Trade Liberalization and Poverty in Ecuador: A CGE Macro-Microsimulation Analysis

Cross-country analysis of the aggregate growth-poverty link is likely to miss important country-specific detail and possible offsetting forces in the underlying labour market adjustment process. This paper combines a CGE model analysis with a microsimulations approach to analyse the effects of trade liberalization on poverty and income distribution in Ecuador. The CGE model enables us to disentangle the general equilibrium effects of various trade policy scenarios on sector output, employment, factor incomes and household consumption. However, as is typical of CGE models, this analysis only provides distribution results for fairly aggregated groups of workers and a reduced number of representative households. The microsimulations approach adds the full distribution to the analysis and allows simulation of the effects of trade reform on the job status and remuneration of individual workers and thereby on household income distribution and poverty. The macro- microsimulation results indicate that the trade opening in Ecuador induced mild aggregate welfare gains, but rising income inequality due to rising wage differentials between skilled and unskilled workers implies virtually no poverty-reducing effect from trade liberalization.     

Asset allocation over the life cycle: How much do taxes matter?

We study the welfare effect of tax-optimizing portfolio decisions in a life cycle model with unspanned labor income and realization-based capital gain taxation. For realistic parameterizations of our model, certainty equivalent welfare gains from fully tax-optimized portfolio decisions are less than 2% of present financial wealth and lifetime income compared to a heuristic portfolio policy ignoring the taxation of profits (capital gains, interest and dividend payments). Compared to a heuristic portfolio policy that only ignores the realization-based feature of capital gain taxation and instead assumes mark-to-market taxation, these gains are less than 0.5%. That is, our work provides a justification for ignoring taxes in life cycle portfolio choice problems – a wide-spread assumption in that literature. However, if capital gains are forgiven at death (as in the U.S.), investors with strong bequest motives face substantial welfare costs when not tax-optimizing their portfolio decisions towards the end of the life cycle.     

How Large Is International Trade’s Effect on Economic Growth?

The estimated static welfare gains from international trade are very small, on the order of one percent of GDP. The case for free trade is therefore increasingly linked to trade’s apparent positive effects on economic growth. But how large are these growth effects? The vast empirical literature has emphasized the statistical significance, not the economic significance, of the trade‐growth relationship. This survey’s re‐examination of the empirical literature focuses on the size of the relationship between trade and growth. Our survey reveals that the many empirical studies are surprisingly consistent in terms of the size of the relationship: A one percentage point increase in the growth of exports is associated with a one‐fifth percentage point increase in economic growth. Given the power of compounding, the effect of trade on growth is very important for human welfare.     

Impact of China's currency valuation and labour cost on the US in a trade and exchange rate model

Ricardian dynamic general equilibrium analyses show that under free trade arrangements a low income country with lower wage cost and large endowment of labour has comparative advantage in trade. Efficiency gains from this enhance economic growth and welfare of households simultaneously in both low income and advanced economies. Theoretical predictions are empirically validated here with structural VAR analysis based on quarterly data over the time period 1995:1 to 2009:1 on China's relative wage cost, interest rate differential, real effective exchange rate (REER), relative GDP and the US current account balance. It is shown how the relative prices of labour, capital and the currency affect the economic activity in China and current account balance in the US. With free capital inflows and outflows and restrictions on labour mobility, comparative advantage of China and the trade deficit of the US will both be minimised if China allows real appreciation of the Yuan and complete adjustment in prices. Higher production cost and prices in China could reduce welfare of Chinese households and the trade imbalance of the US, while higher relative GDP of China lowers the current account balance for the US.     

General Equilibrium Analysis of India's Trade Reforms

WTO membership for India implies cutting tariffs in a phased manner. A general equilibrium approach is used to evaluate its impacts. The study analyses both the reduction and elimination of tariffs. With a small country assumption, there are welfare gains by liberalizing trade. With a large country assumption, welfare gains are observed when a CET transformation function is used and welfare loss in its absence.     

