credit constraints equity market liberalizations and international trade abstract this paper provides evidence that credit constraints are an important determinant of international trade flows i exploit shocks to the availability of external finance and examine the impact of equity market liberalizations on the export behavior of 91 countries in the 1980 1997 period i show that liberalizations increase exports disproportionately more in financially vulnerable sectors that require more outside finance or employ fewer collateralizable assets this result is not driven by cross country differences in factor endowments and is independent of simultaneous trade policy reforms moreover it obtains with equal strength in the full panel of countries as well as in both panel and event study analyses of countries which removed capital controls during the sample period finally the effects of liberalizations are more pronounced in economies with initially less active stock markets indicating that foreign equity flows may substitute for an underdeveloped domestic financial system similarly opening equity markets has a greater impact in the presence of higher trade costs caused by restrictive trade policies

credit market imperfections and patterns of international trade and capital flows this paper offers two simple models to illustrate how corporate governance contractual enforcement and the balance sheet condition of the business sector etc can affect the patterns of international trade and capital flows in the presence of credit market imperfections jel d52 f15 f21 f40

environmental policy and international trade when governments and producers act strategically some environmentalists express concern that trade liberalization may damage the environment by giving governments incentives to relax environmental policies to give domestic producers a competitive advantage support for such concern may be given by models of imperfectly competitive trade where there may be rent shifting incentives for governments to relax environmental policies but there are also incentives for producers to act strategically e g through their investment in rd ii allowing governments to act strategically increases the incentive for producers to act strategically iii welfare is lower when both parties act strategically and iv strategic behavior by producers and governments is greater when governments use emission taxes than when they use emission standards

global demographic trends and social security reform how sustainable are the current social security systems in the developed economies given the projected demographic trends the most recent literature has answered this question through dynamic general equilibrium models in a closed economy framework this paper provides a new quantitative benchmark of analysis for this question represented by a two region model south and north of the world economy where capital flows across regions the timing and the extent of the demographic transition and the associated economic forces shaping capital accumulation and equilibrium factor prices are very different in the two regions thus the projected paths of interest rate and wage rate in the north diverge substantially between closed and open economy we perform a wide range of policy experiments under both scenarios our main conclusion is that if one is interested in quantifying the path of the fiscal variables e g the value of the payroll tax needed to keep the social security system viable or to finance a transition towards a fully funded system then these two benchmarks yield similar results however if the focus is on quantifying the path of factor prices aggregate variables and ultimately welfare then the two approaches can diverge significantly

international trade and labor market discrimination textabstractwe embed a competitive search model with labor market discrimination or nepotism into a two sector two country framework in order to analyze how labor market discrimination impacts the pattern of international trade and also how trade trade affects discrimination discrimination or nepotism reduces the matching probability and output in the skilled labor intensive differentiated product sector so that the country with more discriminatory firms has a comparative advantage in the simple sector as countries alter their production mix in accordance with their comparative advantage trade liberalization can then reinforce the negative effect of discrimination on development in the more discriminatory country and reduce its effect in the country with fewer discriminatory firms similarly the profit difference between non discriminatory and discriminatory firms increases in the less discriminatory country and shrinks in the more discriminatory one in this way trade can further reduce discrimination in a country where it is less prevalent and increase it where it is more firmly entrenched

sulfur dioxide control by electric utilities what are the gains from trade title iv of the 1990 clean air act amendments caaa established a market for transferable sulfur dioxide so2 emission allowances among electric utilities this market offers firms facing high marginal abatement costs the opportunity to purchase the right to emit so2 from firms with lower costs and this is expected to yield cost savings compared to a command and control approach to environmental regulation this paper uses econometrically estimated marginal abatement cost functions for power plants affected by title iv of the caaa to evaluate the performance of the so2 allowance market specifically we investigate whether the much heralded fall in the cost of abating so2 compared to original estimates can be attributed to allowance trading we demonstrate that for plants that use low sulfur coal to reduce so2 emissions technical change and the fall in prices of low sulfur coal have lowered marginal abatement cost curves by over 50 percent since 1985 the flexibility to take advantage of these chan

product quality consumption externalities and the role of national treatment abstract article iii of the wto national treatment limits domestic policy in an effort to curtail protectionist discrimination against foreign products in this paper we examine the role of national treatment and prominent article xx exceptions when goods are vertically differentiated and generate consumption externalities we study the domestic policy choices of two countries first stage problem and quantity and price equilibria in two product markets second stage problem under a strict application of article iii and compare them to the policy choices and product market equilibria prevailing when countries can misrepresent external damages and discriminate while one may expect that high externalities would lead to a greater need for exceptions to equal treatment we show that this is often not the case and furthermore that non discrimination can lead to a cleaner world environment

endogenous market structures in international trade natura facit saltum abstract almost all of the large literature on international trade with imperfect competition assumes exogenous market structures the purpose of this paper is to develop a simple model that generates alternative market structures as nash equilibria for different parameterizations of the basic model equilibrium market structure is a function of the underlying technology familiar configurations such as a duopoly competing in exports or a single multinational producing in both markets arise as special cases small tax policy changes can produce large welfare effects as the equilibrium market structure shifts implying discontinuous jumps in prices quantities and profits

