The Gains from Trade and Policy Reform Revisited

The primary purpose of the paper is to provide characterizations of the conditions for welfare improvements in several situations that have received very little attention in the existing literature. The first aim is to exhibit the gains that can accrue to a country from the elimination of excess supplies as a result of a policy move from autarky to free trade. The second aim is to characterize the conditions under which the introduction of new goods into the economy will generate welfare gains. The third main area discussed is the extension of the authors’ methodology to a large open economy that can influence its terms of trade. The techniques used to illustrate the gains from eliminating excess supplies and from the introduction of new goods have a much wider applicability; they may be used to obtain and synthesize several welfare results from the literature.     

Exact and superlative index numbers

The paper rationalizes certain functional forms for index numbers with functional forms for the underlying aggregator function. An aggregator functional form is said to be ‘flexible’ if it can provide a second order approximation to an arbitrary twice diffentiable linearly homogeneous function. An index number functional form is said to be ‘superlative’ if it is exact (i.e., consistent with) for a ‘flexible’ aggregator functional form. The paper shows that a certain family of index number formulae is exact for the ‘flexible’ quadratic mean of order r aggregator function, $\text{(Σ}{}_{\mathrm{i}}\text{Σ}{}_{\mathrm{j}}\text{a}{}_{\mathrm{ij}}\text{x}{}_{\mathrm{i}}\text{r}\text{2}\text{x}{}_{\mathrm{j}}\text{r}\text{2}\text{)}{}^{\mathrm{<mtext>1</mtext><mtext>r</mtext>}}\text{,}$ defined by Den and others. For r equals 2, the resulting quantity index is Irving Fisher's ideal index. The paper also utilizes the Malmquist quantity index in order to rationalize the Törnqvist-Theil quantity indexin the nonhomothetic case. Finally, the paper attempts to justify the Jorgenson-Griliches productivity measurement technique for the case of discrete (as opposed to continuous) data.     

Cost-benefit analysis and project evaluation: A comparison of alternative approaches

A cost-benefit criterion is devised to identify small projects which increase production efficiency in a small open economy. This productive efficiency criterion requires only local information on the country's technology. Conditions which make this criterion consistent with more complex criteria based on consumers' preferences as well as technology are investigated in the second half of the paper. We find that the appropriate project evaluation criterion depends on what set of tax and transfer instruments the government can vary. Assuming that the government cannot vary tariffs but can vary all commodity taxes, we find that our initial productive efficiency project evaluation criterion is still valid. Assuming that the government cannot vary tariffs or commodity taxes but can vary direct transfers to consumers leads to a different project evaluation criterion, a generalized Harberger-Bruce-Harris criterion.     

WEIGHTED COUNTRY PRODUCT DUMMY VARIABLE REGRESSIONS AND INDEX NUMBER FORMULAE

The article considers a very simple type of hedonic regression model where the only characteristic of a commodity is the commodity itself. This regression model is known as the country product dummy method for calculating country price parities in the context of making international comparisons. The paper considers only the two country or two period case and introduces value or quantity weights into the regression. The resulting measures of overall price change between the two countries or time periods are compared to traditional bilateral index number formulae. It is shown how the Geary Khamis, Walsh and Törnqvist price indexes can be obtained as special cases of this framework.