This dissertation consists of three essays that study a key source of heterogeneity between firms engaged in international trade: product differentiation. In the first essay, I compare various ways of measuring the gains from importing new differentiated products. Previous research has relied on aggregated data and avoided complex demand estimation. In contrast, I use a detailed data set on computer printers in India that records the sales of individual models. Furthermore, I estimate two different demand systems: the constant elasticity of substitution CES) model and the random coefficients logit. The CES model, because of its restrictive substitution structure, places larger weight on the gains from increased variety relative to the random coefficients logit. In the second essay, which is joint work with Eduardo Morales, we use product-level data on computer printers to study the cross-country behavior of differentiated multi-product firms. We find that demand patterns are more similar in countries with more similar GDP per capita and of closer geographic location. Furthermore, firms offer more of the same printer models in these markets, leading to variation in product quality as indicated by print speeds. These results suggest that models of multi-product firms and product quality in trade should be combined to better understand the patterns in firm- and product-level data across countries. The third essay, which is joint with Eduardo Morales and Andres Zahler, examines the determinants of where a differentiated products manufacturer decides to export. We allow the profits from each possible destination to depend on how similar this country is to the firms home country “gravity”) and on how similar it is to other destinations the firm has previously exported to “extended gravity”). In order to estimate our model, we use a method based on moment inequalities. We find that the sunk costs of operating in different export destinations are quite small. This reflects the fact that although there is a great deal of hysteresis in firms overall status as exporters, changes in the portfolio of destinations served are common.

Trade in services and foreign affiliate sales of services have grown tremendously over the last decade. The chapters within this thesis look at the differences needed in modeling trade and investment in professional and business services Chapter 3), the impacts of country level regulatory and investment barriers Chapter 2), methods of utilizing CGE modeling to simulate welfare gains from changes to the various types of regulatory costs operating costs, entry costs, fixed costs for establishment abroad) while incorporating the observed complex investment and trade Chapter 4) and finally also looking at the relationship between trade, foreign affiliate sales and the barriers to supplying services abroad Chapter 5). Barriers to trade in services are higher than for trade in goods. These include restrictions on foreign investment, restrictions on temporary movement of natural persons and regulatory measures that affect the entry and operations of foreign firms. Regulation can be discriminatory or non-discriminatory, but even in the latter case foreign services providers may face higher costs than local firms in complying with regulation. The papers in this dissertation contribute new modeling techniques as well as new methods of looking at the available data.

In the study of the impact of Free Trade Agreements on Foreign Direct Investments and on trade flows, there are some econometric issues that have not been fully addressed. This research aims to provide a discussion of these econometric issues and to present, using the most advanced econometric tools, new empirical results useful for understanding the relationship among regional integration, FDI and trade of goods. The research results in three self-contained, closely related papers. The first paper analyzes the relationship between FTA and FDI, focusing on the estimation bias that arises when the researcher does not consider the endogeneity of FTA, the fact that the relationship between FTA and FDI is dynamic, and the potential correlation between the current level of FDI and future participation in trade agreements as an additional source of endogeneity. This source of endogeneity did not receive attention in the international trade literature. Using the dynamic panel estimation method, the results show that, when the sources of bias are controlled for, trade agreements do not promote FDI in the way supported by previous empirical analysis and some theoretical arguments. The second paper focuses on the relationship between FTA and trade flows. Also in this case, not controlling for the econometric issues presented above produces a biased estimation of the impact of trade agreements. The paper addresses endogeneity, combining matching and difference-in-differences estimation. In addition, it applies two modifications of this methodology to evaluate the delayed impact of FTA and to control for the correlation between the current level of trade and future participation in trade agreements. The results show that the impact of trade agreements depends on the anticipated policy environment and that the benefits of trade agreements extend over time. The third paper analyzes the impact of FTA on FDI using a different methodology in order to strongly support a result in contrast to standard findings. Using matching combined with dynamic panel models, the results confirm that FTA does not promote FDI. This paper also illustrates the necessity of a dynamic specification, because the non-reversibility of the investments affects the impact of other variables.

An increasing number of firms rely on highly interconnected information networks. In such environments, defense against cyber attacks is complicated by residual risks caused by the interdependence of information security decisions of firms. IT security is affected not only by a firms own management strategies but also by those of others. This dissertation investigates the effects of interdependent IT security risks on two widely used security risk management tools — investment in self-protection and cyber insurance. An economic perspective is utilized that permits a systematic exploration of managerial and policy implications of interdependent risk and of possible responses that can help improve information security. This dissertation first demonstrates that the presence of interdependent risks gives rise to different externality problems: investments to defend against targeted attacks such as hacking and distributed denial of service DDoS) attacks cause negative externalities, whereas protections against untargeted attacks such as viruses, worms, Trojan horses and spyware generate positive externalities. Chapter 3 of the dissertation theoretically explores the effects of interdependent risks on information security risk management strategies — information security investment and the purchase of cyber insurance products. It demonstrates that compared to a situation with independent security risks, the level of the investment in the context of interdependent security risk is not socially efficient. In the presence of targeted attacks, firms overinvest in information security whereas in the presence of untargeted attacks firms underinvest in information security. We also found that, compared to the case of independent security risks, in the presence of positive externalities firms purchase less or equal insurance coverage while in the presence of negative externalities firms purchase equal insurance coverage. We concluded that the adoption of cyber insurance can at least partially solve the overinvestment problem whereas the underinvestment problem becomes more severe. Chapter 4 uses data extracted from the 2007 and 2008 Korean Information Security Surveys to empirically test the hypotheses derived from the theoretical exploration. Although only some of the theoretical findings were tested empirically because of the limitation of the data, the dissertation found evidence that supports some of the findings: compared to firms experiencing untargeted attacks, firms experiencing targeted attacks invest less in information security and purchase less cyber insurance policies. The dissertation is the first theoretical and empirical study linking different types of cyber attacks to information security management decisions. It contributes to the research on cyber security. Moreover, it might help organizations to improve security decisions and governments in formulating policies that lead to better social outcomes.

