TECHNOLOGY CHOICE AND ENVIRONMENTAL AWARENESS IN A TRADE AND ENVIRONMENT CONTEXT*

Assuming that an environmentally‐friendly technology not only reduces pollution emissions but also strengthens the preference of consumers for goods produced with such a technology, we show that a legally stipulated choice of cleaner technologies, requiring resources and hence reducing output, can improve the welfare of the economy even when other economies do not choose such technologies, and that the driving force can be the terms‐of‐trade effect. Therefore, even a unilateral regulation on the choice of technology would be approved in the economy when the environmental awareness of consumers is sufficiently raised.     

IMPACT OF ANTI-APARTHEID SANCTIONS ON SOUTH AFRICA: SOME TRADE AND FINANCIAL EVIDENCE

Economic sanctions against South Africa presumably are intended to cause economic damage. Trade sanctions should induce the South African terms of trade to deteriorate, and investment sanctions should cause capital flight and cause the exchange rate to deteriorate. However, due to the nature of the South African economy and to certain policies of the South African government, these impacts may be difficult to achieve.     

ANALYSIS OF HOUSEHOLD SAVING: PAST,PRESENT, AND FURTURE*

The first part of this paper gives a very brief and selective review of theoretical and empirical research on household consumption and saving over the last fifty years. It is argued that the recent accumulation of stylized facts about individual households calls for further development of theory. The second part reviews a model that has a potential for explanining those stylized facts.     

BILATERALISM AND FREE TRADE*

We study a setting with many countries; in each country there are firms that can sell in the domestic as well as foreign markets. Countries can sign bilateral free‐trade agreements that lower import tariffs and thereby facilitate trade. We allow a country to sign any number of bilateral free‐trade agreements. A profile of free‐trade agreements defines the trading regime. Our principal finding is that, in symmetric settings, bilateralism is consistent with global free trade. We also explore the effects of asymmetries across countries and political economy considerations on the incentives to form trade agreements.     

TRADE LIBERALIZATION AND COMPENSATION*

Liberalization harms some groups while generating aggregate benefits. We consider various labor market policies that might be used to compensate those who lose from freer trade. Our goal is to find the policy that compensates each group of losers at the lowest cost to the economy. We argue that wage subsidies should be used to compensate those who bear the adjustment costs triggered by liberalization whereas employment subsidies should be used to compensate those who remain trapped in the previously protected sector. Our analysis indicates that the cost of compensation is low, provided that the right policy is used.     

IDENTIFICATION AND ESTIMATION OF EXCHANGE RATE MODELS WITH UNOBSERVABLE FUNDAMENTALS*

This article is concerned with issues of model specification, identification, and estimation in exchange rate models with unobservable fundamentals. We show that the continuous‐time model proposed by Gardeazabal, Regúlez, and Vázquez (International Economic Review 38 (1997), 389–404) is not identified and that this property is characteristic of the discrete‐time representation of the model that they used as the basis for estimation by simulated method of moments. We briefly discuss the implications of this result in the context of the asset‐market model of exchange rates with unobservable fundamentals.     

INCOME,CONSUMPTION AND SAVING IN URBAN AND RURAL INDIA*

The main purpose of the study is to determine the savings potential of urban and rural households in India and in the process determine the possible savings and consumption functions separately for urban and rural areas. Four different possible functions have been used for determining the savings behaviour of the households both at the aggregate level and at the per capita level. The rural households, according to the results, have an extremely low rate of saving with income elasticity of saving of less than unity. For the urban households on the other hand, the income elasticity of saving is high enough to suggest the possibilities of considerably high savings potential. To understand the consumption behaviour of these households, the long-run and the short-run marginal propensities to consume and the marginal propensities to consume out of‘permanent’ or ‘normal’ income and ‘transitory’ income have been worked out. For the urban sector none of these give encouraging enough results and the analysis has been extended to examine whether other factors like prices and household assets are of any significance. Whereas for the rural sector, Milton Friedman's theory of ‘permanent’ or ‘normal’ income is somewhat substantiated, other factors like ‘transitory’ income, prices and assets appear to inthence urban consumption behaviour though no single one of them substantially enough. A negligible effect of ‘permanent’ income on urban consumption behaviour is, on the other hand, very clearly suggested by the results. Household consumption and savings have next been projected using the above results to determine the possible levels for the next three years. The results suggest that the rate of domestic savings likely to be achieved by the end of the Third Five Year Plan (1965–66) falls short of the targets laid down.     

