Sustaining multilateral cooperation among asymmetric countries: Does MFN help?

The most favored nation (MFN) clause is widely understood to be the central pillar of the global multilateral trading system. Does the MFN principle of non-discrimination facilitate multilateral cooperation? Using a repeated game approach, we address this question in an oligopolistic three country model of intraindustry trade where production costs differ across countries. The analysis delivers two main results. First, both under MFN and tariff discrimination the incentive constraint of the high cost country determines whether or not free trade is sustainable. Second, the high cost country is more willing to cooperate multilaterally under MFN relative to tariff discrimination.     

Housing prices,stock prices and the US economy

This paper studies the relationship between housing prices, stock prices, interest rates and aggregate output in the US using monthly data from 1993 to 2014. Evidence from causality tests and a variance decomposition procedure suggest that stock prices have a much larger effect on aggregate output in the US economy than do either housing prices or interest rates. Instead, the wealth effect created by changes in stock prices has a relatively large impact on US aggregate output. Separate estimations and variance decompositions for the sample periods 1993–2001, 2002–2008 and 2009–2014 show that the impact of housing prices relative to stock prices has been waning over time.     

Technical compatibility and the mode of foreign entry with network externalities

Abstract.  We examine the preferences of a foreign firm and a local government over two modes of foreign direct investment: de novo entry and acquisition of the domestic incumbent. Two crucial features of the model are network externalities and partial incompatibility between the domestic and the foreign technology. The relative welfare impact of the two entry modes depends on the degree of market competition and the strength of the network externality. The clash between the foreign firm's choice and the local government's ranking of the two entry modes can motivate limits on the degree of foreign ownership of the local firm.     

PREFERENTIAL TRADE AGREEMENTS AND MULTILATERAL TARIFF COOPERATION*

Are preferential trade agreements (PTAs) building or stumbling blocks for multilateral trade liberalization? I address this question in an infinitely repeated tariff game between three countries engaged in intraindustry trade under oligopoly. The central result is that when countries are symmetric, a free trade agreement (FTA) undermines multilateral tariff cooperation by adversely affecting the cooperation incentive of the nonmember whereas a customs union (CU) does so via its effect on the cooperation incentives of members. However, when countries are asymmetric with respect to either market size or cost, there exist circumstances where PTAs facilitate multilateral tariff cooperation.     

The impact of budget deficits on national saving in the USA

This paper analyses the effect of government budget deficits on national saving in the USA utilizing annual time series data from 1967 to 1996. A model that includes budget deficits, money supply, real exchange rate, real interest rate, and the proportion of working age population to total population to explain national saving is developed. After examining the time series properties of the data an error correction model is estimated. The overall results suggest that an increase in government budget deficits tend to reduce national saving. The working age population coming out of the baby boom generation has positively contributed to an increase in national saving.     

Production efficiency of British building societies

The purpose of this paper is to examine the relative efficiency of British building societies and to find out whether efficiency factor is the driving force behind the merging of small building societies. Efficiency indices for societies are derived from a 1981 sample of cross-section data. The results indicate wide disparities in efficiency. These differences are not related to the size of building societies, but apparently to managers' skill and motivation.     

Preference for rural living environment improvement initiatives in China

The Chinese government has launched the Rural Living Environment Improvement Initiative (RLEII) to solve the poor living conditions in rural areas. The initiative enhances rural greenery; provides sanitary toilets; and promotes proper disposal of animal manure, sewage, and household waste in rural areas. We collected data using in-person interviews with 938 rural residents in Xinjiang, China, to elicit their preference, preference intensity, and preference heterogeneity for RLEII. Results indicated that rural residents prefer to see shortcomings of the RLEII addressed. Rural greening construction is identified with the highest preference intensity. We also find significant heterogeneity in rural residents' preferences for each attribute of RLEII. The preference heterogeneity is rooted in the region's economic condition (poor vs. nonpoor region). It is essential to understand rural residents' choice for rural public goods supply and to respect their preference intensity, sequence, and heterogeneity for RLEII to enhance the implementation performance. We discuss the implications of these findings.     

