Horizontal and vertical intra-industry trade in Australian manufacturing: does trade liberalization have any impact?

This paper contributes to the literature on intra-industry trade (IIT) by disentangling such trade into horizontally and vertically differentiated products, and investigating their determinants in the context of trade liberalization in Australia. IIT in Australian manufacturing has increased following trade liberalization in 1980s and is increasingly dominated by vertically differentiated products. Industry level evidence confirms that the failure to segregate IIT into horizontally and vertically differentiated products produces misleading results as their determinants differ. Also, structural changes brought about by the policy liberalization appear to have an impact on total as well vertical IIT.     

A model of trust in quality and North–South trade

Why do some countries produce higher quality goods than other countries? This paper suggests that one reason is self-perpetuating reputations, modelling the idea with a Klein–Leffler reputation model embedded in a general equilibrium model of trade. Reputation differences are particularly interesting because reputation is a form of “social capital”. Like product differentiation, it can explain why countries might trade even if their technologies and endowments are identical, why firms could profit from exports even if the foreign price is no higher than the domestic one, and why governments like to have “high-value” sectors. Ideally, a developing country would shift its own producers to a high-quality equilibrium; if that is not possible, the next best thing is to import experience goods and substitute to home production of goods for which reputation is not important.     

Wage inequality in developing countries: South–South trade matters

The relationship between trade liberalization and inequality has received considerable attention in recent years. The major purpose of this study is to present new results on the sources of wage inequalities in manufacturing taking into account South–South (S–S) trade. Globalization has not only lead to increasing North–South (N–S) trade, but it has also changed the direction and composition of trade as more trade is carried out among developing countries. In this study, we find that increasing wage inequality is associated more with the South–South trade liberalization than with the classical trade liberalization with northern countries. A part of this increasing wage inequality due to S–S trade comes from the development of N–S trade relationship in S–S trade that increases wage inequality in middle-income developing countries. This study also seeks to shed some light on the link between the direction of trade and technological change. We explore the fact that S–S trade leads to a technological change biased toward skill-intensive sectors more than N–S trade. This indirect effect increases wage inequality for all developing countries, but it is more important in low-income countries.     

Predator–prey dynamics in general equilibrium and the role of trade

We examine the implications of trade in an economy with two interrelated natural resources, focusing on the case of a simple predator–prey relationship. We derive a three-sector general equilibrium model where production functions are linked via the ecological dynamics of the natural system. Under autarky, this economy exhibits a steady-state equilibrium that overexploits the prey stock, reducing the linked predator population and overall welfare in the absence of harvesting controls. When two economies engage in trade, differences in the dynamics of the two resource systems can become the basis for comparative advantage. In this case, the predator–prey relationship leads to a source of comparative advantage in harvesting prey for a country with a lower autarky steady-state proportion of predators to prey. This feature has not been noticed in the literature and leads to a counterintuitive implication: free trade can help conserve predator and prey stocks in the country with the higher autarkic steady-state proportion of predators to prey. To illustrate the relevance of our analytic findings, we present the stylized empirical example of the effect of Chinook salmon imports on killer whale populations.     

Union wage setting and unemployment in the Netherlands (1965–1987)

This paper presents an empirical model of union wage setting and employment. The (Stackelberg) equilibrium unemployment rate is shown to be a function of taxes, the replacement ratio, the gap between consumer and producer prices, productivity effects, and the rate of long-term unemployment. The model is estimated with aggregate data from the private sector in the Netherlands (1965–1987). The results suggest that the equilibrium unemployment rate is pushed upwards by taxes, the replacement ratio and by the gap between consumer and producer prices, and is reduced by productivity effects. Insider-outsider effects appear insignificant.     

Earning functions in Portugal 1982–1994: Evidence from quantile regressions

This paper uses quantile regressions to describe the conditional wage distribution in Portugal and its evolution over the 1980s as well as the implications for increased wage inequality. We find that, although returns to schooling are positive at all quantiles, education is relatively more valued for highly paid jobs. Consequently, schooling has a positive impact on wage inequality. Moreover, this tendency has sharpened over the period. We also find that most of the estimated change in wage inequality was due to changes in the distribution of the worker's attributes, rather than to increased inequality within a particular type of worker. this version: January 2000     

