Basic goods,the effects of commodity transfers and the international economic order

A two good, two region and three income group macro model is constructed to explore possible effects of aid on distribution of welfare. One region, the North, has two income groups characterized by different endowments and proportions of consumption of the basic and the luxury goods. We study policies that result in transfers of goods from the high income group of the North to the South. In one case, the transfer is of luxury or investment goods; under the conditions, it is shown to produce a change in relative prices that induces an increase in the welfare of the North and decreases the welfare of the South, even under conditions of (Walrasian) stability of the markets. In a second case, the high income group in the North transfers, instead, basic goods to the South. It is shown that under the conditions an increase in welfare of the South can only occur at the expense of a decrease in welfare of the low income group in the North. Therefore, in general, aid in the form of commodity transfers cannot be relied upon to equalize overall welfare: under the conditions there is necessarily a trade-off between more North-South equality and greater equality within the North. When aid is endorsed to pursue NIEO objectives, a close examination of international and domestic markets seems in order, so as to avoid the conditions studied here. The formation of (international) coalitions among the different groups is also discussed.     

How and where to offshore: a productivity comparison at the firm level

Using recent survey data on South Korean firms’ strategies for sourcing intermediate goods from abroad, we investigate whether there exists a productivity premium of offshoring by considering organizational forms (insourcing versus outsourcing) and the income level of offshored countries (North versus South) altogether. Thus, we consider the following four offshoring types: outsourcing from South, insourcing from South, outsourcing from North and insourcing from North. Unlike previous studies, we give particular attention to the comparison between outsourcing from North and insourcing from South and find that firms outsourcing from North are more productive than firms sourcing from their own affiliates in South. We offer three critical conditions to incorporate our empirical findings into the standard firm heterogeneity model: the fixed cost is higher for insourcing than for outsourcing and is higher in North than in South, the headquarters receive a larger share of the final revenue through insourcing than through outsourcing, and sourcing from North guarantees better profitability (or a bigger share) in the market for the headquarters than sourcing from South. Thus, this article contributes to the literature by identifying a new productivity order.     

Globalization and the Inequality–Unemployment Tradeoff

Over the last 20 years, advanced economies have experienced an “unemployment versus inequality” tradeoff that is critically uneven across countries. To explain this, we propose an extended HOS model in which: the factors are skilled and unskilled labor; there is a continuum of goods; the world comprises two North countries (one egalitarian and one nonegalitarian) and the South; there is no factor price equalization; globalization consists in the South cornering a growing share of world production. In the North, globalization entails an inequality–unemployment tradeoff and the adjustment to globalization is more painful for the country that was initially inequality‐oriented.     

Gradual globalization and inequality between and within countries

Abstract.  This paper investigates the effects of gradual trade liberalization on intra‐country and inter‐country inequality. It assumes two countries, North and South, and two factors, skilled labour and unskilled labour. North is defined as the one that is relatively skilled‐labour abundant and larger. A marginal trade liberalization from autarky is shown to (a) increase (decrease) in skilled‐unskilled wage differential in the North (South) and (b) raise the inequality between North and South. As the global economy approaches free trade, a marginal trade liberalization has effects, which are the opposite of (a) and (b); that is, the relative wage falls in the North and rises in the South, and North‐South inequality decreases.     

Should the north make unilateral technology transfers to the south?: North–South cooperation and conflicts in responses to global climate change

Whether developed countries should make unilateral technology transfers to developing countries in order to address global environment problems is debatable. This paper discusses the issue in a framework that recognizing nations' joint production of environmental externalities. Unlike the existing literature on unilateral transfers, this paper presents a North–South environmental–economic optimal growth model that allows transfers to mitigate externalities only. The paper derives criteria that would make such transfers feasible. By solving the transfer problem in a modified RICE model [Nordhaus, W.D., Yang, Z., 1996. A regional dynamic general equilibrium model of alternative climate change strategies, Am. Econ. Rev., 86 (4) 741–65], this paper also provides information on the timing and the amount of unilateral transfers from North to South to address potential global warming problem, one major global environmental externality. A policy implication from this study is that moderate employment of unilateral transfers would benefit North along with the world as a whole.     

Growth and Trade: The North Can Lose

Several models of growth and trade concludethat a country grows more when trading with a less developedcountry. This article shows that this conclusion depends cruciallyon the assuming homothetic preferences and/or having just twogoods with respect to learning-by-doing. The article presentsa model where the more advanced country (North) can be worseoff after trading with a less developed country (South) becausethe demand pattern of the South is biased toward Northern productswith less learning-by-doing potential. Trade can worsen the welfareif the South is large with respect to the North and/or the preferencefor low-technology goods is high; necessary conditions are thatthe preferences are nonhomotheticity and that the North exportsat least two types of goods. In this context, the article studiesthe welfare of North and South, separating the static from thedynamic gains from trade.     

