Bilateral trade between India and Bangladesh: A general equilibrium approach

India and Bangladesh have pursued policies of trade liberalization since the early 1990s. However, owing to the differential speeds of opening up, Bangladesh's bilateral trade deficit with India widened substantially over the years. This aggravated the economic and the political tensions between the economies. It has been held that promotion of free trade between the two economies may enhance the trade and hence economic cooperation between them. Against this backdrop the present paper proposes a theoretical framework that provides a general equilibrium determination of the commodity pattern of trade and hence locates the comparative advantages of the economies. The empirical implementation of the model considers trade in 25 sectors comparable in the input–output tables of the economies. The study isolates the gains from free trade accruing to either economy. The paper also explores the pattern of bilateral trade when each economy produces goods by utilizing their own as well as the other country's technology. The gains from this trading arrangement are also isolated.     

NEOCLASSICAL POLITICAL ECONOMY: AN APPLICATION TO TRADE POLICIES

Abstract. This paper starts with a review of the literature on 'neoclassical'political economy and then goes on to apply this perspective to the issue of trade liberalization. In this connection, the paper critically discusses various political economy models which have been advanced to explain patterns of trade policies in both developed and developing countries and assesses them in light of recent empirical evidence. The paper also makes a brief review of the empirical planning studies which estimate the gains from trade liberalization.     

The real exchange rate and the structure of aggregate production

This paper proposes a new, production theory approach to the determination of the real exchange rate, which is defined as the relative price of traded to nontraded goods as is common in the international trade literature. Using a Translog real GDI function that describes the aggregate technology of an open economy as a starting point, the real exchange rate can be formally derived as a function of domestic excess savings, the terms of trade, relative factor endowments and technological progress. Empirical results for Switzerland suggest that the main drivers of the real exchange rate are the terms of trade, followed by relative factor endowments. Contrary to conventional wisdom, the Balassa-Samuelson effect does not seem to play a significant role in explaining the long-term real appreciation of the Swiss franc.     

Global networks of trade and bits

Considerable efforts have been made in recent years to produce detailed topologies of the Internet, but so far these data have been overlooked by economists. In this paper, we suggest that such information could be used to characterize both the size of the digital economy and outsourcing at country level. We analyse the topological structure of the network of trade in digital services (trade in bits) and compare it with the more traditional flow of manufactured goods across countries. To perform meaningful comparisons across networks with different characteristics, we define a stochastic benchmark for the number of connections among each country-pair, based on hypergeometric distribution. Original data are filtered so that we only focus on the strongest, i.e. statistically significant, links. We find that trade in bits displays a sparser and less hierarchical network structure, which is more similar to trade in high-skill manufactured goods than total trade. Moreover, distance plays a more prominent role in shaping the network of international trade in physical goods than trade in digital services.     

World trade: Modest recovery continues

The latest indicators suggest a modest recovery in world trade. The apparent upswing in US import demand over the last couple of months is a notable positive signal for the global economy, and the constraining impact on world trade of the Eurozone recession of 2011–13 is also easing. The pace of world trade growth is, however, still relatively slow; our forecasts suggest world trade growth will only recover to its long‐term average level of just under 6% per year by end‐2015. Trade growth in key emerging markets also remains soft, although some indicators from Asia suggest an improving picture. One reason for the relatively weak growth in world trade may be a restructuring of global supply chains, reducing the growth in trade in intermediate goods. If so, this is not necessarily bad news for the global economy but may have distributional consequences, for example bearing down on growth in countries that have specialised in providing such goods including some emergers.     

International endogenous growth,macro anomalies,and asset prices

This paper develops a two-country production economy with complete and frictionless financial markets and international trade in which investments in research and development (R&D) by entrants lead to endogenous new firm creation and economic growth. Innovative entrants use both consumption goods in their innovation technologies to capture international technological spillovers. Households also consume both goods. Specifically, I compare the equilibrium implications from the model with technology spillovers to the ones from an equivalent model without technology spillovers, i.e. a model where entrants only use domestic final goods in their R&D expenditures. With these two models at hand, new insights on the interplay of endogenous growth and long-run risks, technology spillovers, complete financial markets, and international trade are obtained, particularly with respect to international macro and asset pricing anomalies. The novel technology spillover channel has the potential to help explaining a number of these anomalies.     

Do services hold the key to an improved UK trade performance?

The UK has established a central role in the global market for trade in services, ranking second to the US in terms of its share of global exports. Our modelling finds that the key factor behind the UK's success is that its exports are focused on the markets where demand has been growing quickest. This represents a notable contrast with research on UK goods exports, which has found that the geographical focus of goods exports has been the main reason for the UK's persistent underperformance. The global financial crisis caused significant damage to the UK's export performance, particularly to the key financial sector which accounts for a quarter of UK services exports and almost two‐fifths of the UK's surplus on services trade. However, the UK's export performance is on the mend and we expect it to retain its position as a key global player in the market for services over the coming five years.     

