POVERTY DYNAMICS DURING TRADE REFORM: EVIDENCE FROM RURAL VIETNAM

This paper implements and adapts the conceptual framework developed by Winters (2002) that identifies the transmission mechanisms between trade policy reform and household welfare outcomes. We make use of household panel data from Vietnam collected in two years, 1992–93 and 1997–98 that span the very earliest years of the reform period and its immediate after effects. Poverty dynamics are modeled using changes in consumption expenditure and poverty transition models. The trade effect is captured by a set of variables that are most likely to have an impact on rural poverty, namely prices of staples and employment in the export sector. We show that trade liberalization has a material and positive effect on rural household welfare and this trade effect is largely transmitted to the poor through the labor market channel.     

The Effects of Trade Liberalization between Heterogeneous Countries on Endogenous Mergers

This paper examines the effects of trade liberalization on merger behavior. We endogenize merger choice among owners in an oligopolistic industry in asymmetric countries to analyze the consequences of trade cost reductions on competitiveness and welfare. In this context, the non‐cooperative game supports asymmetric market structures. We also find that trade liberalization is not necessarily pro‐competitive in countries with the competitive advantage, even if trade costs are completely abolished. Moreover, the tariff‐jumping explanation of international mergers does not necessarily apply. The welfare analysis shows that merger behavior can significantly alter any gains from liberalization. Countries should consider enforcing competition in regional agreements. Specifically, to avoid a reduction in domestic welfare following trade‐liberalizing reductions in trade costs, a high‐cost country's optimal policy may be to ban international mergers.     

Trade Liberalization and Spatial Inequality: a Methodological Innovation in a Vietnamese Perspective

The authors calibrate two static computable general‐equilibrium (CGE) models with 16 and 5999 representative households. Aggregated and disaggregated household categories are consistently embedded in a 2000 social accounting matrix (SAM) for Vietnam, mapping on a one‐to‐one basis. Distinct differences in poverty assessments emerge when the impact of trade liberalization is analyzed in the two models. This highlights the importance of modeling micro‐household behavior and related income and expenditure distributions endogenously within a static CGE model framework. The simulations indicate that poverty will rise following a revenue‐neutral lowering of trade taxes. This is interpreted as a worst‐case scenario, which suggests that the government should be proactive in combining trade liberalization measures with a pro‐poor fiscal response to avoid increasing poverty in the short to medium term.     

Dynamic Interactions in Trade Policy in a Differential Game Model of Tariff Protection

This paper develops a two‐country dynamic game model of tariff protection to reconsider optimal trade policies and their implications for welfare. The authors show that an import subsidy is optimal in the feedback Nash equilibria, which results in a curious possibility that the domestic market is monopolized by the foreign firrm. However, welfare comparisons among Nash equilibria, free trade, and autarky reveal that feedback Nash equilibria involve higher welfare than both autarky and free trade, i.e. dynamic noncooperative choices of policy serve as tacit policy coordination and ensure larger trade gains relative to free trade.     

The Mercantilist Index of Trade Policy*

We introduce an index of trade policy restrictiveness defined as the uniform tariff that maintains the same trade volume as a given tariff/quota structure. Our index overcomes the problems of the trade‐weighted average tariff: It avoids substitution bias, correctly accounts for general equilibrium transfers, and takes import volume instead of welfare as benchmark. Empirical applications to international cross section and time‐series comparisons of trade policy confirm our theoretical results: Trade‐weighted average tariffs generally underestimate the true height of tariffs as measured by the trade‐volume‐equivalent index; this in turn always underestimates the welfare‐equivalent index.     

Shared Renewable Resources: Gains from Trade and Trade Policy

This paper examines the effects of international trade and trade policy in a two‐country, two‐good model with an open‐access renewable resource that is internationally shared. We show that both countries may still benefit from trade when they specialize in the production of their comparative advantage good, although the shared resource is reduced by trade. In addition, we demonstrate that the steady state utility of a resource‐good importing country may be reduced by trade, even if it specializes in the production of a non‐resource good. Import tariffs and export taxes on a resource good may increase or decrease the shared stock level depending on the production patterns in a trading steady state. The trade policy is likely to be Pareto‐improving when the shared stock rises, while both countries may be made worse off by the trade policy when the shared stock falls.     

Merger Profitability and Trade Policy

We study the profitability incentives for merger and the endogenous industry structure in a strategic trade policy environment. Merger changes the strategic trade policy equlilibrium. We show that merger can be profitable and welfare enhancing, even though it would not be profitable in a laissez‐faire economy. A key element is a change in the governments’ incentives to give subsidies to their local firms. National merger induces more strategic trade policy, whereas international merger does not.     

On the redistributive effects of Germany’s feed-in tariff

This article assesses the redistributive effects of a key element of German climate policy, the promotion of renewables in the electricity generation mix through the provision of a feed-in tariff. The tariff shapes the distribution of households’ disposable incomes by charging a levy that is proportional to household electricity consumption and by transferring financial resources to households who are feeding green electricity into the public grid. Our study builds on representative household survey data, providing information on various socio-demographics, household electricity consumption, and ownership of photovoltaic facilities. The redistributive effects of the feed-in tariff are evaluated by means of inequality indices. All the indices indicate that Germany’s feed-in tariff is regressive.     

