Time structure of production and the theory of international trade

This paper reexamines aspects of international trade theory by taking account of the time required for transforming inputs into outputs. The discussion focuses explicitly upon the time structure of production, characterized by profiles of inputs and outputs over time. Each of the model's two consumer-good sectors has different flow-input flow-output technology, with which labor produces heterogeneous capital goods and final output. As shown by the analysis, intersectoral differences in the time structure of production have important implications for the impact of world trade on a country's employment of labor, accumulation of capital and level of income.     

Unemployment,tariffs and the theory of international trade

In this paper, we introduce diminishing returns to scale in Brecher's model of international trade with unemployment and then investigate some issues embodied in the theory of international trade. Our principal results are that tariffs need not improve a country's terms of trade and that capital accumulation also need not result in a predictable change in the terms of trade.     

Free trade's intertemporal Pareto-optimality

Emmanuel's thesis of ‘unequal exchange’ — that free trade at equalized profit rates and unequal wage rates (1) involves deadweight loss to the world, and (2) explains a one-way trend toward deterioration of poor country's wellbeing and double-factoral terms of trade — is found on analysis to be incorrect. Careful time-period analysis shows that such free trade is actually intertemporally Pareto optimal, despite misleading steady-state comparisons.     

The international assignment of stabilization policies under fixed and flexible exchange rates

This paper investigates the ability of policymakers to achieve stabilization targets in the face of spillover effects from abroad. In the context of a two-country Keynesian model, each country's stabilization policy turns out to have a comparative advantage over domestic economic activity under fixed exchange rates and sterilization. By assigning policy domestically, both employment targets can be eventually achieved despite trade linkage spillovers. The same conclusion is reached for the case of floating exchange rates despite spillover effects associated with capital mobility. Finally, it is discovered that coordination under fixed exchange rates may benefit one country and injure the other.     

The national defense tariff argument reconsidered

What is a country's optimal trade policy when embargoes and other trade interruptions are threatening? In addressing this issue, the paper emphasizes the nature of adjustment impediments when an effective embargo forces the economy to alter its production pattern abruptly. A production subsidy on the imported good represents the optimal policy choice, a tariff being a second-best instrument. The tariff's superiority to free trade implies, in turn, that the conventional classification of the national defense tariff as a noneconomic argument is inappropriate since economic efficiency criteria alone can justify the tariff.     

Reswitching,primary inputs and the Heckscher-Ohlin-Samuelson theory of trade

The 2× 2 × 2 Heckscher-Ohlin-Samuelson model of trade is examined under all the usual assumptions, except that a positive rate of interest is assumed. The factor-price-equalization and Stolper-Samuelson theorems are shown to be unaffected by the positive interest rate. The H-O-S theorem on the pattern of trade still holds in its ‘quantity’ form but is shown to be invalid in its ‘price’ form. Consequently trade need not ‘harm’ a country's scarce factor. It is to be expected that, in general, international equilibrium will not be unique.     

Economic growth,capital movements and the international transfer of technical knowledge

The paper analyzes the role of technological transfers in an international capital movement model by assuming that these transfers depend on the extent of foreign ownership of a country's capital stock. Compared to the standard model, two differences emerge. First, a negative relationship exists between a country's indebtedness and its capital intensity. Second, changes in saving ratios can affect a country's capital intensity. We also relax the assumption of continual equality between capital's domestic marginal product and the world interest rate. It is shown that multiple equilibria and cyclical approaches to the steady state can arise in a technological transfer model.     

Comparative cost advantage and trade performance: a panel data approach

This article examines the relationship of the components of labor cost—unit cost, productivity, compensation—to the structure of U.S. trade flows in manufacturing industries for the period 1967-1982. Earlier cross-sectional models do not account for differential trade barriers among industries while time series studies do not include changes in either trade barriers or exchange rates. This study addresses these problems by using a panel data model with fixed time effects. Because this model had limited success in estimating the labor compensation parameter, a panel data model with individual industry effects was also estimated.     

The true meaning of David Ricardo’s four magic numbers

The four numbers in David Ricardo’s example of comparative advantage have been traditionally interpreted as unit labor coefficients in the production of wine and cloth in UK and Portugal. A recent interpretation suggests that they represent instead the labor needed to produce the amounts of wine and cloth actually traded. Ricardo’s four numbers are shown to yield each country’s gains from trade by simply subtracting two of the numbers from the other two. Since the numbers also indicate each country’s comparative advantage, Ricardo established a close connection between comparative advantage and the gains from trade.     

South-north trade and southern growth: Bleak prospects from the structuralist point of view

A three-country, three-commodity model is developed to illustrate the dynamics of growth among the ‘North’, the ‘South’ and ‘OPEC’. One conclusion is that the Southern growth rate will be increased by faster growth of Northern capital, with a steady state response coefficient of unity. However, if the steady state is perturbed by increases in Northern productivity or the oil price, then the coefficient becomes less than one. In the short run, higher capital flows from North to South increase the former's growth rate but may have only marginal impact on growth in the South. Higher productivity in the South will slow its growth rate and reduce its terms of trade when the Engel elasticity of Northern demand for its exports is less than one. These and other results follow from surplus labor in the South and its dependent position in international trade, from which it will be difficult to escape.     

