A tariff on a productive factor and import competing supply

A tariff on an imported factor of production such as energy or capital reduces the import as well as output in the general equilibrium of a small open economy. The present paper shows real income may rise, however, due to an increase in the import competing quantity supplied. The present competitive economy produces a single exported output with two factors of production, one purely domestic. The import competing price elasticity, shares of income and output, and factor substitution determine general equilibrium adjustments to a tariff on the imported factor.     

Interindustry flows, non-traded intermediate goods and the theory of effective protection : A general equilibrium analysis

This paper examines the response of net and gross outputs of tradeable goods to changes in tariff structure in the context of a comprehensive general equilibrium model with interindustry flows and non-traded, as well as imported, intermediate goods. There are two major results. First, the nominal rate of tariffs on a tradeable good is shown to correctly indicate the movements of its net output under most general conditions. Second, the (modified and) generalized Corden index of effective protection for a tradeable good is revealed to be in a close relationship with the behavior of its gross output under certain restrictions on the input substitutability of industries.     

A CGE model of 'Dutch disease' economics in Taiwan

A computable general equilibrium (CGE) model of Dutch disease economics in Taiwan's economy is established in order to examine the impacts of the imbalanced growth in output, endogenous learning effects from imports and exports and the import tariff reduction. Twenty-nine industry sectors and five quintiles of households are taken to measure the changes in industry structure and functional distribution of income. An imbalanced growth, either from output or exports, contributes to the reduction in the share of manufacturing industry, but the deterioration in the functional distribution of income only happens to an imbalanced growth in intersectoral output. A widespread trade liberalization policy helps to mitigate the Dutch disease phenomenon in the sense that de-industrialization and deterioration of the distribution of income by an imbalanced growth in manufacturing industry are not so severe.     

基于CGE模型定量探析碳关税对我国经济的影响

碳关税是发达国家在应对金融危机中为保持本国经济对其他国家设置的绿色壁垒。文章基于可计算一般均衡(CGE)模型,在生产模块、对外贸易模块、收入支出模块、碳关税模块等模型相互嵌入式的构建,定量探析碳关税对我国对外贸易、总体经济、生态环境、不同省区经济的影响,进而得出碳关税政策对我国外贸、经济生产等方面造成较大负面影响,而在生态环境改善下影响甚微,其实质是一种保护本国经济、阻碍中国经济发展的贸易壁垒。     

Tariffs,non-traded goods and fiscal policy

This paper considers the effects of tariffs in a framework that explicitly accounts for the intertemporal nature of the current account. In particular, the paper shows how tariffs alter the domestic real interest rate, thereby influencing the optimal paths of consumption, saving, and the current account. By emphasizing the distinction between home goods and traded goods for a small open economy, the analysis highlights the important role of the real exchange rate in determining macroeconomic equilibrium. This paper also demonstrates the crucial importance of assumptions about the type of government fiscal policies accompanying a tariff.     

Regional Trade Agreements versus Global Trade Liberalisation: Implications for a Small Island Developing State

This study undertakes an empirical investigation of the macroeconomic and sectoral impacts of two forms of regional trade agreements vis‐à‐vis global trade liberalisation on a small island country, using Fiji as a case study. In order to capture the feedback effects of such a complex set of policies, we employ a dynamic computable general equilibrium model of the Fijian economy to investigate (i) the impact of the Pacific Island Countries Trade Agreement (PICTA), (ii) the impact of PICTA, the Pacific Agreement for Closer Economic Relations (PACER), and the Economic Partnership Agreements (EPAs), (iii) the impact of full tariff liberalisation (i.e. tariff removal only), and (iv) the impact of full trade liberalisation, with removal of both tariff and non‐tariff barriers. While PICTA consistently provides the least benefits across a range of macroeconomic indicators including real output, welfare, trade volumes and employment, full trade liberalisation involving the removal of tariff and non‐tariff barriers provides the greatest benefits compared to the other scenarios in terms of real output. However, the latter scenario is outperformed by PICTA, PACER, the EPAs and full tariff liberalisation in terms of welfare effects, trade volumes and employment. The policy implications hold important lessons for developing countries considering trade liberalisation.     