Exporting versus Direct Investment under Local Sourcing

This paper examines a setting where foreign direct investment (FDI) shifts demand for an intermediate good from the source to the host country. A domestic and a foreign firm choose between exports or FDI, always sourcing the intermediate locally. We show that by increasing the price of the intermediate, outward FDI can act as a cost-raising strategy for a firm and that attracting FDI can raise host country welfare. Two-way FDI is the equilibrium when the countries have similar market sizes. However, such FDI reduces global welfare relative to two-way exporting since it eliminates indirect competition between suppliers. JEL no. F12, F13, F23, L13     

Firms’ competitive and national comparative advantages as joint determinants of trade composition

Zusammenfassung Finnenbezogene Wettbewerbsvorteile und nationale komparative Vorteile als gemeinsame Bestimmungsgründe für die Zusammensetzung des Au\enhandels. — Wenn man gemeinsame komparative Vor- und Nachteile auf Industrieebene als gegeben annimmt, dann unterscheiden sich Firmen mit gleicher Produktpalette untereinander durch ihre individuelle spezifische Effizienz bzw. Ineffizienz infolge der differenzierten Ausnutzung der Bedingungen unvollkommener M?rkte. In jedem Industriezweig werden sich deshalb einige Firmen als besonders wettbewerbsf?hig und andere als weniger wettbewerbsf?hig im Verh?ltnis zum Durchschnitt der jeweiligen Industrie erweisen. In Industriezweigen mit komparativen Nachteilen auf nationaler Ebene k?nnen überdurchschnittlich wettbewerbsf?hige Firmen sowohl auf dem heimischen Markt als auch auf den fremden M?rkten mit ausl?ndischen Firmen konkurrieren. In diesem Fall ergeben sich entgegengesetzte Exportstr?me von Gütern, die den importierten Gütern ?hneln. Dann wird es sowohl auf der Exportals auch auf der Importseite zu einem Handel mit gleichartigen Produkten in unterschiedlicher St?rke kommen.

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Resumen Las ventajas competitivas de las empresas y las ventajas comparativas nacionales como determinantes conjuntas de la compositión del comercio. — Dadas las ventajas y desventajas comparativas colectivas a nivel de industria, las empresas que producen el mismo tipo de productos se diferencian entre ellas por eficiencias e ineficiencias especificas derivadas de la explotación diferenciada de las condiciones imperfectas del mercado a nivel de la empresa. Por ello, algunas empresas serán consideradas como sobrecompetitivas y otras como subcompetitivas en relación a la norma o al promedio industrial. En industrias con desventajas comparativas nacionales empresas sobrecompetitivas podrian estar en condiciones de competir con empresas extranjeras tanto en el mercado nacional como en el internacional. En este caso aparecerán en las exportaciones flujos comerciales minoritarios de productos similares a los de importación. Entonces, el perfil de comercio presentará productos similares en el flujo mayoritario en una dirección y en el flujo minoritario en la otra.

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Résumé Les avantages compétitifs des firmes, et les avantages comparatifs des pays comme des déterminants joints de la composition de l’échange. — Sous les mêmes conditions d’avantages et de désavantages comparatifs nationaux, les entreprises appartenant à un même secteur se distinguent entre elles par des efficiences et par des inefficiences spécifiques dues à l’exploitation différencié des conditions de marchés imparfaits. A l’intérieur d’un même secteur certaines firmes peuvent donc appara?tre comme sur-compétitives, d’autres comme sous-compétitives par rapport à la norme ou à la moyenne de leur secteur. La surperformance individuelle des firmes dans les industries caractérisées par des conditions de désavantages comparatifs peut développer une capacité concurrentielle vis-à-vis des firmes étrangères sur le marché domestique et à l’exportation. Des flux minoritaires inverses d’exportations des produits similaires aux produits importés peuvent donc appara?tre dans ces secteurs. Les échanges croisés de produits similaires qui en résultent seront donc composés des flux majoritaires dans un sens et des flux minoritaires dans l’autre.