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.     

ECONOMETRIC ESTIMATION OF ARMINGTON IMPORT ELASTICITIES FOR A REGIONAL CGE MODEL OF THE ILLINOIS ECONOMY

One of the main concerns associated with the development and use of regional CGE models is the determination of key parameter values, particularly substitution and other price elasticities. A common problem is the lack of appropriate regional data for econometric estimation. Consequently, it is important to identify key parameters that are likely to be important in determining quantitative results and then to prioritize these for estimation where appropriate data are available. In this paper, the focus is on the estimation of the regional trade (import) substitution parameters, which tend to be important in analysis for regional economies (given their openness to trade). Here, commodity import elasticities for the Illinois economy are estimated and tested in a single region CGE model of the Illinois economy. In our econometric estimation, we apply a model that takes account of market size and distance in estimating the substitutability between commodities produced in Illinois and other US states.     

A SURVEY OF THE ECONOMICS OF FAIR TRADE

Fair Trade has spread in developing countries as an initiative aimed at lifting poor smallholder farmers out of poverty by providing them with premium prices, availability of credit, and improved community development and social goods. Fair Trade is also viewed as a niche market for high value products in a context of globalization and trade liberalization policies that affect smallholder farmers in developing countries. This paper provides an overview of the potential effects of Fair Trade, both theoretical and empirical, on small‐scale producers in developing countries. Our review discusses the empirical evidence on prices and income, as well as the importance of limited market access and productivity. We discuss evidence on labor markets and human capital investments as well.     

UNDERSTANDING ENVIRONMENTAL RESPONSIBILITY OF CITIES AND EMISSIONS EMBODIED IN TRADE

The attribution of greenhouse gas (GHG) emissions embedded in interregionally traded products to either production or consumption regions is a key issue to the understanding of the global environmental responsibility of metropolitan areas. In this paper we identify GHG emissions for which metropolitan areas assume responsibility by allocating emissions embodied in import and export products to regions of either consumption or production in the cases of three US metropolitan areas. The case studies show that embodied emissions in both export and import products accounted for 63–73% of total GHG emissions directly and indirectly pertaining to these metropolitan economies. These findings suggest that an accounting method that incorporates emissions embodied in product trade has relevance to the development of local policies that govern actions ranging from redirecting metropolitan development patterns toward low carbon emissions to promoting sustainable consumption behavior, particularly those involving the collaboration of cities.     

Look before you leap: Why politicians may have a point to be hesitant about the gains from trade

Economists emphasize the welfare gains of unrestricted trade, but politicians worry about the income distribution effects of increased competition. We show that the welfare gains of a trade shock become ambiguous if inaccurate information hinders optimal income redistribution with distortionary policy instruments. To be sure about the net welfare outcome of a compensated trade shock, the government must know the size of the trade shock and the corresponding size of the policy instrument that is needed to generate a balanced budget. If this is not the case, politicians may have a point when being hesitant about the gains from trade.     

EVALUATING THE CRITICISMS OF FAIR TRADE1

This article critically examines some of the most common arguments used to support the view that Fair Trade should be rejected by consumers and businesses seeking to socialise their economic decisions. Overall the paper finds that the majority of such criticisms lack evidential rigour and sophisticated theory but instead rely on a high degree of rhetorical aptitude. While this does not naturally lead to the position that Fair Trade is necessarily beneficial, the conclusion reflects on a substantial amount of positive evidence to suggest that Fair Trade should not be abandoned by consumers or businesses.     

INTERTEMPORAL OPTIMIZING MODELS OF TRADE AND CURRENT ACCOUNT BALANCE: A SURVEY

Abstract.  This study surveys the intertemporal optimizing models of trade and current account balance that were developed, calibrated and empirically tested since they came into vogue in the 1980s. The implications of these models often differ from those of static and dynamic conventional non-optimizing models. The literature on optimizing models has not only grown reasonably fast, but has also witnessed significant advances in methodology, and these models have culminated into a distinct strand of new open-economy macroeconomics. The studies conducted until the late 1980s have used deterministic perfect-foresight models, while several studies conducted since the 1990s relax the perfect-foresight and certainty equivalence assumptions and develop stochastic dynamic general equilibrium models to account for uncertainty confronting the optimizing agents. The future research needs to explore the possibility of tracing any preferred specification of household preferences, model the effect of time-varying discount factor on household utility function and intertemporal budget constraint, examine the role of costs in international trade, place a parallel emphasis on the empirical verifications of theoretical propositions, examine the relative performance of optimizing vis-à-vis non-optimizing models and rationalize the extreme propositions of perfect and imperfect capital mobility in the wake of moderately open capital accounts.     