equilibrium pollution taxes in open economies with imperfect competition abstract this paper argues that imperfect competition in global markets creates a strategic interaction between governments that can lead to the inefficient distortion of pollution taxes this distortion can be decomposed into a rent capture effect and a pollution shifting effect the rent capture effect lowers equilibrium taxes as each country attempts to gain a competitive advantage over its trading partner and thereby capture foreign rent through net exports the pollution shifting effect raises equilibrium taxes as each country attempts to transfer production and its associated pollution to the other country this effect vanishes if pollution is perfectly transboundary because shifted pollution causes as much damage to the domestic environment as does domestic pollution the net effect on symmetric equilibrium taxes is negative except in the special case of perfect competition with no transboundary pollution in this case the two effects are mutually offsetting and the nash equilibrium is efficient when pollution is at least partially transboundary there also arises the usual transboundary externality and this reinforces the negative net strategic effect giving rise to equilibrium taxes that are lower than what is globally efficient

environmental policy with endogenous plant locations in a game between the governments of two countries each chooses its own environmental policy the nash equilibria of the game are generally not pareto optimal on the one hand each country may want to attract industry giving it an incentive to choose low environmental taxes or standards on the other hand if disutility from pollution is sufficiently high each country might prefer that a firm locates only in other countries this effect tends to make the environmental policy under non cooperation stricter than it would be with cooperation

the value of trade agreements in the presence of political pressures an argument often heard in favor of trade agreements is that by committing to free trade a government can credibly distance itself from domestic lobbies but several existing models of endogenous protection suggest that governments have no interest in foreclosing interest group pressures since governments derive rents from the political process we develop a small country model in which factors are sector specific in the short run but mobile in the long run we show that in this setting a government may be worse off in the political equilibrium than under commitment to free trade and hence it may value a trade agreement

a positive theory of environmental quality regulation this paper demonstrates that environmental quality regulation may enhance producer wealth while simultaneously reducing an externality problem by restricting access to common property regulation not only corrects a resource misallocation but it creates a scarcity rent as well in the recent history of environmental quality the common access problem has been addressed by federal and state agencies through a standards based approach rather than through the enforcement of tradable property rights as a consequence rents from the right to use these assets have accrued to producers the data are convincing that there is a strong interplay between producers consumers and the victims of pollution each party has some influence on the outcome and one sided analysis neglects many important aspects of regulation environmental quality regulation is complicated but many of the observed perplexities are consistent with a rent seeking self interest theory of government 46 references 1 figure 7 tables

skills and changing comparative advantage using u s input output data for the period 1947 1996 and dictionary of occupational titles skill scores i find that u s exports have a high content in cognitive and interactive skills relative t

is environmental policy a secondary trade barrier an empirical analysis should international trade agreements be extended to include negotiations over environmental policy the answer depends on whether countries distort levels of environmental regulations as a secondary means of providing protection to domestic industries our results suggest that they do previous studies of this relationship have treated the level of environmental regulation as exogenous and found a negligible correlation between environmental regulation and trade flows in contrast we find that when the level of environmental regulation is modelled as an endogenous variable its estimated effect on trade flows is significantly higher than previously reported jel classification fl f14 f18 est ce que la politique environnementale est une barriere commerciale secondaire une analyse empirique est ce que les accords commerciaux internationaux doivent etre etendus pour couvrir la politique environnementale la reponse depend du degre de distorsion que les pays introduisent dans leur politique environnementale pour proteger leurs industries nationales nos resultats suggerent que cet impact est important des etudes anterieures de cette relation ont traite la politique environnementale comme exogene et ont montre qu il existe une co relation negligeable entre politique envir onnementale et flux commerciaux au contraire nous revelons que quand la politique environnementale est consideree comme variable endoge ne son effet sur les flux com merciaux est plus eleve de maniere significative que ce qu on a note anterieurement

competition in regional environmental policies when plant locations are endogenous abstract a two region model is presented in which an imperfectly competitive firm produces a good with increasing returns at the plant level production of the good causes local pollution the firm decides whether to maintain plants in both regions serve both regions from a single plant or shut down if the disutility of pollution is high enough the two regions will compete by increasing their environmental taxes standards until the polluting firm is driven from the market alternatively if the disutility from pollution is not as great the regions will usually compete by undercutting each other s pollution tax rates

pollution havens endogenous environmental policy and foreign direct investment in an increasingly integrated world economy countries may have greater incentives to weaken environmental policy as disguised protection intended to give a competitive edge to local firms this may generate pollution havens as firms relocate in response to different environmental policies foreign direct investment fdi weakens profit shifting policy considerations while increasing environmental damages but at the same time may provide external benefits we derive conditions under which the fdi recipient country has an incentive to manipulate its environmental standard to prevent or attract fdi potentially eliminating or creating pollution havens in addition to examining the impact of fdi on the equilibrium state of the environment

technological asymmetry among foreign investors and mode of entry how does the preferred entry mode of foreign investors depend on their technological capability relative to that of their rivals the authors develop a simple model of entry mode choice and evaluate its main testable implication using data on foreign investors in eastern european countries and the successor states of the former soviet union the model considers competition between two asymmetric foreign investors and captures the following tradeoffs while a joint venture helps a foreign investor secure a better position in the product market compared with its rival it also requires that profits be shared with the local partner the model predicts that the efficient foreign investor is less likely to choose a joint venture and more likely to enter directly relative to the inefficient investor the authors empirical analysis supports this prediction foreign investors with more sophisticated technologies and marketing skills relative to other firms in their industry tend to prefer direct entry to joint ventures this empirical finding is robust to controlling for host country specific effects and other commonly cited determinants of entry mode

the distribution of talent and the pattern and consequences of international trade i study the interaction between imperfect labor contracts and international trade in a setting in which workers have private information about their own abilities when an individual s contribution to firm output can be measured accurately in some activities but not in others the most able workers select occupations in which their pay most closely reflects their own performance in a world economy with two otherwise similar countries that have different distributions of talent the country with the more heterogeneous labor force exports the good that is produced by the most talented individuals in this country trade exacerbates the polarization of the labor force and often worsens the distribution of income

