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The paper investigates how endogenous markups affect the extent to which policy reforms can influence international competitiveness. In a two-country model where trade costs allow for international market segmentation, we show that endogenous pricing-to-market behavior of firms acts as an important transmission channel of the policies. By strengthening the degree of competition between firms, product market deregulation at home leads to a reduction in domestic markups, which generally leads to an improvement in the international competitiveness of the Home country. Conversely, the power of competitive tax policy to depreciate the real exchange rate is dampened, as domestic firms take the opportunity of the labor tax cut to increase their markups. The variability of markups also affects the normative implications of the reforms. This indicates the importance of taking into account endogenous pricing-to-market behavior when intending to correctly evaluate the overall effects of the reforms.

This paper investigates the pattern of international transport costs over time, using information contained in the US imports flows over 1974-2013. First, we document the importance of the per-unit (additive) component of transport costs. We thus find that additive costs are quantitatively sizable, representing between one third and one half of overall transport costs. Second, we identify the respective roles of the reduction in "pure'' transport costs and trade composition effects in the downward trend of international transport costs, in the same spirit as Hummels (2007). Unlike him, we find that trade composition effects do not matter much and, when they do, they tend to amplify (rather than reduce) the decrease in pure transport costs. Importantly, this difference of results can be attributed to the new way of modeling the per-unit component of transport costs we offer. In both aspects, our results point to the importance of the additive component in accounting for international transport costs.

The complexified modern economy, which results from a heterogeneous human society, requires economists and policy makers to develop complex economic models. In addition to this complexity, economic policies vary from country to country.This thesis addresses these complexities of modern economies.In the first three chapters of this thesis, I improve upon existing theories to evaluate the role of financial intermediary agents, real estate markets, and credit in the economy, using Dynamic Stochastic General Equilibrium (DSGE) models. Data from three periods of the U.S. economy, including the economic climate before the Great Recession, the systemic collapse of 2008, and fiscal policies after the crisis, are imputed into the models. DSGE models have often been criticized for oversimplifying financial markets.I have included financial frictions on different sides of the economy to address the failures of previous models.Simulation results indicate that introducing these new features into the economy reveals new channels and mechanisms that are overlooked in simple models. Therefore, my model provides a more accurate way to predict economic movements. Furthermore, this thesis documents the importance of macroprudential policy regulations in financial stability, sustainability, and welfare. Finally, in the last two chapters of my dissertation, I turn to the study of advanced markets and focus on developing economies.These chapters build new models and address various economic issues related to the financial, public, and labor economies in developing countries through the prism of heterogeneous agent EGD models.I examine the impacts of real, monetary, fiscal, and oil shocks on the economic environment of developing countries. I then propose policy recommendations.

The paper characterizes the optimal tax scheme in an open economy with structural inefficiencies on the labor market and on government size. On analytical grounds first, we show that the economy can use fiscal revaluation to exploit the terms of trade externality and to dampen the impact of an excessive public spending. However, if real labor market rigidities are large enough, fiscal devaluation may be desirable. Second, we provide a quantitative assessment of the optimal tax reform using France as the benchmark economy. Our results show that France would benefit more from fiscal devaluation than a economy where the labor market is more flexible, as the US. We also show that the welfare gains from the optimal tax reform crucially depend on the ability of the government to target its optimal size.

The paper characterizes the optimal tax scheme in an open economy with structural inefficiencies on the labor market and on government size. On analytical grounds first, we show that the economy can use fiscal revaluation to exploit the terms of trade externality and to dampen the impact of an excessive public spending. However, if real labor market rigidities are large enough, fiscal devaluation may be desirable. Second, we provide a quantitative assessment of the optimal tax reform using France as the benchmark economy. Our results show that France would benefit more from fiscal devaluation than a economy where the labor market is more flexible, as the US. We also show that the welfare gains from the optimal tax reform crucially depend on the ability of the government to target its optimal size.

The paper evaluates the empirical effects of labor market institutions (LMI) on foreign direct investment (FDI) decisions using an individual dataset describing French firms’ expansion strategies in OECD countries over 1992–2002. First, we provide evidence that labor market institutions do matter in location decisions. Precisely, we show that labor market rigidity significantly reduces the country’s attractiveness for foreign investors. Yet, the effect is of limited magnitude compared to FDI determinants related to the country’s market potential or supply access. Second, we go deeper in the precise role of various LMI dimensions. In line with the literature, we find that stringent employment protection laws have a dampening effect on the location probability. Besides, we show that this is not the only dimension that matters. In particular, we find that the generosity of the unemployment benefit system plays a significant negative role on the country’s attractiveness, even once the role of employment protection is controlled for. Copyright Kiel Institute 2014.

Since the introduction of flexible exchange rates in 1971, the extreme volatility of real exchange rates in OECD countries has raised many questions. Adopting a theoretical approach within the framework of the New International Macroeconomics, the thesis proposes an explanation for the observed fluctuations of nominal and real exchange rates of the G7 countries. In a small open economy limited participation model, it shows the role of credit market frictions in the volatility of the nominal exchange rate. The empirical relevance of the model is statistically assessed by the method of simulated moments. In a two-country framework, local currency price rigidity and credit market frictions help explain the magnitude of real nominal exchange rate fluctuations. Beyond local currency price rigidity, firms' invoicing choices play a central role in the international segmentation of markets.