Endogenous tariffs and trade adjustment assistance

This paper examines whether trade adjustment assistance is an effective tool for blunting political opposition to trade liberalization. The traditional argument is that adjustment assistance bribes labor unions so that they will accept reduced tariff protection. In this way, a trade adjustment assistance program should help the government lower tariffs and increase social welfare. This paper introduces trade adjustment assistance into a political economy model of endogenous tariff formation. The model shows that adjustment assistance reduces policy makers’ incentives to press for trade liberalization and may slow down the pace of reform and lower social welfare under certain plausible conditions.     

Endogenous political organization and the value of trade agreements

In a bargaining model of endogenous protection, I introduce fixed costs of political-organization that need to be incurred by capitalists prior to actual lobbying. Unlike Maggi and Rodriguez-Clare [J. Pol. Econ. 106(3) (1998) 575] intersectoral capital mobility is disallowed. Nevertheless, I am still able to obtain their main result that a government with low bargaining power vis-à-vis the import-competing lobby precommits to a free-trade agreement. Further, with high fixed organizational costs, the government prefers to stay out of such agreements. Its maximum bargaining power consistent with signing a trade agreement has an inverse-V-shaped relationship with respect to the size of fixed costs.     

Endogenous trade policy through majority voting: an empirical investigation

The median-voter approach to trade policy determination (within a Heckscher-Ohlin framework) as in Mayer [Am. Econ. Rev. 74(5) (1984) 970] predicts that an increase in inequality, holding constant the economy’s overall relative endowments, raises trade barriers in capital-abundant economies and lowers them in capital-scarce economies. We find support for this prediction using cross-country data on inequality, capital-abundance and diverse measures of protection. We perform certain robustness checks that include controlling for the effects of political rights and schooling as well as using alternative datasets on factor endowments.     

Migration and trade: Theory with an application to the Eastern-Western European integration

The remarkable increase in trade flows and in migratory flows of highly educated people are two important features of globalization of the last decades. This paper extends a two-country model of inter- and intra-industry trade to a rich environment featuring technological differences, skill differences and the possibility of international labor mobility. The model is used to explain the patterns of trade and migration as countries remove barriers to trade and to labor mobility. We parameterize the model to match the features of the Western and Eastern European members of the EU and analyze first the effects of the trade liberalization which occurred between 1989 and 2004, and then the gains and losses from migration which are expected to occur if legal barriers to labor mobility are substantially reduced. The lower barriers to migration would result in significant migration of skilled workers from Eastern European countries. Interestingly, this would not only benefit the migrants and most Western European workers but, via trade, it would also benefit the workers remaining in Eastern Europe.     

Estimating the pro-competitive gains from trade liberalization: an application to Mexican manufacturing

An original two-stage method is proposed to estimate the pro-competitive gains from trade liberalization. In a first step, I estimate the sensitivity of the price-cost margins of domestic firms to changes in the effective rate of protection, on the basis of a structure-performance relationship. This parameter is later exploited in a second step, where the cost of protection is calculated on the basis of a simple partial equilibrium model where domestic and foreign goods are imperfect substitutes. Applied to the Mexican case, this estimation reveals that protection removal depresses margins significantly and suggests that important additional gains can be expected from pro-competitive forces.     

The macroeconomics of commercial policy and the trade balance: A policy perspective

Given the continuing growth of foreign direct investment (FDI) in the United States, there is a growing interest in examining its impact on the rate of economic growth. The immense literature on economic growth in the United States is composed of studies that concentrate on measuring the domestic variables that affect U.S. economic growth. However, the impact of foreign direct investment on the economic growth of the United States has not received the attention that is deserves. The purpose of this study is: (1) to examine the determinants of economic growth in the United States over time, and (2) to see if there is any time-series support for the FDI-led growth hypothesis in the United States. To achieve these goals the study uses a model that is based on the postulates of de Mello. Employing a 40-year period of annual data, the model is estimated by using the Beach Mackinnon technique which corrects for autocorrelation. The estimation results suggest the following conclusions: 1. The major determinants of economic growth in the United States are total factor productivity growth, domestic investment growth, and foreign direct investment growth. 2. Causal relationships between foreign direct investment growth and economic growth is uni-directional, running from foreign direct investment to economic growth. 3. Causal relationships between foreign direct investment growth and total factor productivity growth is uni-directional, running from foreign direct investment to total factor productivity. These findings suggest that foreign direct investment growth has a significant impact on the United States economic growth. Additionally, foreign direct investment has a significant impact on total factor productivity in the United States, further contributing to the United States’ economic growth. This calls on the U.S. policy makers to devise policies that are conducive to increasing the amount of foreign direct investment in this country.     