sorting it out international trade with heterogeneous workers each worker brings a bundle of skills to the workplace for example quantitative and communication skills since employers must take this bundle as a package deal they choose workers with just the right mix of skills we show that international differences in the distribution of worker skill bundles for example japan s abundance of workers with a modest mix of both quantitative and teamwork skills have important implications for international trade industrial structure and domestic income distribution formally we model two dimensional worker heterogeneity and show that the second moments of the distribution of skills are critical as in the roy model

specialization and human capital incentives for specialization trade and the production of comparative advantage through investment are shown to arise from increasing returns to utilization of human capital indivisibilities imply fixed cost elements of investment that are independent of subsequent utilization hence the rate of return is increasing in utilization and is maximized by utilizing specialized skills as intensively as possible identically endowed individuals have incentives to specialize their investments in skills and trade with each other for this reason even if production technology exhibits constant returns to scale

endogenous comparative advantage gains from trade and symmetry breaking abstract similar countries often choose very different policies and specialize in very distinct industries this paper proposes a novel mechanism to explain policy diversity between similar countries from an open economy perspective i study optimal policies in a two country model where policies affect the determinants of trade patterns symmetric countries choose asymmetric policies in equilibrium if aggregate income is sufficiently convex in own policy such high social increasing return to policy despite constant returns to scale in production generate enough gains from trade to sustain policy diversity in equilibrium any asymmetric equilibrium is welfare improving compared to the common autarky optimum similarly a more asymmetric nash equilibrium pareto dominates a less asymmetric one as an application i consider a model in which the government s choice of education policy affects skill distribution and comparative advantage in this application the existence of an asymmetric nash equilibrium in education policy requires that the elasticity of the education cost of agents with respect to skill is relatively low

the burden of proof in trade disputes and the environment the wto leaves discretion over environmental policies to its members but requests that a fundamental non discrimination principle is respected national treatment nt the provision seeks to prevent protectionist use of domestic policy instruments requesting that when an imported product is sufficiently similar to a domestic product they are treated identically wto adjudicators will often face severe informational problems in environmental disputes important for the practical implementation of nt is therefore the allocation of the burden of proof bop this paper highlights basic implications of the bop for the occurrence of judicial errors for the environment and for welfare using a setting where nt serves its intended role of supporting negotiated tariff liberalization the paper suggests that nt may indeed constrain environmental policies but that this may be desirable from an efficiency point of view also bop rules that benefit the environment may not benefit global welfare and conversely

indexation staggering and disinflation abstract since high inflation makes very frequent price adjustments desirable costs of taking optimal price decisions may become high and indexation may emerge as an economical rule of thumb to update prices between optimal adjustments we introduce indexation in a model of staggered price setting where individual prices when not adjusted by inflation are set optimally we show that it is more difficult to disinflate in a model with indexation than in a standard fixed price staggering model the costs associated with a given path of money disinflation are higher and the time necessary to stabilize an inflationary economy while keeping output at its natural level is about three times longer as a consequence the paper explains why disinflation may be more difficult in high inflation economies

an introduction to the wage curve en conomists and policymakers are interested in understanding the forces that determine the level of unemployment and the level of wages this paper describes an empirical discovery made with the help of international microeconometric evidence covering more than a dozen nations about a link between these two variables the connection can be portrayed on a graph with the level of unemployment on the horizontal axis and the level of wages on the vertical axis then the wage curve as shown in figure 1 is a downwardsloping locus this relationship tells us that holding others things constant if a region has a rise in unemployment in a particular year those who live there will have a fall in their wages in that year what does this curve mean how in a field where fully controlled experiments are almost impossible could there be any convincing scientific basis for this wage curve what is the relationship between the wage curve and a phillips curve other than that the curve of figure 1 looks like a phillips curve with the vertical axis mislabeled how does the wage curve fit into existing economic knowledge and is the empirical finding consistent with competitive theory this paper sketches answers to these kinds of questions the discussion draws on our book the wage curve blanchflower and oswald 1994 where the points raised here are investigated more fully it also rests upon work done by other economists whose work is listed in the paper and the bibliography

domestic value chains as stepping stones to global value chain integration identifying the determinants of global value chain gvc integration is essential to understand the past expansion and current slowdown in gvcs in this paper we study the role of domestic value chains dvcs for gvc integration in the presence of industry specific fixed costs of fragmenting production and of switching across input suppliers dvcs can either be stepping stones or stumbling blocks for subsequent gvc entry focusing on backward linkages that is the sourcing of intermediates we provide robust empirical evidence in favour of the stepping stone hypothesis in our benchmark specification a one standard deviation increase in dvc integration raises subsequent gvc integration by about 0 4 to identify the mechanisms at work we exploit two dimensions of industry level heterogeneity product differentiation a proxy of fragmentation costs and relationship specificity a proxy of the costs of switching between suppliers we find that dvc integration is less conducive to gvc integration in industries that are characterised by relatively high switching costs and relatively low fragmentation costs

host country policy transfer pricing and ownership distribution in international joint ventures a theoretical analysis abstract this paper develops a simple model of an international joint venture in which the ownership shares are endogenously determined as the outcome of nash bargaining between a multinational firm and a host firm it shows how tax subsidy policy by the host country s government and transfer pricing of inputs by the multinational firm may influence the equity distribution of the joint venture insofar as the optimal level of these policies is dependent on the primitives the model generates empirical hypotheses regarding the impact of the primitives on the equity distribution