Food safety has consistently drawn attention in domestic and even international markets, especially when severe food scare events occur. The overall objective of this thesis is to investigate the stock market response to the 2008 China milk scandal by employing an event study approach and a GARCH model to examine asymmetric impacts of the scandal on the level and volatility of stock prices of dairy companies and utilizing a random effects model to investigate how information uncertainty and media coverage attenuate or facilitate the impact of the scandal in different stock markets. A total of all eight relevant dairy companies traded in five stock markets are included for the analysis. I find supporting evidence on the asymmetric impacts as well as the impacts of information uncertainty and media coverage. Overall, the results suggest that firms listed in the overseas stock markets were more responsive to the scandal than those publically traded in China, but the former reacted slowly than the latter when the positive safety information occurred. Furthermore, I find that among the firms whose products were not found to be contaminated, media coverage contributed to the price rebound and even the price gain as it had a statistically significant, positive impact on the stock prices. This thesis provides policy relevance and implications to food safety in China and beyond China. The private sector may learn from this study as it suggests that firms traded in different stock markets react differently to food safety information and the market distinguishes between positive and negative food safety information. Furthermore, the regulatory agencies communicate with the public and the firms to mitigate the impact of food-scare events.

The increasing dispersal of knowledge and technical expertise across nations is leveling the field of traditional competitive advantages. Scholarly work supports the view that a nations capacity to innovate and commercialize new technology products plays a central role in the growth and competitiveness of its firms. While market forces are important, national policies play a significant role in encouraging or inhibiting those forces and influence corporate strategies. Each country evolves its own innovation profile and the firms operate within a framework of a national system of innovation in which they are embedded. The conceptual framework developed in this paper depicts linkages between different elements of the national innovation system and is based on the concept of the ideainnovation chain by Hage & Hollingsworth 1997), MONIT studies in OECD 2002) and Romer model 1990) of endogenous growth. The structuring of various components of the conceptual framework would serve as a device to understand relationship between institutional context, organizations and overall performance. Four levels of analysis are reflected in the conceptual model: meta-institutions, national institutional frameworks, sectoral resources, and innovation performance indicators. The dissertation explores the factors that enhance innovative activity through a national system of innovation with particular reference to India in light of the experiences of innovation systems in other countries with special reference to USA for its high level of innovation) and Japan for its ability to outstrip developed economies). The effects of the economic liberalization on Indian industry sectors and companies are examined and broader implications on the practice of management are discussed.

Both theory and available evidence accord financial development an important role in economic development. The precise nature of the relationship is as yet less well understood, and recent theoretical work suggests there may be pronounced discontinuities and nonlinearities in this relationship. Most of the available empirical research examining the relationship between financial development and economic development either only tests for linear relationships, uses ad hoc methods to test for nonlinearities, or exogenously specifies the precise nature of the nonlinearity. Further, while theory suggests a host of factors condition how financial development influences economic development, as yet only a few of these factors have been subjected to rigorous empirical test. This dissertation comprises three essays empirically probing the relationship between financial development and economic development. The first essay searches for nonlinearities in the link between financial development and economic growth. Following recent theory, it is hypothesized that the initial level of per capita income and the initial human capital level influence how financial development influences economic growth and that these effects are nonlinear and potentially exhibit pronounced discontinuities, or thresholds. The second essay probes for nonlinearities in the link between financial development and economic growth after controlling for the potential endogenity problem. The third essay considers nonlinearities in the link between inflation and both of the banking finance and equity finance indicators. An innovation of the proposed research is the use of Hansens 1996, 2000) endogenous threshold methodology and Caner and Hansen 2004) instrumental variable approach to the threshold regression method. Unlike most other methodologies used to explore nonlinearities in the literature, this methodology neither requires that threshold values of mediating variables be exogenously specified nor that the functional form of the nonlinearity be specified. Further, unlike the Durlauf-Johnson Regression Tree approach Durlauf and Johnson, 1995), Hansens methodology provides the necessary asymptotic theory to enable tests for the statistical significance of the number of thresholds. The use of these recent econometric techniques will enable a comparison between our results and the traditional cross-country approach and provide better understanding of how the relationship between financial development and economic development changes overtime.

