A new look at the impact of U.S. import barriers on corporate profit expectations

A New Look at the Impact of U.S. Import Barriers on Corporate Profit Expectations. — The notion that industries benefit from protection is firmly grounded in trade theory. However, previous “event studies” measuring the impact of trade restrictions on stock prices reveal that shareholders expect no improvement in industry profits from protection. The implication is that barriers designed to promote industry adjustment are considered ineffective by equity holders. This investigation of U.S. “Escape Clause” cases shows that shareholders do expect protection to enhance profits, but not universally. Outcomes are linked to the type of trade measure selected, with industries protected by tariffs or global quotas faring better than those shielded by nonglobal “Orderly Marketing Agreements.”     

SBA regional loan distribution to minorities

Summary We have shown in this paper a great disparity in the lending activities of a number of Small Business Administration regional offices. There were considerable differences between these regions on their rates of increase and then decline of loans and loan dollars issued over the 1968-1976 period and on their loans and loan dollars per unit population, small businesses, and small business employees. This was found to be the case both for minorities and for the population at large. This, however, is especially disturbing in the context of minority lending activity since SBA lending was the chief vehicle of the federal government’s minority economic development efforts from 1968 to 1976. The economic well-being of a great many minorities with ties to the small business sector was to a large measure affected unequally by the differential SBA lending rates between regions. In fact, insofar as the measures we have selected can be related to “need,” the policy seems to have been counterproductive, having concentrated lending activity precisely in the regions where minority small business in terms of population, employment, and numbers of establishments was strongest and by implication the “need” was least!     

Regional integration in East Asia. From market-driven regionalisation to institutionalised regionalism?

Conclusions The analyses have shown that ESACs unprecedented emergence in world trade and capital transactions has been accompanied by a growing share of intra-area transactions. At least for the goods sector, the evidence is clear. Intra-area transactions grew faster than those to the rest of world, and the latter rose faster than world trade. Given this “double growth” performance, there was no trade diversion in the static zero sum meaning. Driving forces of fast growing intra-area transactions were basically internal conditions, such as “natural” trading partnership (geographical and cultural proximity, size, and complementarity in resource endowment and production structure), rising income levels fostering intra-industry trade, the economic opening of China, and unilateral liberalisation of trade and capital transactions on a non-discriminatory basis. It cannot be denied that external factors as protectionism and recession in non-Asian OECD countries have also contributed to this performance. Yet, it seems safe to assume that even without the US and European recession in the early eighties and early nineties and without the spread on non-tariff barriers, intraarea transactions would have received sufficient fuels from the internal factors to grow more rapidly than transactions with the rest of the world.¹⁷ Furthermore, a base effect of a low initial level of intra-area trade cannot be neglected.     

The costs of non-tariff barriers to trade: Evidence from New Zealand

The Costs of Non-Tariff Barriers to Trade: Evidence from New Zealand. — Recent work on trade policy with imperfect competition indicates that the adverse effects of non-tariff barriers to trade exceed those suggested by traditional theory. With market power in foreign supply, setting a restrictive non-tariff barrier will induce foreign exporters to raise their supply prices. The authors use the experiment provided by the comprehensive New Zealand economic reforms of the mid-1980s. Using panel data on export unit values from Germany and the United States to several destinations including New Zealand, they find some evidence for decreased export prices to New Zealand as a result of the dismantling of non-tariff barriers to trade.     

Trade in services and returns on multinational activity

Conclusion This note has attempted to clarify both the theoretical and empirical reasons why the returns on the performance of a foreign subsidiary’s operations ought to be seen as returns on firm-specific knowledge (FSKs) which should be included in discussion of trade in services. This difficult task was not accomplished in a satisfactory manner by Ramstetter and Lee. It is entirely inappropriate to unbundle the activities of MNEs into returns on financial investment and a residual used to proxy payments for FSK. Rugman [1987] did not assume that the opportunity cost of financial capital is zero; rather that the “investment” activity of the MNE cannot be divorced from its FSK. The MNE uses internal markets as an integrated process to transfer FSK across national borders, raising theoretical and empirical issues for the international accounting of trade in services.     

The International Transmission of Monetary Policy in a Dollar Pricing Model

This paper analyses the international transmission of monetary policy in the case where all export prices are set in US dollars. “Dollar pricing” implies that the international effects of US monetary shocks are different from those of European shocks because of an asymmetric exchange rate pass-through to import prices. A dollar pricing model can explain the observed asymmetry in the transmission of monetary policy: US monetary policy affects US output more than European monetary policy affects European output. I also show that the current account is an important channel through which monetary policy affects welfare. The paper concludes that under dollar pricing a monetary expansion is a beggar-thy-neighbour policy.     