EFFECTS OF REGIONAL COOPERATION AMONG SMALL AND MEDIUM-SIZED FIRMS ON THEIR GROWTH IN JAPANESE INDUSTRIAL CLUSTERS

We examine the effects of regional inter-firm cooperation on firm growth by estimating the firm growth function, using the data of a questionnaire survey for three major industrial clusters in Japan, namely, Tama, Kinki and Hokkaido. We focus on the specific content of cooperative activities for two aspects: that is, three production stages of R&D, commercialization, and marketing for cooperation and different types of alliance partners. The findings for our study areas demonstrate: i) vertical cooperation, the most prevalent with suppliers and customers, does not contribute to firm growth; ii) the clusters do not enjoy "urbanization economies arising from agglomerating a variety of different industrial sectors"; iii) the alliances with "universities" and "cross-industry exchange organizations" show positive effects on firm growth; and iv) both contributions and limitations are identified for the cluster-promotion policies in Japan.     

A SURVEY OF RECENT DEVELOPMENTS IN THE LITERATURE OF FINANCE AND GROWTH

Abstract.  This paper provides a survey of the recent progress in the literature of financial development and economic growth. The survey highlights that most empirical studies focus on either testing the role of financial development in stimulating economic growth or examining the direction of causality between these two variables. Although the positive role of finance on growth has become a stylized fact, there are some methodological reservations about the results from these empirical studies. Several key issues unresolved in the literature are highlighted. The paper also points to several directions for future research.     

REGIONAL INTEGRATION AND POVERTY: A REVIEW OF THE TRANSMISSION CHANNELS AND THE EVIDENCE

While there is an extensive literature on the impact of regional trading agreements on trade and capital flows, as well as on the relationship between international trade, growth, and poverty there is comparatively little treatment of the possible linkages between regional integration and poverty. We analyze the channels through which regional integration could impact on poverty, and then review the existing evidence on the impact of regional integration on poverty. We focus on two key characteristics that make any regional integration process different from unilateral and multilateral liberalization: first, the asymmetric nature of the liberalization process; second, the scope or ambition of the regional liberalization being undertaken and the nature of the institutional arrangements that are put into place to manage the process of regional integration. We also distinguish between short, medium, and long run effects on poverty of regional integration processes. There is some direct evidence explicitly linking regional integration and poverty, but in good part the shedding of the light depends on an indirect literature on trade, FDI, migration, and inequality.     

TRADE AND FACTOR FLOWS IN A DIVERSE EU: WHAT LESSONS FOR THE EASTERN ENLARGEMENT(S)?

Abstract.  This paper reviews the neoclassical and new economic geography (NEG) theoretical frameworks used to analyse the effects of integration on trade and factor flows, and the empirical work carried out within those theoretical frameworks for the European case. The European Union (EU) is of particular interest because it is illustrative of the tensions between deepening of the integration process and widening membership: whereas deepening requires homogeneity, widening has made the EU increasingly diverse. The orthodox framework saw trade and factor flows as substitutes, thus separating their analysis, and was mainly concerned with efficiency issues of trade integration. The NEG framework saw trade and factor flows as complements, and analysed them jointly, looking mainly at distribution issues such as disparities in industry location and wages arising from a single market for goods and factors. The main lesson for the Eastern enlargement(s) is that integration in its various forms leads to an uneven distribution of gains across member countries when these have very diverse economic structures.     

THE REGIONAL EFFECTS OF MONETARY POLICY: A SURVEY OF THE EMPIRICAL LITERATURE

This survey provides an updated review of the empirical literature on the regional effects of monetary policy in economic activity by means of undertaking a threefold perspective. First, the main methodological dimensions of this literature are examined while pinpointing those modelling or methodological traits that constitute a source of diverging estimates and thereby produce inconclusive evidence. Secondly, the estimates yielded by the literature are summarized by carrying out a cross‐study analysis of the results for each monetary union. By drawing on empirical regularities that are robust across studies, the conclusiveness of the results is assessed, while those monetary unions for which conclusive evidence is still lacking are also identified. Lastly, the sources of regional heterogeneity identified by these studies are reviewed in order to shed some light on the linkage between monetary policy and territorial heterogeneity. As a result of this threefold perspective, this survey delivers overall structured conclusions and updated policy‐relevant lessons. Moreover, various research gaps and emerging topics in the literature are also identified.     