This PhD thesis investigates the growth, welfare and environmental effects of different policy reforms by taking a closer look at one of the rural villages in the north-western part of Ethiopia. It reflects how the interactions of household livelihoods and the environment evolve over time in one of the subsistence-oriented economic settings in rural Ethiopia. The introductory chapter sets out the general socioeconomic environment prevailing in the country. This is followed by a detailed characterization of household livelihoods in the study setting in chapter 2. This chapter points to the risk of focusing on agriculture as a principal instrument to attain growth, improve livelihoods and mitigate land degradation. Using both qualitative and quantitative approaches, chapter 3 illuminates the link between welfare and land degradation at household level. Chapter 4 offers an economy-wide analysis of growth linkages and the effects of policy reforms on household livelihoods. Chapter 5 identifies the key drivers of structural transformation using a dynamic micro growth framework. Chapter 6 provides an empirical evidence regarding the linkages between income, human and natural capital using household level panel data. The results underscore the centrality of the linkages between income, human capital formation, land improvement, and creation of a productive non-farm employment in understanding the welfare implications of policy reforms. Chapter 7 offers useful insights on the direct and indirect effects of policy reforms on household livelihoods and farm-non-farm linkages using a computable general equilibrium model. Overall, the findings of this thesis suggest that smallholder farm households, primarily engaged in subsistence production, are locked in rain-fed subsistence agriculture, and often lack the capacity to respond to favorable conditions either because of limited assets, low productivity of their assets, low human capital, weak non-farm sector, limited access to modern inputs, or a combination of these. Therefore, a broader and synchronized development policy, with a focus on investments in agricultural technology, farm capital, human capital formation, non-farm sector, markets, land improvement, and other rural infrastructure is required to bring structural transformation in a sustainable manner.

This study attempts to answer two research questions； namely 1) What are the determinants that influence users acceptance of using MyKad as an e-commerce tool?, and 2) How do the determinants that influence the users acceptance of MyKad as an e-commerce tool fits into the modified Technology Acceptance Model TAM)? The research objectives are: 1) to identify the determinants of users acceptance of using MyKad as an e-commerce tool, 2) to investigate the relationships among the variables in the modified TAM for the users acceptance of MyKad as an e-commerce tool, 3) to determine the users awareness on MyKads features and benefits as an e-commerce tool, 4) to determine the users attitude on using MyKad as an e-commerce tool, and finally 5) to determine the users intention on using MyKad as an e-commerce tool. Since the development of the original TAM by Davis 1986), many studies have added different variables to the original TAM to make the model usable in the context of e-commerce. Based on the literature review, variables such as perceived trust, perceived credibility, perceived security, perceived privacy, awareness, and convenience were identified to be added into the original TAM to predict the users acceptance of using MyKad as an e-commerce tool in this study. The sample for this study consisted of MyKad owners who are able to support themselves financially. Using a survey method, data were collected from 351 respondents in three designated zones in Peninsular Malaysia northern zone, central zone and southern zone). The data was analysed to test a battery of thirteen hypotheses. A research framework was proposed and tested using factor analysis, Pearson correlation analysis, simple and multiple regression analysis techniques. Results showed that the modified TAM was found to be useful in explaining the users acceptance of using MyKad as an e-commerce tool in Malaysia.

The purpose of the research was to answer the question to what degree does environmental uncertainty impact the relationship between entrepreneurial orientation and strategy to explain firm performance. Based on the primary research question, the study research hypothesis was that there will be no significant impact for environmental uncertainty on the relationship between entrepreneurial orientation and strategy to explain the variability in firm performance. Inclusive within the hypothesis were 6 subhypotheses supporting the dependent variable of firm performance, the independent variables of entrepreneurial orientation, and strategy, and the moderating variable of environmental uncertainty. Based on the collected data, the research concluded that while there was no significant impact for environmental uncertainty on the relationship between entrepreneurial orientation and strategy to explain the variability in firm performance, entrepreneurial orientation is a significant indicator of firm performance. The research further showed the lesser roles of adopting either a prospector or defender strategy and that it was the business leader’s entrepreneurial orientation that facilitated a firm’s ability to navigate an uncertain business environment rather than a specific strategy. The study was geographically localized and limited to testing a sample of small privately owned, Washington State manufacturing firms with a minimum of 5 employees and no more than 500 employees. In order to test theory presented in previous research that there is a relationship among the variables firm performance, entrepreneurial orientation, strategy, and environmental uncertainty, a test model was developed and the components of the model and hypothesis were analyzed using ordinary least squares (OLS) hierarchical regression. By determining the statistical significance of environmental uncertainty on the relationship among performance, entrepreneurial orientation, and strategy among a geographically based cohort, theory was advanced and insight was gained into the localized impact of the variable relations. In addition, an alternative method for measuring strategy types was proposed. The knowledge from the study may help future researchers, entrepreneurs, and business students better understand the localizing effect of entrepreneurial orientation and strategy, as moderated by environmental uncertainty on firm performance.