Outsourcing and trade in a spatial world

This paper provides an analysis of outsourcing and trade in a spatial model à la Hotelling. In this setting, we discuss the trade-off between transport-cost-related disadvantages and outsourcing-related production cost advantages of a large economy and we investigate how the existence of national transport costs influences both the structure of industrial production and the pattern of final goods trade. In addition, the model gives a rich picture of the possible welfare effects of trade liberalization. In particular, we show that a final goods exporting country definitely gains from economic integration, while a final goods importing country may lose. Finally, when lowering domestic outsourcing activities, trade liberalization may reduce world welfare, even if pro-competitive effects lead to a decline in consumer prices.     

The Composition of the Human Capital Stock and the Factor Content of Trade: Evidence from West(ern) Germany

This study reports the results of a factor content analysis of the sources of West Germany's comparative advantage in 1976, 1980 and 1984, using highly disaggregated skill variables. The county is found to be most abundant in certain skilled manual occupations and a very limited number of professional and technical occupations. The results differ markedly from those reported in similar studies for the UK and the US. The importance of intercounty productivity diferences and the implications of using only a subset of the economy, i.e. manufacturing, in the calculations are assessed. While using only a subset of the economy might have been appropriate in the past when services trade was relatively unimportant, this is no longer the case, especially for Germany with its diferent performance in goods and services trade. It is argued that the explanatory power of comparative advantage as a basis for trade among similarly developed countries is much higher than is commonly perceived when human capital is disaggregated into detailed skill categories that allow the recognition of different skill mixes between countries. The use of a disaggregated ‘labour-based’ neoclassical trade theory is advocated.     

Investment in Fixed Capital Stock: Testing for the Impact of Sectoral and Systemic Uncertainty*

This paper applies current theory recognizing the irreversibility of investment, in order to test for the impact of uncertainty on investment expenditure for a middle income country. The contribution of the paper is unique in two respects. First, it employs dynamic heterogeneous panel estimation techniques not previously applied to investment functions. Secondly, it explicitly tests for the impact of both sectoral and systemic uncertainty on investment expenditure. We find that both sectoral (as measured by output volatility) and systemic uncertainty (as measured by political instability) have a negative impact on investment rates in a middle income country context. Liquidity constraints and growth in total factor productivity are found to have no impact on investment, while trade liberalization has the impact predicted by Heckscher‐Ohlin trade theory. Finally, we find complementarity effects between physical capital and skilled human capital, suggesting that South African educational policies may have hampered investment in physical capital as well as the growth performance of the economy. Policy implications emphasize the importance of lowering uncertainty for investors, and the need for sound human capital investment.     

Outsourcing and trade in a spatial world

This paper provides an analysis of outsourcing and trade in a spatial model à la Hotelling. In this setting, we discuss the trade-off between transport-cost-related disadvantages and outsourcing-related production cost advantages of a large economy and we investigate how the existence of national transport costs influences both the structure of industrial production and the pattern of final goods trade. In addition, the model gives a rich picture of the possible welfare effects of trade liberalization. In particular, we show that a final goods exporting country definitely gains from economic integration, while a final goods importing country may lose. Finally, when lowering domestic outsourcing activities, trade liberalization may reduce world welfare, even if pro-competitive effects lead to a decline in consumer prices.     

A world trade model with bilateral trade based on comparative advantage

This paper describes an extension of Duchin's world trade model to include the explicit representation of transportation costs, permitting the endogenous determination of bilateral trade flows and region-specific prices. The original model is a linear program that, based on comparative advantage and the minimization of factor use, determines regional production and trade flows as well as world prices and scarcity rents for m regions, n good, and k factors. The new world trade model with bilateral trade achieves its objectives by introducing transportation services and geographically dependent transportation requirements for each traded good and each pair of potential trade partners. The formulation of this model and its major properties are presented, and results from a preliminary analysis with 11 regions, eight goods, four transportation sectors, and six factors of production are reported and compared with corresponding results from the world trade model. On the basis of this comparison, we conclude that transportation costs have little impact on a region's total imports or exports of a given commodity.     

Can we identify Walrasian allocations?

Abstract. We consider a discrete time, pure exchange infinite horizon economy with consumers and consumption goods per period. Within the framework of decentralized mechanisms, we show that for any given consumption trade at any period of time, say at time one, the consumers will need in general an infinite dimensional (informational) space to identify such a trade as an intertemporal Walrasian one. However, we show a set of environments where the Walrasian trades at each period of time can be achieved as the equilibrium trades of a sequence of decentralized competitive mechanisms, using only both current prices and quantities to coordinate decisions. Received: 1 December 1999 / Accepted: 31 October 2000     

服务贸易竞争力:影响因素与模型

服务贸易在国际经贸领域中日益引起人们的高度重视。它不仅是影响各国经济发展的重要力量,也成为衡量一国国际竞争力的一项重要标准。本文从服务贸易竞争力的影响因素、服务贸易与货物贸易的关系、服务贸易与服务业发展的关系、服务贸易与直接投资的关系等四个方面来探讨我国服务贸易竞争力的问题。     

