A portfolio based theory of excessive foreign borrowing and capital control in a small open economy

We develop a simple model of portfolio choice in a mean variance framework to address the issue of international borrowing and financial crisis. Instead of adverse selection or moral hazard of lending and borrowing activities we emphasise the role of exchange rate movement. Syndicated borrowing by way of internalising the aggregate effect tends to restrict excessive borrowing from external source. However, this may undermine the welfare consequences by further aggravating the extent of risk undertaken in the process. There is a built-in externality in the model that leads to over exposure to foreign currency debt and readily calls for intervention by the government. Government intervention by way of a tax on foreign borrowing may help restrain the amount of external debt and implement the first best.     

A competitive general equilibrium model of technology transfer,innovation, and obsolescence

A general equilibrium production model is developed where technologies are embodied in capital goods of different vintages indexed in a continuum. A difference in the extent of existing knowledge determines a wage gap between a developed (north) and a developing region (south). With free flow of technology, relatively backward technologies move to the south. With innovation in the north, a technology cycle is created by which some of the technologies are pushed out of the north into the south. This also tends to widen the wage gap between the regions.     

Trade Openness,Corruption and Factor Abundance: Evidence from a Dynamic Panel

Using the Heckscher–Ohlin–Samuelson–Vanek (HOSV) framework, this paper illustrates a relationship between corruption and the pattern of international trade that depends on the factor endowments of countries. The relationship between trade openness and corruption is empirically investigated by using a panel dataset on trade openness, corruption and capital–labor ratio, and applying estimation techniques developed for dynamic panels. The regression results provide strong support to the hypothesis that the effect of corruption on trade openness depends on relative factor abundance.     

Uniform tariffs in general equilibrium —A simple model

In a production structure exhibiting both Heckscher-Ohlin and specific-factor features, uniform tariffs may fail to protect many import-competing sectors. Hence, for some minimum degree of protection, the feasible tariff structure tends to be asymmetric.I am indebted to two referees of this Journal for helpful comments. The usual disclaimer applies.     

Exchange rate pass-through: A generalization

The extent of exchange rate pass-through has been playing an increasingly pivotal role in the transmission of exchange rate shocks and adequate policy responses. We develop a model of exchange rate pass-through that allows the stochastic process of exchange rate to include the lagged values of the velocity of money. We show that the likelihood and extent of pass-through is sensitive to the lagged response.     

Protectionary bias in agriculture: A pure economic argument

Empirical evidence suggests that the agricultural sector in the developed countries has enjoyed a greater degree of protection than the import-competing manufacturing sectors. Usually this is attributed to strong farm lobbies and hence on political factors. We provide a theoretical model and a possible explanation of this phenomenon based on purely economic arguments. Two importables are accommodated in a three-good three-factor model of trade and production, one is a labor-intensive manufacturing good and the other is an agricultural commodity. This captures the trade pattern of a typical industrialized country with an agricultural sector such as Europe and the USA. We show that uniform tariffs in agriculture and labor-intensive manufacturing will definitely hurt the land owners in real terms and may reduce their absolute return. Hence, if there has to be protection, it has to be biased in favor of agriculture.     

R&D organization and technology transfer

In this paper we consider a Cournot duopoly model to examine the effects of licensing on R&D organization. When firms do cooperative R&D to share the cost of R&D, possibility of licensing can influence the decision on R&D organization. But, if the firms do cooperative R&D to avoid duplication in R&D process, possibility of licensing may influence the decision on R&D organization, provided one firm behaves like a Stackelberg leader in the product market.     

IS TRADE IN TECHNOLOGY SUPERIOR TO TRADE IN GOODS?

Using a Ricardian setting we argue that trade in technology generates higher global welfare relative to trade in goods. Hence, free trade in commodities can only be the second best outcome for the world welfare.     

Corruption and wage inequality?

Does corruption aggravate wage-inequality? We try to answer this question in terms of a general equilibrium model where both skilled and unskilled workers participate in corruption. Corruption in our model diverts resources from the productive sectors. Factor intensities within the productive sectors and between production and corruption activities determine the wage impact of corruption. Lower degree of corruption may increase wage-inequality although the size of the corruption sector definitely contracts.