determinants of trade costs and trade growth accounting between india and the european union during 1995 2010 this study aimed to utilise the micro founded measure of trade cost derived by novy to estimate the relative bilateral trade costs of india with its european union partners the advantage of using such a model is that the trade costs can be derived entirely using observable trade data the results show that indian tariff equivalent with its major eu trading partners has declined by 20 percentage points between 1995 and 2010 with malta and latvia experiencing the greatest decline the study then decomposes the bilateral trade growth to ascertain whether it is an outcome of increased domestic production or reduction in bilateral and multilateral trade barriers novy s model indicates that the decline in relative bilateral trade costs explains the greatest percentage of this trade growth which is partially offset by decline in multilateral resistance terms that has diverted trade away to other trading partners primarily in south and south east asia and north america

no price like home global house prices 1870 2012 how have house prices evolved in the long run this paper presents annual house price indices for 14 advanced economies since 1870 based on extensive data collection we are able to show for the first time that house prices in most industrial economies stayed constant in real terms from the 19th to the mid 20th century but rose sharply in recent decades land prices not construction costs hold the key to understanding the trajectory of house prices in the long run residential land prices have surged in the second half of the 20th century but did not increase meaningfully before we argue that before world war ii dramatic reductions in transport costs expanded the supply of land and suppressed land prices since the mid 20th century comparably large land augmenting reductions in transport costs no longer occurred increased regulations on land use further inhibited the utilization of additional land while rising expenditure shares for housing services increased demand

real exchange rates and time varying trade costs this paper re examines the empirical modeling of purchasing power parity ppp deviations in the presence of commodity market frictions first we show that a specific type of smooth transition models can closely approximate the functional form of the theoretical adjustment mechanism derived by dumas 1992 dynamic equilibrium and the real exchange rate in a spatially separated world review of financial studies 5 2153 180 for the case of constant as well as changing trade costs second we develop for the first time an empirical model of the real exchange rate which allows for changes in the degree of market integration by employing a long span of data on the dollar sterling real exchange rate and a micro founded proxy for trade frictions we provide novel evidence of a significant relationship between the persistence of the real exchange rate and the level of trade costs this finding suggests that both the difficulty of detecting ppp and the extend of rogoff s puzzle vary over time with the degree of trade restrictiveness finally we highlight policy repercussions of our results

comment on trade integration in colombia a dynamic general equilibrium study with new exporter dynamics abstract this paper provides a series of comments aimed mainly at addressing the empirical relevance of the proposed interpretation of the mechanism and partly at considering the possible interaction between the trade and labor market reforms that took place in colombia in the same period in particular it first highlights the stylized facts about colombian exports and exporters that the model aims to theoretically reconcile and i briefly summarize the mechanism proposed in the microeconomic block of the theory next it focuses on two crucial assumptions made in the model it proposes a complementary way of presenting the mechanism and proposes ways to evaluate the empirical relevance on the competing interpretations finally it focuses on the broader economic and institutional background characterizing colombia in the early nineties and highlights the possibility that other reforms taking place in the same years may have interacted with trade liberalization in shaping firms distribution and export dynamics as well as welfare

what separates us sources of resistance to globalization with increasing sophistication economists have been estimating gravity equations for five decades robust evidence shows that borders and distance impede trade by much more than tariffs or transports costs can explain we therefore advocate investigation of other sources of resistance despite the greater difficult involved in measuring and modelling them from our selective review of recent findings a unifying explanation emerges a legacy of historical isolation and conflict forged a world economy in which neither tastes nor information are homogeneously distributed cultural difference and inadequate information manifest themselves most strongly at national borders and over distance

globesity the effects of globalization on obesity and caloric intake abstract we examine the effect of globalization in its economic and social dimensions on obesity and caloric intake namely the so called globesity hypothesis our results suggest a robust association between globalization and both obesity and caloric intake a one standard deviation increase in globalization is associated with a 23 8 percent increase in obese population and a 4 3 percent rise in calorie intake the effect remains statistically significant even after using an instrumental variable strategy to correct for some possible reverse causality and ommited variable bias a lagged structure and corrections for panel standard errors however we find that the primary driver of the globesity phenomenon is the social rather than the economic dimension of globalization and specifically the effect of changes in information flows and social proximity on obesity a one standard deviation increase in social globalization increased the percentage of obese population by 13 7 percent