Intra-industry trade in identical commodities

The usual approach to intra-industry trade is to assume that such trade arises because slightly different commodities are produced and traded to satisfy consumer's tastes for variety. In this paper it is shown that there are reasons to expect two-way trade even in identical products, due to strategic interaction among firms.     

Foreign exchange rate and trade balance dynamics in East African countries

This study investigates the effects of real exchange rate on trade balance in East African countries. In contrast to past studies that have often focused on one country in the region and adopted traditional empirical methods that are subject to shortcomings, the present study employed the ARDL procedure and investigated the issue in 10 East African countries. The main results are as follows. First, real exchange depreciation significantly improves trade balance for four countries in individual country estimations, as well as in panel estimation. Second, the elasticity of trade balance with respect to real exchange rate is inelastic. Elasticity slightly increases after exchange rate liberalization but remains inelastic. Third, significant short-run fall was not found for trade balance, which suggests lack of evidence for J-curve relationship     

The exchange regime and trade balance in Turkey

Over the last 15 years, high trade deficits have become a source of external vulnerability for the relatively stabilized Turkish economy. This corresponds to the period where authorities have been following a floating exchange rate regime. Thus, this study aims to empirically show whether the adopted exchange rate regime has an impact on the trade balance for the period of 1987 Q1 to 2015 Q2. Estimation results indicate that there is a long-run relationship between the real effective exchange rate and trade balance under both fixed and floating regimes in Turkey, but there is no evidence for the J-curve hypothesis.     

Fiscal and exchange rate policies in a fix-price trade model with export rationing

Recent writings in macroeconomics [e.g. Barro-Grossman (1976) and Malinvaud (1977)] have presented models where short-run price and wage rigidities prevent instantaneous attainment of a Walrasian equilibrium. The effects of macroeconomics policies in such models where prices and wages are exogenously fixed for one reason or another, depend critically on the nature of the implied rationing of labor and output among potential demanders and suppliers in various nonmarket-clearing situations. The present paper develops a simple two-sector model of an open economy in which rationing occurs when the exportable good is in short supply. The short-run effects of fiscal and exchange rate policies on output and the trade balance are shown to vary depending on the nature of labor and output markets ‘disequilibria’. Policy-makers must, therefore, be able to assess the nature of nonmarket-clearing situations to prescribe appropriate policy measures. Naive assumptions that standard Keynesian models are appropriate may lead to policy errors.     

Legal rights,national culture and social networks: Exploring the uneven adoption of United Nations Global Compact

We develop and test a novel framework for explaining cross-country differences in corporate participation in a prominent initiative often associated with social responsibility, United Nations Global Compact (UNGC). Drawing upon neo-institutional and cross-country comparative literatures, we explore the impact of (a) stakeholder legal rights; (b) national culture, and (c) the country's social network position, as reflected by international trade patterns. Results suggest that firms from countries with strong labor rights, collectivist cultures, and long traditions of stock trading join UNGC at higher rates. Our framework can be modified for future cross-country research on the adoption of practices.     

The effect of exchange rate uncertainty on the prices and volume of international trade

By specifying a model of differential risk-bearing by import demand and export supply sides of the market for traded goods, the theoretical impact of exchange risk on both equilibrium prices and quantities is analyzed. For several empirical cases of 1965–1975 U.S. and German trade it is found that exchange rate uncertainty has had a significant impact on prices but no significant effect on the volume of trade. These price effects support previous survey results on the currency denomination of export contracts, namely that with the exception of some U.S. imports, most trade is largely denominated in the exporter's currency.     

Currency distribution and forward cover in foreign trade: Sweden revisited, 1973

New data on currency distribution in Sweden's foreign trade payments for 1973 are presented and compared with data from an earlier survey for 1968. The basic pattern remains unchanged, invoicing being predominantly made in local currencies. The limited use of U.S. dollars, and other third-country currencies, has remained approximately the same over the five-year period, though with a marked shift from pounds to dollars and D-marks. Both the 1968 year of fixed parities and the 1973 year of floating exchange rates display a symmetric payments system, without any particular currency playing the role of ‘international money’ in private transactions. Data are also supplied for the total volume of forward transactions in Sweden from 1966–1974. As anticipated in foreign exchange theory, forward covering of trade payments has increased sharply since the floating of exchange rates in 1973.     

Disagreement points in trade negotiations

This paper analyzes trade negotiations between two large countries in the framework of an alternating-offer bargaining model with endogenous interim disagreement actions. Despite of the flexibility in disagreement tariff selection, the countries would keep the status quo tariffs in disagreement periods as far as the country which benefits from keeping the status quo tariffs compensates for the other country’s foregone gains from deviating in disagreement actions. Each equilibrium outcome converges to a corresponding Nash bargaining solution whose disagreement point reflects the status quo tariff rates as well as the threat of raising the tariff to the Nash tariff rate.     

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.     

Determinants of China's bilateral trade balance in global value chains

This paper identifies the determinants of China's bilateral trade balance using a new measure based on international input–output data, the so-called ‘trade in value-added’ (TiVA), which can prevent double counting in the estimation of bilateral trade balance. Our results show that using a measure based on gross exports, rather than TiVA, causes relatively large overestimation of the impact of the RMB exchange rate on China's bilateral trade balance. This overestimation is mainly because that the increasing production of exports may require increasing intermediate imports as a consequence of international fragmentation of production in global value chains. In addition, our results also show that the impact of FDI inflows on China's bilateral trade balances depends on the position and role of China and its trading partners in GVCs.