determinants of patent rights a cross national study abstract this paper presents an index of patent rights for 110 countries for the period 1960 1990 the index is used to examine what factors or characteristics of economies determine how strongly patent rights will be protected the evidence does indicate that more developed economies tend to provide stronger protection but the underlying factors which influence patent protection levels are the country s level of research and development r d activity market environment and international integration which are correlated with its level of development the results qualify however that r d activity influences patent protection levels after a nation s research sector reaches a critical size an implication of this is that to raise patent protection levels in weakly protecting countries it is important to foster a significant research base in those countries and thereby create incentives for protecting patent rights

the boundaries of multinational enterprises and the theory of international trade this paper begins with a review of empirical evidence on multinational firms conceptual underpinnings of a theory are developed relying in particular on the notion of knowledge capital as a mobile joint input into geographically separated production facilities this idea is embedded in a simple two country general equilibrium model that supports multinational production in equilibrium under conditions consistent with the empirical evidence the final section examines internalization and shows why certain properties of knowledge capital also imply a preference for transferring technologies internally within the firm rather than through arm s length markets

foreign investment and productive efficiency the case of mexico this paper examines whether the relative performance of firms within mexican manufacturing industries varies systematically with the presence of foreign subsidiaries it also analyzes how foreign entry influences the technological structure in host country industries the findings suggest that 1 foreign presence in an industry is positively correlated with structural efficiency and 2 foreign entry is related to structural changes only in the modern part of the industries the most important source of spillover efficiency is found to be in the competitive pressure induced by the foreign firms i introduction a widely held view among economists studying foreign investment is that one of the important contributions to the host country is likely to stem from external effects or spillovers the spillovers can be of different kinds the foreign firms may influence the productivity and growth of the domestically owned firm they may change the nature and evolution of concentration they may alter financing marketing and technological and managerial practices in the industries that they enter et cetera because of great methodological difficulties in investigating these effects empirically in addition to lack of data few empirical investigations appear in the literature three available econometric studies deal with the influence of foreign investment on the technical efficiency of host country firms one focuses on australia caves 1974 one on canada globerman 1979 and one on mexico blomstrom and persson 1983 all three find some support for the spillover benefit hypothesis but none of the studies analyzes the nature of spillover efficiency in depth the present paper is an attempt to identify through what mechanisms the spillover efficiency of foreign investment takes place by analyzing the effects of foreign investment on the productive efficiency of the industrial structure in mexico we will examine whether the relative performance of firms within an industry varies systematically with the presence of foreign subsidiaries we will also analyze the impact of foreign investment on structural change that is how foreign entry influences the technological structure in host country industries

the interaction between indexation contract duration and non contingent wage adjustment a model of the elasticity of indexation contract duration and non contingent wage adjustment is estimated using canadian wage agreements results suggest that the degree of indexation and contract duration are interdependent and are affected by their past values labour market conditions and inflation uncertainty the correlation between the industry product prices and the cpi affects the degree of indexation non contingent wage adjustment depends on expected inflation uncompensated past inflation duration and indexation values past and present and labour market conditions this model explains total wage adjustment as well as more aggregative models designed solely for that purpose

population aging and comparative advantage abstract in this paper we show that demographic differences between countries are a source of comparative advantage in international trade since many skills are age dependent population aging decreases the relative supply and increases the relative price of skills which depreciate with age thus industries relying on skills in which younger workers are relatively more efficient will be more productive in countries with a younger labor force and less productive in countries with an older population building upon the neuroscience and economics literature we construct industry level measures of intensities in various age dependent skills and show that population aging leads to specialization in industries which use age appreciating skills intensively and erodes comparative advantage in industries for which age depreciating skills are more important

inflation debt and indexation these twelve essays cover topics on the frontier of indexation and practice an often proposed and debated tool of economic policy they range from highly theoretical discussions to practical experiences in brazil and europe rudiger dombush is ford international professor of economics at mit mario henrique simonsen is director of the postgraduate school of economics getulio vargas foundation rio de janeiro and former minister of finance and planning brazil

demography national savings and international capital flows this paper addresses the relationship between age distribution national savings and the current account balance the results point to substantial demographic effects with increases in both the youth and old age dependency ratios associated with lower savings rates they also point to differential effects on savings and investment and thus to a role for demography in determining the current account balance the estimated demographic effect on the current account balance exceeds 6 percent of gdp over the last three decades for a number of countries and given expected demographic trends is likely to be substantially larger over the coming decades copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

endowments output and the bias of directed innovation in this paper i ask the question does the output mix of countries change in response to changes in factor endowments if so how long does it take using data on capital as well as skilled and unskilled labour employed in three digit international standard industrial classification isic manufacturing industries for a sample of 27 developing and developed countries over the 1973 1990 period i find that the output mix of countries does not change in response to endowment changes even after 15 years this answer raises another question how then do countries absorb changes in factor endowments the data show that in both the short and long runs an increase in the supply of a production factor reduces its rate of return and makes it more intensively used in all sectors of the economy changes in production techniques in the long run the point estimate is that the reduction in the rate of return is more than 50 larger than in the short run this is consistent with induced innovations being predominantly biased towards the scarce factor

tariff and environmental policies with product standards for a small open economy with consumption based pollution emissions the first best optimal policy prescription is free trade along with a pigouvian tax on emissions therefore a package of coordinated tax reform by replacing tariffs with emission taxes can lower pollution emissions and increase market access and hence improve residents welfare and government revenue as long as the initial tariffs are relatively high numerical simulations confirm the results obtained abstract from author