the welfare cost of lawlessness evidence from somali piracy in spite of general agreement that establishing the rule of law is central to properly functioning economies little is known about the cost of law and order breakdowns this paper studies a specific context of this by estimating the effect of somali piracy attacks on shipping costs using data on shipping contracts in the dry bulk market to estimate the effect of piracy we look at shipping routes whose shortest path exposes them to piracy and find that the increase in attacks in 2008 led to around an 8 to 12 increase in costs from this we calculate the welfare loss imposed by piracy we estimate that generating around 120 usd million of revenue for somali pirates led to a welfare loss in excess of 630 usd million making piracy an expensive way of making transfers

hedging price volatility using fast transport abstract purchasing goods from distant locations introduces a significant lag between when a product is shipped and when it arrives these transit lags are trade barriers for firms facing volatile demand who must place orders before knowing the resolution of demand uncertainty we provide a model in which airplanes bring producers and consumers together in time fast transport allows firms to respond quickly to favorable demand realizations and to limit the risk of unprofitably large quantities during low demand periods the model predicts that the likelihood and extent to which firms employ air shipments is increasing in the volatility of demand they face decreasing in the air premium they must pay and increasing in the contemporaneous realization of demand we confirm all three conjectures using detailed us import data fast transport thus provides firms with a real option to smooth demand volatility on international markets and we provide simple calculations of that option value this enables us to identify how the option value relates to goods characteristics and to changes in air transport premia associated with technological and policy change including the introduction of jet engines and liberalization of trade in air services

globalisation and the spatial concentration of production new trade theory models predict that freer trade increases the spatial concentration of industrial production across countries while nations with large home markets and central geographical location become increasingly attractive business locations small peripheral countries gradually deindustrialize using data for 26 industries 20 oecd countries and 20 years we investigate the empirical validity of this claim separating out the role of home market size from geographical factors and using various panel methods we find robust evidence in line with theory freer trade has indeed magnified the importance of domestic demand and geographical location for the pattern of industrial production across the globeand has therefore exacerbated spatial disparities

rising trade costs agglomeration and trade with endogenous transaction costs while transport costs have fallen the empirical evidence also points at rising total trade costs in a model of industry location with endogenous transaction costs that seeks to replicate features from the machinery industry we show how and under which conditions a decline in transport costs can lead to an increase in the total cost of trade the subtle relationship between endogenous transport costs and the sensitivity of trade

shipping the good horses out this paper formalizes the alchian allen 1964 theorem within a vertically differentiated goods general equilibrium model in contrast to the existing literature equilibrium prices depends on the transportation cost it shows that the eect of a xed transportation cost regardless of quality tilts the importing region s demand towards the consumption of higher quality goods the model extends the alchian allen theorem by showing that the strength of this eect depends on the importing region s endowment specically if the importing region is endowed with the imported goods of similar quality mix the eect is even stronger we also show that the importing region s market size and preferences matter to the strength of the eect using auction data of australian thoroughbred yearlings we conrm that better horses are shipped out further furthermore consistent with the model s prediction the strength of the alchian allen eect depends on the endowment of the importing regions

the pro trade effect of the brain drain sorting out confounding factors we sort out confounding factors in the empirical link between bilateral migration and trade using newly available panel data on developing countries diaspora to rich oecd nations in a theory grounded gravity model we uncover a robust causal pro trade effect moreover we do not find evidence in favor of strong differences across education groups

cabotage sabotage the curious case of the jones act abstract this paper examines the economic implications of the jones act which restricts domestic waterborne shipments to american vessels since the passage of this cabotage law a century ago a plausibly exogenous rise in foreign competition has contributed to the closure of most american shipyards and to a decline in american built ships thus the jones act requirements have become more onerous over time the results show that domestic shipments are less likely to be transported via water than imports of the same good into the same state exploiting the decline in jones act eligible vessels over time additional results show that this cabotage law has disproportionately decreased domestic water trade especially in coastal states these findings support common but to date unverified claims that the jones act impedes domestic trade

