Publication Type
PhD Dissertation
Version
publishedVersion
Publication Date
1-2024
Abstract
In 1934, in the midst of the Great Depression, the US Congress enacted the Foreign Trade Zones (FTZs) Act, and all states have at least one zone. FTZ play a significant role of sourcing foreign products, constituting about 12% of all imports entering the US and over 28% of total taxable goods during the US-China Trade War. As of 2021, there were 258 approved FTZs and roughly 85% of the outputs are domestically consumed. The US government set three main objectives of FTZs, including facilitating international trade, fostering domestic economic activities, and attracting foreign investments. This thesis firstly quantitatively measures the effectiveness of zones with regards to the first two objectives and applies model to propose insights for the government. Secondly, I identify the determining factors of FTZs in drawing in both domestic and international investors.
Enabling deferral or elimination of duty payments, the US FTZs displayed significant “Cushion Effects” for producers within the zones during the US-China trade war. The first chapter studies these protections of zones in facilitating international trade and domestic production within zones. The first source of “Cushion Effects” resulted from the over 28% increase in the zones' export volume during the tariff war, measured by the extra duties directly exempted. The effect amounted to about 883 million dollars in 2019. In addition, the FTZ demand for sanctioned components used in the production of domestically sold products was less affected due to the deferral and efficiency of duty payments, providing the second source of “Cushion Effects”. I applied the rarely quantitatively analyzed FTZ import data from USITC and compiled trade volumes from the zones' annual reports. The empirical identification results at the intensive margin show that tariff shocks triggered more sales of FTZ firms to both foreign and domestic markets. This phenomenon is especially pronounced among the 120 new firms whose entrance was positively correlated with extra tariffs, providing the evidence of the existence of “Cushion Effects” at the extensive margin. The supplementary duties that were exempted, temporarily deferred, and non-paid by the year's end quantify “Cushion Effects”. Under the protection, FTZ firms' tendency to pre-storage when anticipating new tariffs or substitute the domestic and non-affected foreign sources of inputs for their sanctioned Chinese counterparts is less pronounced, as the FD and DID models estimate. For the cutting-edge technology inputs of List 2 issued in Section 301 Act, which were also included in the “Made in China 2025” program, the imposed tariff shocks generated positive impacts on FTZ producers' import volumes. Lastly, the empirical observations are mapped theoretically to a two-tier Melitz model, and the counterfactual comparative statistics derived provide a constructive suggestion that the government can enhance the protection by relaxing the criteria of entry into the zones.
The second chapter focuses on the determinants of FDI entry into US FTZs. Up to 2021, a total of 442 production firms have been established within zones, encompassing a diverse spectrum of 144 6-digit NAICS sectors, predominantly affiliated with the manufacturing industry. By examining the ownership structure of FTZ producers at the headquarter level, I find that approximately 26% of them are subsidiaries of foreign parent companies, with Japan representing the largest source of FDI among these entities. To account for the inherent heterogeneity of foreign investments across industries within the zones, this study presents a comprehensive model that encompasses variations in headquarter service intensity, foreign component intensity, and productivity. By employing the compiled dataset, empirical verification is conducted to validate the propositions implied by the model. The findings demonstrate that non-US headquarters exhibit a stronger propensity to enter FTZs when operating within sectors characterized by intensive usage of dutiable inputs. In contrast, the entry of US producers displays stronger responses to sectoral productivity enhancements.
Keywords
US foreign trade zones, US-China trade war, cushion effect, Melitz-type model, FDI, industrial heterogeneity
Degree Awarded
PhD in Economics
Discipline
International Economics
Supervisor(s)
CHANG, Pao-Li
First Page
1
Last Page
105
Publisher
Singapore Management University
City or Country
Singapore
Citation
HUANG, Xincheng.
Essays on foreign trade zones. (2024). 1-105.
Available at: https://ink.library.smu.edu.sg/etd_coll/565
Copyright Owner and License
Author
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.