Unilateral transfer of abatement capital

In a model of global carbon dioxide control, Yang (Yang, Z., 1999. Should the North make unilateral technology transfers to the south? North–South cooperation and conflicts in responses to global climate change. Resource and Energy Economics 21 (1), 67–87.) advocates the unilateral transfer of abatement capital from North to South. It is argued here that such transfers should be contingent on the South's willingness to equiproportionally abate and sequester emissions according to an efficient version of Rose and Stevens' (Rose, A., Stevens, B., 1993. The efficiency and equity of marketable permits of CO₂ emissions. Resource and Energy Economics 15, 117–146.) sovereignty criterion, a straightforward and popular, though not necessarily equitable, burden sharing rule for reducing greenhouse gases on a global scale. Under this program, the North would abate less and preserve a smaller quantity of forests than it would if there were equiproportional reductions in the absence of capital transfers.     

Trade, Human Capital, and Technology Spillovers: an Industry-level Analysis

This paper studies whether trade promotes North–South and South–South technology spillovers at the industry level, and how the absorptive capacity of the South affects the impact of the technology spillovers. Using data from 16 manufacturing industries in 25 developing countries from 1976 to 1998, the paper shows: (i) North–South trade‐related R&D has a substantial impact on total factor productivity in the South; (ii) South–South trade‐related R&D also promotes technology spillovers but with a smaller magnitude; and (iii) human capital is very important in facilitating North–South and South–South technology spillovers: an increase in human capital could lead to over three times the size of technology spillovers from an increase in trade‐related foreign R&D.     

Does it Matter Who You Sign With? Comparing the Impacts of North–South and South–South Trade Agreements on Bilateral Trade

Free trade agreements (FTAs) lead to a rise in bilateral trade regardless of whether the signatories are developed or developing countries. Furthermore, the percentage increase in bilateral trade is higher for South–South agreements than for North–South agreements. The results are robust across a number of gravity model specifications in which we control for the endogeneity of FTAs (with bilateral fixed effects) and also take account of multilateral resistance in both estimation (with country‐time fixed effects) and comparative statics (analytically). Our analytical model shows that multilateral resistance dampens the impact of FTAs on trade by less in South–South agreements than in North–South agreements, which accentuates the difference implied by our gravity model coefficients, and that this difference becomes larger as the number of signatories rises. For example, allowing for lags and multilateral resistance, a four‐country North–South agreement raises bilateral trade by 53% while the analogous South–South impact is 107%.     

FDI、人力资本积累与经济增长

本文在一个两国内生增长模型中研究了发达国家FDI产业选择与发展中国家经济增长和技术进步问题。本文分析表明,发达国家FDI产业的选择依赖于发展中国家的技术能力和竞争能力,发展中国家技术能力和竞争能力越强,发达国家则倾向于将更多更先进的产业转移到发展中国家;FDI能否给发展中国家带来技术进步和经济增长依赖于发展中国家的人力资本积累,只有辅之以较快速度的人力资本积累,FDI才能给发展中国家带来技术进步和经济增长。因此,普及和改善教育、提高国民的人力资本水平应该成为发展中国家提高自身技术能力、吸引FDI、促进技术进步和经济增长的核心政策。     

Technology diffusion and global welfare effects: Imitative R&D vs. South-bound FDI

A country in question is positioned in the middle of a global technology race. To shorten its technology gap with the forerunner (North), this middle country must invest in imitative R&D. To exploit cheap labor in the technological laggard (South), it also must invest in South-bound FDI. A dynamic general-equilibrium model of three countries (North, Middle, South) is set up to numerically analyze how the Middle’s refraining South-bound FDI affects international technology diffusion, international wage gaps, and international welfare. The Middle always finds a need to socially optimize investing balance between imitative R&D and South-bound FDI, while the South is instead in favor of as much South-bound FDI as possible. Interestingly, the North may, or may not, align with the Middle’s tightening South-bound FDI, depending on how fast the Northern product innovation can proceed over time. Both transitional dynamics and the steady-state equilibrium are computed.     

Determinants of successful regional trade agreements

This paper investigates the determinants of the effectiveness of regional trade agreements (RTAs) in enhancing bilateral trade. Characteristics of both the country pair and other RTA members are found to significantly influence the trade creation effect of RTAs. However, North/North, North/South and South/South RTAs are found to have similar effects on trade.     

Rule of law, democracy, openness, and income

We estimate the interrelationships among economic institutions, political institutions, openness, and income levels, using identification through heteroskedasticity (IH). We split our cross‐national dataset into two sub‐samples: (i) colonies versus non‐colonies; and (ii) continents aligned on an East–West versus those aligned on a North–South axis. We exploit the difference in the structural variances in these two sub‐samples to gain identification. We find that democracy and the rule of law are both good for economic performance, but the latter has a much stronger impact on incomes. Openness (trade/GDP) has a negative impact on income levels and democracy, but a positive effect on rule of law. Higher income produces greater openness and better institutions, but these effects are not very strong. Rule of law and democracy tend to be mutually reinforcing.     