Determinants of Public Service Broadcasting Size

We investigate the issue of whose interest is reflected in selecting the size of public service broadcasting (PSB). We examine two different approaches: (1) the public interest theory, where PSB size is selected to maximise citizens’ welfare and (2) the public choice theory, where PSB size is determined by self-interested politicians. Based on the foundations of these two views, we derive theoretical predictions about how PSB size changes with an increase in political competition. Then, we test these predictions using panel data from OECD countries over the period 1993–2010, and we find that the degree of electoral competition is negatively associated with PSB size. We conclude that PSB size does not reflect the public interest theory, but rather upholds the public choice theory, especially the politicians’ rent-seeking motive.     

On the distributional effects of trade policy: Dynamics of household saving and asset prices

This paper studies the effect of trade liberalization on inequality. We develop a theoretical framework that generates economy-wide distributions of wealth and income for different levels of trade protection. The model unambiguously determines the effect of liberalization on inequality; and rationalizes why larger inequality can be the outcome of a welfare enhancing policy, as households reduce their buffer savings when liberalization lowers the price of food. The framework reconciles the increase in inequality, the fall in the value of land, and farmers’ opposition to freer trade, that have featured in different liberalization episodes. We also present empirical support for the model’s predictions.     

Bureaucrats as "Social Engineers": Federal Welfare Programs in Herbert Hoover's America

A bstract . Historians interested in 20th century American reform often seek to analyze the ideologies of political leaders separately from the institutions that these same leaders created. Such emphases on ideas, as opposed to actions, has, for example, led "revisionist" American historians to argue that the presidencies of Herbert Hoover and Franklin D. Roosevelt were "conceptually continuous." Our examination of the major social welfare programs undertaken by the federal government in the 1920s disputes this claim. Examination of the operations of the federal bureaucracy instead of the rhetoric of politicians demonstrates the existence of decided policy differences between the Hoover and Roosevelt eras. "Efficiency" analogues dominant during the Hoover era were replaced with "direct service-provider" approaches which created a clear distinction between private and public welfare programs. Elements of "continuity" between the two eras have been overdrawn. Background is provided for increased understanding of some of the policy implications of America's contemporary welfare debate—particularly about "rehabilitation" strategies and/or rationales for action in the social welfare field.     

Social dumping and relocation: is there a case for imposing a social clause?

Public opinion in Europe seems worried about the relocation of production plants toward low wage countries often accused of practicing ‘social dumping’. To reduce the incentives for relocation trade unions proposed the adoption of ‘social clauses’ protecting domestic markets from commodities produced in countries where minimal labor condition are not met. We analyze the effects of the adoption of a social clause in a vertically differentiated Bertrand duopoly. We assess how such a policy affects firms’ relocation decisions in order to be able to assess its welfare implications. We also characterize the optimal social clause policy, both under domestic welfare maximization, and from an efficiency point of view. While we show that a social clause policy cannot be dismissed on domestic (or world) welfare grounds, its case is weaker the higher is the domestic wage and the lower is the foreign wage.     

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.     

我国贸易多样性的收益分析和影响因素——基于内延边际与外延边际的考察

本研究以我国贸易多样性为研究对象,通过多国模型阐述了贸易自由化可增加多样性贸易福利;基于Feenstra(1994)的贸易多样性指数,本文给出了1995~2007年我国贸易扩张的内延边际和外延边际,2001年之后贸易的外延边际(多样性扩张)带来的贸易收益十分显著。实证结果表明,人均收入的跨国差异不利于贸易多样性的扩张,关税和非关税壁垒同样成为我国进口多样性的阻力因素,而中小企业群体规模对贸易多样性扩张的贡献作用显著。     

Tax Regimes and Capital Gains Realizations

This paper contrasts the individual capital gains realization behavior between progressive and proportional tax regimes. Using a longitudinal panel of over 288,000 individuals in Sweden, I exploit the 1991 tax reform in Sweden that changed progressive capital gains tax rates ranging from 12% to 80% to a proportional tax rate of 30%. Using the proportional tax system to control for non-tax reasons to realize capital gains, I show that individuals are highly responsive to capital gains tax incentives created by temporary income changes under a progressive capital gains tax. More specifically, I find that individuals with temporary negative (positive) income changes sell (hold) shares that they would hold (sell) in the absence of temporary tax incentives. Further, I show that high-income individuals are more tax sensitive than low-income individuals. This result indicates that low-income individuals facing temporary negative income changes could trade predominantly for non-tax reasons.     

