The Harris-Todaro model and economies of scale

The authors attempt to reanalyze the Harris-Todaro migration model in the presence of economies of scale in the manufacturing sector, focusing on economies of scale that are external to a given firm but internal to the industry.     

Preferential Trading and Real Wages

Following the Stolper–Samuelson type of logic, the general impression is that freeing up trade, whether preferentially as in the North American Free Trade Agreement (NAFTA) or on a nondiscriminatory basis as in the Uruguay Round, must lower real wages in one set of countries and raise them in the other set of countries. An increase in the real wage in all countries as a result of freeing up of trade either relies on gains via an improvement in the terms of trade or requires special assumptions such as increasing returns, complete specialization or asymmetries in production technology. This paper shows that even within a standard three-country, three-good, small-union model, preferential trade liberalization can lead to increased real wages in both partner countries without necessarily relying on terms-of-trade improvements, increasing returns, complete specialization, or asymmetries in production technology.     

Defense and Welfare Under Rivalry

Two small countries facing a constant probability of war with each other import arms for consumption goods from the rest of the world. The defense good, produced by combining arms and army, is a public good. The reaction curve depicting the optimal supply of the defense good turns out to be backward-bending. Nevertheless, at least one of the reaction curves is positively sloped at the unique Nash equilibrium. Several comparative statics results are derived. For example, if one country's reaction curve is negatively sloped, military aid to the rival leads to a decline in its optimal supply of the defense good.     

Miracles and Debacles: In Defence of Trade Openness

The central theme of this paper is that sustained rapid growth cannot be achieved without rapid growth in trade. A review of the experience during the past four decades offers virtually no examples of countries achieving sustained rapid growth – called miracles in this paper – without simultaneously experiencing sustained rapid growth in trade in the presence of low or high but declining barriers to trade. Simultaneously, the claim that opening to trade leads to sustained income losses is unfounded. A review of the experience of the countries that have faced stagnation or declining per‐capita incomes on a long‐term basis – called debacles in this paper – reveals no connection to a sustained surge in imports.     

Inequality and endogenous trade policy outcomes

An enduring puzzle in international economics is why trade interventions are biased in favor of import-competing rather than export sectors and therefore restrict trade. In this paper, we show that if the government's objective reflects a concern for inequality then trade policy generally exhibits an anti-trade bias. Importantly, under neutral assumptions, the mechanism that we analyze generates the anti-trade bias independently of whether factors are specific or mobile across sectors. The mechanism also generates an anti-trade bias between large countries even after they sign reciprocal trade agreements that eliminate any terms-of-trade motivation for the use of trade protection.     

Developing Countries at Doha: A Political Economy Analysis

This paper offers a political economy analysis of the Doha Ministerial Conference with special reference to developing countries. One of my key objectives is to understand the politics underlying the negotiations with a view to assessing the influence developing countries exerted on the outcome and the success they achieved in relation to the Uruguay Round Agreement, which is widely perceived as favouring mainly if not exclusively the developed countries. The main conclusions of the paper may be summarised as follows. First, with trade liberalisation as its central focus, the Doha negotiating agenda is to be welcomed from the viewpoint of developing countries. Second, the opposition by developing countries to the inclusion of at least some of the Singapore issues at Doha is defensible. Among other things, the countries lack the necessary negotiating and implementation capacity. Third, while the UR Agreement benefited both developing and developed countries, on balance, it benefited the latter more. The Doha outcome offers a better balance when taken by itself but does not go so far as to significantly correct the imbalance in the UR Agreement. Fourth, despite this better balance, the Doha negotiations offer little evidence of a shift in the relative bargaining powers of developing and developed countries. Nor can the superficially development friendly language of the Doha Declaration be viewed as signalling the softening of the tough negotiating stance developed countries took during the UR Round. Fifth, much of the negotiating power continues to reside with developed countries. Relatively equal levels of incomes gives greater coherence to interests of developed countries on issues that divide along North–South lines. Moreover, the presence of three large players – the USA, EU and Japan – allows them to exploit their bargaining power more effectively. Finally, to negotiate more effectively in the future, developing countries must improve their research capacity, think strategically and forge coalitions with other influential WTO members – whether developed or developing.     

Preferential trading and the myth of natural trading partners

This paper refutes the validity of the ‘natural trading partners’ hypothesis according to which a preferential trading agreement (PTA) is more likely to benefit its members, (1) the more they trade with each other prior to the agreement and (2) the more proximate they are. The paper shows that a high-tariff country such as Mexico loses from a PTA with a low-tariff country such as the United States. More importantly, in a complete reversal of the first natural trading-partners hypothesis, the larger the initial level of that country's imports from the partner, the more it loses from the PTA. The paper also provides an entirely plausible example in which, ceteris paribus, the gains to a country from participating in a PTA are less and losses more the more proximate the union partner.