The choice of licensing versus direct foreign investment in developing countries

For developing, technology-receiving countries, direct foreign investment is always better than licensing in the short run with sectoral immobility of capital. In the long run with perfect mobility of capital between sectors, the welfare rankings of the two scenarios are dependent upon the amount of domestic capital. The likely case is that the developing country would have a smaller amount of domestic capital than foreign investors, and hence licensing could yield higher national welfare.The authors are indebted to many useful comments of two anonymous referees. The authors, however, are solely responsible for any remaining shortcomings.     

Tariff escalation,export shares and economy-wide welfare: A computable general equilibrium approach

The current literature suggests that tariff escalation (TE) lowers the competitiveness of processing sectors. Coffee and cotton are agricultural products that face the problem of TE in developing countries, where we observe low global coffee product export shares but high global cotton textile export shares, posing a question on TE's impact on competitiveness. This paper employs a computable generalised equilibrium (CGE) modelling approach to examine the impact of TE on export shares of processed coffee and cotton textiles. We modify the standard GTAP (global trade analysis project) model to solve for global export shares and simulate the impact of eliminating TE on coffee and cotton to analyse economy-wide trade and welfare implications. Results show that TE has mixed effects on export shares, depending on the initial economic structure. Findings reveal that the elimination of TE on cotton and coffee may generate potential global gains of over US$ 0.7 billion, mainly from the cotton sector. Given the relative size of these sectors in global agriculture, the magnitude of gains is not small. This underlines the need for the policy-makers to examine, address and evaluate the prevalence of TE on a sectoral basis in ongoing WTO negotiations.     

产业内贸易中的企业行为与贸易政策——基于古诺双寡头垄断模型的分析

20世纪60年代以后,学者研究发现,传统的贸易理论无法解释大量工业化国家之间的贸易,从而使产业内贸易的研究成为国际贸易的核心问题之一。本文建立古诺双寡头垄断模型对同质产品产业内贸易中的企业行为与贸易政策进行了博弈分析,通过研究发现：寡头垄断企业之间即使在比较优势和报酬递增都不存在的条件下也会互相向对方市场销售商品;追求社会福利最大化的政府很容易陷入贸易保护的囚徒困境,从而导致双方社会福利恶化。本文认为,政府之间应该加强交往,深化合作,通过谈判解决贸易争端,避免陷入贸易保护的囚徒困境。     

The Impact of Equity-preferences on the Stability of International Environmental Agreements

This paper uses a coalition formation model to explore how equity considerations affect countries’ cooperation on global environmental issues, e.g. on climate change. When developing countries are exempted from obligations to reduce their emissions, I find that opening them for abatement projects financed by industrialized countries changes the incentives to cooperate in a way which can increase emissions and decrease welfare. Equity- concerns in industrialized countries regarding the difference between their per capita emission levels and those of developing countries lead to increased abatement but do not qualitatively change the incentives to cooperate. Inequality-aversion with respect to differences to abatement targets across industrialized countries generally induces larger coalition sizes and stricter abatement. Here, the inclusion of developing countries improves upon the prospects of cooperation.     

How do mutual recognition agreements influence trade?

This paper empirically tests how the magnitude of trade promotion effects of mutual recognition agreements (MRA s) varies with various mediums. The main rationale for the research is that because an MRA eliminates technical barriers to trade (TBT ), the trade promotion effects of MRA s are inversely much stronger if TBT originally restricted trade before their entry into force. Using data on MRA s and international trade in 34 countries and 22 manufacturing sectors covering 1995 to 2009, the paper empirically shows that the trade promotion effects of MRA s can be much stronger, depending on the type of contract, time period after the entry into force, components of exports, and country and industry characteristics such as technology level and global competitiveness. The results will provide insight for policy makers and stakeholders who cooperate with foreign countries in various regulations, especially in developing countries that have low levels of technology, competitiveness, and regulatory governance capacity.     