institutions and moral hazard in open economies i investigate the interaction between international trade and national institutional development in an environment characterized by heterogeneous individuals choosing their education levels to maximize their utilities and institutions alleviating moral hazard by allowing managers to better observe and verify the productive efforts of workers liberalized trade allows institutions to serve as independent sources of comparative advantage in this setting i examine the effect of trade liberalization on the distribution of income in institutionally developed and underdeveloped nations trade affects income via a direct effect on prices and an indirect effect on the incentives to invest in education

an empirical model of wage indexation provisions in union contracts this paper describes the responses of index linked wage rates to concurrent price increases for a sample of canadian union contracts and then analyzes theseresponses in terms of a simple model of indexation to the aggregate price level the model highlights the importance of aggregate price movements in conveying information about industry specific prices the empirical analysis confirms that industry specific correlations between input and output prices and the consumer price index are important determinants of the flexibility of wages to prices across indexed contracts

national treatment in the gatt the national treatment nt clause is the first line defense in the gatt and in most other trade agreements against opportunistic exploitation of the inevitable incompleteness of the agreement this paper examines the role of nt as it applies to internal taxation under the gatt it is shown that despite severely restricting the freedom to set internal taxes nt may improve government welfare but it will not completely solve the incomplete contract problem it is meant to remedy furthermore it requires a high degree of economic sophistication on behalf of trade negotiators in order for this beneficial effect to materialize

the nature of outsourcing relationships evidence from oap prices i introduction the dramatic growth in international outsourcing has fueled the expansion of international trade and deepened international integration 1 developments in outsourcing attract public attention due to concern that improvements in information technologies enable companies to relocate production or assembly activities to lower cost overseas locations 2 however while international outsourcing allows firms to take advantage of factor price differences grossman and helpman 2005 demonstrate that country cost differences are not sufficient by themselves to guarantee outsourcing as international outsourcing decisions are based on many factors including the costs of search and customization more generally new research in international trade recognizes information as a key element in the globalization process however informational improvements such as reduced communication costs or increasingly sophisticated bar code transmission and management tools may not affect all producers uniformly as ranch and trindade 2003 show product differentiation in consumption or production when combined with informational uncertainty produces a degree of natural protection for this reason information technology improvements are likely to deliver the greatest increases in global integration for those markets where the matching of differentiated partners is critical to the formation of new international partnerships similarly as noted by antras 2003 and bernard et al 2010 the organization of a firm s global operations depends further on factors including the importance of headquarters investments and the degree of product contractibility 3 a key goal of this paper is to study whether outsourcing decisions are consistent with outsourcing models that feature search and adaptation costs to this end this paper studies u s outsourcing conducted under the auspices of the overseas assembly program or oap the oap program was designed to allow firms to avoid tariffs on u s origin inputs that they utilized in final goods they assembled overseas thus while the oap does not include all u s outsourcing activities it does not capture u s assembly of foreign parts or overseas contract manufacturing that is based on u s designs and specifications oap imports provide insight into a wide swath of u s outsourcing and represented 8 5 of u s import value during the sample period since the oap provides tariff benefits to manufacturers who use u s inputs in their overseas production it is administered by u s customs consequently while the oap provides insights into manufacturing outsourcing decisions it does not provide information on developments in services outsourcing since oap exempts u s inputs from tariffs the program requires participating firms to provide detailed information on the u s and foreign content of their outsourcing imports thus oap data records facilitate the precise measurement of cost shocks and trade frictions at the country product level in particular heterogeneity in input choices both across countries and products can be exploited to identify cost pass through and general price responses for outsourcing imports for example year by year pass through can be estimated by regressing yearly oap price changes at the product country level on product country cost changes plots of the year by year coefficients in figure 1 show that the raw rate of oap pass through ranged from 6 to 23 4 however accurate outsourcing pass through estimation requires a theory based estimation framework that controls for economic factors that also influence price decisions this paper adopts feenstra s 1989 passthrough model which is modified to account for the cost structure and tariff treatment facing outsourcing firms who produced products for import under the oap this framework which is based on a bertrand model of competition in internationally differentiated goods focuses its attention on cost pass through and on the degree to which producers emulate the price changes of their competitors

real balances the exchange rate and indexation real variables in disinflation the paper shows first that real exchange rate appreciation typically reduces but may increase the output costs of disinflation the direct favorable effects of cheaper imports on consumer prices on the prices of imported inputs on wage demands and on the demand for money may be outweighed by the unemployment caused by the trade deficit second the effects of wage indexation on the costs of disinflation are reexamined ex ante indexation speeds up disinflation ex post indexation the type observed in practice automatically increases the real wage at the start of a disinflation and may therefore increase the sacrifice ratio

multimarket contact and collusive behavior traditional analyses of industrial behavior typically link the exercise of market power in an industry to internalfeatures such as demand conditions concentration and barriers to entry nevertheless some economists have remained concerned that external factors such as contact across markets may also play a significant role in determining the level of competitiveness in any particular industry in this article we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition we isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarketfirms

the effect of national culture on the choice of entry mode characteristics of national cultures have frequently been claimed to influence the selection of entry modes this article investigates this claim by developing a theoretical argument for why culture should influence the choice of entry two hypotheses are derived which relate culture to entry mode choice one focusing on the cultural distance between countries the other on attitudes towards uncertainty avoidance using a multinomial logit model and controlling for other effects the hypotheses are tested by analysing data on 228 entries into the united states market by acquisition wholly owned greenfield and joint venture empirical support for the effect of national culture on entry choice is found

