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.     

A note on ‘trade pattern reversals’

Samuelson's 1975 paper investigating the possibilities of immiserizing trade reversals stemming from autonomous variations of the rate of profit strongly criticizes Emmanuel's Unequal Exchange treatment of that issue. The author of the present note believes that the Samuelson theorems are both inconsistent in themselves and irrelevant to his treatment. This note, however, is confined to the second contention: showing the main points of misrepresentation of the Emmanuel analysis.     

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.     

Economic imperialism and resource nationalism: Comment on Kemp and Ohyama

Kemp and Ohyama show that a self-seeking resource-poor imperial economy can use tariffs to completely exploit its resource-rich raw-material producing colonial trading partner, but that when capital is immobile, the colonial economy loses all power to exploit by means of ad valorem trade taxes. We use geometry to explain why, and demonstrate that there are other instruments (export quotas, import quotas, an export tariff specified in units of the import per unit of the export, and destruction of the raw material by the colonial economy's government) which may restore the colonial economy's ability to exploit the imperial one.     

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.     

An extension of Bale's labor displacement cost estimates

Bale (1976) failed to extend his labor displacement cost estimates to the more interesting question of whether these costs outweigh gains from trade liberalization. This note addresses that question by applying Bale's estimates to Magee's (1972) study of the welfare effects of U.S. trade restrictions. Our results indicate that gains far outweigh costs of tariff removal on imports directly competing with U.S. production.     

An interest rate and factor price equalization theorem with nontraded commodities

The model under consideration consists of m pure consumption goods, n capital goods, and h ≦ m primary factors of production in long-run time-phased equilibrium. Two alternative capital intensity conditions are defined in terms of physical unit input coefficients which suffice for equalization of the interest rate, all capital good prices, and all primary factor prices, provided only there is positive trade in every consumption good and in at least one capital good. If the capital intensity conditions hold at all factor prices, the result remains valid even if trading regions have a technology consisting of neoclassical production functions.     

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.     

The Harris-Todaro hypothesis and the Heckscher-Ohlin-Samuelson trade model : A synthesis

We report a model of the Harris-Todaro variety in which capital is mobile and the urban wage is endogenous. Our model subsumes several other models presented in the literature. We extend the central theorems of trade to our model and also present formulae for the shadow wage and shadow rental. Our principal findings include (a) nonexistence of equilibrium in an important specialization of the model; (b) a factor-price and unemployment rate equalization theorem: and (c) an identical subsidy to labor but a differential subsidy to capital for obtaining a second-best optimum.     

On Rybczynski's theorem in a setting of growth

This note re-examines earlier work by Petith on a two-sector economy in steady state growth facing constant world prices. It is shown that a steady state with higher saving propensities out of wages or profits has a higher output of the capital good per head, and greater exports of it compared to the no-trade equilibrium, if and only if the capital good is more capital-intensive. Petith's example yielding counterintuitive results is shown to be in error.     

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.     

Effects of personal taxes and equity issuing costs on the firm's investment decision

The existence of preferential taxes on capital gains relative to ordinary income is widely understood to create a systematic preference for internal rather than external equity financing. This preference is magnified by the existence of issuing costs on new equity. This paper develops a procedure to account for these market imperfections in terms of an adjusted net present value that directly adjusts a project's net present value calculated without regard to the imperfections. Once the correct adjustment procedure is developed, the practical implications of personal taxes and issuing costs on the firm's investment behavior clearly emerges. These market imperfections have created a discontinuous function for the firm in obtaining equity capital. Many rational wealth-maximizing firms are forced to make investment decisions in a situation similar to capital rationing as the separation theorem between investing and financing does not generally hold. This explanation of a potentially long-run need for capital rationing is consistent with otherwise perfect capital markets.     

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.     

Japan and minerals development in ASIA: The impact of transportation technology

New economic and political policies and new developments in transportation are leading to changes in the development of minerals in the Pacific Basin. Japan's postwar economic expansion and her key role in minerals development can be seen as a direct consequence of her lack of land and natural resources. The key challenge in minerals development is to create integrated transport systems, which in turn will encourage the formation of multinational companies. Predictable trends in the development of Pacific minerals are (1) Japan's increasing capital investments and (2) a more volatile pattern in her demand for minerals. The expected changes in minerals development present both a challenge and a promise.     

The calculation of bilateral trade patterns in a Ricardian model with intermediate products and barriers to trade

After arguing for a computational approach to the theory of international trade the paper presents an algorithm for solving a generalized Ricardian two-country model. The algorithm focuses on the ‘critical exchange ratios’ at which the pattern of specialization changes. In the absence of barriers to trade there is one exchange ratio (defined as the value of one country's labor in terms of the other country's labor) at which production of a good moves from one country to the other. With barriers to trade there are two critical ratios for each good, between which it is not traded. Taking the critical ratios in sequence the trade balance can be calculated as a discontinuous function of the exchange rate; where the balance equals zero (or some given transfer) the problem is solved. The method works with arbitrary demand functions and can handle intermediate products.     

INTERNATIONAL TRADE COMPOSITION AND MEDIUM-RUN GROWTH: Evidence of a Causal Relationship

The motivation for this article stems from Mazumdar's (1996) hypothesis that international trade composition impacts a country's ability to achieve transitional economic growth. In his article, Mazumdar suggested that developing economies, generally known for exporting consumption goods and importing capital goods, benefit more from international trade than do developed economies. In addition to static gains, developing economies experience a decline in the replacement costs of capital as the relative price of capital falls with trade. To empirically test this hypothesis, a trade composition variable is created using unpublished SITC export and import data of both consumption and capital goods. Incorporating this variable into a linear equation, a Granger Causality test and a more extensive VAR test are performed for a select group of developed and developing economies. The empirical results are suggestive, and indicate some support for the hypothesis that trade composition "causes" medium-run transition.     

International trade in the presence of product differentiation,economies of scale and monopolistic competition: A Chamberlin-Heckscher-Ohlin approach

The paper presents a generalization of the Heckscher-Ohlin theory by admitting the existence of sectors in which there is monopolistic competition. The structure of preferences is based on Lancaster's work. It is shown without requiring homotheticity in the production of differentiated products that the intersectoral pattern of trade can be predicted from factor endowments but not from pre-trade commodity prices or factor rewards, except under special circumstances. It is also shown how the share of intra-industry trade is related to differences in income per capita and how the volume of trade depends on differences in income per capita and relative country-size Other empirical implications are also discussed.     

A simple approach to international monetary policy coordination

This paper analyzes the strategic interaction between the monetary policymakers of two countries, in an intertemporal general equilibrium model with nominal rigidities and imperfect competition. It offers an excursus on non-cooperative towards cooperative solutions. In a non-cooperative equilibrium the monopolistic allocation prevails in both countries, because of the incentive to use strategically the terms of trade. In a cooperative solution where both policymakers internalize the externalities given by the terms of trade, the competitive allocation is reached. However, cooperation can be counterproductive. We then characterize a problem of delegation in which the set of choice is restricted to the Pareto efficient allocations and in which the participation constraints implied by the non-cooperative equilibrium are taken into account.     

Customs union theory and the nonuniformity of tariffs

Allowance is made for the initial nonuniformity of the tariffs of a union country before it joins a customs union. The reduction of such nonuniformity is a possible source of welfare again distinct from the usual trade creation and trade diversion effects. A net welfare gain from a union may result even when the country's total trade stays unchanged and even when all trade with the outsider ceases. A three-product, small-country model is used, domestic production and consumption substitution between the two importables yielding the import pattern effect that produces the possible gains referred to.