International trade and directed search unemployment in general equilibrium

We develop an open economy general equilibrium model, with auction‐based directed search unemployment, to study the interactions of trade and unemployment. The theory ascribes all outcomes purely to the fundamentals of technology and endowment. If countries differ by endowment, trade makes both the unemployment rate and the rental in the capital‐(labour‐) abundant country rise (decline) but does not lead to equalization. If, alternatively, countries differ by technology, trade increases (decreases) the unemployment rate in the country whose technology is relatively superior (inferior) for producing the capital‐intensive good.     

Uniqueness and comparative statics of Nash equilibrium in a tariff retaliation model

This paper considers uniqueness and comparative statics of Nash equilibrium of a tariff retaliation model. The approach to the problem is geometrical and reminiscent of the analysis for the free trade competitive equilibrium. If the countries have constant elasticity of substitution utility functions, some simple conditions can be used to prove uniqueness of the Nash equilibrium of the tariff retaliation game. The welfare effects of endowment changes are analyzed in terms of the standard terms of trade and volume of trade effects. If the elasticity of substitution of one of the countries is sufficiently high, immiserizing growth will not occur.      

Trade theorems with search unemployment

Abstract We revisit the Heckscher‐Ohlin‐Samuelson model in the presence of labour market frictions à la Mortensen‐Pissarides. Relaxing the assumption of the one‐worker‐one‐firm matching rule, we show that the Stolper‐Samuelson theorem and the Rybczynski theorem may not hold in specific circumstances. We also demonstrate that the Factor Price Equalization theorem is valid only for capital and unemployed labour across countries, but not for employed labour. In equilibrium, trade patterns are determined by countries’ factor endowments and relative factor intensities in sectors (independent of factor intensities in production). Finally, our results suggest an additional explanation for the ‘missing trade’ phenomenon.     

A Neo-Heckscher–Ohlin Model of Trade with Endogenous Production Patterns*

We propose a Neo-Heckscher–Ohlin (HO) model of trade that combines comparative endowment advantage, comparative technological advantage, international capital mobility and trade costs. Using an inframarginal approach, we produce a partition of the exogenous parameter space in a host of parameter value subsets that demarcate the various equilibrium patterns of production and trade. The results are startling! They suggest that production within the diversification cone – a key assumption of the Heckscher–Ohlin theory that is required for its core propositions (such as factor price equalisation) to hold – may only prevail on the razor's edge, or under exceptional circumstances. In addition, our findings nominate a mechanism by which improvements in transaction efficiency facilitate international trade thereby stimulating cross-country division of labour. Contrary to other generalisations of the Heckscher–Ohlin (such as the various derivatives of the Kemp–Jones model of trade), our model does not assume a purely Ricardian character: comparative endowment advantage may determine the pattern of trade even in the presence of opposing technological differences, as long as total factor productivity coefficients adjusted for transaction efficiency and factor intensity do not confer unambiguous comparative (technological) advantage. Still, ‘intensity-efficiency’-adjusted comparative technological advantage supersedes factor endowments in determining the flow of trade.     

Pollution effects of free trade areas: Simulations from a general equilibrium model

Abstract

A two-factors, two-goods, three-countries general equilibrium model is developed to assess the effects of a Free Trade Area (FTA) on pollution emissions. It also makes it possible to compare the effects of a discriminating commercial policy with alternative–non discriminating–policies, such as full trade liberalization or non-discriminating protection. A theoretical model is first developed in order to take into account country-differences in factor endowment, environmental regulation, pollution abatement technology, marginal disutilities of pollution, as well as terms of trade effects. This model is subsequently calibrated and computed in accordance with empirical evidence. The main conclusion shows that the move from protection to FTA reduces world pollution emissions. A second result indicates that, in case of full trade liberalization, world pollution is further reduced.     

Comparative Advantage and Heterogeneous Firms

This paper examines how country, industry, and firm characteristics interact in general equilibrium to determine nations' responses to trade liberalization. When firms possess heterogeneous productivity, countries differ in relative factor abundance, and industries vary in factor intensity, falling trade costs induce reallocations of resources both within and across industries and countries. These reallocations generate substantial job turnover in all sectors, spur relatively more creative destruction in comparative advantage industries than in comparative disadvantage industries, and magnify ex ante comparative advantage to create additional welfare gains from trade. The improvements in aggregate productivity as countries liberalize dampen and can even reverse the real-wage losses of scarce factors.     

Does Growth Encourage Factor Price Equalization?

