Managerial capital,occupational choice and inequality in a global economy

This study proposes a simple theory of trade with endogenous firm productivity, occupational choice and income inequality. Individuals with different managerial talent choose to become entrepreneurs or workers. Entrepreneurs enhance firm productivity by investing in managerial capital. The model generates three income classes: low‐income workers facing the prospect of unemployment, middle‐income entrepreneurs managing domestic firms and high‐income entrepreneurs managing global firms. Trade liberalization policies raise unemployment and improve welfare. A reduction in per‐unit trade costs raises top incomes and generates labour‐market polarization. A reduction in fixed exporting costs has an ambiguous effect on top incomes and personal income distribution. Policies reducing labour‐market frictions or the costs of managerial‐capital acquisition create more jobs and improve welfare. The income distributional effects of labour‐market policies depend on which policy is implemented.     

Market access and technology adoption in the presence of FDI

This paper theoretically investigates whether improved access to the domestic market speeds up new technology adoption by foreign firms. Foreign firms choose between exporting and foreign direct investment (FDI) to serve the domestic market. If two firms compete in the domestic market, multilateral liberalization of FDI or the realization of multilateral free trade may deter or delay technology adoption, while they always promote and accelerate technology adoption if only a single firm serves the domestic market. Technology adoption can be quickest and consumer welfare greatest when the fixed cost of FDI and the trade costs are neither very high nor very low. Preferential liberalization of FDI promotes the technology adoption of the targeted firm but may not benefit consumers because it discourages technology adoption of the non-targeted firm.     

Financial globalization and its consequences for productive government expenditure

This paper employs a stochastic growth model to study the impact of international financial liberalization on the share of productive government expenditure in GDP. Financial liberalization is specified to take the form of reducing the costs of both lending to, and borrowing from, abroad. This is shown to impinge on the economy through (i) its interaction with the volatility of returns to domestic capital, and (ii) the impact on agents’ allocation of their portfolio across domestic and foreign assets, and its effect on domestic activity. Reduced foreign lending costs tend to divert resources from the domestic economy, requiring the government to compensate by increasing the share of domestic output allocated to productive activity. Reducing borrowing costs have the opposite effects. Empirical evidence, using a dataset of 97 countries over the period 1970 to 2015 provides convincing support for these findings and the underlying mechanism.     

Trade liberalization, foreign ownership, and the environment in a small open economy

This paper examines the effects of trade liberalization on firm ownership and the environment for a small open economy. It is found that trade liberalization via tariff reductions can result in a dramatic switch in firm ownership from domestic to foreign, coupled with a lower pollution tax.     

Trade Liberalization and the Profitability of Mergers: a Global Analysis*

We analyze the effects of bilateral tariff reductions on the profitability of cost‐reducing horizontal mergers. Given Cournot competition in a two‐country world, for any positive tariff below a certain threshold, marginal trade liberalization is shown to encourage only those domestic mergers with sufficiently large cost‐savings and to discourage the rest. For tariffs close to, but smaller than, the prohibitive tariff, however, marginal trade liberalization necessarily encourages all domestic mergers. Moreover, we show that for a given level of cost‐savings, the impact of marginal trade liberalization may not reliably predict that of nonmarginal liberalization. Although at high tariffs, domestic mergers are shown to be unambiguously more profitable than cross‐border mergers, near free trade, mergers which yield the most cost‐savings become the most profitable. Thus, when comparing domestic and cross‐border mergers, trade liberalization encourages the type which yields the most cost‐savings.     

TRADE LIBERALIZATION AND THE EXTENSIVE MARGIN

Trade barriers can lead to the disappearance of products and impose huge costs. Allowing for the realistic possibility that imported products are substituted by domestic varieties this paper finds that the cost of protection that allows for disappearance of products, the 'Romer cost,' is higher below a tariff threshold. This threshold depends on the substitutability of domestic for foreign products. This is important for developing countries where inferior technology leads to poor substitutability and traditional calculations underestimate the cost. Analysis of new varieties trade after the Indian liberalization supports the findings in the context of a developing country.     

Interest Groups, Trade Liberalization, and Environmental Standards

In considering a country that imposes a minimum standard on an imported polluting good, which generates negative consumption externalities, we construct a common-agency model, in which a domestic environmental group and a foreign industrial lobby can influence the formation of the minimum standard by providing political contributions to the government. This paper investigates the effects of trade liberalization on the political equilibrium environmental standard, the pattern of trade, environmental disutility, and social welfare. We find that trade liberalization tightens the minimum standard, decreases imports of the polluting good, and reduces environmental disutilities. The importing country’s social welfare, however, does not necessarily increase with trade liberalization. The weaker the environmental group’s lobbying efficiency, or the stronger the foreign firm’s lobbying efficiency, the more likely it is that trade liberalization will enhance the importing country’s welfare.     

