Intra‐industry Trade Liberalization: Why Skilled Workers are More Likely to Support Free Trade

This paper presents a theoretical model and empirical analysis that connects the prevalence of intra‐industry trade with increased wage inequality from trade liberalization in both skilled and unskilled labor abundant countries. The Stolper–Samuelson effect is incorporated into an intra‐industry trade liberalization (intra‐ITL) hypothesis where skilled labor opposes protectionism in all countries engaged in intra‐industry trade because skilled workers gain at the expense of unskilled workers from multilateral trade liberalization within the skill‐intensive sector. We examine empirical evidence on whether skilled individuals are more supportive of trade liberalization than unskilled individuals across 31 countries with different levels of intra‐industry trade and skill endowments. We find that the extent to which countries engage in intra‐industry trade in high‐tech commodities is strongly linked with the intensity of opposition to protection by skilled labor. Regression results strongly support our hypothesis that skilled workers, almost everywhere, are more likely to support free trade.     

On Gravity,Specialization and Intra‐industry Trade

Contrary to the popular belief, specialization is not necessary for gravity equations. This paper shows that the simple gravity equation holds if and only if the market share of an exporting country is constant across all importing countries. Specialization is just one special case satisfying this condition. The constant‐share condition can hold in a variety of situations where multiple producers compete with a homogeneous good. Further, this paper shows that the ratio of bilateral trade to the product of partner incomes is increasing in the extent of specialization and in the intensity of intra‐industry trade. Since the relationship is not model‐specific, the correlations among these variables do not support any specific model.     

Endowment Differences and the Composition of Intra‐Industry Trade

The empirical relationship between differences in endowments and different types of trade is investigated in this paper. Although net trade (NT) and vertical intra‐industry trade (IIT) are both broadly viewed as reflecting endowment differences, we suggest that there will be systematic differences in the way their shares of trade adjust as endowment differences become larger. Empirical evidence for European Union trade with its 52 major trading partners confirms this. The share of horizontal IIT (net trade) decreases (increases) for all increases in absolute endowment differences, but the share of vertical IIT can both increase and decrease with increases in endowment differences.     

贸易自由化对我国环境状况的影响

加入WTO以后，我国与其他国家的贸易将进一步自由化，本将探讨由此将给我国环境带来的可能后果以及我国应采取的对策。笔认为贸易自由化主要是通过规模效应、结构效应及技术创新等作用对一国的环境产生影响。应利用贸易自由化有利于环境的因素，限制不利于环境的因素，使我国的环境状况得到优化。     

The Roles of Innovators and Labor in a Schumpeterian Factor Endowments Based Model of Intra‐industry Trade

This paper builds a model of Schumpeterian innovation and trade that emphasizes endowments of innovators and labor as a key factor in determining the pattern of trade. The model suggests a strong complementarity between intra‐industry and inter‐industry trade. The pattern of inter‐industry vs intra‐industry trade is analyzed using the Grubel–Lloyd index. The theoretical model predicts that the prominence of intra‐industry trade is a nonlinear function of the ratio of the proportion of world knowledge domestically generated to the domestic share of the world labor supply. Strong empirical evidence for this key result is presented and implications are discussed.     

Revenue‐enhancing Trade Liberalization in a Differentiated Duopoly

Existing studies suggest that in developing countries, tax reforms that increase consumption taxes can compensate for shortfalls in revenue from a tariff reduction. However, these revenue‐enhancing tariff–tax reforms have a critical shortcoming—they generally reduce welfare under imperfect competition. This paper shows that tax reforms such as consumption tax reforms do not necessarily have to be implemented to make up for revenue shortfalls from tariff reductions under imperfect competition, because trade liberalization through tariff cuts leads to an increase in government revenue when domestic and imported goods have a high substitutability. This revenue‐enhancing effect of a tariff reduction occurs for a wider degree of product substitutability when initial tariff and consumption tax rates are high. More importantly, we show that even if initial tariff and consumption tax rates are sufficiently low, a tariff reduction still increases government revenue for a low degree of product differentiation under Bertrand competition.     

Trade Liberalization and Welfare Inequality: A Demand‐Based Approach*

There is strong evidence suggesting that different income groups consume different bundles of goods. Hence, trade liberalization can affect welfare inequality via changes in the relative prices of goods consumed by different income groups (the price effect). In this paper, I develop a framework that enables us to explore the role of the price effect in determining welfare inequality. I find that trade liberalization does benefit some income classes more than others. In particular, I show that the relative welfare of the rich with respect to that of the poor has a hump shape as a function of trade costs.     

Child Labour and Trade Liberalization

The paper analyses the implications of trade liberalization on the incidence of child labour in a two-sector general equilibrium framework. The supply function of child labour has been derived from the utility-maximizing behaviour of the working families. The paper finds that the effect of trade liberalization on the incidence of child labour crucially hinges on the relative factor intensities of the two sectors.     

Trade Liberalization and Technology Diffusion

The paper considers the role of technology diffusion and trade liberalization for the catching‐up of structurally backward countries. A New Economic Geography model is presented that accounts for firm entry/exit and international mobility of skilled labor employed in public R&D sectors. This raises the traditional agglomeration effects in a core–periphery setting as firms and mobile factors usually cluster within spatial agglomerations. With international technology diffusion, however, there is a counteracting effect on the traditional agglomeration effects as firms in the periphery also benefit from increasing R&D expenditures in the core lowering entry costs for firms. It is found that the catching‐up of structurally backward countries is spurred not only as a result of trade integration but also because of technology diffusion.     