This paper first notes the importance of "one-cone" versus "multi-cone" equilibria in the Heckscher–Ohlin model of international trade, then asks whether economic growth in neoclassical growth models leads toward one or the other. The one-cone equilibrium arises with internationally similar factor endowments. It has a single set (cone) of relative factor endowments, within which countries diversify and have global factor price equalization (FPE) under free trade. The multi-cone equilibrium arises with larger factor endowment differences. It has FPE within cones, but not between them. The two configurations differ in important ways. The paper examines several neoclassical trade-and-growth models, distinguished by their assumptions about saving, asking whether factor endowments converge into a single cone. None of the models suggests convergence, while some strongly imply that countries will end up in different cones. This suggests a preference for the multi-cone version of the model.     

挤压还是促进?——内需对制造业出口的影响研究

文章结合新古典和新贸易理论研究范式,考察了国内需求对制成品出口的影响。研究发现,制造业中大部分产业的国内需求对出口有显著的正影响,但对于不同行业来说,出口的影响因素有很大差异,超过半数的产业内需对出口的影响已经超过劳动力禀赋的影响,并且贸易自由化会放大内需对出口的影响。我国未来出口将以产业内贸易为主,要更有针对性地采取政策措施以使扩大内需与稳定出口相辅相成,这样才能更大程度地获取贸易收益。     

What Would Korea-US Free Trade Agreement Bring?

ABSTRACT

This paper uses a computable model of trade to forecast the effects of the US–Korea free trade agreement on the manufacturing sector. The model uses the Eaton–Kortum methodology to explain intra-industry trade instead of the usual Armington assumption. It is parameterized using 2005 data for 15 industries and 53 countries. The results show that implementing KORUS would increase the US manufacturing exports to Korea by 56.9% and Korean manufacturing exports to the US by 18.9%. It would also increase manufacturing employment by 26,500 jobs in Korea and 34,200 jobs in the US. In addition, KORUS would lead to significant changes in the patterns of trade and production. The US and Korea would increase their specialization in the industries where they have strong technological comparative advantages. Finally, KORUS would increase welfare in both countries, but only modestly: by 0.27% in Korea and 0.013% in the US.     

Globalization,Wage Volatility,and the Welfare of Workers*

This paper analyzes the effects of trade liberalization on the level and volatility of factor returns, in a model with identical technologies across industries and industry‐specific uncertainty. The results show an increase in the return to capital and, under certain conditions, a decline in the real wages and welfare of workers, along with an expansion of wage dispersion and volatility. Unlike the Solper–Samuelson mechanism, our results do not depend on the factor intensity of imports and exports and are borne out by all patterns of trade, including among industrialized countries, suggesting that the traditional analysis has missed some important linkages between trade and wages.     

The long-run effects of the real exchange rate on employment and wages in Canadian manufacturing

ABSTRACT

The literature on real exchange rate effects on the labour market is dominated by short-run analysis showing that there is heterogeneity in the responses of firms or industries to a real exchange rate shock. Analysing data on Canadian manufacturing industries, I conclude that there is a common long-run equilibrium across all manufacturing industries controlling for their openness to trade after varying adjustments to a real exchange rate shock have taken place. This conclusion is important from the perspective of policy making because it helps to form expectations about the effects of a real exchange rate movement on the labour market. The results suggest that real appreciation leads to economically significant reductions in employment in manufacturing in the long run. Real wages decrease in industries that are highly engaged in international trade and somewhat increase in industries that are relatively closed to international trade. Both employment and real wages converge quickly to the long-run equilibrium.     

Asymmetric adjustment costs in simple general equilibrium models

This paper demonstrates that the introduction of asymmetric adjustment costs in a simple general equilibrium framework establishes a meaningful link between factor price determination and output determination, breaking the analytically convenient dichotomy of the Heckscher-Ohlin-Samuelson model. The possibility of trade between seemingly similar countries that differ in their adjustment technologies is visited.     

Factor endowments and trade of the United States and Taiwan: The Leontief paradox re-examined

The primary purpose of this paper is to re-examine the compatibility of the factor endowment theorem with the foreign trade of both the United States and Taiwan. The study presents evidence that the so-called Leontief paradox may be attributable to technological gaps and factor intensity reversals between the two trading countries. In addition, the conditions for existence of the paradox are generalized. A distinctive feature of this study is that the technologies of both countries are taken into account. The findings reveal that if one-sided technical coefficients, of either the United States or Taiwan, are used for the empirical tests, the Leontief paradox tends to result. The paradox is likely to disappear when the Leontief index is derived from the technical coefficients of both trading countries.     

