Fear of floating or monetary policy as usual? A structural analysis of Mexico's monetary policy

This paper uses Bayesian methods to estimate a small open economy dynamic stochastic general equilibrium (DSGE) model for the period in Mexico after the 1994 crisis. I consider a Taylor rule as the expression of the evolution of monetary policy to gauge its response to the exchange rate in the post-crisis period. The estimation results favor a consistent response of the nominal interest rate to the short-run nominal exchange rate after 1994. Although fear of floating is present, Mexico's monetary policy has taken steps toward a credible free-floating exchange rate that targets inflation.     

Trade Liberalization and Pollution: An Input–Output Study of Carbon Dioxide Emissions in Mexico

This paper examines the environmental effects associated with Mexico's participation in the North American Free Trade Agreement (NAFTA). The objective is to provide quantitative estimates of carbon dioxide (CO₂) emissions from changes in the level and structure of production and consumption activity in Mexico following a liberalization of trade. The quantitative analysis was performed using input–output methods with fuel use modifications to account for CO₂ emissions before and after NAFTA's implementation. As a result of NAFTA, CO₂ emissions are expected to increase from the anticipated increase in the size of the Mexican economy. While total emissions increase as a result of tariff elimination, there is also a shift in the structure of production and final consumption away from those sectors that are the most C02 intensive.     

Endogenous vertical structure and trade policy in an import-competing market

We examine the endogenous determination of a vertical market in an import-competing market with import tariff. We show that if firms commit to vertical organization before the government's commitment to trade policy, the home and foreign firms choose vertical separation and vertical integration, respectively, at equilibrium under Bertrand competition. Under Cournot competition, the subgame perfect Nash equilibrium entails both firms separating their retailers. Comparing profits between Bertrand competition to Cournot competition, we find that upstream manufacturer's profit can be higher under Bertrand competition with integration than under Cournot competition with separation when comparing foreign upstream manufacturer's profit.     

Not all trade wars are created equal

• ? When interpreting estimates of the economic impact of trade wars, the devil is in the detail. Our review of more than 30 institutions' trade war projections finds huge variation – much of which can be explained by differences in assumptions rather than differences in models' structures or specifications. Relative to estimates based on extreme financial or tariff assumptions, our main trade war scenario results are moderate and comparable with the IMF's latest analysis.
• ? In our baseline forecast, trade policy measures have a relatively limited overall impact on global growth. This is in line with recent experience: to date, direct effects from higher trade costs have been small, and policy action has acted to offset adverse impacts on confidence. But the risk of further escalation in US‐China trade tensions remains, even following the (fragile) Trump‐Xi truce agreed at the recent G20 summit.
• ? Our review finds that estimates of the impact of such an escalation range from negligible impacts to a deterioration in some countries’ economic conditions approaching that seen during the global financial crisis. Results in Oxford Economics’ “rising protectionism” scenario – from our latest Global Scenarios Service – are moderate in comparison.
• ? We also find that all estimates showing substantial economic effects from a trade war in our sample are predicated on extreme asset price or tariff moves. In some cases, tariffs are assumed to rise more than at the time of the Great Depression in the 1930s.
• ? Such differences in assumptions can largely account for the divergence in trade war impact estimates. This is illustrated in our very low probability “full‐blown global trade war” scenario – incorporating severe tariff and financial assumptions more in line with institutions like the Bank of England – which generates a deterioration in economic conditions that broadly matches extreme estimates in our sample.

     

1992 and Beyond: Market Freedom or Collectivist Regulation?

Is the ‘social dimension’ of the European Community the ‘socialist dimension’? Dr Martin Holmes, of Oxford University, argues that there is a real danger to Britain's prosperity from the Common External tariff and the CAP, in addition to the collectivism of the ‘Social Charter’.     

Nonlinearity in the Fed's monetary policy rule

This paper investigates the nature of nonlinearities in the monetary policy rule of the US Federal Reserve (Fed) using the flexible approach to nonlinear inference. We find that while there is significant evidence of nonlinearity for the period to 1979, there is little such evidence for the subsequent period. Possible asymmetries in the Fed's reactions to inflation deviations from target and the output gap in the 1960s and 1970s may tell part of the story, but do not capture the entire nature of the nonlinearity. The inclusion of the interaction between inflation deviations and the output gap, as recently proposed, appears to characterize the nonlinear policy rule more adequately. Copyright © 2005 John Wiley & Sons, Ltd.     

Unions and restructuring in the Mexican automobile industry: a comparative assessment

This article examines the variation in union responses to restructuring initiatives in the Mexican automobile industry. The research indicates that militant responses were more likely to occur in unions characterised by internal democracy and autonomy from Mexico's state-corporatist labour confederations.     