Factors of trade in Europe

We analyze how a set of determinants affect trade among European countries over the period 1992–2008. The factors encompass variables from the areas of geography, culture, institutions, infrastructure, and trade direction. Trade is analyzed for four types of goods: primary goods, parts and components, capital goods, and consumer goods. For each type of good we also distinguish its definition in terms of flows, intensive margin, and extensive margin. Methodologically, we first derive country-pair fixed effects over all possible pairs of export–import partners, and in the second stage we relate fixed effects with a set of influential factors. We show (i) the intuitive and varying effects of geographical, cultural, and institutional factors; (ii) the beneficial effects of soft and hard infrastructure; and (iii) the key importance of trade between old and new EU members.     

TRADE AND FACTOR FLOWS IN A DIVERSE EU: WHAT LESSONS FOR THE EASTERN ENLARGEMENT(S)?

Abstract.  This paper reviews the neoclassical and new economic geography (NEG) theoretical frameworks used to analyse the effects of integration on trade and factor flows, and the empirical work carried out within those theoretical frameworks for the European case. The European Union (EU) is of particular interest because it is illustrative of the tensions between deepening of the integration process and widening membership: whereas deepening requires homogeneity, widening has made the EU increasingly diverse. The orthodox framework saw trade and factor flows as substitutes, thus separating their analysis, and was mainly concerned with efficiency issues of trade integration. The NEG framework saw trade and factor flows as complements, and analysed them jointly, looking mainly at distribution issues such as disparities in industry location and wages arising from a single market for goods and factors. The main lesson for the Eastern enlargement(s) is that integration in its various forms leads to an uneven distribution of gains across member countries when these have very diverse economic structures.     

REGIONAL DEVELOPMENT IN CHINA: INTERREGIONAL TRANSPORTATION INFRASTRUCTURE AND REGIONAL COMPARATIVE ADVANTAGE

Significant economic disparities among China's Eastern, Central, and Western regions pose unequivocal challenges to social equality and political stability in the country. A major impediment to economic development, especially in the poor, remote Western region, is the shortage of a transportation infrastructure. The Chinese government has committed to substantial investment for improving the accessibility of this vast, land-locked region as a mechanism for promoting its development. The paper examines the impacts of the intended transportation infrastructure build-up on the Western region's comparative advantage and its interregional trade. The World Trade Model is extended to represent this investment and applied to determine interregional trade in China based on region-specific technologies, factor endowments and prices, and consumption patterns as well as the capacities and costs of carrying goods among regions using the interregional transportation infrastructure in place in the base year of 1997 and that planned for 2010 and 2020. The model is implemented for three regions, 27 sectors, and seven factors. The results indicate that the planned infrastructure build-up will be cost-effective, will increase benefits especially for the Western region, and that it can conserve energy overall at given levels of demand but substitute oil for coal. Based on these and other model results, some recommendations are offered about strategies for regional development in China.     

Fragmentation in simple trade models

This paper examines the effects of “fragmentation,” defined as the splitting of a production process into two or more steps that can be undertaken in different locations but that lead to the same final product. Introducing the possibility of fragmentation into simple theoretical models of international trade, the paper finds the effects of fragmentation on national welfare, on patterns of specialization and trade, and on factor prices. Models examined include the Ricardian Model and the Heckscher-Ohlin Model, both for small open economies and for a two-country world. Results are as follows: 1. If fragmentation does not change the prices of goods, then it must increase the value of output of any country where it occurs and that of the world. 2. If fragmentation does change prices, then fragmentation can lower the welfare of a country by turning its terms of trade against it. 3. Even in a country that gains from fragmentation, it is possible (but not necessary) that some factor owners within that country will lose. 4. To the extent that factor prices are not equalized internationally in the absence of fragmentation, fragmentation may be a force toward factor price equalization.     

A world trade model based on comparative advantage with m regions,n goods,and k factors

This paper describes the World Trade Model, a linear program that determines world prices, scarcity rents, and international trade flows based on comparative advantage in a world economy with m regions, n goods, and k factors. The new model generalizes the World Model of Leontief et al. (1977) in ways that make it particularly useful for analyzing scenarios about sustainable development. Major properties of the model are demonstrated, and sources of the gains from trade are identified for the world as a whole and for individual regions. Illustrative results are reported for a 10-region, 8-good, 3-factor model of the world economy.     

The Changing Structure of the UK Economy: Implications for the Current Account

In common with other developed countries, the UK has seen the relative importance of the service sector grow, accounting for an ever greater share of employment and output — a trend that has accelerated over recent decades. At the same time, globalisation means that international trade is of increasing importance as a share of UK expenditure. With the traded goods sector dwindling in importance, what are the implications for the current account? This paper examines the changing structure of the UK economy and prospects for the current account. Although the current account is expected to remain in deficit for the foreseeable future, the size of the deficit is likely to remain manageable as growing surpluses from trade in services and investment income offset a widening goods deficit.