ict s effect on trade perspective of comparative advantage abstract this paper uses country level ict data and bilateral trade data in 2013 to test whether cross country differences in ict can be a source of comparative advantage in international trade empirical results show that a country s export in one industry increases 10 percent if the country s ict development index increases 1 standard deviation sd and industry s r d intensity increases 1 sd the export increase is 25 percent in the case of task complexity

stabilization with wage indexation and exchange rate flexibility abstract this survey examines the role of wage indexation and exchange rate policy in dampening fluctuations in output around its target level it is demonstrated that the appropriate choice for wage indexation and exchange rate flexibility is highly sensitive to the nature and the relative importance of the shocks impinging upon the economy as well as to the relevant parameters in the economy moreover the question of the desired flexibility of the exchange rate should be studied in the context of wage indexation and vice versa this interdependence raises the possibility of both policies being complements or substitutes to each other depending on the number of shocks that perturb the economy

institutional quality and international trade institutions quality of contract enforcement property rights shareholder protection and the like have received a great deal of attention in recent years yet trade theory has not considered the implications of institutional differences beyond treating them simply as different technologies or taxes the purpose of this paper is twofold first we propose a simple model of international trade in which institutional differences are modeled within the framework of incomplete contracts we show that doing so reverses many of the conclusions obtained by equating institutions with productivity institutional differences as a source of comparative advantage imply among other things that the less developed country may not gain from trade and factor prices may actually diverge as a result of trade second we test empirically whether institutions act as a source of trade using data on us imports disaggregated by country and industry the empirical results provide evidence of institutional content of trade institutional differences are an important determinant of trade flows

domestic policies national sovereignty and international economic institutions to what extent must nations cede control over their economic and social policies if global efe ciency is to be achieved in an interdependent world this question is at the center of the debate over the future role of the wto formerly gatt in the realm of labor and environmental standards in this paper we establish that the market access focus of current wto rules is well equipped to handle the problems associated with choices over labor and environmental standards in principle with relatively modest changes that grant governments more sovereignty not less these rules can deliver globally efe cient outcomes i introduction to what extent must nations cede control over their economic and social policies if global efe ciency is to be achieved in an interdependent world at a broad level this question probes the limits of any international economic institution whether geared toward real or e nancial concerns that is designed to promote global efe ciency while respecting national sovereignty naturally the answer depends upon the particular problem that the institution is meant to solve in other words the answer depends upon the inefe ciency that would arise under unilateral policy choices at a more specie c level this question is at the center of the debate concerning the appropriate scope of the world trade organization wto formerly gatt recently member countries have considered ways to broaden the wto s orientation beyond conventional trade policy measures to include labor and environmental standards there are now initiatives to introduce the issue of labor standards directly onto the negotiating agenda of the wto with the purpose of creating a wto social clause the social clause would specify a set of minimum international labor standards and then permit restrictions to be placed against imports from countries not complying with these minimum standards with regard to environmental policies a wto committee on trade and environment has been established to identify the relationships between trade and environmental measures and to

wage indexation and output stability revisited since gray 1976 and fischer 1977 the accepted view is that wage indexation stabilizes output when shocks are nominal and destabilizes output when shocks are real this paper examines this proposition s validity when wage indexation is based on lagged inflation it shows that i in a gray fischer economy with plausible parameters indexing wages to lagged inflation destabilizes output regardless of the type of shocks ii the gray fischer result may be restored if nominal shocks have a strong direct effect on prices given wages iii wage indexation to lagged inflation can be neutral for output stability if monetary policy is accommodative

cost of living adjustment clauses in union contracts a summary of results our paper provides an explanation why cost of living adjustment cola provisions and their characteristics vary widely across u s industries we develop models of optimal risk sharing between a firm and union to investigate the determinants of a number of contract characteristics these include the presence and degree of wage indexing the magnitude of deferred noncontingent wage increases contract duration and the trade off between temporary layoffs and wage indexing preliminary empirical tests of some of the implications of the model are described one key finding is that the level of unemployment insurance benefits appears to influence the level of layoffs and the extent of cola coverage simultaneously

national treatment and the optimal regulation of environmental externalities we analyze the role of national treatment in the regulation of environmental product standards for an open economy a social planner uses product standards to control emissions from the consumption of a traded good we show that whether national treatment of standards interferes with welfare maximizing policy depends on the instruments available to the policy maker consumption or emissions tax and differences in the cost of complying with the standard we also highlight the asymmetric incidence of the domestic and import product standard when taxes are suboptimal this asymmetric incidence can also cause welfare maximizing policy to violate national treatment on analyse le role du principe de traitement identique des entites domestiques ou importees dans la reglementation des normes environnementales dans une economie ouverte un gouvernement utilise des normes pour controler les emissions decoulant de la consommation d un produit transige internationalement on montre que le fait que le traitement identique des normes va ou non interferer avec l objectif poursuivi qui est de maximiser le niveau de bien etre va dependre de l ensemble des instruments disponibles pour l architecte des politiques une taxe sur la consommation ou sur les emissions et des differences dans les couts a encourir pour se conformer aux normes on souligne aussi l incidence asymetrique des normes sur les produits domestiques et importes quand les taxes sont sous optimales cette incidence asymetrique peut faire que la politique qui vise la maximisation du bien etre soit en violation du principe de traitement identique