Arthur Farquhar on Economic Delusions: An Examination of the Case for Protection

Arthur Farquhar (1838–1929) was a successful manufacturer and exporter of mechanical steel farming implements who also took the time to participate in the day's free trade versus protectionism debate. His main contribution to the national tariff debate was the 1891 book Economic and Industrial Delusions: A Discussion of the Case for Protection. The book was written as a direct response to the McKinley Tariff of 1890 and is very much a polemic against the tariff by a disappointed former Republican. This article summarizes his economic analysis of the incidence of the tariff, the relationship between trade competitiveness and relative wages, and the tariff's effect on overall economic development.     

ECONOMIC IMPLICATIONS OF POLICY RESTRICTIONS ON WATER WITHDRAWALS FROM SURFACE AND UNDERGROUND SOURCES

The appropriation of water for economic activities is limited by regional surface and underground endowments, and symptoms of environmentally unsustainable withdrawals are already visible in many regions of the world. In this paper we investigate the economic implications of water policy imposing source- and region-specific restrictions on water withdrawals taking the Mexican economy as a case study. We use an inter-regional input–output model of Mexico's hydro-economic regions to allocate production subject to the availability of water and other factors of production. Water sustainability requires a reduction of 7.5?km³/yr of groundwater withdrawals, which is compensated by an increase of 3.4?km³/yr of surface water, an expansion onto an additional 1.4 million hectares of rainfed land, and modifications in subnational patterns of food trade. This framework for evaluating scenarios describing sustainability-oriented water policies is readily applicable to other regions.     

Why Developing Countries Have Failed to Increase Their Exports of Agricultural Processed Products

The article uses the case study of coffee, tea and cocoa to analyse whether tariff escalation constitutes a barrier to market access that thwarts diversification efforts of developing countries into exports of value‐added agricultural processed products. It also examines the extent to which non‐tariff barriers act as market access barriers that constrain developing countries from developing their exports of agricultural processed products. Our analysis shows that tariff escalation is not the main barrier; rather it is the prevalence of non‐tariff barriers (including domestic non‐tariff barriers) that limits the ability of developing countries to increase their agricultural processed exports. This has important policy implications in terms of the emphasis that trade negotiators and policy planners should place on addressing non‐tariff barriers.     

Strategic management of worker health,safety, and environmental issues in Mexico's Maquiladora industry

Conflict arising from differences in business practices, standards, values, and norms guiding behavior are inherent in international business. These conflicts are evident in Mexico's maquiladora industry, particularly relating to issues of worker health, safety, and environment. This article extends a model of conflict management; illustrates the model's dimensions with case study examples; discusses strategic human resource management implications of the model's various outcomes; offers recommendations for managing worker health, safety, and environment issues; and identifies directions for future research. © 1993 by John Wiley & Sons, Inc.     

Financial analyst coverage for U.S. firms facing foreign competition: Evidence from trade liberalization

This study examines financial analyst coverage for U.S. firms following an increase in foreign product market competition. To capture exogenous shocks to domestic firms' competitive environments, we exploit a quasi‐natural experiment from large import tariff reductions over the 1984 to 2005 period in the manufacturing sector. Using data for the years before and after large tariff reductions, our difference‐in‐differences analysis shows evidence of a significant decrease in analyst coverage for incumbent U.S. firms when they face greater entry threat from foreign competitors. We also find that analysts with less firm‐specific experience and less accurate prior‐period forecasts are more likely to stop following the domestic firm when foreign competition intensifies. Overall, the findings suggest that foreign product market competition from global trade liberalization is an important determinant of financial analysts' coverage decisions.     

Revealing the preferences of the US Federal Reserve

We use Bayesian methods to estimate changes in US post‐war monetary policy in the Smets and Wouters model. We perform the estimations by allowing for a break in monetary policy at the time of Volcker's appointment as chairman. This enables us to capture changes in the monetary policy regime introduced by Volcker during the Volcker–Greenspan period. We find support for the assumption that monetary policy in the Volcker–Greenspan period performed optimally under commitment. Our estimation strategy allows us to estimate the preferences of the US Federal Reserve in the Volcker–Greenspan period, where the main objective of policy appears to be inflation, followed by interest rate stabilization, output growth and interest rate smoothing. We find that the Great Moderation of output growth is explained by a combination of two factors: the decrease in the volatility of the structural shocks and the improved monetary policy conduct. Inflation Stabilization, however, is mainly due to the change in monetary policy that took place at the beginning of Volcker's mandate. Copyright © 2010 John Wiley & Sons, Ltd.     

