Towards a welfare model of trade and multinational firms with oligopolistic competition

This paper constructs a general equilibrium model in a world with two-symmetric countries. It explains welfare gains from international trade and horizontal Foreign Direct Investment (FDI) in the economy with firm heterogeneity and variable markups stemming from oligopolistic competition. My model shows that the pro-competitive effects of trade and horizontal FDI happen because trade openness induces an increase in product market competition that reduces markups and toughens selection, increasing aggregate productivity. The most significant contribution of the paper is that multinational firms, via horizontal FDI, produce the most significant welfare gains through the toughest selection and lowest markups.     

Implications of Exchange Rate Pass-Through and Nontradable Goods for International Policy Cooperation

This paper investigates the welfare consequences of international policy cooperation by simultaneously introducing the following three elements in a standard two-country general equilibrium model: (i) general degrees of exchange rate pass-through, (ii) nontradable goods and their sector-specific productivity shocks, and (iii) general weights on goods in Cobb–Douglas consumption indices. There are two channels for possible mutual welfare gains from policy cooperation: First, cooperation can compensate for insufficient changes in the terms of trade when the degree of exchange rate pass-through is intermediate. Second, countries can cooperate in reaction to shocks in the nontradable goods sectors. This second channel is revealed by deriving an analytical condition for welfare gains under full pass-through and this condition is characterized by the weights in the consumption indices and the variances of sector-specific productivity shocks. Numerical evaluation demonstrates that when the two countries are symmetric and equal weights on consumption goods are assumed, welfare gains from cooperation increase as symmetric pass-through elasticity increases, which implies that the second channel dominates the first, whose effect on welfare gains is nonmonotonic in pass-through elasticity.     

A comprehensive economic partnership between India and Japan: Impact,prospects and challenges

This paper examines the benefits and challenges of the 2011 Comprehensive Economic Partnership Agreement (CEPA) between India and Japan, specifically the ways to maximize gains from their complementary economies, trade and FDI relations. It also measures the partnership's economy-wide impact empirically, and its role in regional and global integration. An analysis of the trade intensity indices shows that the bilateral trade flow is small considering the other country's importance in world trade, suggesting the existence of great potential for improving trade relations. The computable general equilibrium (CGE) analysis of the economy wide impact of the CEPA suggests that tariff reductions will create a marginal increase in output growth for both India and Japan as compared to the business as usual scenario. In terms of the effect on exports, India's exports to Japan would increase more than those of Japan to India while positive net welfare gains are expected for both countries as a result of trade liberalization. This is in contrast to the study by Ahmed (2010), which finds welfare gains only for Japan, not for India. Furthermore, one of the striking results of the paper is that Japan will not reduce its heavy reliance on the Chinese market, though India will. In general, India, compared to Japan, will gain more, if CEPA materializes by 2020. Japan too will have welfare gains in spite of opening up the agriculture sector with 100% tariff reduction by 2020. Both countries need to accelerate structural reforms to remove the border barriers in addition to reducing tariffs, in order to reap maximum benefit of their economic partnership.     

China's domestic trade during the Treaty-Port Era

We employ a new, commodity-level dataset on the flow of goods between fifteen major treaty ports to estimate a general-equilibrium trade model for China in the late Qing era. The distribution of welfare effects depends critically on each port's productivity, China's economic geography as it influences trade costs, as well as the degree of regional diversity in production, which increases the potential gains from trade. We utilize this framework to quantify the size and distribution of welfare effects resulting from new technology and lower trade costs that emerged during the Treaty-Port Era. Our results suggest that the new trade with foreign countries led to significant changes in domestic trade relationships. There was a limit to how much could be gained through increased domestic trade, however, because differences in productivity across regions were relatively low.     