firm ownership preferences and host government restrictions an integrated approach two approaches may explain how multinational enterprises mnes select ownership structures for subsidiaries the first argues that mnes prefer structures that minimize that transaction costs of doing business abroad the second argues that ownership structures are determined by negotiations with host governments whose outcomes depend on the bargaining power of the firm this paper presents a framework integrating these two approaches and uses statistical methods to separate their effects empirically

inducing innovation in the environmental technology of oligopolistic firms this paper characterizes environmental regulations which induce polluting bertrand competitors to invest efficiently in environmental r d post innovation benefits to raising rivals costs provide firms with incentives to innovate although optimal behavior cannot be elicited with pollution taxes alone an optimum can be achieved by combining emission taxes with environmental performance standards that are higher for firms which reveal superior environmental technologies faced with this policy successful innovators voluntarily reveal their technological discovery to the government despite the apparent regulatory penalty that results implications for automotive fuel regulation are discussed

on the origins of comparative advantage this paper proposes a simple theory of international trade with en dogenous technological dierences across countries the core of our analysis lies in the determinants of the division of labor we consider a world economy comprising two large countries with a continuum of goods and one factor of production labor each good is characterized by its complexity de ned as the number of tasks that must be per formed to produce one unit there are increasing returns to scale in the performance of each task which creates gains from specialization and uncertainty in the enforcement of each contract which create transac tion costs the trade obetween these two forces pins down the size of productive teams across sectors in each country under free trade the country where teams are larger specializes in the more complex goods in our model it is the country where the product of institutional qual ity and human per worker capital is larger hence better institutions and more educated workers are complementary sources of comparative advantage in the more complex industries

trading rules and the environment does equal treatment lead to a cleaner world abstract in this paper we consider a three stage game in the context of a competing exporters model to compare and contrast the effects of discriminatory and uniform most favored nation mfn tariffs on countries choice over environmental standards for varying degrees of pollution spillovers because of the presence of punishment effects and stronger own and cross tariff effects we find that discrimination yields higher standards than mfn and free trade independently of the extent of pollution spillovers when pollution is local and incentives to free ride on other countries abatement efforts are weak we show however that welfare is larger under mfn than under discrimination in a dynamic setting we consider the impact of symmetric and asymmetric treatments on the sustainability of an international environmental agreement iea and obtain that multilateral cooperation is easier to sustain under discrimination than under mfn or free trade

does complexity explain the structure of trade this paper analyzes whether complexity measured by the number of skilled tasks that are performed simultaneously in production explains countries commodity trade structure we modify romalis 2004 model to incorporate differences in complexity across commodities together with differences in average skills across countries and monopolistic competition our model predicts that the share of developed countries in world trade increases with products complexity the empirical tests confirm this prediction moreover in most cases complexity seems to provide a better explanation of countries commodity trade structure than the one offered only by skill intensity

environmental regulation in an open economy abstract environmental regulation by a large trading country affects the world price of traded commodities a series of second best environmental taxes are derived which explicitly incorporate trade effects for cases which depend on the type of externality the regulating country s commodity trade balance and the presence or absence of trade taxes in the regulated market a coordinated policy solution using both tax and tariff instruments also is derived the practical implications for domestic environmental policy making which emerge from the theoretical results are evaluated

trade politics and the environment tailpipe vs smokestack abstract the vast majority of economic research on environmental regulation in open economies focuses on producer generated smokestack pollution we instead consider consumer generated tailpipe pollution we examine how political opposition to environmental regulation varies with a country s trade regime and show that the impact on environmental policy of a move from autarky to free trade can depend critically on who ultimately generates pollution producers or consumers we find that opening to trade may raise industry opposition to smokestack regulation but reduce its opposition to strict tailpipe policy

aging pension reform and capital flows a multi country simulation model we present a quantitative analysis of the effects of population aging and pension reform on international capital markets first demographic change alters the time path of aggregate savings within each country second this process may be amplified when a pension reform shifts old age provision towards more pre funding third while the patterns of population aging are similar in most countries timing and initial conditions differ substantially hence to the extent that capital is internationally mobile population aging will induce capital flows between countries all three effects influence the rate of return to capital and interact with the demand for capital in production and with labor supply in order to quantify these effects we develop a computational general equilibrium model we feed this multi country overlapping generations model with detailed long term demographic projections for seven world regions our simulations indicate that capital flows from fast aging regions to the rest of the world will initially be substantial but that trends are reversed when households decumulate savings we also conclude that closed economy models of pension reform miss quantitatively important effects of international capital mobility this version 25 august 2004

environmental policy when market structure and plant locations are endogenous abstract a two region two firm model is developed in which firms choose the number and the regional locations of their plants both firms pollute and market structure is endogenous to environmental policy there are increasing returns at the plant level imperfect competition between the home and the foreign firm and transport costs between the two markets at critical levels of environmental policy variables small policy changes cause large discrete jumps in a region s pollution and welfare as a firm closes or opens a plant or shifts production to from a foreign branch plant the implications for optimal environmental policy differ significantly from those suggested by traditional pigouvian marginal analysis

the degree of indexation in major u s union contracts the authors propose that the most appropriate measure of the degree of indexation in a union contract is the marginal elasticity of the average expected wage during the life of the contract with respect to unanticipated changes in the price level they present estimates of this elasticity for 68 u s contracts negotiated between 1971 and 1983 with cost of living escalators the average degree of indexation in the sample 48 is considerably smaller than previous estimates of similar marginal elasticities because the estimation method more accurately incorporates caps minimum colas and the exact specification of the cola clauses