Henry George and the Contemporary Debate over Industrial Protectionism

Abstract . The central question of Henry George's 1886 book. Protection or Free Trade, commemorated now after a century, was: do protectionist policies help or hinder the working man Have George's concerns in 1886 since become outdated or anachronistic? If not, what are some historic trends toward protectionism since that time? Some of the formal arguments for and against protectionism are examined. George contended that protectionism threatens labor unions and reduces workers’wages. An apparent counterexample is provided by the International Ladies’Garment Workers’Union, which now actively lobbies for protectionist legislation. Its arguments have merit when protectionism is viewed instrumentally, but one must recognize that there are substantive objections to protectionism as a comprehensive national policy. George linked protectionism to paternalism; his theory of economic value as well as his model of the rational economic man are derived from basic democratic principles which stand at sharp odds with the implicit paternalism of tariff policies.     

Motives for Intergenerational Transfers: New Test for Exchange

The question of motives for private transfers is one with important policy implications. The evidence from empirical literature has been mixed. This study proposes new tests and evidence of the “exchange motive.” It examines the key assumption on which the exchange motive model is built: that a donor's behavior is determined by his/her own expectation of receiving inter‐vivos transfers or bequests in return. Results from national data show that adult children's time transfers to their aging parents were positively associated with their expectation of inter‐vivos financial transfers, but not with their expectation of receiving bequests.     

EVIDENCE ON THE IMPACT OF TARIFF REDUCTIONS ON EMPLOYMENT IN DEVELOPING COUNTRIES: A SYSTEMATIC REVIEW

This paper analyses the evidence on the impact of tariff reductions on employment in developing countries. We carry out a systematic review of the existing empirical literature, and include both, ex post econometric evidence and ex ante Computable General Equilibrium (CGE) simulation studies. The synthesis of results suggests that the effects of tariff reductions on employment are country and trade policy specific. When looking across higher quality econometric studies that control for the endogeneity of tariffs, only a couple of studies have statistically significant results, and these suggest that employment is likely to decrease slightly in the short run following trade liberalization. This is consistent with the notion that there are winners and losers from trade policy reform. These results are in contrast with the CGE findings, which by design incorporate projections of the medium‐run economy‐wide knock‐on effects suggested by economic theory. The synthesis of CGE studies suggests non‐negative effects of trade liberalization on aggregate employment and moderate inter‐sectoral labour reallocation effects.     

Getting Away with Robbery? Patenting Behavior with the Threat of Infringement

The paper examines how an innovator's ability to enforce her patent rights affects (and is affected by) her decision to patent her innovation and her patent breadth decision. Specifically, the paper shows that the innovator may find it optimal to patent her innovation even if litigation is not pursued in the event of patent imitation. The patent is valuable because it can be used to influence the entrant's location decision in a way that is profitable for the incumbent. In addition to showing that a patent need not be legally enforced to be valuable, the paper shows that the lower is the entrant's R&D cost, the smaller is the innovator's incentive to patent her product. If patenting occurs, however, the lower is the R&D cost, the greater is the patent breadth that could be chosen without triggering imitation.     

Impact of trade liberalization on firm's labour demand by skill: The case of Tunisian manufacturing

This paper investigates the impact of the trade liberalization process in Tunisia on employment by distinguishing different skills and different types of firms using micro level data covering the period of 1983–1994. There is considerable disagreement among analysts on the impact of recent trade reforms upon labour. Our contribution to these debates in this paper is essentially an empirical issue. The analysis of a Tunisian firm's data may be viewed as an attempt to apprehend how employment in Tunisia, a developing country, adjusted to the trade reforms. Using micro-level detail on individual firms, we are able to trace the relationship between changes in trade policies and manufacturing employment at firm level and by skill. Although trade reforms are generally implemented at the sector level, their effects may vary significantly across firm characteristics such as output orientation. We measure the effects of trade policy on employment according to different types of firms. We also associate changes in employment directly with a measure of change in trade protection, rather than linking them to changes in imports and exports which would be more common. The results suggest that the impact of trade liberalization on labour demand depends on a firm's characteristics. In particular, the estimates obtained suggest that trade liberalization has beneficial effects on employment for exporting-firms. Conversely, trade liberalization has negative and disciplinary effects on employment for domestically oriented firms. The reduction in tariff levels conducted in this first phase of liberalization in Tunisia seems to have had effects with different intensity on unskilled labour and on skilled labour; this justifies the examination of these two skills.     

The Impact of Trade Liberalization on Micro Enterprises: Do Banks Matter? Evidence from Indian Manufacturing

This paper looks at the impact of trade liberalization on micro enterprises with differential access to banks. I use Indian data on rural micro enterprises employing less than ten workers in the manufacturing sector to find that trade liberalization, measured by a fall in the tariff, is associated with a larger increase or a smaller decrease in output, capital–labour ratio and labour productivity in districts with a larger number of bank branches per capita. Evidence is consistent with strong complementarities between trade liberalization effects, and the economic dynamism and access to financial intermediation associated with greater bank presence in the enterprise's location. The study underscores that trade liberalization can be beneficial to micro entrepreneurs under certain conditions and emphasizes reallocation resulting from trade liberalization. The study hence highlights the role for development policy in exploiting gains from trade.