Redistributive innovation policy,inequality, and efficiency

We examine the efficiency and distributional effects of regressive and progressive public R&D policies that target high‐tech and low‐tech sectors using a heterogenous‐agent growth model with in‐house R&D and incomplete capital markets. We find that such policies have important implications for efficiency and inequality. A regressive public R&D investment financed by income tax could boost growth and welfare via a positive effect on individual savings and effort. It could, however, also lower growth and welfare via its effect on the efficiency–inequality trade‐off. Thus, the relationship between public R&D spending and welfare is hump‐shaped, admitting an optimal degree of regressivity in public R&D spending. Using our baseline model, and the US state‐level GDP data, we derive the degree of regressiveness of public R&D investment in US states. We find that US states are more regressive in their R&D investment than the optimal regressiveness implied by our growth model.     

Trade Costs and the Open Macroeconomy

Trade costs are known to be a major obstacle to international economic integration. Following the approach of New Open Economy Macroeconomics, this paper explores the effects of international trade costs in a micro‐founded general equilibrium model that allows for different degrees of exchange rate pass‐through. Trade costs are shown to create an endogenous home bias in consumption and the model performs well in matching empirical trade shares for OECD countries. In addition, trade costs reduce cross‐country output and consumption correlations, and they magnify exchange rate volatility. Trade costs turn a monetary expansion into a beggar‐thy‐neighbor policy.     

The Potential Impact of Sino-Korean Bilateral Trade on Economic Growth and the Environment: A CGE Model Analysis

A consensus is still to be reached regarding the relationship between trade, growth, and the environment in either the existing theoretical models or previous empirical analyses. By using a Sino-Korean case study, we expect this work to contribute to the theoretical and empirical knowledge of the relationship between trade, growth and the environment. In this paper, four types of simulation are executed by applying a Sino-Korea CGE model. The results reveal that an increasing volume of bilateral trade boosts the real GDP at a decreasing rate. Different degrees in the volume of increase of bilateral trade produce welfare gains for Chinese households, i.e. more household spending. Welfare increases at a decreasing rate when the degree of bilateral trade growth increases less stringently, while in Korea there are welfare losses (less household consumption) when the bilateral trade target becomes increasingly stringent. Moreover, the investment gains in the economy tend to rise more sharply as the degree of bilateral trade growth increases less stringently in China. The investment tends to decrease at a proportional rate when the target bilateral trade volume becomes more stringent and the changes in the gross investment become more significant in Korea. In addition, the aggregate production shows a tendency to increase at a proportional rate with a more stringent target bilateral trade volume and when there are considerable changes in gross production. Furthermore, the impact of most production sectors can benefit China, but have a negative impact on Korea. Meantime, the simulations highlight that import growth increases carbon emissions at a decreasing rate, and export growth increases carbon emissions. According to our policy findings, policy makers should be advised to consider the third trade policy (Scenario c), which maintains a reasonable economic growth but at the expense of investment and welfare.     

Household-level analysis of the impacts of electricity consumption on welfare and the environment in Cambodia: Empirical evidence and policy implications

Cambodia’s biomass consumption is the most dominant energy source at residential sector, and its use is mainly for cooking and heating which could affect health due to indoor air pollution. The biomass is mainly sourced from wood cutting and forest-encroachment that could impact the environment due to reduction of forest at considerable scale. By using the data 2015 of Cambodia Socio-Economic Survey, the study investigates the impacts of electricity consumption on household welfare, such as earnings and the school performance of children in the households, and further to investigate its impacts on the environment. The study found that household’s access to electricity with ability to spend on electricity consumption contributes to the positive household welfare effects and environment via a reduction of biomass consumption, and the more household spends on biomass, the more they are prone to sickness of lung problem. The study also confirmed the important role of human capital formation for the positive impact on the welfare and the environment. These findings lead to policy implications that would improve affordable access to electricity to ensure that all households can use electricity for their basic needs and productivity, and also to reduce the negative effects on environment.     

Tariff Structure,Trade Expansion,and Canadian Protectionism, 1870–1910

Canada's trade policy at the end of the 19th century is commonly viewed as protectionist and extremely costly. In this paper, we employ the Anderson‐Neary Trade Restrictiveness Index to re‐examine this view. Based on product‐level customs data, we show that Canadian trade policy between 1870 and 1910 was more restrictive than previously understood, but created smaller welfare losses than previously believed. These results are primarily driven by high tariffs on inelastic, non‐competing import goods. Although Canada's tariff structure becomes more restrictive over the period, our findings indicate it was not as protectionist or as costly as once thought.     