does product complexity matter for firms output volatility abstract with this paper we provide the first micro level evidence on the linkage between firm complexity and volatility by defining product complexity a la hausmann and hidalgo 2009 we find that a higher complexity level of a firm s product basket is associated to a reduction of its output fluctuations this evidence is robust to the control for omitted variables sample selection and to the use of alternative volatility and complexity indicators across similar firms active in different sectors and regions both technological factors and product market conditions explain the effect of complexity on volatility however within narrowly defined sectors and locations the complexity volatility nexus fully reflects the role of the human capital content of firms product baskets

when is quality of financial system a source of comparative advantage abstract dominant theories of trade tend to ignore the role of finance as a source of comparative advantage on the other hand the finance literature places financial institutions as a driver of economic growth this paper unites these two competing schools of thought in a general equilibrium framework for economies with high quality institutions defined by the competitiveness of the financial sector the quality of corporate governance and the level of property rights protection finance is passive on the other hand for economies with low quality institutions the quality of the financial system is an independent source of comparative advantage interestingly the conventional measure of financial development the size of the financial market relative to gdp does not adequately capture the underlying quality of financial institutions in addition free trade may reduce the aggregate income in south financial capital tends to flow from south to north

export to elude abstract how does domestic value added tax vat reform affect firms export we address this question via a model in which firms choose their sales for the domestic and foreign markets optimally the model predicts that strengthening domestic tax enforcement has a negative effect on domestic sales but a positive effect on exports when firms face a convex production cost function we test the model predictions using detailed firm and product level data from chinese industrial surveys and customs records our empirical analyses rely on china s golden tax project which is an information technology introduced in 2001 2002 that dramatically reduces the cost of vat enforcement we find that after the adoption of the technology by the government firms located far from local tax offices face a larger increase in their effective vat rates than those located nearby the enforcement effect and the former increase their export more than the latter the elusion effect we also find that the elusion effect is stronger for firms subject to higher export rebates or more severe financial constraints

roadways input sourcing and patterns of specialization abstract we propose a model where the internal transport network facilitates the sourcing of intermediate goods from geographically diffuse locations a denser internal transport network promotes thus the growth of industries that rely on a large variety of inputs the model shows that heterogeneities in internal transport infrastructures can become a key factor in shaping comparative advantage and specialization evidence based on industry level trade data grants support to the main prediction of the model countries with denser road networks export relatively more in industries that exhibit broader input bases we show that this correlation is robust to several possible confounding effects proposed by the literature such as the impact of institutions on specialization in complex goods furthermore we show that a similar correlation arises as well when the density of the local transport network is measured by the density of their internal waterways and also when road density is instrumented with measures of terrain roughness

law trade and development abstract this paper uses a ricardian model to generate predictions about the influence of institutions on trade in differentiated complex and commoditized simple products and then uses a rich international trade data set for empirical tests the model draws the distinction between the role of international transaction costs and domestic production costs in the trade of complex and simple products the effects of institutions predicted by the model are identified with a three step estimation procedure we find that when countries have low quality institutions institutional reform primarily influences production costs and has little influence on the volume of trade institutional reform however increases the diversity of exports in complex goods markets conversely in countries with more developed institutions institutional reform primarily influences transaction costs and is associated with gains in the volume and the diversity of complex exports

a theory of trade policy under dictatorship and democratization abstract this paper develops a new model of trade policy under dictatorship and democratization the paper makes two contributions one is to provide a deeper understanding of the relationship between political institutions and economic efficiency by studying the endogenous interaction between the form of government and trade policy the paper s second contribution is to show how a dictatorship can manipulate trade policy to maintain its grip on power in the face of permanent world price shocks thus opening the door to a re examination of trade policy responses to technology shocks the model is used to explain an interesting episode of trade policymaking between 1815 and 1846 during which time britain substantially liberalized trade while prussia on the other side of the grain market significantly increased protectionism

spatial linkages and export processing location in china this paper provides empirical evidence that spatial linkages matter for the localisation of global value chain activities relying on processing trade data for chinese provinces during the period 1997 2008 we investigate whether a chinese province s proximity to international suppliers and international buyers within an industry chain affects its attractiveness as an export processing location we find that the upstream and downstream spatial linkages both have a strong and independent explanatory power we also explore what factors explain the influence of these spatial linkages

comparative advantage complexity and volatility abstract less developed countries tend to experience higher output volatility a fact that is in part explained by their specialization in more volatile sectors this paper proposes theoretical explanations for this pattern of specialization with the complexity of the goods playing a central role specifically less developed countries with lower institutional ability to enforce contracts or alternately with low levels of human capital will specialize in less complex goods which are also characterized by higher levels of output volatility we provide novel empirical evidence that less complex industries are indeed more volatile

international investment location decisions abstract in international location tournaments governments compete for foreign investment with tax and other short run incentives such tournaments can be won if agglomeration economies are sufficiently powerful to overcome investors desire to spread investments as a hedge against risk we focus on manufacturing investments by u s multinationals in the 1980s our econometric results suggest that agglomeration economies are indeed the dominant influence on investor calculations paradoxically short run incentives have limited apparent impact on location choice we conclude that high cost tournament play is unnecessary for countries with good infrastructure development specialized input suppliers and an expanding domestic market

the division of labor coordination costs and knowledge this paper considers specialization and the division of labor a more extensive division of labor raises productivity because returns to the time spent on tasks are usually greater to workers who concentrate on a narrower range of skills the traditional discussion of the division of labor emphasizes the limitations to specialization imposed by the extent of the market we claim that the degree of specialization is more often determined by other considerations especially emphasized are various costs of coordinating specialized workers who perform complementary tasks and the amount of general knowledge available