Intermediate imports, the terms of trade, and the dynamics of the exchange rate and current account

This paper studies the macroeconomic effects of an increase in the price of an imported intermediate production input. The framework of the analysis is a small open economy with a floating exchange rate and endogenous terms of trade, in which saving depends on residents' (variable) rate of time preference. Contrary to popular conceptions, an intermediate price shock may lead to an appreciation of the exchange rate in both the short run and the long run, and is likely to occasion a current-account surplus. The terms of trade between foreign and domestic finished goods always improve in the long run.     

Conjugate small country production equilibrium concepts

Conjugacy theory is utilized and developed to develop an interpretation of the production equilibrium in general equilibrium in terms of the properties of sectoral value added functions and in terms of the relative influence of each sector on all other sectors in a small country's economy. The exact relationship between the comparative static system thus analyzed and the one traditionally built on equilibrium in terms of the vector of factor prices and gross output levels is delineated. The major contributions to the theory of effective protection are also illuminated.     

Non-traded inputs,interindustry flows,resource allocation and the ERP theory

This paper investigates the movement of gross outputs and resource allocation under the condition allowing for substitutability among various inputs within the framework of a simple general equilibrium model with both non-traded intermediate inputs and interindustry flows. Particular attention is paid to the sufficient conditions under which the gross output of the protected industry goes up and the industry attracts domestic factors under the Bhagwati-Srinivasan restriction on tariff change.     

Welfare implications of trade liberalization and fiscal reform: A quantitative experiment

This paper studies the welfare implications of revenue-neutral trade liberalization and fiscal reform programs for developing economies using a multi-sector dynamic general equilibrium model of a small open economy. We analyze how different combinations of tariffs – on imported consumption goods, intermediate inputs, and capital goods – and taxes – on consumption, labor income and capital income – affect the transitional and long-run welfare. We report three main findings. First, trade liberalization programs financed by consumption and labor income taxes tend to result in substantial welfare gains, but financing the lost tariff revenue through capital income taxes can have an adverse impact on welfare. Second, a significant fraction of welfare changes is due to transitional effects stemming from the allocation of resources in response to changes in tariffs and taxes. Third, trade liberalization and fiscal reform programs often translate into much larger welfare gains in countries that are more open to international financial markets.     

Expectations and exchange rate dynamics: A state-dependent pricing approach

This paper presents a two-country DSGE model with state-dependent pricing as in Dotsey et al. [Dotsey, M., King, R.G., and Wolman, A.L., 1999. State-dependent pricing and the general equilibrium dynamics of money and output. Quarterly Journal of Economics 114, 655-690] and variable demand elasticity as in Kimball [Kimball, M.S., 1995. The quantitative analytics of the basis neomonetarist model. Journal of Money, Credit, and Banking 27, 1241-1277]. Following a domestic monetary expansion, the model predicts: (i) positive hump-shaped responses of domestic output and consumption, (ii) positive spillover effects on foreign output and consumption, (iii) a high international output correlation relative to consumption correlation, (iv) a delayed increase in domestic and foreign inflation, (v) a delayed nominal exchange rate overshooting, (vi) a deterioration in the terms of trade, and (vii) a J-curve in the trade balance. The model matches the impulse responses from an identified VAR more closely than an otherwise identical model with time-dependent pricing.     

Flexible exchange rates,unemployment and stabilization policy effectiveness

The paper presents a general equilibrium model of a small flexible exchange rate economy comprising asset, goods, and labor markets. Viewing the exchange rate as determined proximately in asset markets, the study examines its influence on the excess demand for labor and for output and, correspondingly, its impact on the level of unemployment and external imbalance. The role of exchange rate expectations is central to the present analysis, which reconsiders, in that light, the conventional conclusions about monetary and fiscal policy effectiveness under flexible exchange rates.     

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.     

台湾对大陆产品提高关税的理论模型分析——从要素收入分配扭曲效应出发的研究

台湾如果对大陆产品提高关税会扭曲岛内要素收入分配的格局。本文在一个使用两种生产要素资本和劳动并生产两种商品高技术产品和机制品的一般均衡模型中,考察短期内和长期内上述关税提高会对两种要素的收入产生怎么样的影响。本文的理论分析得出的结论是:就劳动的收入工资来说,短期内两个部门的工资都在提高,但长期内未被保护的高技术产品部门的工资反而会降低;就资本的报酬来说,短期内被保护部门机制品的资本报酬有所提高,而没有被保护部门的资本报酬反而会降低。因此,台湾提高进口关税的这种要素收入分配效应,不利于自己优势产业的发展,ECFA的实施有其经济学理念基础。     