Public Procurement and Foreign Direct Investment Across France,Germany, Italy and the UK

Foreign direct investment (FDI) has become an important factor of economic development during the last decades. FDI contributes to the economic growth of the host economy through learning, diffusion of technology, positive externalities and capital inflows. Attracting FDI is currently an objective in its own right for many countries and this paper aims to identify policies affecting the multinational firm’s decision to establish a subsidiary. After accounting for labour productivity and trade openness, cross-section analysis, both industry-wise and country-wise, indicates that public procurement, especially “buy national” policies, and agglomeration economies are statistically significant determinants of FDI. Although our findings pertain to four large European economies, e.g. France, Germany, Italy and the UK, they constitute relevant policy guidelines for developing countries as well.      

Economic forces,structural discrimination and black family instability

The social and economic gains achieved by black families during the 1960s were severely eroded during the seventies and eighties. Unemployment, poverty, single-parent families, out-of-wedlock births, and adolescent pregnancies soared to alarming levels. According to the thesis of the declining significance of race, this crisis is mainly concentrated among the black “underclass” and it is broad societal trends, not racism, that is mainly responsible for their increased deprivation. We contend that this thesis fails to assess the role of institutionalized racism as it is manifested in “unintended” or “structural” discrimination, i.e., the disproportionate adverse effects of economic trends and policies on the functioning of low-income and middle-income black families. Moreover, we argue that social forces or policies that have racially disparate adverse effects are “discriminatory” by result, whether intended or not. The major economic trends that affected black families adversely during the seventies and eighties were: back-to-back recessions, double-digit inflation, and industrial and population shifts. The key economic policies that undermined black family stability have been: anti-inflation fiscal and monetary policies, trade policies, plant closings, social welfare, block grants, and federal per capita formulas for allocating funds to states and local areas that have not been corrected for the census undercount.     

Factor price equalization? The cointegration approach revisited

Conclusions Absolute factor price equalization across countries is a key prediction of the Heckscher-Ohlin-Samuleson model of international trade, one of the more influential “workhorse” models in economics. Despite its theoretical might, the factor price equalization hypothesis has received surprisingly little empirical support. In an important exception to the rule, Burgman and Geppert (1993) argue that this might be due to the neglect of the non-stationarity of the time series under consideration. And indeed, applying a cointegration approach to (nominal) unit labor costs in six major industrialized countries (Canada, France, Germany, Japan, the United Kingdom, and the United States), they find evidence of long-run factor price co-movement. This finding can be interpreted as being in line with equalization of factor prices amongst these countries.     

A Primer on Real Effective Exchange Rates: Determinants, Overvaluation, Trade Flows and Competitive Devaluation

Several alternative measures of “effective” exchange rates are discussed in the context of their theoretical underpinnings and construction. Focusing on contemporary indices and recently-developed econometric methods, the empirical characteristics of these differing series are examined for the U.S., the euro area, and several East Asian countries. The issues that confront the applied economist or policymaker in using the measures of real effective exchange rates available are illustrated in several case studies from current interest: (i) evaluating exchange rate misalignment; (ii) testing the Balassa-Samuelson effect; (iii) estimating the price responsiveness of trade flows; and (iv) assessing the potential impact of competitive devaluations. JEL Classification Numbers: F31, F41     

An alternative to Marshall: Economic history and applied economics at the early LSE

Conclusion The LSE in its early years did not produce a “school of economics” in the sense that Marshall's Cambridge constituted a “school.” English historical economics was too diffuse, too lacking in strong leadership, too untheoretical, and too committed to economic history as a discipline to create such a “school.” The special contribution of the LSE in the pre-war period was certainly not in theory, since one of the chief reasons for it being an alternative to Marshall's school of orthodoxy was that it paid relatively little attention to economic theory during this period. Rather, its alternative economics was its central conception that the economist'sraison d'etre was to solve pressing contemporary problems for which orthodox theory seemed to offer little guidance. Thus its teachers and curriculum, assembled by Hewins and the Webbs, emphasized applied subjects and economic history.     