Microeconomic analysis on the growth of trade volume in China: 1978–2007

The gravity equation is usually employed by researchers in the field of international trade to explain the growth of a country’s imports and exports volume, especially the manufactured goods. But in China, variables in the model, such as exchange rate, tariff, transportation cost, and spatial distance etc., are not sufficient to explain the riddle of China’s growth in trade volume. In fact, this growth in China’s trade volume is owing to the disintegration of production in the process of economic globalization, to the multinational corporations’ (MNC) vertical outsourcing of their manufacturing processes and procedures, and to the timely readjustment of Chinese enterprises on their strategies of participating in the international intra-product specialization. In this paper we establish an equilibrium model of intra-product specialization dominated by MNCs, and do some empirical tests on the growth in trade volume in China by using the variables including technological conditions of trade, similarity of economies, policy conditions of trade, disintegration of production and level of per capita capital equipment. The empirical results support our basic judgments.     

The global arms trade network 1950–2007

Using SIPRI data on all international transfers of major conventional weapons 1950–2007, we study the relationship between differences in polity and arms trade. To study whether states tend to trade arms within their political vicinity we estimate gravity models of the likelihood of trade at the bilateral level and study the evolution of the global network over time. We find a stable negative relationship between differences in polity and the likelihood of arms trade for the duration of the Cold War, but not in recent years. In line with these results, the global arms trade network changes drastically over the sample period in several respects: it grows more dense, clustered and decentralized over time. The differences between the NATO and Warsaw Pact sub-networks that we find corroborate the common perception that the Warsaw Pact was more strongly centralized around the USSR than NATO around the UK, the US and France.     

Learning by exporting and high-tech capital deepening in Singapore manufacturing industries, 1974–2006

A number of fundamental factors enhance the growth of industries’ productivity. Among others, the export-led and high-tech capital deepening strategies are widely adopted by developing economies. This article attempts to empirically investigate the extent to which both industrial development policies affect the Total Factor Productivity Growth (TFPG) in Singapore manufacturing industries during the period from 1974 to 2006. Using the panel data estimations, I find that both development strategies bring about TFPG via nonneutral technological growth, and the former more largely explains TFPG than does the latter. This study captures the measure of learning by exporting by the lagged export intensity and therefore contributes to the literature, in which only the case of whether or not firms are active in export markets is conventionally employed. Methodologically, my main contributions are a more detailed treatment of (nonneutral) technological changes, and an alternative measure of export intensity.     

Existence of equilibrium in the Helpman–Krugman model of international trade with imperfect competition

Helpman and Krugman (Market structure and foreign trade. Increasing returns, imperfect competition, and the international economy. MIT Press, Cambridge, 1985) provide a synthesis of the traditional factor proportions theory of international trade and the theory of international trade due to the exploitation of scale economies in imperfectly competitive markets. They derive illuminating results about trade patterns and gains from trade, among other things, leaving unanswered the question of existence of equilibrium, however. The central significance of their characterization of properties of free trade equilibria with inter-industry and intra-industry trade calls for an analysis of existence of equilibrium. This is the object of the present paper. We prove the existence of equilibrium for the integrated multi-sector multi-factor Helpman–Krugman economy without national borders. Well-known conditions ensure that the world economy under free trade reproduces this equilibrium and thus establishes existence of a free trade equilibrium. Since an equilibrium of the integrated economy is not necessarily unique, the same holds true for a free trade equilibrium.     

Energy and capital inputs: cornerstones of productivity growth in Mexico: 1965–2004

Gross domestic product per remunerated labor (GDP/L), known as the Mexican average productivity, grew very rapidly from 1965 to 1979; it increased at an average annual rate of 3.7%. But from 1979 through 2004, productivity stagnated with an average annual growth rate of only 0.19%. The hypothesis is that from 1965 through 1979, productivity increased rapidly because of concomitant growth in the utilized capital and energy per worker and the improvements in technology. After 1979, the productivity growth came to a standstill because of a slowdown in investment and stagnation in the utilized capital and energy per worker due to the sharply rising energy prices. The tool chosen to test this hypothesis is an aggregate Cobb-Douglas production function characterized by technical change embodied in the gross investment in new machinery and equipment. The estimation of this model shows energy as a cornerstone of productivity growth independent of capital and new technology.     