Varying Political Economy Weights of Protection: The Case of Colombia

In this paper, we examine trade policy determinants and trade reform in a developing country setting using a political economy model. The government determines tariffs by balancing the political support from producers vs. consumers, while placing a higher political weight on producers’ welfare relative to average citizens. We then expand the model in several directions to guide our subsequent estimations at the three‐digit industry level for Colombia between 1983 and 1998. We account for import substitution motives for protection but describe how the government's move away from these policies leads to unilateral trade liberalization. We innovatively allow the political weights to vary based on key industry variables beyond a common denominator. The sectors with higher employment, labor cost, and preferential trade agreement (PTA) import shares receive a larger political weight compared to otherwise similar sectors. The novelty of our approach is estimating the effect of sectoral characteristics on protection filtered through the political weights. We obtain more realistic estimates for these weights and provide some evidence for a slowing down effect of PTAs on trade liberalization.     

Trade and Technology from a Schumpeterian Perspective

This paper attempts to implement empirically a Schumpeterian model of international trade. After briefly discussing the literature on trade and technology, we formulate a model in which ‘real’ factors such as R&D expenditures, investment and wage costs have an impact on bilateral trade flows between advanced economies. We also take into account the effect of exchange rate differences. The model is empirically estimated on sectoral data for nine OECD countries. We find that what determines competitiveness differs by sector. In many sectors, either R&D expenditures or wage costs are important. The results for investment indicate a weaker role. Consistent with the Marshall-Lerner logic, we find that the sign of exchange rate changes varies by sector. We conclude the paper by a discussion of the relevance of the results for ‘technology-based’ theories of international trade.     

Extending the Sectoral Coverage of an International Emission Trading Scheme

In a model inspired by the EU Emissions Trading Scheme, non-cooperative countries allocate their emissions to internationally trading and non-trading sectors. Each country is better off with trading than without, and aggregate welfare is maximized with all sectors in the trading scheme. We analyze the effects of extending the sectoral coverage of the trading scheme in a two-country model with quadratic abatement costs. If only the original trading sector is asymmetric between countries, the welfare change is always positive and the same in both countries. If the original and additional trading sectors are asymmetric, one country might lose, but there is an aggregate welfare gain. If the original trading sector and the non-trading sector are asymmetric, both countries always gain.     

Spatial Discrimination,Nations’ Size and Transportation Costs

In this paper we develop a spatial Cournot trade model with two unequally sized countries, using the geographical interpretation of the Hotelling line. We analyse the trade and welfare effects of international trade between these two countries. The welfare analysis indicates that in this framework the large country benefits from free trade and the small country may be hurt by opening to trade. This finding is contrary to the results of Shachmurove & Spiegel (1995) as well as Tharakan & Thisse (2002), who use similar models to analyze size effects in international trade, where the small country usually gains from trade and the large country may lose.     

Is there a case for carbon-based border tax adjustment? An applied general equilibrium analysis

Concern that unilateral Greenhouse Gas (GHG) emission reductions could foster carbon leakage and undermine the international competitiveness of domestic industry has led to growing calls for carbon-based Border-Tax Adjustments (BTAs). This article uses a global general equilibrium model to assess the economic effects of BTAs and comes to three main conclusions. First, BTAs can reduce carbon leakage if the coalition of countries taking action to reduce GHG emissions is small, because in this case leakage (while typically small) mainly occurs through international trade competitiveness losses rather than through declines in world fossil fuel prices. Second, even though the economic effects of BTAs vary somewhat depending on how they are implemented, their welfare impact is typically small, and slightly negative at the world level. Third, and perhaps more strikingly, BTAs do not necessarily curb the output losses incurred by the domestic Energy Intensive-Industries (EIIs) they are intended to protect in the first place. This is in part because EIIs in industrialized countries make important use of carbon-intensive intermediate inputs produced by EIIs in other geographical areas. Another, deeper explanation is that EIIs are ultimately more adversely affected by the existence of a carbon price itself than by any international competitiveness losses. These findings are shown to be robust to key model parameters, country coverage, targets and design features of BTAs.     