William graham sumner: Monetary theorist

Conclusion Sumner was the product of an indigenous American hard-money tradition that embraced free markets, free trade, and sound banking—a tradition that has much in common with the Austrian School in its theoretical and political orientation. His understanding of economic theory came from his reading of classical economists and the works of American theorist Condy Raguet, and his political convictions from his study of the American monetary experience, particularly the errors of the Hamiltonians. With these influences and his own hard-money views, Sumner arrived at positions on money, banking, and business cycles, economic policy that can be described as proto-Austrian in many ways. In particular, he saw credit-fueled booms as inherently unsustainable because they give rise to “fictitious capital” as versus real wealth.     

Evaluating China’s Integration in World Trade with a Gravity Model Based Benchmark

This paper assesses China’s “natural” place in the world economy with a new set of trade integration indicators, which are used as a benchmark in order to examine whether China’s share in international trade is consistent with fundamentals such as economic size, location and other relevant factors. They constitute a better measure of trade integration that incorporates many more factors than traditional openness ratios. The model tracks international trade well and confirms that China is already well integrated in world markets, particularly with North America, several Latin American and East Asian emerging markets and most euro area countries.

W. Arthur Lewis lecture: Should there be a marshall plan for eastern europe?

The desirability of massive financial aid to support the transition of East European countries to market economies is considered in the light of structural adjustment experience of Latin American countries. It is argued that, politically, an autonomous state is necessary to guide the restructuring. The democratization of Eastern Europe decreases the autonomy of the state. Economically, recent experience in Latin America and Eastern Europe has demonstrated that reforms take place during periods of stringency rather than affluence. It is therefore argued that trade and foreign investment are preferable to generous aid.     

Exploring the Intensive and Extensive Margins of World Trade

World trade evolves at two margins. Where a bilateral trading relationship already exists it may increase through time (intensive margin). But trade may also increase if a trading bilateral relationship is newly established between countries that have not traded with each other in the past (extensive margin). We provide an empirical dissection of post–World War II growth in manufacturing world trade along these two margins. We propose a “corner-solutions version” of the gravity model to explain movements on both margins. A Tobit estimation of this model resolves the so-called “distance puzzle”. It also finds more convincing evidence than recent literature that WTO-membership enhances trade. JEL no. F12, F15     

A crumbling legacy: The decline of African American insurance companies in contemporary America

African American insurance companies, since the 1960s, have experienced a significant decline in their profitability and stature. Because of recent racial desegregation, which in an economic sense consists of white-controlled businesses and black consumers increasing their interaction with each other, black insurers are waging an increasingly difficult struggle to survive. It appears the only way African American insurance companies can counteract this disturbing trend is to voluntarily merge into one “mega” company. Such a maneuver would empower consolidated black insurers to better serve African American consumers and to make definitive inroads in cultivating the burgeoning African consumer market.     

Natural resources and non-cooperative trade policy

When looking at the conditions of trade in natural resources the world appears upside down: tariff protection in natural resources sectors is generally lower than for overall merchandise trade, while export restrictions are twice as likely as in other sectors. On the other hand, tariff escalation is significant in natural resources sectors, where materials in their raw state face, on average, lower duties than in their processed form. In this paper, we discuss how export taxes and tariff escalation may be the result of an uncooperative trade policy. Specifically, tariff escalation and export taxes can be “beggar-thy-neighbor” policies because governments may be tempted to use them to alter the relative price of exports to their advantage (terms-of-trade effect) or to expand the domestic processing industry at the expenses of foreign production (production relocation effect). In equilibrium, these policies offset each other in a Prisoners’ Dilemma situation, where trade is inefficiently low.     

战后美国对外贸易政策的演变

在美国战后对外贸易政策变化中,以“互惠”理念为核心,始终贯穿着自由贸易和贸易保护主义之间的斗争,本文总结了战后美国对外贸易政策演变的阶段特征以及经济根源和理论背景。     

Factor Endowments and Production in European Regions

This paper analyses patterns of production across 14 industries in 45 regions from 7 European countries since 1975. We estimate an equation from neoclassical trade theory that relates an industry’s share of a region’s GDP to factor endowments, relative prices and technology. The strict version of the Heckscher–Ohlin model that assumes identical relative prices and technology is rejected against more general alternatives. However, factor endowments play a statistically significant and quantitatively important role in explaining production patterns. Factor endowments are more successful at explaining patterns of production in aggregate industries (Agriculture, Manufacturing and Services) than in disaggregated industries within manufacturing. JEL no. F11, F14, R13