International transatlantic trade liberalization: zooming in on regional impacts

The current study analyses the impact on a Portuguese small island regional economy of the Transatlantic Trade and Investment Partnership (T-TIP) between the EU and the USA. A dynamic Computational General Equilibrium (CGE) model detailing six household categories, 45 sectors, and four trading partners is used. Previous studies used aggregate variables and, largely, were based on the structure of the national economy. For a small, integrated economy, foreign trade statistics comprise an underestimation, given that most of the trade occurs through national logistics centres. Taking into account the national integration effects, gross domestic value was estimated to be higher than in other studies. Using equivalent variation, the estimated welfare impact is positive for all six household categories. Value-added suffers mixed impacts depending on the sector. It is negative for fisheries, ambiguous for agriculture and positive for tourism and transportation. The contribution of the current study is to highlight the importance of looking beneath the trade block and national conclusions particularly when regional economic policy is relevant as is the case in Europe. Better knowledge of welfare, regional and sector impacts allows for improved development and mitigation policies.     

Multilateral Reforms of Trade and Environmental Policy

The paper analyzes environmental tax policy reform using a competitive model of world trade that includes production‐generated environmental damage (pollution) and trade tariffs. The authors examine the feasibility of Pareto‐improving multilateral reforms of environmental taxes, and show that any environmental tax reform that is mutually welfare‐improving when compensating lump‐sum transfers are assumed is also welfare‐improving when a suitable tariff reform (but no transfers) is combined with the tax changes. Several specific reform proposals are developed. These results expand the feasible set of mutually improving policy proposals for international policy initiatives.     

The Welfare Cost of Autarky: Evidence from the Jeffersonian Trade Embargo, 1807–09

The United States came close to complete autarky in 1808 as a result of a self‐imposed embargo on international shipping from December 1807 to March 1809. Monthly prices of exported and imported goods reveal the embargo's striking effect on commodity markets and allow a calculation of its welfare effects. A simple general‐equilibrium calculation suggests that the embargo cost about 5 percent of America's 1807 GNP, at a time when the trade share was about 13 percent (domestic exports and shipping earnings). The welfare cost was lower than the trade share because the embargo did not completely eliminate trade and because domestic producers successfully shifted production toward previously imported manufactured goods.     

Environmental Quality and Industry Protection with Noncooperative Versus Cooperative Domestic and Trade Policies

This paper characterizes environmental quality and industry protection in a large-country Grossman–Helpman model when production or consumption externalities exist and governments decide noncooperatively or cooperatively on domestic and trade policies. Governments choose policies efficiently from among those available, but competitive lobbies may prefer less efficient regimes. Under restricted policy availability, political-support effects can offset terms-of-trade effects on equilibrium outcomes, and inefficient trade policies can lead to higher environmental quality than efficient domestic policies. If governments cooperate, they can satisfy particular organized industries at lower costs to other lobbies and total welfare. This may result in lower environmental quality than noncooperation.     

Trade tariff,wage gap and public spending

This paper studies the interplay between wage gap and government spending in a small open economy facing a shock in trade policy. We consider a specific factor model with an export sector, which uses skilled labour, and an import-competing sector, which uses unskilled labour. We find the conditions under which there exists an inverse (direct) relation between trade liberalization (protection), which increases (decreases) the skilled-unskilled wage gap, and the level of government expenditure. We also show how either an unbalanced distribution of political bargaining power, or tariff revenue co-financing public spending may break this inverse relation. Moreover, the direct relation between tariff protection and public goods provision can be strenghtened by progressive taxation and weakened by regressive taxation.     

FDI and Outsourcing in a Service Industry: Welfare Effects of Liberalising Trade and Investment

This study examines a foreign firm's entry decision and its effects on the host country's welfare in a model with a composite good in which both commodity and service generate utility for consumers. Along with the commodity it produces, a producer can provide the service by itself or outsource the service. The result shows that the incentive for foreign direct investment (FDI) in the service sector increases under liberalising trade in the final‐good market. Moreover, there exist policy combinations of trade and investment liberalisation, whereby the domestic firms' profitability is traded off with the host country's social welfare when the foreign firm provides a service through FDI or through outsourcing, respectively. Finally, the welfare after simultaneously liberalising trade and investment is not necessarily greater than that under autarky.     

PROFIT TAX AND FIRM MOBILITY IN A THREE‐COUNTRY MODEL

We construct a three‐country model that incorporates international relocation by imperfectly competitive firms and examine both the effects of each country's profit tax reduction on the consumption and welfare of all countries, and the incentive for the countries to decrease the profit tax. In such a model, both the terms of trade and international relocation of firms offer the key to understanding the impacts of one country's profit tax policy. In particular, we note that the relocation of firms from the other two countries is positively related to the wage incomes of the third country through a shift in labour demand, and the terms‐of‐trade improvement is not only positively related to the wage incomes, but also negatively related to profit incomes through a shift in world consumption demand. We show that (i) in a three‐country world economy, regardless of the reduction's source, the profit tax reduction of each country leads to relocation of firms away from foreign countries toward its own economy and deteriorates the terms of trade of its economy and (ii) this becomes a ‘beggar‐thy‐neighbour’ policy in the sense that it lowers the welfare of the other foreign countries.