A monetary model of China–US trade relations

This paper develops a general equilibrium monetary model to study China–US trade relations. The model captures two main features of China–US trade: China's fixed exchange rate regime and the use of the US dollar as the international medium of exchange. The main conclusions of this paper are threefold. First, an improvement in the productivity of China's tradable sector would benefit both China and the US. Second, a RMB appreciation would reduce consumption in the US and increase consumption in China, and would likely reduce China's trade surplus. It would also lead to a contraction in China's tradable sector and an expansion in US's tradable sector. Third, a monetary expansion in the US would hurt China because it would lead to a transfer of wealth from China to the US, a fall in China's relative wage rate and terms of trade, and an artificial expansion in China's tradable sector. A US monetary expansion would also increase China's trade surplus.     

Environmental and economic impacts of trade barriers: The example of China–US trade friction

The new age of trade wars could simultaneously affect the worldwide distribution pattern of the economy and environmental emissions. However, previous studies have focused on economic impacts, and on trade liberalization, while little is known about the equilibrium effects of trade barriers on the environment. Using a global computable general equilibrium model and taking the recent anti-trade policies of the Trump administration as an example, this study investigates the possible socio-economic and environmental effects of trade friction. Specifically, this study explores how the implemented six rounds of China–US trade friction and its different long-term development trends affect regional economic output, GHG and air pollutant emissions. Results show that trade barriers harm both countries’ economies and such losses have a certain permanence, while non-participants can benefit indirectly. Trade friction decreases participants’ GHG emissions, modifies global GHG emission distribution patterns, and leads to improved air quality in most countries. If governments continue to impose tariffs, global GHG emissions could counterfactually decrease by up to 5%. However, the change in trade patterns is not conducive to clean energy development in the less-developed regions, including the Middle East, Africa, and Latin America, and emission reductions from trade friction are insufficient to avoid catastrophic climate change.     

Borrowing constraints and the trade balance–output comovement

The countercyclical trade balance ratio is among the key stylized facts about open economies. The magnitude of the correlation between the trade balance and output, however, differs from country to country. In particular, the trade balance ratio is more negatively correlated with output in emerging economies than in developed economies, suggesting that the trade balance is more sensitive to output changes in the former than in the latter. This paper explores whether this difference is caused by international borrowing constraints imposed on emerging economies.By modeling borrowing constraints as conditional on macroeconomic performance, this paper shows that when there is a positive shock takes place in an emerging economy, GDP increases and the borrowing constraint becomes less binding, resulting in a decreased incentive to accumulate foreign assets. When there is a negative shock, by contrast, GDP falls, and the representative household must increase the trade balance to avoid possible binding borrowing constraints.     

Structural change in the United States: Social accounting estimates for 1982–1988

During the 1980's, extensive structural adjustments took place in the U.S. economy. This paper uses estimates of sectorally detailed social accounting matrices to evaluate the changes in receipt and expenditure patterns, including interindustry linkages, over the 1982–1988 period. Among other effects, our results reveal increasing service orientation, shifts in energy use, and increased import and foreign investment dependence. Detailed evidence on direct and indirect demand linkages indicates large shifts in the composition of government expenditure and private investment, the latter being intensified by declines in the rate of domestic capital formation.We would like to thank Greg Alward for the 1982 IMPLAN input-output data, Norman Bakka for the National Income and Product Account Data, Ken Hanson for helpful suggestions, Mark Planting for 1985 BEA input-output data, Valerie Personick for the activity output data, and two anonymous referees for helpful comments.     

The US–China Phase One trade deal: An economic analysis of the managed trade agreement

In light of the recent tit-for-tat trade dispute between China and the US, interest in quantifying the effects of the so-called Phase One agreement has risen. To this end, this paper quantifies the impact of the asymmetric managed trade agreement using such a multi-country open-economy dynamic general equilibrium model. Besides assessing the direct implications for China and the US, this paper analyzes trade diversion effects. The model-based analysis finds noticeable positive (negative) impacts of the agreement for the US (China) as well as negative spillover effects for countries not directly affected by the managed trade deal due to trade diversion. The impact of possible future trade agreements is also examined.     

A Takayama–Judge activity model applied to the analysis of allocation and trade in Sweden

The purpose of this article is to formulate a numerical general equilibrium model of the Swedish economy, and to use the model for a quantitative evaluation of the pattern of comparative advantages. The model is essentially a Leontief type of input-output model, extended with linear demand functions for final commodities, foreign trade activities and capacity and resource constraints. Due to the linearity the model can easily be reformulated and solved as a quadratic programming model. The evaluation of the pattern of comparative advantages of the Swedish economy is carried out as an analysis of the choice between inport and domestic production in a temporary equilibrium framework with exogenously given world market prices, exports and domestic production capacities.