Trade Liberalization and Technology Choice

This paper considers the links between trade liberalization and technology choice in the nonliberalizing country. Trade‐liberalization‐induced changes in relative product prices have direct effects on equilibrium relative factor returns. The consequent changes in relative input costs may also lead producers to switch to alternative technologies, which will in turn induce a further indirect change in relative factor returns. Will this indirect affect exacerbate or ameliorate the direct effect on relative factor returns? It is found that this depends on the relative cost savings across sectors and factor cost shares.     

North–South Trade Liberalization and Economic Welfare

We consider a general equilibrium model of a developing economy (the South) that opens to trade with a developed economy (the North). The southern economy is characterized by open urban unemployment and rural–urban migration, a competitive agricultural sector and a monopolistically competitive manufacturing sector. Hence, there is potential for both inter‐ and intra‐industry trade to arise on liberalization, in addition to distortionary effects of duality. Southern comparative advantage in agriculture may arise from the labor market distortion and the basis for intra‐industry trade is love for variety. We characterize various configurations of the trade pattern, and the resulting welfare consequences of opening to trade in this context. We illustrate a new mechanism under which in some circumstances it may be possible for trade liberalization to lower economic welfare in the South.     

Endogenous Growth and Trade Liberalization

We develop an endogenous growth model in which trade liberalization has a positive effect on growth. This effect does not depend on marginal re-allocations nor on knowledge-spillovers. Rather, it is due solely to the increase in market size following the integration of product markets. Our result contradicts a widely-help view that trade on physical goodsper sehas no consequences for long-run growth.[F15]     

Trade Liberalization and Cartel Stability

Can reduced trade barriers promote a collusive understanding about not exporting into each others domestic markets? Reduced trade costs increase the short‐run gains from starting exporting, but can also make the long‐run punishment of such a strategy harsher. If collusion on prices is supported by a trigger strategy, a reduction in trade costs weakens competition in the sense that collusion is easier to sustain. In a corresponding model with collusion on quantities, this conclusion is reversed. The authors also discuss how results change if grim trigger strategies are replaced by stick‐and‐carrot punishments.     

Revenue Motives and Trade Liberalization

Governments in more-developed economies partially compensate import-competing industries when world prices fall, i.e., they lean against the wind. Less-developed economies often liberalize in response to the same shock. We use a political-support maximization model with revenue motives to derive conditions under which a rational policymaker would respond to lower woild prices by reducing tariff protection for an import-competing industry. An initial tariff that exceeds the maximum revenue level proves necessary but not sufficient for politically optimal liberalization following a fall in the world price of the importable good.     

Trade Liberalization and Productivity Growth

This paper presents a trade model with firm‐level productivity differences and R&D‐driven growth. Trade liberalization causes the least productive firms to exit but also slows the development of new products. The overall effect on productivity growth depends on the size of intertemporal knowledge spillovers in R&D. When these spillovers are relatively weak, then trade liberalization promotes productivity growth in the short run and makes consumers better off in the long run. However, when these spillovers are relatively strong, then trade liberalization retards productivity growth in the short run and makes consumers worse off in the long run.     

Trade Liberalization in Egypt

A computable general equilibrium model of Egypt is developed to analyze proposed reforms in its trade policies, including a partnership agreement with the European Union. The model has multiple trading regions and allows for administrative trade barriers and tariffs. The paper reports computations of the revenue impacts of trade liberalization and the required changes in distortionary commodity taxes to maintain a fixed real government budget. Egypt's greatest potential gains come from removing its administrative trade barriers while adopting globally free trade. The partnership agreement with the EU could lower or raise Egypt's welfare, depending on prior trade reform.     

Trade Liberalization and Heterogeneous Technology Investments

We propose a trade model where heterogeneous firms decide on a productivity‐enhancing technology investment. The model analyzes the impact of multilateral trade liberalization on firm‐ and industry‐level productivity. Freer trade increases the incentives to invest in technology by raising export profits. It also dampens these incentives, however, as profits stemming from domestic sales are reduced. Only exporters benefit from the former positive effect. The shape of the distribution of efficiency draws, the level of trade costs and the technology intensity of the industry are key elements removing the ambiguities regarding the net impact of trade liberalization.     

Trade Liberalization with Heterogeneous Firms

This paper examines the various aspects of trade liberalization with heterogeneous firms using the Melitz (2003 ) model. We find a number of novel results and effects including a Stolper–Samuelson‐like result and several results related to the volume of trade, which are empirically testable. We also analyze what might be called an anti‐variety effect as the result of trade liberalization. We show that this effect is most pronounced for small countries. This resonates with the often voiced criticism from antiglobalists that globalization leads the world to become more homogeneous by eliminating local specialties. Nevertheless, we find that trade liberalization always leads to welfare gains in the model.     

Why Environmentalists Resist Trade Liberalization

We build a two-country differential game model of polluting oligopoly to consider the effects of trade liberalization. As in static models, the opening of trade promotes competition but expands global pollution. Characterizing open-loop and feedback strategies, we derive a sufficient condition for losses from trade. This losses-from-trade proposition could provide a rationale for persistent resistance to globalization by environmentalists.