UCLA

In these essays, I examine (i) international finance and its effects on the economies (ii) immigration and its effects on labor markets. The first chapter explores whether the intervention of a lender of last resort (LLR) with seniority improves the welfare of the countries that are solvent but illiquid. In a model with information asymmetries and incomplete contracts I find that depending on the initial parameters, LLR intervention may or may not help these countries in overcoming this problem since an LLR intervention decision with seniority incorporates a trade-off between higher levels of intervention and lower liquidation. Results of my simulation analysis show that there exists some conditions under which LLR intervention creates lower level of welfare and is not preferable. On the other hand, if the conditions are such that LLR intervention is preferable, given some restrictions, I find that LLR intervention should be conducted without the seniority requirement. Second and third chapters analyze the effect of immigration on welfare through endogenous technological choice of firms. In the second chapter, I empirically test whether immigration of different types of labor (skilled vs. unskilled) affects technology choice of firms differently. Specifically, I test whether firms change their technology in such a way that they will increase the productivity of the labor type that has become more abundant. In order to achieve this, I use census data between years 1970 and 2006 and use instrumental variable technique. Regression results show that high skilled immigration has a strong and positive association with the high-skilled intensive production technology choice of firms while low skilled immigration has a strong negative association with the high-skilled intensive production techniques. In other words, there is a strong association between immigration and endogenous technological choice of firms. In the third chapter, I analyze how immigration affects the long-run welfare of immigration through endogenous choice of firms. Existing theoretical models predict that immigration would depress the wages. However, empirical literature finds that immigration effect on wages is either positive or insignificant. In order to match the theory with these empirical findings, I embed endogenous technological change in a model similar to Auerbauch and Kotlikoff (1987). The results show that the standard model underestimates the effect of immigration to native skilled workers by 95% while it overestimates the effect on native unskilled workers by 31%. Comparing the fiscal effects of immigration in terms of burden of an immigrant through net present discount value (NPV) calculations existing models overestimate NPV of an additional low skilled immigrant approximately by 35% and underestimate the value of an additional high skilled immigrant by 15%