INTERNATIONAL TRADE AND COURNOT EQUILIBRIUM: EXISTENCE,UNIQUENESS AND COMPARATIVE STATICS *

This paper proves the existence and uniqueness of Cournot equilibrium in models of international trade under oligopoly. The existence of Cournot equilibrium is established without the usual assumption that profit functions are concave. Instead the proof uses a weaker‘aggregate concavity’condition. A simple proof is used to establish the uniqueness of the equilibrium. And, the paper considers the implications of the assumptions, used to prove the existence and uniqueness of the equilibrium, on the comparative static results.     

INTERNATIONAL TRADE AND INDUSTRIAL DYNAMICS*

In this article, industrial evolution is driven by endogenous technology choices of firms, generating a rich environment that includes the possibility of a dramatic shakeout. The likelihood, magnitude, and timing of this shakeout are characterized and depend not only on the size of an innovation but also on cost structure. In this setting, trade liberalization reduces the likelihood of a shakeout, resulting in more stable industrial structures. However, when shakeouts arise in global markets, the distribution of exits can vary widely across countries. Furthermore, conditions exist where a shakeout occurs in a closed economy but not in an open economy.     

TRANSPORTATION INFRASTRUCTURE INVESTMENTS AND TRADE LIBERALIZATION*

This paper examines the gains from cooperative agreements on transportation infrastructure investments when there are terms of trade and technological spillovers between countries. In a two ‐country model, cooperation on investment levels will result in a lower level of transport costs. However, the cooperative equilibrium may have a higher or lower level of infrastructure investment between the partner countries in the case of preferential liberalization. The paper also addresses the desirability of linking trade and infrastructure agreements when investment choices can be used strategically.     

IMPACT OF TRADE SANCTIONS ON SOUTH AFRICA: A SOCIAL ACCOUNTING MATRIX APPROACH

This paper discusses a new approach for studying sanctions based on multipliers derived from the Social Accounting Matrix. I apply the methodology to the South African case and discuss output effects and distributional impacts on factors and households. The results show that the effects of trade sanctions on the South African economy are significant.     

HOME MARKET EFFECT AND TRADE COSTS*

Concerning industrial location, the home market effect (HME) predicts that a large country is a net exporter of industrial goods. Recent literature shows that high transport costs in the traditional sector may obscure the HME in an early model of two sectors à la Helpman and Krugman. This paper presents an alternative model that displays the relationship between the HME and arbitrary transport costs while allowing for the derivation of analytical results by simple algebra. Our results show that the transport costs in the traditional sector do not obscure the HME but constitute a dispersion force that decreases the impact of the HME.     

PRODUCTIVITY MATTERS FOR TRADE POLICY: THEORY AND EVIDENCE*

In the growth literature that investigates the effect of trade liberalization on productivity, nearly all studies assume that trade policy is determined independently of productivity, and, hence, it is exogenous. I show, both theoretically and empirically, that this assumption is not valid in general. I find that in Colombia more productive sectors receive more protection and the sectors with higher productivity gains are liberalized less even in the presence of a large unilateral liberalization shock that affects all sectors. Researchers may be underestimating the positive effect of liberalization on productivity when they do not account for the endogeneity bias.     

MULTINATIONALS,TAX HOLIDAYS,AND TECHNOLOGY TRANSFER*

Host country governments often grant investment incentives to foreign firms located in their territories. We show that such preferential treatment of foreign firms can induce transfer of foreign technology, facilitate entry by the local firm, and improve host country welfare. However, this pro‐competitive outcome results when preferential treatment is granted for a limited time. Permanent tax concessions yield the opposite effect.