The determinants of trade performance: influence of R&D on export flows

A theoretical model is presented, in which supply side differences between countries determine international trade flows. This model is empirically tested at a sectoral level for a group of EU countries, within a framework that focuses on changes through time and differences between countries. The results show that the validity of the theoretical model is limited at sectoral level. However, as expected, we find that the variable representing technological differences is significant and correctly signed for high-technology sectors. The evidence points to the existence of different production functions across countries and to the importance of supply side factors in determining the direction and the terms of trade.     

Renewable Resources,Pollution and Trade

Detrimental spillovers from industrial activity onto resource‐based productive sectors are very common, yet their effects remain understudied. While international trade often creates conditions for the over‐exploitation of open‐access renewable resources, it also provides opportunities for separating different productive sectors spatially. The existing literature suggests that a diversified exporter of the renewable resource good tends to lose from trade in both welfare and conservation terms as a result of over‐depletion, while the exporter of the non‐resource good gains. However, the resource stock externality of harvesting and the inter‐industry pollution externality often coexist in reality. In a small open economy framework, this paper shows that acknowledging their interaction changes the nature of the autarkic equilibrium and enriches the set of resource conservation and welfare outcomes from trade. Depending on the relative damage inflicted by the two industries on the environment, which in turn are functions of the pollution intensity and bioeconomic parameters, it is possible that the inter‐sectoral pollution externality persists and specialization in manufacturing is not optimal from a welfare perspective.     

Sign here,please! On developing countries’ market access conditions in regional trade agreements

Have regional trade agreements (RTAs) improved market access conditions for developing countries? Employing a measure expressing effective tariff margins and using disaggregated panel data for a sample of 45 developing country exporters, 60 export destinations, and the period between 1991 and 2015, it is shown that this question can generally be answered in the affirmative. Although the effect is estimated to be moderate, RTAs might thus be an important long‐run building block in the United Nations 2030 Agenda for Sustainable Development in order to increase developing countries’ participation in world trade. On closer inspection, however, for the countries included in the sample, there is considerable variation depending on the choice of integration partners and economic sectors. More specifically, market access improvements cannot be found for African economies in South–South agreements and developing countries engaging formally with the European Free Trade Association (EFTA) or the Republic of Korea, while leading industrialized nations are reluctant to grant improved market access to developing countries in RTAs especially in capital‐intensive (high‐productivity) manufacturing sectors.     

政策干预下我国贸易自由化的福利效应

近年来,贸易和环境问题越来越成为各国关注的焦点,传统贸易理论忽视了环境资源的合理使用和保护,给发展中国家带来了严重的环境问题。文章在揭示传统贸易理论在环境资源分析不足的同时,建立了一个政策干预下的发展中国家的自由贸易模型,在此基础上结合我国实际情况分析贸易自由化的福利效应。     

INTERNATIONAL COMPARISONS OF LABOR COSTS IN MANUFACTURING

This paper presents a comparative study of the levels of unit labor costs in the manufacturing sectors of several countries. We begin by surveying earlier estimates of relative productivity and unit labor cost levels and evaluating the various methodologies that have been used in previous studies. Empirical estimates of relative unit labor costs, based on output levels that are translated at purchasing power parity exchange rates, are then presented and compared to earlier estimates. The results show that the relative levels of unit labor costs in the United States and abroad have fluctuated significantly in recent years, due largely to movements in nominal exchange rates. In 1988, unit labor costs in the United States were below the average level of other industrialized countries, but were significantly above the level in a representative newly industrialized country, Korea. Insofar as unit labor costs serve as an indicator of international competitiveness, these results imply that the competitiveness of the U.S. manufacturing sector had improved significantly since 1985, at least with respect to other major industrialized countries.     