Welfare implications of international financial integration

Focusing on technology spillover from foreign direct investment (FDI) inflows, this paper investigates the welfare implications of financial integration. Calibrations of a neoclassical growth model with international technology diffusion show that when technology catch-up due to FDI inflows is considered, the welfare gains from financial integration substantially increase, which contrasts with the small gains from additional, capital-accumulation effects of financial integration. The estimates suggest that by further enhancing financial integration, emerging Asian economies, such as the People's Republic of China (PRC) and the largest four Association of Southeast Asian Nations (ASEAN) countries, will experience substantial welfare gains.     

中美贸易不平衡及其与美国对华投资相关性研究

计量研究结果显示:美国对华直接投资与中美贸易之间存在长期的互补关系,尤其制成品的出口与美国对华直接投资之间具有显著的双向因果关系,制成品的出口是美中贸易逆差的因。因此,美国进入中国的FDI,尤其是进入制造业的FDI越多,美国从中国进口就越多,美中贸易逆差越大。这种贸易不平衡的扩大,主要是由于两国要素禀赋的差异和国际分工地位的不同,因而美中贸易逆差是结构性的,不仅不会在短期内消除,而且会随着美国劳动密集型产业向中国的进一步转移而加剧。     

On the optimal external tariff of a free trade area with internal market integration

Previous analyses of free trade areas suggest that member countries reduce external tariffs to the level that improves welfare of non-member countries. Using an oligopoly model with product differentiation, this paper shows that when a free trade area entails endogenous change from segmented to integrated markets for internally produced goods, external tariffs become strategic complements and their equilibrium level is higher than in the market segmentation case. In this case, the non-member may lose from the formation of free trade area whereas each member gains more.     

The gains from variety in the European Union

Over the last decade, European Union members have experienced a steady increase in imports. This increase was accompanied by a strong growth in the number of imported goods and trading partners, suggesting positive welfare gains for consumers via an extended set of consumption possibilities, as pointed out in the ??New Trade Theory??. In this paper, we apply the methodology developed by Feenstra (Am Econ Rev 84(1):157?C177, 1994) and Broda and Weinstein (Q J Econ 121(2):541?C585, 2006) to structurally estimate the gains from imported variety for the 27 countries of the European Union using highly disaggregated trade data at the CN-8 level from Eurostat for the period from 1999 to 2008. Our results show that, within the European Union, especially ??newer?? and smaller member states exhibit high gains from newly imported varieties. Furthermore, we find that the majority of the gains from variety for consumers stems from intra-European Union trade.     

Trends and patterns of the international tropical hardwood trade

In spite of the rapid expansion of tropical hardwood exports since 1960, there was no change in the structure of the trade. For a more equitable distribution of gains from the trade, tropical developing countries need to move away from log exports into domestic processing of wood. The main obstacles to future expansion of tropical hardwood exports are a lack of necessary complementary inputs in the producing countries and the restrictions to market access in the major importing countries. Rationalization of the production and trade of tropical hardwoods could contribute significantly to world welfare.     

Can Import Tariffs Deter Outward FDI?

In this paper we analyze a country's optimal trade policy when its labor market is unionized and firms are footloose. We show that an important objective for governments to use import protection is to prevent their domestic multinationals to go to a non-unionized location abroad and to serve their country from a distance. A domestic government will set a positive tariff to dissuade its multinational from engaging in outward FDI when the additional profits it repatriates, do not compensate for the loss of domestic union rent. To put it differently, we show that when the domestic labor market is unionized, trade liberalisation between countries with similar wage levels is likely to result in domestic welfare losses as a result of outward FDI. Only when wage differences between countries are large enough, can outward FDI improve domestic welfare and optimal tariffs will be zero. JEL Classification Numbers: L13, F23     

Welfare Implications of RTAs Within the WTO System in the Presence of FDI

We examine the welfare implications of the two major types of regional trade agreements (RTAs)—free trade agreements (FTAs) and customs unions (CUs)—within the WTO system in the presence of FDI. To do so, we analyze multilateral tariff cooperation in the context of two types of WTO regimes: a pure WTO regime without any RTAs and a modified WTO regime in which RTAs coexist with the multilateral framework. Our main finding is that in the presence of significant foreign ownership, RTAs within a multilateral system do not raise the national welfare of its members, thereby weakening the incentives of countries to form RTAs.     

