage sector and a decline in the comparative disadvantage sector, on average. In developing countries the average percentage change in export-import ratios exceeds the average percentage change in export-import ratios in developed countries. Finally, in the third chapter, I focus on the intergenerational human capital transmission. I develop and calibrate a theoretical model that considers three mechanisms of intergenerational transmission of human capital: (i) persistence in learning ability; (ii) parental investment in child’s human capital; (iii) higher teaching productivity of parents with more human capital. Within this framework, I find that (i) and (ii) plays important roles while (iii) does not. In addition the model generates the documented fact that higherwage parents spending more time teaching their children in spite of the higher opportunity cost. I asses the role of nature and nurture effects in intergenerational persistence of earnings and I find that nature accounts a large portion of the intergenerational persistence in earnings. I also quantify the relative importance of these mechanisms on wage inequality.