This dissertation uses three chapters to investigate the relationships between the conditional policies and the exporting behavior of firms. Two policies are discussed: the domestic content protection policy (DCPP) and the rules of origin (ROOs). In Chapter 1, by explicitly incorporating a physical content requirement scheme into the heterogeneous firm model, we examine how the imposition by Foreign country of the DCPP affects the behavior of Home final-goods firms. Two conclusions are obtained. First, a stricter DCPP and the higher transportation costs raise the burden of the DCPP compliance, leading to the decreasing Home labor wage rate, the decreasing number of Home firms with the DCPP compliance, and the increasing number of those with the DCPP noncompliance. Second, through raising the penalty tariff, the Foreign government can effectively increase the incentives of Home firms to obey the DCPP, whereas its effect on the Home labor wage rate is uncertain. Chapter 2 combines the intermediate sector and two types of the ROOs- physical ROOs and value-added ROOs-in a Cournot duopoly model to investigate how ROOs influence the exporting behavior of the outside-FTA firm and how they protect the inside-FTA firm. It obtains four main findings. First, if the circumvention effect is less than double the cost difference effect, the ROOs are beneficial to the inside-FTA firm. Second, if the circumvention effect dominates the sum of the cost difference effect and the price discrimination effect, then the ROOs are more likely to benefit the outside-FTA firm under a loose ROOs requirement, a low substitutability between the two goods, a small market size difference, or low transportation costs. Third, and contrary to the results presented by Ishikawa et al. (2007), this chapter shows that an inside-FTA firm and an outside-FTA firm cannot both gain from the ROOs simultaneously. In particular, the ROOs are not necessarily beneficial to the inside-FTA firm, challenging the conventional wisdom that the ROOs are protective of member countries. Finally, the physical ROOs are more protective of the inside-FTA firm, whereas the value-added ROOs are more beneficial to the outside-FTA firm, when the ratio of physical ROOs and value-added ROOs is equal. Chapter 3 extends the model of Chapter 2, including foreign direct investment (FDI) into the investigation to flourish the discussion of the effects of ROOs on firm behavior and obtaining noteworthy results. First, although stringent ROOs can protect the inside-FTA firm by increasing its profit, the protective effect is overestimated if the government disregards possible changes to the behavior of the outside-FTA firm. Second, stricter ROOs might not be useful for attracting FDI. Reforming the investment climate, simplifying business regulations, and providing tax concession are all effective ways to increase FDI inflows. Finally, cheaper FTA intermediaries induced by lower transportation costs enable easier compliance with ROOs, and provide governments with the incentive to assist the intermediate sector in improving the competitiveness of FTA inputs.
This dissertation uses three chapters to investigate the relationships between the conditional policies and the exporting behavior of firms. Two policies are discussed: the domestic content protection policy (DCPP) and the rules of origin (ROOs). In Chapter 1, by explicitly incorporating a physical content requirement scheme into the heterogeneous firm model, we examine how the imposition by Foreign country of the DCPP affects the behavior of Home final-goods firms. Two conclusions are obtained. First, a stricter DCPP and the higher transportation costs raise the burden of the DCPP compliance, leading to the decreasing Home labor wage rate, the decreasing number of Home firms with the DCPP compliance, and the increasing number of those with the DCPP noncompliance. Second, through raising the penalty tariff, the Foreign government can effectively increase the incentives of Home firms to obey the DCPP, whereas its effect on the Home labor wage rate is uncertain. Chapter 2 combines the intermediate sector and two types of the ROOs- physical ROOs and value-added ROOs-in a Cournot duopoly model to investigate how ROOs influence the exporting behavior of the outside-FTA firm and how they protect the inside-FTA firm. It obtains four main findings. First, if the circumvention effect is less than double the cost difference effect, the ROOs are beneficial to the inside-FTA firm. Second, if the circumvention effect dominates the sum of the cost difference effect and the price discrimination effect, then the ROOs are more likely to benefit the outside-FTA firm under a loose ROOs requirement, a low substitutability between the two goods, a small market size difference, or low transportation costs. Third, and contrary to the results presented by Ishikawa et al. (2007), this chapter shows that an inside-FTA firm and an outside-FTA firm cannot both gain from the ROOs simultaneously. In particular, the ROOs are not necessarily beneficial to the inside-FTA firm, challenging the conventional wisdom that the ROOs are protective of member countries. Finally, the physical ROOs are more protective of the inside-FTA firm, whereas the value-added ROOs are more beneficial to the outside-FTA firm, when the ratio of physical ROOs and value-added ROOs is equal. Chapter 3 extends the model of Chapter 2, including foreign direct investment (FDI) into the investigation to flourish the discussion of the effects of ROOs on firm behavior and obtaining noteworthy results. First, although stringent ROOs can protect the inside-FTA firm by increasing its profit, the protective effect is overestimated if the government disregards possible changes to the behavior of the outside-FTA firm. Second, stricter ROOs might not be useful for attracting FDI. Reforming the investment climate, simplifying business regulations, and providing tax concession are all effective ways to increase FDI inflows. Finally, cheaper FTA intermediaries induced by lower transportation costs enable easier compliance with ROOs, and provide governments with the incentive to assist the intermediate sector in improving the competitiveness of FTA inputs.