Global production sharing and the FDI–trade nexus: New evidence from the Japanese automobile industry

The growing importance of global production sharing makes the nexus between outward foreign direct investment (FDI) and trade in intermediate goods ever more important. This study employs newly-constructed product-level data covering 32 products and 49 host countries over the period 1993–2008 and finds evidence that FDI by upstream firms leads to additional exports of intermediate goods from the home country. The finding of a complementary relationship between FDI and intermediate exports from Japan runs counter to the popular view that the growing overseas activity of multinational enterprises could replace intermediate exports from a home country, thereby depriving the home country of job opportunities.     

Effects on China and ASEAN of the ASEAN-China FTA: The FDI perspective

The ASEAN-China FTA (ACFTA) is a significant step in regional economic integration for both China and the ASEAN countries. While analysis of the effects of Free Trade Agreements (FTAs) most commonly focuses on the trade effects, the closeness of the link between trade and investment implies that the effect of an FTA on foreign direct investment (FDI) is also potentially significant. FTAs may stimulate FDI through the effects of market expansion and vertical fragmentation, while they may also reduce FDI through a plant rationalization effect. The overall effect of an FTA on FDI flows is an empirical question. This paper examines the impact of ACFTA on FDI flows through an econometric model that captures the influence of East Asian production networks on FDI, which we expect to be an important explanatory factor. The model finds that ACFTA has a significant and positive effect on FDI flows. A brief survey of the theoretical literature on the welfare and other related effects of FDI serves to emphasize that the extent to which individual member countries of the ACFTA will benefit from this increase in FDI will depend in important ways on the policies pursued in each country.     

Regional integration in Asia and its effects on the EU and North America

Consequences of free-trade agreements (FTAs) among the ASEAN+3 and ASEAN+6 countries are explored using a dynamic computable general equilibrium (CGE) model. Quantitative assessments of intra- and extra-regional effects on welfare, trade and output are offered. When both trade facilitation and endogenously determined productivity are included in the FTA scenarios, Singapore, other ASEAN countries and China would be able to realize relatively large welfare gains, while the welfare effects on the EU and North America are negligible. The trade and output effects on the latter two regions are also relatively small, with the notable exception of crops, other than rice, in North America.     

How China's accession to the WTO affects global welfare?

Conventional wisdom suggests that, if a large nation reduces tariffs, the Rest of the World (RoW) as a whole should immediately experience gains from trade. However, little simulation evidence has been provided to evaluate the welfare effects of China's tariff reduction upon its WTO accession on each of its trade partners. This paper addresses the above issue under both the perfectly competitive model and the monopolistic competition framework à la Eaton and Kortum (2002) and Melitz (2003). Armed by the method of Dekle, Eaton, and Kortum (2007, 2008) to quantify the individual countries' responses to the “China (trade liberalization) shock” at equilibrium, we could check the extent to which global welfare benefit from the import tariff reduction after China's entry into the WTO. The quantitative results show that, both China and the RoW benefit from Chinese participation into the WTO, with estimated welfare gains falling in a range of [1.4697%, 3.8743%] and [0.0743%, 0.1015%], respectively. That is to say, about 58.24% of total benefits extracted from China's accession into the WTO worldwide flow to countries other than China under perfect competition; while under monopolistic competition, the whole world enjoys a 0.1571% welfare increases if firms' entry is restricted, of which 42.64% are injected into the RoW, an equivalent amount of 23.3903 billion US dollars. Since allowing for firms' entry and exit would lead to adjustments in both aggregate price indices and government tariff revenues, welfare gains of the world significantly increase (0.2474%), but these adjustments would slightly distort the welfare changes for other countries in the sense that only 36.50%, which is equivalent to 32.1008 billion US dollars, overflow to the RoW. As a result, some countries gain more, while some less.     