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.     

Mexican integration into the North American free trade zone

Mexican integration into the North American free trade zone is modeled as removing the tariff on Mexican imports of manufacturing goods. Using a theoretical model, it is shown that this increases welfare through production, consumption and employment gains. The results are derived by nesting the theory of customs unions, and the Harris-Todaro type intersectoral labor migration model into a unified framework.     

Optimal fiscal and monetary policy with occasionally binding zero bound constraints

This paper studies optimal fiscal and monetary policy when the nominal interest rate is subject to the zero lower bound (ZLB) constraint in a stochastic New Keynesian economy. In the baseline model calibrated to match key features of the U.S. economy, it is optimal for the government to increase its spending when at the ZLB in the stochastic environment by about 60 percent more than it would in the deterministic environment. The presence of uncertainty creates a unique time-consistency problem if the steady state is inefficient. Although access to government spending policy increases welfare in the face of a large deflationary shock, it decreases welfare during normal times as the government reduces the nominal interest rate less aggressively before reaching the ZLB.     

Income class, modal choice, and urban spatial structure

This paper analyzes the impacts of urban transportation system changes and income changes on the welfare of people and on the urban spatial structure, in a setting where the income level differs between two groups, and two transportation modes compete with each other in a city. It is demonstrated that an improvement in some transport facility will not necessarily increase the welfare level of every household, and, at times decreases the welfare of some households. It also is argued that under particular situations, an improvement in a particular transport mode may produce a contraction in the city size rather than an expansion. Similarly, an increase in income of one group might have an adverse effect on the welfare of another income group as a result of competition in the land market.     

U.S. Strategic Trade Policy and the Competitiveness of the U.S. Construction Industry in Developing Country Markets

SUMMARY

U.S. government trade policy increasingly reflects “strategic trade” beliefs that, because competition in markets is imperfect, governments can act strategically to affect trade flows and enhance national welfare. The U.S. National Export Strategy targets the infrastructure sector in twelve developing countries as a strategic opportunity for U.S. construction firms. This paper examines whether U.S. government export promotion initiatives effectively implement strategic trade policy by providing appropriate support to these firms in that target market. It concludes that, within limits, they do.     

Trade and product innovations as sources for productivity increases: an empirical analysis

Increases in total factor productivity (TFP) are commonly associated with technological innovations measured by the stock of R&D. Empirical evidence seems to corroborate this relationship. However, in trading countries like The Netherlands, productivity increases, even in industry, can also be the result of innovations in the way transactions are managed. These innovations reduce transaction costs and exploit the welfare gains from (further) international division of labour. Such innovations are only partly included in R&D data. Consequently there is not much attention for these ‘trade innovations’—as we label them—in policy. In an empirical analysis this paper compares the influence of trade innovations with the influence of the stock of R&D on TFP in The Netherlands. The regression results show that in this country trade innovations are as important for TFP as technological innovations which directly affect the efficiency of production, which we label ‘product innovations’.      

CONTRIBUTIONS OF THE GATT/WTO TO GLOBAL ECONOMIC WELFARE: EMPIRICAL EVIDENCE

This paper surveys estimates of the value of the GATT/WTO's contributions to global welfare through providing a forum for negotiating reductions in policy‐induced distortions to trade flows, including through the process of accession by new members. After reviewing measures of the price‐distorting effects of trade‐related policies, it assesses estimates from global simulation models of the welfare effects of trade liberalizations prior to the WTO's Doha round, including the net benefits and transfers associated with implementing the Uruguay Round agreement on trade‐related intellectual property rights, and then reviews estimates of the potential welfare effects of a Doha round agreement to cut tariffs and subsidies. Econometric estimates of past trade and related effects of the GATT/WTO are then examined, before turning to estimates of the benefits of WTO accession and of potential benefits from WTO‐sponsored trade facilitation. The paper concludes that while it remains difficult to attribute reforms directly to the GATT/WTO, the overall body of evidence presented supports the economic profession's consensus that this institution has contributed substantially to global economic welfare.