Renewable resources and the gains from trade

The Brander-Taylor small, open-economy model of trade in a renewable resource and other goods is modified to allow for diminishing returns in the other goods sector. It is shown that opening up for trade may result in steady-state gains from trade, even when there is open access to the resource and the country does not specialize fully in resource extraction. It is also shown that transition to optimal management, with price-taking behaviour, may result in a welfare loss.
Resources renouvelables et gains en provenance du commerce international. L'auteur modifie le modèle Brander-Taylor de commerce international d'une ressource renouvelable et d'autres biens dans le cas d'une petite économie ouverte afin de tenir compte des rendements décroissants dans le secteur des autres biens. On montre que I'ouverture au commerce international peut entraîner des gains en provenance de l'échange international en régime permanent, et ce même quand l'accès à la ressource est ouvert et que le pays ne se spécialise pas dans l'extraction de la ressource. On montre que dans la période de transition vers un management optimal, quand il y a ajustement aux prix de marché, il peut y avoir perte de bien-être.     

Measuring the gains from trade under monopolistic competition

Abstract .  Three sources of gains from trade under monopolistic competition are (i) new import varieties available to consumers; (ii) enhanced efficiency as more productive firms begin exporting and less productive firms exit; (iii) reduced markups charged by firms due to import competition. The first source of gains can be measured as new goods in a CES utility function for consumers. We argue that the second source is formally analogous to the producer gain from new goods, with a constant-elasticity transformation curve for the economy. We suggest that the third source of gain can be measured using a translog expenditure function for consumers, which, in contrast to the CES case, allows for finite reservation prices for new goods and endogenous markups.     

Ricardian productivity differences and the gains from trade

This paper evaluates the role of sectoral heterogeneity in determining the gains from trade. We first show analytically that in the presence of sectoral Ricardian comparative advantage, a one-sector sufficient statistic formula that uses total trade volumes as a share of total absorption systematically understates the true gains from trade. Greater relative sectoral productivity differences lead to larger disparities between the gains implied by the one-sector formula and the true gains. Using data on overall and sectoral trade shares in a sample of 79 countries and 19 sectors we show that the multi-sector formula implies on average 30% higher gains from trade than the one-sector formula, and as much as 100% higher gains for some countries. We then set up and estimate a quantitative Ricardian–Heckscher–Ohlin model in which no version of the formula applies exactly, and compare a range of sufficient statistic formulas to the true gains in this model. Confirming the earlier results, formulas that do not take into account the sectoral heterogeneity understate the true gains from trade in the model by as much as two-thirds. The one-sector formulas understate the gains by more in countries with greater dispersion in sectoral productivities.     

The duration of trade revisited

The recent literature on the duration of trade has predominantly analyzed the determinants of trade flow durations using Cox proportional hazards models. The purpose of this article is to show why it is inappropriate to analyze the duration of trade with continuous-time models such as the Cox model, and to propose alternative discrete-time models which are more suitable for estimation. In brief, the Cox model has three major drawbacks when applied to large trade data sets. First, it faces problems in the presence of many tied duration times, leading to biased coefficient estimates and standard errors. Second, it is difficult to properly control for unobserved heterogeneity, which can lead to parameter bias and bias in the estimated survivor function. Third, the Cox model imposes the restrictive and empirically questionable assumption of proportional hazards. In contrast, with discrete-time models there is no problem handling ties; unobserved heterogeneity can be controlled for without difficulty; and the restrictive proportional hazards assumption can easily be bypassed. By replicating an influential study by Besede? and Prusa (J Int Econ 70:339?C358, 2006b), but employing discrete-time models as well as the original Cox model, we find empirical support for each of these arguments against the Cox model. Moreover, when comparing estimation results obtained from a Cox model and our preferred discrete-time specification, we find significant differences in both the predicted survivor functions and the estimated effects of explanatory variables on the hazard. In other words, the choice between models affects the economic conclusions that can be drawn.     

Economic gains from technology-intensive trade: an empirical assessment

National investment in technological activity is commonly justifiedin terms of the positive impacts upon productivity, internationalcompetitiveness and related aspects of national economic performance.This premise has found a supportive theoretical framework inthe new technology and growth models. Based on extended technology-gapmodels, this study examines cross-country empirical evidenceon the relationship between technology-intensive trade performance(as a proxy for technological output) and per capita economicperformance, utilising 1978 to 1992 data for around 45 nations.The results provide some support for a positive relationshipbetween trade performance and economic returns. However, theweak and often inconsistent results suggest that the unconditionalpursuit of technology-intensive trade improvements may not necessarilyhave the expected net benefits.     