The Effects of Technology Changes on Sectoral Trade Patterns*

We develop a model in which sectoral trade patterns depend on both the technology common to all sectors and the technologies specific to each sector. Changes in the common technology level affect sectoral trade patterns through their impact on intertemporal optimization behavior, while changes in the sector‐specific technology levels affect sectoral trade patterns by influencing comparative advantage. The model shows: (1) unexpected increases in the common technology level worsen sectoral trade balances, but expected increases in the common technology level improve them; and (2) given other countries’ sectoral technology levels, an increase in a sector‐specific technology level relative to other sectors improves sectoral trade balances through its operation on comparative advantage. Using Japanese data, the empirical results reported in this paper support the model’s predictions.     

The heterogeneous effect of finance on international trade

Is the impact of financial development on international trade heterogeneous – being positive, negative or null – across manufacturing sectors? And is it dependent on the level of sectoral requirement on external finance for capital need? To examine these questions this article uses a panel trade database on 21 manufacturing sectors in 80 countries between 2000 and 2009. The analysis demonstrates that the effect of financial development on trade is indeed heterogeneous by estimating a coefficient for each sector and showing that the signs and significance levels vary across them. The article also demonstrates that sectors with strong reliance on external finance export higher volume from countries with developed financial system and that financial development reduces trade in industries with low financial dependence level.     

“Measurement” or Finding Things Out in Economics: A Comment

Immiserizing growth is a long-term phenomenon that occurs when the gain in a country's social welfare arising from economic growth is more than offset by the loss in such welfare associated with an adverse shift in the terms of trade. In one case explored many years ago by Jagdish Bhagwati, immiserizing growth occurs in a developing nation that has started economic growth but faces unfavorable international demand conditions as it increases its traditional exports. In another case explored recently by Paul A. Samuelson, immiserizing growth occurs for the growing industrialized country when its trade partner follows a policy of import substituting growth and, as a result, shifts the terms of trade against the exporting country. Still others have specified a variety of different cases of immiserizing growth. The author provides a simple graphical method to analyze these situations and then presents data showing that immiserizing growth is a relatively rare phenomenon.     

Revisiting the sectoral Linder hypothesis: Aggregation bias or fixed costs?

This paper reassesses and revisits the Sectoral Linder Hypothesis due to Hallak, which posits that similar tastes for quality lead to more intensive trade between similar countries at the sectoral level. First, the measure of demand similarity used in this paper is based on the distribution of income estimated from household surveys. The paper finds that a similarity measure based on the income distribution produces stronger results than the traditionally used measure based on GDP per capita. Moreover, the country/product level extensive margin is taken into account. This is important because similarity is likely to affect the fixed costs of trade and the fixed costs of alternative means of servicing a market (i.e., licensing and FDI). Fixed costs, in turn, affect the number and average productivity of firms that engage in bilateral trade and hence the overall volume of trade. This paper employs the method by Helpman et al. to control for the extensive margin. Heteroskedasticity is addressed using a feasible generalized least squares (FGLS) approach. The findings show that once controlling for the effect of similarity on the extensive margin, the Linder hypothesis holds at more aggregate levels. Other robustness checks suggest that results are not confined to products that are vertically differentiated.     

Sectoral FTA gains,conflicts, and the role of interindustry factor mobility: Evidence from Korea's free trade agreement

Free trade agreements (FTAs) can ignite domestic conflicts between export- and import-competing industries over trade gains. However, if the factors of production, such as capital and labour, move freely across industries, the returns to factor owners will quickly converge. Then, sectoral conflicts over FTAs will be less likely to arise. We analyse the case of South Korea's FTAs to measure (a) sectoral FTA gains and (b) interindustry factor mobility and to examine (c) the role of interindustry factor mobility in mitigating sectoral conflicts over trade policies. South Korea is an ideal case study due to the low barriers to domestic geographic mobility and high trade dependence. Based on data on its trade with 252 countries and factor returns between 2002 and 2017, we find that export industries did not gain much from the FTAs, while the import-competing agricultural sector was the winner. Sectoral conflicts greatly decreased over 2008–2010. Interindustry capital mobility plays a significant role in weakening the sectoral conflicts, while the impact of interindustry labour mobility is limited.