适宜技术、技术选择和发展中国家的经济增长

在本文中,我们认为一个国家最适宜(优)的技术结构内生决定于这个国家的要素禀赋结构。如果一个发展中国家选择与其要素禀赋结构相一致的技术结构,那么这个发展中国家和发达国家之间在全要素生产率以及每个劳动力的人均产出上的差异就会变得最小。进一步地,如果发展中国家选择最适宜的技术,那么由于发展中国家在技术变迁的成本上比发达国家低,因此,发展中国家的经济增长速度可以超过发达国家的经济增长速度,从而,我们可以得出发展中国家可以收敛到发达国家的结论。     

General equilibrium with trade balance and real interest rate parity

This paper demonstrates, in the context of a two-sector OLG neoclassical growth model, conditions under which international trade in consumption goods alone may be sufficient for the equalization of real returns to physical capital across countries; that is, under which commodity arbitrage is sufficient for real interest rate parity (RIRP). This role for repeated commodity arbitrage is established via a dynamic extension of the factor price equalization (FPE) theorem which is valid at all dates comprising the equilibrium path as well as its steady state. The results are at odds with the conventional view regarding RIRP which arises from open one-sector growth models, in which case steady state trade balance and RIRP are irreconcilable, and are also a contradiction to frequent assertions of lon-run specialization in two-sector frameworks. An equilibrium path for an integrated world economy yields an endogenous, time-variant cone of diversification which implies sufficient conditions for the dynamic paths of a cross-section of economies to exhibit FPE, and hence RIRP with trade balance, at all points in time. These conditions require that the savings rates and initial capital-labor ratios of individual countries do not deviate too significantly from world averages, and that both sectors absorb capital easily. The first of these requirements is sufficient to establish steady state FPE and RIRP in the general specification. The first two requirements are sufficient for the entire equilibrium path to be characterized by FPE and RIRP in a log-linear example. Received: September 22, 1998; revised version: February 10, 2000     

The Empirics of Comparative Advantage: Overcoming the Tyranny of Nonrefutability

I assess the empirical evidence on comparative advantage. I argue that the Heckscher–Ohlin–Vanek (HOV) relationship is not a refutable general‐equilibrium proposition. Consequently, the empirical Heckscher–Ohlin literature has been suffering from the tyranny of nonrefutability. The trade‐governing principle of comparative advantage, the Ricardo–Haberler–Deardorff (RHD) theorem, yields a refutable general‐equilibrium prediction about the pattern of international trade and allows for a theory‐based assessment of the magnitude of the gains from trade. The recent experimental evidence on Japan's nineteenth‐century opening‐up to world trade provides a strong case for the hypothesis that comparative advantage governed Japan's international trade in its early trading years. The aggregate gains from that trade are estimated to be no larger than 9% of Japan's GDP.     

Savings, Volume of Trade, and Growth

This paper develops a two-country dynamic general equilibrium model with endogenous growth to analyze the effects of international trade on steady-stage growth. The two countries differ both in preferences and in technologies. It is shown first that both countries cannot simultaneously experience increases in consumption growth from trade. It is then shown that trade can increase output growth for both countries if the attitude towards saving matches the change in the terms of trade in each country. A country facing a decline (rise) in its output price grows faster if its intertemporal elasticity of substitution is sufficiently low (high).     

Does the position in the inter-sectoral knowledge space affect the international competitiveness of industries?

ABSTRACT

This paper empirically investigates how the inter-sectoral knowledge flows affect the international competitiveness of industries, once controlling for both cost and other technological factors. Using patent data on 14 manufacturing industries in 16 OECD countries over the period 1995–2009, we apply a network-based approach to capture the effect of industries' position in the flows of technical knowledge across industries, which we label inter-sectoral knowledge space. We find that (i) centrality and local clustering in the inter-sectoral knowledge space positively affect the export market shares of an industry, (ii) such two effects are rather redundant and (iii) national-level knowledge flows' impacts on international competitiveness are way stronger than international ones. Network measures of position in the knowledge space are found to be more relevant than standard technological indicators such as patent counts. Our results point to the importance of industries being well located in the stream of knowledge flows, rather than being innovative per se, and offer a novel yet robust proxy to measure technological factors affecting trade performances. In addition, we find evidence of geographical boundaries of knowledge flows.     

Dutch Disease in the Labor Market: Women, Services, and Industrialization

The light manufacturing export industries have been a springboard for sustained growth in many newly industrializing countries. Women have played an important role in those industries. The author presents a theory linking women's work and industrialization. The theory fits the observation that, in low-growth developing countries, women work mostly in household services, while, in higher-growth developing countries, women work in manufacturing. In the model, the existence of a services equilibrium or an industrialization equilibrium, or multiple equilibria, depends on an economy's endowment of land relative to labor.     

Preferential Trade Liberalization Under Cournot Competition

Suppose a country imports a homogeneous good from n foreign countries/producers and wants to eliminate tariffs on imports from m < n of them. If foreign producers differ in their marginal costs, which ones will be among the m that are granted free trade? This paper shows, among other things, that under constant marginal cost and fairly general assumptions about demand it will be the least efficient producers.