Product differentiation and the gains from trade under Bertrand duopoly

Abstract.  In the literature on the welfare effects of free trade under imperfect competition, one important case seems to have been overlooked, and that is the Bertrand duopoly model with differentiated products. Although many authors have analysed the welfare effects of free trade under Cournot duopoly and demonstrated the possibility of losses from trade, there has been no thorough analysis of the welfare effects of free trade under Bertrand duopoly. In this article we present a thorough analysis of the welfare effects of free trade under Bertrand duopoly with differentiated products, and it is shown that there are always gains from trade. JEL Classification: F12     

Credit constraints,inequality and the growth gains from trade

This paper tests the hypothesis that, in the presence of credit constraints, higher wealth inequality affects negatively the growth gains from trade liberalisation. Variations in the growth rate of value added–decomposed in the growth rate of the number of establishments and the growth rate in average size–of manufacturing industries in 34 developing countries before and after trade liberalisation are used to study the effects of inequality on the difference in growth under liberalised and nonliberalised regimes. The results show that the number of firms in industries with high dependence on external finance in countries with higher inequality grow significantly slower, in both statistical and economic terms, than in industries with low dependence on external finance in countries with lower inequality following a trade liberalisation relative to the closed-economy period.     

Social innovation and Austrian economics: Exploring the gains from intellectual trade

The Review of Austrian Economics - The Austrian school of economics has played a key contribution toward an improved understanding of the characteristics of economic innovation. Over recent decades...     

Randomized double auctions: gains from trade,trader roles,and price discovery

Experimental double-auction commodity markets are known to exhibit robust convergence to competitive equilibria under stable or cyclical supply and demand conditions, but little is known about their performance in truly random environments. We provide a comprehensive study of double auctions in a stochastic setting where the equilibrium prices, trading volumes and gains from trade are highly variable across periods, and with commodity traders who may buy or sell their goods depending on market conditions and their individual outcomes. We find that performance in this stochastic environment is sensitive to underlying market conditions. Efficiency is higher and convergence to the competitive equilibrium stronger when the potential gains from trade are high and when the equilibrium spans a wide range of quantities, implying a large number of marginal trades. Speculative re-trading is prevalent, especially among those who have little to gain under equilibrium pricing. Those with the largest expected gains typically earn far less than predicted, while those with little or no predicted earnings gain modestly from speculation, leading to some redistribution of gains from high to low expected earners. Excessive trading volumes are associated with negative efficiencies in markets with low gains from trade, but not in the high-gains markets, where zero-sum trading and re-trading appear to enforce efficiency and near-equilibrium pricing. Buyers earn more relative to their competitive equilibrium benchmark than sellers do. Introducing trader specialization leads to fewer trading errors and higher market efficiency, but it does not eliminate zero-sum trading and re-trading.

     

Economies of scale and trade policy: The median voter model revisited

Why do some political economy models perform so poorly in predicting actual trade policy? Do scale economies provide the missing puzzle to our understanding of the anti-trade bias? By integrating economies of scale in production, this paper theoretically reinstates the median voter model as in Mayer [Mayer, W. (1984). Endogenous tariff formation. The American Economic Review, 74, 970–985] as a suitable political economy model in predicting trade policy. The modified model generates the scope for the anti-trade bias and predicts that sometimes economic, rather than political, considerations may lead to restrictive trade.     

Inside and outside fiat money, gains to trade, and IS-LM

Summary. We build a one-period general equilibrium model with money. Equilibrium exists, and fiat money has positive value, as long as the ratio of outside money to inside money is less than the gains to trade available at autarky. We show that the nominal effects of government fiscal and monetary policy can be completely described by a diagram identical in form to the IS-LM curves introduced by Hicks to describe Keynes' general theory. IS-LM analysis is thus not incompatible with full market clearing, multiple commodities, and heterogeneous households. We show that as the government deficit approaches a finite threshold, hyperinflation sets in (prices converge to infinity and real trade collapses). At the other extreme, if the government surplus is too large, the economy enters a liquidity trap in which nominal GNP sinks and monetary policy is ineffectual. Received: January 2, 2002; revised version: April 8, 2002 Correspondence to: P. Dubey     

Trade liberalization gains under different trade theories: a case study for Ukraine

We analyze the deep and comprehensive free trade area (DCFTA) between Ukraine and the EU using a multi-regional general-equilibrium simulation model. Three alternative trade structures are implemented: (a) a standard specification of perfect competition based on the Armington assumption of regionally differentiated goods; (b) monopolistic competition among symmetric manufacturing firms; and (c) a competitive selection model of heterogeneous manufacturing firms. Across these structures the DCFTA indicates relatively large gains for Ukraine of more than 3 percent. We show, however, that the gains for Ukraine are lower when we consider monopolistic competition in manufacturing. This is attributed to a movement of resources into Ukraine’s traditional export sectors to the EU, which produce under constant returns. While there is little danger of deindustrialization dominating the overall welfare gains, we do observe substantially lower gains when we consider monopolistic competition. To our knowledge, this is the first empirical confirmation of the theoretic predication that the relative gains from trade in monopolistic competition models might be lower than under perfect competition in the context of a numeric simulation of economic integration. Under the popular heterogeneous-firms monopolistic competition theory we find significant firm selection effects indicating welfare impacts for Ukraine that are less than under the Armington structure but above those found under symmetric firms and monopolistic competition. These results are important considerations for Ukraine’s overall development strategy.     