The effects of the United States granting MFN status to Vietnam

Conclusions In this paper, the direct impacts on Vietnam’s trading opportunities of the U.S. granting MFN treatment were first estimated by building up from the resulting level of tariffs applied to individual traded goods. Then, the economic impacts on Vietnam were inferred, using simulations with the Global Trade Analysis model. The results revealed that the increased market access to the United States brings significant welfare gains to Vietnam. The direct terms of trade improvement resulting from increased market access accounts for 60 percent of the total gain, with the remaining 40 percent derived from second-best induced gains in efficiency. Exports to the United States more than doubled, from $338 million to $768 million.¹³ The estimated increase in exports of clothing is especially significant, with these exports increasing almost fifteenfold, while exports of agricultural commodities decreased slightly. Total welfare as measured by Equivalent Variation increased by $ 118 million or 0.9 percent increase in real expenditure per capita. By granting MFN status to Vietnam, the United States also gains from improved resource allocation, although some of the gains are offset by deterioration in its terms of trade. The gains for the United States were estimated to be around $56 million per year.     

Economic integration, market size and the welfare effects of trade liberalisation

Economic Integration, Market Size and the Welfare Effects of Trade Liberalisation. — This paper examines the welfare effects of regional and global integration in a model where market size matters. Regional integration leads to higher welfare in the countries of a preferential trading arrangement (PTA), but to lower welfare outside. In case the countries also decide to form a customs union (CU), both countries will experience further gains if the creation of the CU means that the average external trade barriers are raised. In turn, the outside country will in this case experience further welfare losses. If it retaliates and creates a trade war, this will lower welfare in all countries. In contrast, global integration mostly benefits both PTA countries and outside countries.     

International trade in used cars and problems of economic development

This paper provides a price-theoretic explanation of the well-known phenomenon that automobiles in developing countries depreciate less rapidly and are scrapped at a greater age than they are in industrial countries. This paper then argues that the renewal of barriers to free trade in used cars would lead to substantial welfare gains for developing countries through both capital gains implicit in the arbitrage and positive externalities from car repair industries. Negative externalities from increased car supplies are evaluated and the final part of this paper considers what policies might be needed to develop international trade in used cars on a large scale.     

FDI部门流向、Mazumdar假说与经济增长:基于中国数据的实证分析

根据Mazumdar（1996）的观点，贸易增长机制的发生取决于一国的贸易结构：进口资本品出口消费品将降低资本品价格和折旧率，从而加速资本积累并促进经济增长。围绕这一问题，本文认为．Mazumdar的贸易增长机制能否发挥作用依赖于一国所吸引的FDI的部门流向，FDI流向资本品生产，将减少资本品进口和降低资本品价格并改善一国贸易条件，这时折旧率的降低在更大程度上促进经济增长。Mazumdar假说才得以成立；FDI流向消费品生产，将强化消费品出口并相对恶化一国贸易条件。从而抵消了资本品价格的下降带来的好处。运用中国数据和VAR模型检验。结果显示：中国的贸易结构符合Mazumdar的观点。却没有对经济增长产生显著影响。原因之一在于FDI主要流向劳动密集型消费品生产和加工贸易型机电产品生产，使得FDI所带来的贸易条件相对恶化效应大于资本品价格下降效应。     

Insecure Resources,Bilateral Trade,and Endogenous Predation: A Game-Theoretic Analysis of Conflict and Trade

This article analyzes how interstate conflict over resources affects the incentives to trade and how greater trade openness affects the endogenous decisions of arming by enemy countries. We identify conditions under which there is trade between two adversary countries and show that each adversary's arming affects domestic welfare in three different ways. The first is an export-revenue effect, which increases welfare because arming causes export revenue to go up (i.e., there is an arming-induced terms-of-trade improvement). The second is a resource-predation effect, which increases welfare because arming increases the appropriation of a rival country's resource input to produce a consumption good. The third is an output-distortion effect, which reduces welfare because arming lowers the domestic production of civilian goods. Based on these effects, we show circumstances in which greater trade openness reduces the intensity of arming. We also discuss the implications of resource security asymmetry for conflict and trade.