Bifurcations in the evolutionary approach to multilateralizing trade policy

The Doha Round on multilateral trade liberalization, originally intended to better integrate developing countries into the world economy, has been largely considered a failure. With the Doha outcome falling short of expectations, North–South trade remains underdeveloped. Embedding the political economy and the resulting importance of reciprocating trade liberalization in an evolutionary model along Axelrod–Rapoport lines indicates that factor endowments are crucial in triggering trade policies. Their pivotal nature gives rise to bifurcations, thereby tilting policies towards or away from liberalization trajectories. The theoretical insights are reflected in an empirical analysis, thus strengthening the case for a variable-geometry approach.     

Subcontracting bargaining power and the trade policy

In this paper, we consider that the split of surplus from a subcontracting deal depends on the relative bargaining powers of domestic and foreign firms. The finding shows that a domestic optimal export policy is a tax (subsidy) if the bargaining power of the domestic firm is sufficiently small (large). We also demonstrate that a domestic firm’s higher bargaining power increases (may decrease) domestic profit if the export policy is exogenous (endogenous). In the presence of an outsider option, the domestic optimal export policy will be threatened by the outsider option if the domestic firm’s bargaining power is sufficiently small, and thus a large bargaining power increases the optimal export tax. At the same time, the foreign firm may still subcontract to the domestic firm even if the domestic firm has a higher total marginal cost of the intermediate good than the outsider option.     

Voting for pollution policy: the importance of income inequality and openness to trade

This paper analyzes how openness and the distribution of factor ownership interact to determine individual and aggregate demand for pollution policy. Analysis of voter preferences in autarky shows that an increased stake in either the dirty or the clean industry can induce an individual voter to prefer stricter environmental policy. Similarly, the paper shows that poorer voters may be the greener voters within an electorate. The model also reveals that the incidence of pollution policy depends upon a country’s trade regime, with consequences for the direction in which income inequality influences aggregate demand for pollution policy.     

Endogenous free trade agreements and the multilateral trading system

I evaluate in this paper the impact of free trade areas (FTAs) on the world trading system. I use an oligopolistic-political-economy model where the external tariffs of FTA members, as well as the decision to form FTAs, are endogenously determined. In this context, I show that FTAs are primarily beneficial to the multilateral trading system. This conclusion is based, first, upon the finding that FTAs induce their member governments to lower their external tariffs, and to do so deeply enough to enhance trade even between FTA members and non-members. While this ensures gains for the latter, in general FTA members may not gain. I show, however, that governments will endorse only welfare-improving arrangements, in spite of their political motivations; as a result, FTA members benefit from ratified arrangements as well. Finally, I find that FTAs, by reducing the role of special interests criteria in governments' trade regime decisions, also tend to enhance support for further liberalization at the multilateral level.     

Exporting under trade policy uncertainty: Theory and evidence

I provide novel evidence for the impact of trade policy uncertainty on exporters. In a dynamic, heterogeneous firms model, trade policy uncertainty will delay the entry of exporters into new markets and make them less responsive to applied tariff reductions. Policy instruments that reduce or eliminate uncertainty, such as binding trade policy commitments at the WTO, increase entry. The predictions are tested on disaggregated, product-level Australian imports with model-consistent measures of uncertainty. The estimates show that growth of exporter–product varieties would have been 7% lower between 1993 and 2001 without the binding commitments implemented after the WTO was formed in 1996. If Australia reduced all its tariffs and bindings to zero, more than half of predicted product growth is accounted by removing uncertainty. These results illuminate and quantify an important new channel for trade creation.     

Carbon policy and the structure of global trade

Alternative perspectives on the structure of international trade have important implications for the evaluation of climate policy. In this paper, we assess climate policy in the context of three important alternative trade formulations. First is a Heckscher‐Ohlin model based on trade in homogeneous products, which establishes the traditional neoclassical view on comparative advantage. Second is an Armington model based on regionally differentiated goods, which is a popular specification for numerical simulations of trade policy. Third is a Melitz model based on monopolistic competition and firm heterogeneity. This heterogeneous‐firms framework is adopted in many contemporary theoretic and empirical investigations in international trade. As we show in this paper, the three alternative trade formulations have important implications for the assessment of climate policy with respect to competitive effects for energy‐intensive production (and hence carbon leakage) as well as the transmission of policy burdens across countries.     

Stock market data and trade policy: dumping and the semiconductor industry

This article uses stock market data to examine the effects of cost-based dumping and the subsequent trade agreements between the United States and Japan on U.S. semiconductor firms. Our empirical results show that the initial indication of dumping by Japanese semiconductor firms had a significant negative impact on stock prices of U.S. firms. On the other hand, the subsequent market-sharing trade agreement, under which Japan agreed to prevent the dumping of Japan-manufactured chips in the United States and the United States agreed to suspend the application of antidumping duties, had a positive impact on the stock prices of U.S. semiconductor firms. Our findings support the neoclassical trade theory that the imposition of import relief leads to a wealth transfer to producers.     

Using survey data to assess the distributional effects of trade policy

This paper develops a method to estimate the general equilibrium distributional effects of trade policies using household survey data. Trade reforms cause the domestic prices of traded goods to change and this, in turn, triggers a series of general equilibrium effects. Among these, I estimate the impacts of trade on the prices of traded goods, non-traded goods, and wages. By combining the estimates of the consumption impacts and the labor income impacts, I am able to assess how trade policies affect households across the entire range of the income distribution. An application of the procedure to the study of the distributional effects of Mercosur shows that the average poor and middle-income family in Argentina has benefited from the trade agreement.     