The Effects of Trade Liberalization between Heterogeneous Countries on Endogenous Mergers

This paper examines the effects of trade liberalization on merger behavior. We endogenize merger choice among owners in an oligopolistic industry in asymmetric countries to analyze the consequences of trade cost reductions on competitiveness and welfare. In this context, the non‐cooperative game supports asymmetric market structures. We also find that trade liberalization is not necessarily pro‐competitive in countries with the competitive advantage, even if trade costs are completely abolished. Moreover, the tariff‐jumping explanation of international mergers does not necessarily apply. The welfare analysis shows that merger behavior can significantly alter any gains from liberalization. Countries should consider enforcing competition in regional agreements. Specifically, to avoid a reduction in domestic welfare following trade‐liberalizing reductions in trade costs, a high‐cost country's optimal policy may be to ban international mergers.     

Financial Openness in Turkey

The purpose of this paper is to analyse the effects of financial liberalization on the financial and real sectors of the Turkish economy. The process of liberalization began over 15 years ago simultaneously with a stabilization programme that had been designed according to neoclassical model. The implementation addressed first foreign trade, then the domestic financial market and finally foreign capital movements. Contrary to theoretical expectations, the opening of the capital account induced adverse effects on financial intermediation, savings, investment, growth and foreign debt.     

Exploring policy options in joint intertemporal-spatial trade models using an incomplete markets approach

In this paper we discuss the desirability of service trade liberlization in the presence of incompleteness of markets where there is both inter-spatial and intertemporal trade between countries. We use numerical simulation methods for insights and relate our discussion to the General Agreement on Trade in Services (GATS) in the WTO. We interpret the absence of intertemporal trade as an absence of intermediation services provided by both domestic and foreign service providers. For simplicity, we consider extreme cases where intertemporal intermediation services can only be provided by domestic providers, so that when intertemporal trade in services is not allowed, markets are not complete. To our knowledge, this type of models is not used in the trade literature as general comparative statics results are unavailable. We first consider the liberalization of trade in financial services in an inter-spatial and intertemporal model of two countries, and we show how services liberalization can be welfare worsening in the presence of a tariff on spatial trade in goods. We show that this can hold in an artificial world with no domestic financial services provider. We compare financial service trade autarky in which there is no intermediation to financial service trade liberalization which involves costless intertemporal intermediation provided by foreign service providers. We also consider a more complex (and realistic) world where costly intermediation services can be provided by both domestic and foreign providers. This paper draws in part on material of an earlier paper, “Financial Services Trade Liberalization in A Joint Spatial Intertemporal Multi-Country Model” by Huang et al. (2004). We acknowledge the financial support from The Centre for Intentional Governance Innovation (CIGI), Waterloo, Canada and from National Social Science Foundation of China (SSFC Grant 07AJL002), National Natural Science Foundation of China (NSFC Grant 70825003) and “Humanities and Social Science” Major Project, Chinese Ministry of Education (Grant Number 07JJD790145).     

STAY OR LEAVE? CHOICE OF PLANT LOCATION WITH COST HETEROGENEITY

Using a two-country model, we examine location choices by two domestic firms when they serve only the domestic market and their cost structures differ. The findings indicate that whether the firm that has a greater incentive for foreign direct investment is more or less efficient depends on the differences in domestic and foreign marginal costs, trade costs, and the presence of fixed costs. Plant locations may not be uniquely determined. In particular, a small change in trade costs may reverse plant location. Moreover, a decrease in transport costs in the presence of foreign direct investment may deteriorate domestic welfare.     

Trade Policy and Access to Retail Distribution

The paper develops a model in which foreign and domestic manufacturers producing differentiated goods sell through spatially differentiated retailers. There is free entry into retailing but access to the retail distribution network (by manufacturers) may be controlled. The author considers a domestic vertical control mechanism in which domestic retailers carry only domestic brands (termed “domestic dealing”) and compares the use of tariffs on imports and the enforcement of domestic dealing restrictions as means of increasing domestic welfare. It is shown that domestic dealing will always be prohibited when tariffs can be used. When trade policy is not available, however, domestic dealing may be desirable.     