ECONOMIC WELFARE ANALYSIS OF THE LEGALIZATION OF DRUGS: A CGE MICROSIMULATION MODEL FOR COLOMBIA

In this paper, a computable general equilibrium (CGE) microsimulation model is used to analyze the effects of an ex ante legalization of drugs on the Colombian economy. The model consists of 11 productive sectors, 3 different labor force categories with unemployment, and 20 households divided by income and location. Changes in wages and migration are estimated using a labor participation model, and a NIDS estimates the demands of the households. Changes in household economic welfare, measured by changes in income and prices (CV and EV measurements), are very sensitive to the reinvestments that the government makes in the economy. By analyzing six different scenarios with different assumptions about changes in drug prices, investments of the government, and the termination of the armed conflict, the results suggest that economic welfare improves when the government reinvests military expenditures in other productive sectors or when the ‘economy of war’ continues and the legalization does not end the armed conflict.     

BRIDGING TRADE THEORY AND LABOUR ECONOMETRICS: THE EFFECTS OF INTERNATIONAL MIGRATION*

Abstract This paper surveys current theoretical and empirical research on international migration with a particular emphasis on the links between trade theory and labour empirics.     

MODELS OF REGIONAL GROWTH: PAST,PRESENT AND FUTURE

Abstract This paper presents an overview of various models of regional growth that have appeared in the literature in the last 40 years. It considers the past, and therefore supply‐side models, such as the standard neoclassical, juxtaposed against essentially demand‐side approaches such as the export‐base and cumulative causation models (as integrated into the Kaldorian approach); before moving on to the ‘present’ and more recent versions of the neoclassical model involving spatial weights and ‘convergence clubs’, as well as new economic geography core–periphery models, and the ‘innovation systems’ approach. A key feature of the more recent literature is an attempt to explicitly include spatial factors into the model, and thus there is a renewed emphasis on agglomeration economies and spillovers. Discussing ‘present’ and ‘future’ approaches to regional growth overlaps with the current emphasis in the literature on the importance of more intangible factors such as the role of ‘knowledge’ and its influence on growth. Finally, there is a discussion of the greater emphasis that needs to be placed at the ‘micro‐level’ when considering what drives growth, and thus factors such as inter alia firm heterogeneity, entrepreneurship and absorptive capacity.     

A SURVEY OF TRADE AND WAGE INEQUALITY: ANOMALIES,RESOLUTIONS AND NEW TRENDS

This paper surveys recent studies on trade and wage inequality. We first introduce some trade‐based explanations for increased wage inequality. There are, however, a number of criticisms of this line of thought based on the ‘trade‐wage inequality anomaly’, the ‘price‐wage anomaly’, and the small volume of trade. Mainly due to these criticisms, trade‐based explanations for rising wage inequality have been limited in the economic literature. Rather, the primary explanations for wage inequality have been based on skill‐biased technological change. Some trade models, however, have weakened the above criticisms, and more economists now argue that the effect of trade, though relatively small compared to that of technological change, is more significant than generally believed. Finally, we attempt to link new trends in inequality, such as job polarization and within‐group inequality, to the trade and wage inequality literature.     

INCOME DISTRIBUTIONS IN INPUT-OUTPUT MODELS

The analysis of income distribution (ID) has traditionally been of prime importance for economists and policy-makers. However, the standard input–output (I–O) model is not particularly well equipped for studying current issues such as the consequences of decreasing access to primary inputs or the effects of specific redistributive policies. This paper addresses this gap in the existing literature. We propose that IDs can excellently be studied by restructuring the I–O relations. A new coefficients matrix is defined, the so-called augmented input coefficients matrix. This matrix is the sum of the intermediate input coefficients matrix and newly constructed matrices of sector-specific input coefficients that represent the existing distribution of income. We show that shifts in the distribution can be modelled by attributing weights to these matrices and vary these according to system-specific rules. Numerical illustrations based on the existing literature are given throughout the paper.