Keiretsu and relationship-specific investment: implications for market-opening trade policy

This paper considers the implications of relationship-specific investment within keiretsu for policies aimed at opening the Japanese market for intermediate goods, such as auto-parts. Both VIEs applied to parts and VERs restricting Japanese exports of autos cause the keiretsu to import a wider range of parts, but of a relatively unimportant type, such as seat covers. Since keiretsu investment and output fall, the total value of US parts exports may actually fall. For a given value of these exports, a VIE is less costly for US consumers and Japanese producers, but a VER is preferred by US automakers.     

Estimating the impact of trade specialization and trade policy on poverty in developing countries

This paper investigates the impact of trade specialization on poverty. The empirical findings show that in developing countries manufacturing exports contribute to poverty reduction. But agricultural exports have a more significant effect on poverty in low-income countries. The analysis also confirms that trade specialization reduces poverty but under specific trade specialization patterns and policy conditions.     

Reform and opening up in the new era: China trade policy review

This paper reviews the major changes in China's trade policies in the last few years. During this period, the adjustment of trade policies has developed in the following ways: first, the establishment of free trade zones, which emphasises the importance of advanced systems rather than preferential policies; second, putting forward the “Belt & Road” Initiative, which indicates China's new stage of development from “bringing in” to “going out”; third, holding import expos, which marks an era when China's foreign trade development has shifted from focusing on exports only to focusing on both exports and imports; fourth, reducing entry barriers of foreign capital, which demonstrates that the policy framework for FDI has gradually changed from a positive list to a negative list; fifth, promoting trade negotiations, which reflects that China has actively participated in bilateral, regional and multilateral trade talks; and finally, building up new experimental fields of reform and opening up, which shows evidence that a new generation of special economic zones is emerging.     

The effects of loss aversion on trade policy: Theory and evidence

We study the implications of loss aversion for trade policy determination and show how it allows us to explain a number of important and puzzling features of trade policy. Some important questions concerning trade policy are why a disproportionate share of protection goes to declining industries and why trade policy has an anti-trade bias. We show that if individual preferences exhibit sufficient loss aversion, higher protection will be given to sectors in which profitability is declining. We also show that if the coefficient of loss aversion is large enough, there will be an anti-trade bias in trade policy. Using a nonlinear regression procedure, we find support for the model and the estimates of the loss aversion parameters are very close to those obtained by Kahneman and Tversky (Kahneman, D., Tversky, A., 1992. Advances in Prospect Theory: Cumulative Representation of Uncertainty. Journal of Risk and Uncertainty 5, 297-323.) with experimental data. Protection is found to be more responsive to losses than to gains, and the estimates of the coefficient of loss aversion are about 2. We also find evidence of loss aversion in lobby formation.     

Facing up to Trump administration mercantilism: The 2018 WTO trade policy review of the United States

As one of the largest trading economies in the WTO system, US trade policy is reviewed regularly by WTO members, informed by a Trade Policy Review (TPR) report. This paper discusses the 2018 TPR of the United States, the 14th such review undertaken since the entry into force of the WTO in 1995. It is the first review of trade policy under the Trump administration. While the TPR documents the significant changes in US trade policy, it does not engage with the mercantilist vision that motivates trade policy under President Trump or the apparent desire to engage in trade wars with its major trading partners. The lack of discussion of the existential threat to the liberal trading system implied by the drastic changes to US trade policy reduces the salience of the TPR and makes it unclear exactly what purpose it serves.     

Decentralized negotiation: An approach to the distributed planning problem

DENEGOT is a distributed planning framework that bases conflict resolution on decentralized peer negotiation. Negotiation is viewed as a distributed search through potential compromises. The framework assumes that a satisficing solution is acceptable (a reasonable assumption in many complex domains). To estimate the quality of potential solutions, the negotiation search space is structured into a lattice of sets of potential compromise solutions based on hard constraints. A solution in a higher set in the lattice, if it is achievable, will be preferable over a solution in a lower set. Agents first search under the hard constraint level representing the highest quality solution standard achievable in the current situation. By relaxing hard constraints, the set of compromises that qualify as a solution are enlarged. Agents search for a resolution under the relaxed hard constraint set when a solution cannot be found under the current set of constraints. The framework consists of three iterative problem-solving phases: coordinated search, negotiation state analysis, and constraint relaxation. The application of the DENEGOT framework to distributed planning problems in two domains is demonstrated.This work was partly supported by the Defense Advanced Research Projects Agency (DARPA), monitored by the Office of Naval Research under contract N00014-89-J-1877, by the Office of Naval Research under a University Research Initiative grant, number N00014-86-K-0764, and by the PRC Independent Research and Development project, number R00911. DPS.