A dynamic model of tariffs,output and employment under flexible exchange rates

A portfolio balance model of the open economy with imperfectly flexible wages and rational expectations is used to analyze the macroeconomic effects of commercial policy. Previous analyses have led to the ‘counterintuitive’ and ‘almost inconceivable’ conclusion that, under flexible exchange rates, a tariff is contractionary. By considering a tariff in a dynamic setting and focusing on the process of adjustment, it is shown that there may exist a tradeoff between a tariffs short-run and long-run effects. In certain circumstances, a tariff imposed under flexible exchange rates increases output and employment initially while reducing them subsequently.     

Cyclical wage movements in emerging markets compared to developed economies: a general equilibrium comment

I examine distinct cyclical properties of labor markets in emerging economies compared to developed ones from a general equilibrium perspective. The evidence in emerging economies shows that (1) wages are more volatile than income, while (2) employment is less volatile and (3) less pro-cyclical than in developed economies. I use a standard open-economy model to study the implications of wealth effects on labor market dynamics in both emerging and developed economies simultaneously. In contrast to the (partial equilibrium) results of the small open economy (SOE) model, I show that in general equilibrium, strong wealth effects on labor supply in emerging economies are necessary to rationalize the evidence. The model is also consistent with empirical regularities of exchange rate fluctuations, namely (1) excess volatility of real exchange rates, and (2) the negative co-movement between the real exchange rate and relative consumption.     

Trade Liberalisation and the Wage Skill Premium in Korean Manufacturing Plants: Do Plants’ R&D and Investment Matter?

This paper examines the effects of output and input tariff reductions on within‐plant wage skill premium in Korean manufacturing plants. We find evidence that output tariff reduction interacts differently with plants’ R&D and investment behaviours, respectively, to affect wage skill premium. More specifically, output tariff reduction increases wage skill premium mostly in R&D‐performing plants while reducing it mostly in plants making positive facility investments. While there is weak evidence that input tariff reduction increases wage skill premium, no such interactive effects are found. One story behind our results is that, although both R&D and facility investments may respond to changes in profit opportunities due to output tariff reductions, R&D raises the relative demand for the skilled workers while facility investment, an activity of increasing production capacity, raises the relative demand for the unskilled workers.     

The choice of appropriate technology in a general equilibrium model

This paper analyzes the general equilibrium aspects related to the choice of technology. The paper studies the problem from the perspective of a small, labor abundant open economy that does not generate its own technology. The economic planners must choose between two technologies, one better geared toward the production of labor intensive goods, the other to capital intensive goods. It is shown that the choice of technology not only will affect the welfare level, but it can also reverse the pattern of international trade. It is also shown that the imposition of a tariff can lead the planner to choose a different technology from the one that is optimal under free trade.     

Managed floating as a strategy to achieve selected monetary policy objectives

The paper considers the connection between exchange rate regimes and economic performance as measured by inflation, output growth, and their volatility. It is argued first that the choice of an intermediate exchange rate regime is complicated by potential conflicts with the requirements of central bank transparency and accountability. These are considered to be longer run questions. Next, three types of managed floating regimes are defined. A variety of counterfactual experiments are shown to illustrate that a managed float, such that the objective of monetary policy is expressed in terms of an inflation target, will produce the most desirable macroeconomic outcome. The counterfactuals are supplemented with estimates of forward-looking Taylor rules to ascertain whether such rules are informative under a managed floating scenario. In general, the answer is that central bank reaction functions become less useful when the exchange rate regime is an intermediate one.     

Terms of trade and exchange rate regimes in developing countries

Since Friedman [Essays in Positive Economics, University of Chicago Press, Chicago (1953) 157-203] an advantage often attributed to flexible exchange rate regimes over fixed regimes is their ability to insulate more effectively the economy against real shocks. I use a post-Bretton Woods sample (1973-96) of 75 developing countries to assess whether the responses of real GDP, real exchange rates, and prices to terms-of-trade shocks differ systematically across exchange rate regimes. I find that responses are significantly different across regimes in a way that supports Friedman’s hypothesis. The paper also examines the importance of terms-of-trade shocks in explaining the overall variance of output and prices in developing countries.