The Growth Effects of National Patent Policies*

We construct a two‐country (innovative North and imitating South) model of product‐cycle trade, fully endogenous Schumpeterian growth, and national patent policies. A move towards harmonization based on stronger Southern intellectual property rights (IPR) protection accelerates the long‐run global rates of innovation and growth, reduces the North–South wage gap, and has an ambiguous effect on the rate of international technology transfer. Patent harmonization constitutes a suboptimal global‐growth policy. However, if the global economy is governed by a common patent policy regime, then stronger global IPR protection: (a) increases the rates of global innovation and growth; (b) accelerates the rate of international technology transfer; and (c) has no impact on the North–South wage gap.     

Korean Unification: Economic Adjustments under German Assumptions

This paper explores the impact of unification on North and South Korea under the hypothetical scenario that German‐type reunification occurs in the Korean peninsula. Simulation results using a global dynamic general equilibrium model show that with comprehensive market‐oriented reform and opening, the North Korean economy could capitalize on its growth potentials. Unification can reduce the growth rate in South Korea for a certain period following the unification shock due to the transfer of resources out of the South into the North and an increase in risk on the Korea peninsula. Due to the relative sizes in population and per capita gross domestic product of the two Koreas, unification can be more disruptive on North and South Korea, compared to the experience of Germany. The critical factors determining the economic effects of unification are the nature of wage‐adjustment, the size of resource transfers from the South to North, and exchange rate policy.     

A Model of Technology Gap,Product Cycle,and the Process of Catching up Between the North and the South*

The paper presents a multi-product two-country overlapping generations model of trade and innovation. We show that for a low level of innovation (unitation) in the South, firms in the North innovate at a level which guarantees a long-term technological gap between the North and the South. However, a high innovation level in the South leads to a situation where the South can catch up the North in a finite time. This model differs from the existing literature in two major aspects. a) Except for the head start of the North we assume that the North and the South are identical with respect to factor endowment and their ability to develop new goods. b) It is general enough to explain both the product cycle phenomena and the catching-up process.     

Growth in stages

Existing North–South growth models generally ignore the possibility that the South becomes an innovating high-wage country. The present paper presents an analytically tractable North–South growth model in which the North innovates all the time, while the South is at first engaged in imitation and potentially starts to innovate too, later on. Three interesting results emerge from the analysis. First, a perfect foresight growth equilibrium may fail to exist. Second, there may be global indeterminacy in that both convergence to the steady state of the regime with imitation in the South and switching to the regime with innovation in the South represent perfect foresight equilibria. Third, technology policies in the South may have hysteresis effects: a temporary policy may lead the South permanently from imitation-driven to innovation-driven growth.     

The Simpson paradox of school grading in Italy

Data from the 2003 OECD-PISA Survey for Italy reveal a striking difference in the relationship between students’ competence (as measured by PISA score in Mathematics) and school grades across regions: a competence level granting bare sufficiency in the North yields excellence grades in the South. This has spurred a lively debate on education policy in the country, based on the inference drawn from this evidence that grading practices are excessively different in the two areas. We show in this note that this inference overlooks a Simpson paradox hidden in the data. After a more careful analysis, the above inference is seen to be wrong. The crucial omitted variable is the school-level average competence: schools with low-performing students, all over the country, inflate grades. Students in the South get higher grades simply because they are in weaker schools; grading policy is actually homogeneous across regions.     

Skill distribution and income disparity in a North‐South trade model

Abstract. What are the impacts of free trade agreement on the welfare of different types of workers in a developed country? What is the impact of free trade on a developed country's income disparity? What is the effect of free trade on the skill distribution of a developed country? The objective of this paper is to address the above questions in a two‐sector general‐equilibrium North‐South trade model in which both countries produce one final good and one high‐tech intermediate input. The final good is produced with the use of a high‐tech intermediate input and unskilled workers. Horizontally differentiated skilled workers produce the high‐tech intermediate input. Each country is populated by a continuum of unskilled workers with differential potential ability. Workers in the North and South can acquire skills by investment in training or education. Thus, skill distribution in the North and South is determined endogenously in the model through a self‐selection process. I characterize two different types of equilibria: a closed‐economy equilibrium without trade and a free trade equilibrium. Then, I investigate the impact of free trade, in the presence of training costs, on the skill distribution within each country, income disparity, and social welfare. JEL classification: D63, F10, J31     

Global Production and Currency Devaluation*

We model the production allocation choices of a multinational enterprise (MNE) in a three‐country framework—one northern country and two southern ones. Products made in the South are of lower quality than those made in the North. Substitutability between goods differs due to variations in product quality. We investigate how exchange rates affect production, employment, and welfare, and find that currency devaluation from different countries brings contrasting results. In particular, an appreciation in the southern country (X) producing the lowest‐quality good with the least cost may reduce production (employment) in the North, while an appreciation in the other southern currency (Y) always does the opposite. A northern depreciation against both southern currencies may increase production in country X, but always reduces that in country Y. These arise because the MNE shifts production globally to minimize costs. Northern welfare always falls following currency appreciation in southern countries.