Trade liberalization through reductions in trade barriers by bilateral and multilateral agreements boosts individual firm engagement in international trade. The importance of firm decisions in exploring a new foreign market has been increasingly recognized in terms of understanding the causes and consequences of aggregate trade flows. Meanwhile, strategic participation in international trade in turn stimulates the process of global integration, and impact the diversification of international trade from simple trading goods to more complicated trade in service through channels such as offshoring. These new features of international trade cannot be fully explained by pre-existing trade theories. This dissertation, consisting of three essays focused on the reciprocal relationship between international trade and firm behaviors, provides additional empirical evidence on the interactions between these two and contributes to the development of theoretical research along these lines. In the first essay, a theoretical model is developed to analyze how an individual firm may reduce or eliminate the uncertainty of trade compliance costs associated of entering a foreign market by paying for information to making export decisions. I extend the heterogeneous firm model of Melitz (2003) to show that in the presence of uncertain compliance costs and non-zero information costs, average profits and productivity differences between exporting and non-exporting firms are reduced. The second essay investigates the effect of information costs and compliance costs on firm decisions to export as well as how much to export through a hurdle model approach. A bilateral trade flow data at SITC4-digit industry level from 1991-2000 are used to approximate the export and value decisions of heterogeneous firms. Results show the effect of fixed export costs is twofold: Information costs decreases the probability of export by about five to six percentage points in the first stage. Once the export decision is made, firms that paid information costs in the first stage tend to export more in the second stage to compensate such costs. On the other hand, paying compliance costs decreases the probability of export by about 36 percentage points. Compliance costs are more prohibitive in the subsequent export value decision. The third essay generalizes the Grossman and Rossi-Hansberg (2008) offshoring model to include numerous tasks/skill levels. This generalization allows a possible and direct linkage between the theoretical task offshoring model and occupational data that can be aggregated from the CPSMORG (Current Population Survey Merged Outgoing Rotation Groups) data from year 1983 to 2011. Empirical investigation of the effect of offshoirng on occupational employment for the ten major occupational groups (at 2-digit SOC level) in the U.S. labor market is conducted by estimating their offshoring cost functions using a non-parametric monotonic cubic spline interpolation method. Five relatively offshorable occupational groups are identified from the estimated offshoring cost functions. The number of jobs offshored and the offshoring percentage for the five relatively offshorable occupational groups under three scenarios are calculated under NLS (non-linear least squares) method by attaching a cubic offshoring cost functional form to all five groups. Results show production occupations are the most offshorable while sales and related occupations are the least offshorable among all five groups under all three scenarios. Offshoring percentage for production occupations has been increasing in both pre- and post-2000 periods while the offshoring percentages for professional and related occupations, and management, business, and financial operations occupations have been decreasing over time.
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