Who gains from non-collusive corruption?

Non-collusive corruption, i.e., corruption that imposes an additional burden on business activity, is particularly widespread in low-income countries. We build a macroeconomic model with credit market imperfections and heterogeneous agents to explore the roots and consequences of this type of corruption. We find that credit market imperfections, by generating rents for the incumbent entrepreneurs, create strong incentives for corrupt behavior by state officials. However, non-collusive corruption not only redistributes income from non-officials towards officials but also within the group of potential entrepreneurs. If borrowing is limited, bribes prevent poorer but talented individuals from starting a business. But this is likely to benefit those who may enter anyway; the cost of capital is lower and there is less competition on the goods markets.     

Multinationals and the gains from international diversification

This paper employs mean–variance spanning tests to examine the diversification potential of multinational firms and foreign market indices from the perspective of investors in the G7 countries over the 1984–1995 period. We find evidence that multinational corporations may have provided diversification benefits for investors in Germany and the United States. We find that the addition of foreign market indices to a domestic portfolio—inclusive of multinationals—provided substantial diversification benefits in all countries. The economic importance of the shift of the portfolio frontier varied considerably across markets.     

Credit constraints and growth gains from governance

This paper contributes to the governance literature by analyzing the specific mechanisms through which governance affects economic growth: The credit channel. Specifically, it investigates the growth impact of governance on industries with different levels of dependence on external finance. Better governance mitigates credit market imperfections by increasing transparency and accountability and reducing government-policy distortions, promoting productive investment and entrepreneurship development, with a disproportionate impact on sectors that depend on external finance. This paper indeed finds that countries with well-functioning governments are better at providing growth and investment environments for the expansion of industries that rely heavily on external finance and the formation of new establishments in these industries, when controlling for financial development. These results are robust to possible reverse causality, different specifications, subsamples and outliers.     

The bargaining family revisited

We suggest a family bargaining model where human capital investment decisions are made non-cooperatively in a first stage, while day-to-day allocation of time is determined later through Nash bargaining, but with non-cooperative behaviour as the fall-back. One finding is that overinvestment in education may be even more of a problem in such a semi-cooperative model than in a fully non-cooperative one. Even though both the semi-cooperative model and the fully non-cooperative model predict overinvestment in education, policy conclusions that follow from the two models are distinctly different. JEL Classification: D13, J24
Les auteurs suggèrent un modèle de famille qui marchande où les décisions d'investissement en capital humain sont prises de manière non-coopérative dans un premier temps, alors que l'allocation du temps au jour le jour est déterminée plus tard par un marchandage à la Nash, mais avec un comportement noncoopératif comme choix de second ordre. On découvre que le surinvestissement dans l'éducation peut être encore plus problématique dans un tel modèle de semi-coopération que dans un modèle de non coopération. Même si les deux modèles prévoient un surinves;chtissement dans l'éducation, les conclusions au plan de la politique publique qui découlent de ces deux modèles sont fort différentes.     

The LeChatelier-Samuelson principle revisited

Within the context of a linear Leontief model, the LeChatelier-Samuelson principle examines the effects of an increase in some final demand on the output levels under the constraint that the production of certain goods is held at its original value. The principle states that the increase in any output is larger when fewer output levels are kept constant. The present paper discusses bounds for such incremental changes, second-order effects, the consequences on the markets for the products with restricted output levels, and generalizations of the original assumptions.I would like to thank two anonymous referees for their helpful comments.     

The roommates problem revisited

One of the oldest matching problems is Gale and Shapley's (1962) [8] “roommates problem”: is there a stable way to assign 2N students into N roommate pairs? Unlike the classic marriage problem or college admissions problem, there need not exist a stable solution to the roommates problem. However, stability ignores the key physical constraint that roommates require a room and is therefore too restrictive. This motivates a new matching problem: matching agents subject to an initial assignment. A particularly important example is kidney exchange where after an assignment has been made, subsequent tests may determine that a patient and donor are incompatible. This paper introduces an efficient algorithm for finding a Pareto improvement starting from any status quo roommates assignment.