双循环重心变化、贸易自由化与我国生产率增进*——基于资源重新配置效率视角

构建双循环新发展格局、推动高质量发展是中共中央关于“十四五”规划与2035年远景目标的战略决策。双循环新发展格局涉及双循环重心变化问题，高质量发展的要义之一是生产率增进。本文将双循环重心变化嵌入异质性企业贸易模型，从资源重新配置效率视角，演示双循环重心由国际向国内转变对贸易自由化的生产率增进效应的影响，而后利用1998—2013年中国制造业企业数据进行实证检验。研究发现，以国际循环为主体的贸易自由化导致集约型资源错配和扩展型资源错配，从而抑制行业总生产率增长；而以国内循环为主体的贸易自由化则有助于提高行业内资源配置效率，从而促进行业总生产率增长。因此，转变过度依赖国际大循环的经济发展模式，构建以国内大循环为主体、国内国际双循环相互促进的新发展格局是增进贸易自由化的生产率效应，推动对外贸易高质量发展的关键所在。     

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.     

Welfare Effects of Reducing Home Bias in Government Procurements: A Dynamic Contest Model

This paper models an international contest for government procurement as a dynamic game between a domestic firm and a foreign firm. We show that trade liberalization, in the form of a reduction in bias against the foreign firm, improves both domestic and global welfare if (i) either the foreign firm's profit is sufficiently large or (ii) the initial degree of home bias is sufficiently small. If the initial home bias is large, a small reduction in the bias may reduce welfare.     

The influence of international trade on labour productivity in services: The case of Brazil in the 1990s

In the developing world, services account for a rising share of domestic employment and international trade. Thus, it is important to know whether trade liberalization contributes to labour productivity in services. We explore this question, examining the 1990–2000 Brazilian trade liberalization. We find that growth of imports and exports strengthened labour productivity in services, but the contribution was smaller in subsectors with more college graduates, and this negative offset was larger in subsectors that received large foreign direct investment (FDI) inflows. Improved access to imported manufactured intermediate inputs raised downstream services' labour productivity and downstream manufacturing firms benefitting from tariff cuts enacted by trade partners generated spillovers that improved the labour productivity of upstream service subsectors. However, FDI inflows and investments in human and physical capital modified these downstream factors. We conclude that the Brazilian trade liberalization strengthened productivity in services, but unequally across subsectors.     

The Economic Efficiency of Policy Reform and Partial Market Liberalization under Transaction Costs

The article presents an integrated analysis of the effects of domestic and trade policy reform on resource allocation and welfare under transaction costs. It develops a general multiagent, multicommodity model, where transaction costs are the costs of resources used in the exchange process. The influence of domestic and trade policy (including both price and quantity instruments) on distorted market equilibrium is analysed. Alternative concepts of distorted equilibrium are presented and investigated. They provide a basis for evaluating the effects of multilateral partial market liberalization on resource allocation and welfare under transaction costs. New conditions are derived under which multilateral policy reforms generate Pareto improvements.     

Quality heterogeneity and global economic growth

This paper develops a fully endogenous, variety-expansion growth model with firm-specific quality heterogeneity, limit pricing, and an endogenous distribution of markups. Firms with high-quality products engage in exporting, firms with intermediate-quality products serve the domestic market, and inefficient firms with low-quality products exit the market. Trade liberalization, measured by a reduction in trade costs or a decline in foreign market entry costs, generates a reallocation of resources from low-quality to high-quality products and exit of inefficient firms. However, it has ambiguous effects on the average global quality level, long-run growth, and welfare. An increase in the rate of population growth or in the intensity of trade-related knowledge spillovers accelerates economic growth. The laissez-faire equilibrium is inefficient, and this leaves room for welfare-improving government intervention.     

A contest model of liberalizing government procurements

This paper models liberalization of government procurements as admitting entry of foreign firms in a contest among potential rent seekers. It contributes to the literature on how institutions influence socially desirable outcomes. Liberalizing procurements reduces wasteful domestic lobbying but also increases the likelihood that a foreign firm will capture the rent. A main result is that the domestic welfare change is not monotonic in the foreign firms' abilities. Furthermore, we show that domestic liberalization policies can be inefficient from the global point of view because foreign lobbying costs can outweight productive efficiency.     

Trade liberalization in a differentiated duopoly reconsidered

Constructing a model of differentiated Cournot duopoly, we consider welfare effects of trade liberalization (i.e. reductions in transport costs). We examine both multilateral trade (i.e. the firms in both countries export bilaterally) and unilateral trade, under which foreign entry is possible but the home firm cannot export. Some new results on trade gains under differentiated oligopoly are proved and their implications are discussed.