This dissertation consists of three essays exploring the role of globalization in China's economic development.;The first essay, coauthored with Dennis Yang in Chinese University of Hong Kong, studies the relationship of globalization and wage inequality in urban China. We develop a model to study the joint determination of the ownership structure of offshoring, skill upgrading, and wage inequality in developing countries. Because of the abundance in low-skilled labor and contractual frictions in the South, the skill intensity of intra-firm offshoring dominates that of arm's length offshoring. As a result, processing trade by foreign-owned firms has a greater effect on skill upgrading and skill premium in developing countries compared with that by joint ventures and indigenous firms. We test these theoretical implications with a natural experiment in which China lifted its restrictions on foreign ownership upon its accession to the WTO. We find that the processing export by foreign owned firms may contribute 75 percent to the rising of skill premium in urban China after 2000.;In the second essay, Dennis and I continue to explore the role of institutional reforms in speeding up the product cycle in developing countries. Our model demonstrates that relaxing foreign ownership controls and improving contract enforcement can induce multinational companies to expand product varieties to host developing countries, and that a combination of the two reforms has an amplifying effect on product transfers. Empirically, we find that ownership liberalization and judicial quality played an important role in raising the extensive margin of processing exports in China for the period of 1997-2007.;The third essay takes a novel approach to detect the latent currency portfolio of Chinese foreign reserves during 2000 and 2007. I decompose the monthly growth rate of reserves into the monthly rate of return, valuation effects of exchange rates, and monthly net purchase rate. The valuation effect reveals the value share of each currency. Bayesian inference is adopted to estimate the State-Space model with mixture Gaussian distributions. The results show that China significantly and dramatically diversified its reserves out of the U.S. dollar in 2002: the euro's value share increased from 5% to more than 20%. The analysis sheds light on Chinese government's portfolio management strategy of foreign reserves.
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