commodity storage and the market effects of biofuel policies the author 2016 legislation passed in 2007 by the u s congress increased by about 1 3 billion bushels the net amount of corn required to be processed annually into ethanol for motor fuel use we estimate that corn prices were about 30 higher from 2006 to 2014 than they would have been without this demand increase we develop a partially identified structural vector autoregression model our identification strategy is unique in the literature because it enables us to estimate the effects of transitory shocks such as weather separately from the effects of persistent shocks such as the increased ethanol mandate moreover by only partially identifying our model we show how to generate robust conclusions without strong identifying assumptions

disappointment in decision making under uncertainty decision analysis requires that two equally desirable consequences should have the same utility and vice versa most analyses of financial decision making presume that two consequences with the same dollar outcome will be equally preferred however winning the top prize of 10 000 in a lottery may leave one much happier than receiving 10 000 as the lowest prize in a lottery this paper explores the implications of disappointment a psychological reaction caused by comparing the actual outcome of a lottery to one s prior expectations for decision making under uncertainty explicit recognition that decision makers may be paying a premium to avoid potential disappointment provides an interpretation for some known behavioral paradoxes and suggests that decision makers may be sensitive to the manner in which a lottery is resolved the concept of disappointment is integrated into utility theory in a prescriptive model

a theory of disappointment aversion an axiomatic model of preferences over lotteries is developed it is shown that this model is consistent with the allais paradox includes expected utility theory as a special case and is only one parameter beta richer than the expected utility model allais paradox type behavior is identified with positive values of beta preferences with positive beta are said to be disappointment averse it is shown that risk aversion implies disappointment aversion and that the arrow pratt measures of risk aversion can be generalized in a straight forward manner to the current framework copyright 1991 by the econometric society

unemployment insurance recall expectations and unemployment outcomes this paper empirically examines the importance of explicitly accounting for the layoff rehire process in the analysis of unemployment outcomes in the united states we find that the spells of individuals who initially expect to be recalled account for much more of the unemployment of unemployment insurance ui recipients than do spells actually ending in recall our results indicate that the recall and new job escape rates from unemployment have quite different time patterns and are often affected in opposite ways by explanatory variables we also find that the probability of leaving unemployment both through recalls and new job finding increases greatly around the time that ui benefits lapse over the past fifteen years many studies have empirically analyzed the determinants of individual unemployment spell durations in the united states much of this literature has used a job search framework in which the unemployed are viewed as permanently displaced workers who are unattached to jobs the possibility of recall to a former job a process not requiring search has been omitted from explicit consideration in the majority of these studies 2 an explicit treatment of the layoff rehire process is necessary for a proper understanding of the determinants of unemployment durations and of the impacts of unemployment policies in the united states for at least three reasons first temporary layoffs in which workers are often rehired by their original employers are a quantitatively quite important feature of the u s labor market 3 second expectations concerning the likelihood of recall are likely to affect the responses of employers and unemployed workers to labor market interventions such as reemployment bonuses and subsidies

distance time and specialization lean retailing in general equilibrium transport time increases with distance traveled and time is valuable we show the implications of these facts for global specialization and trade products where timely delivery is important will be produced near the source of final demand where wages will be higher as a result in the model timely delivery is important because it allows retailers to respond to final demand fluctuations without holding costly inventories and timely delivery is possible only from nearby locations using a unique dataset that allows us to measure the retail demand for timely delivery we show that the sources of u s apparel imports have shifted in the way predicted by the model with products for which timeliness matters increasingly imported from nearby countries jel f1 transporting goods and people costs time and money and both transport fees and time in transit generally increase with the distance traveled these facts imply an incentive to economize on distance and the equilibrium effects

what goes around comes around export enhancing effects of import tariff reductions abstract in international trade transportation requires a round trip for which a transport firm has to commit to shipping capacity that is sufficient to meet the maximum shipping volume this may cause the backhaul problem trade theory suggests that facing the problem transport firms with market power adjust their freight rates strategically when import tariffs change as a consequence a country reducing its import tariffs may experience an increase in exports as well as imports using worldwide data covering 1995 2007 we find evidence that supports these predictions a 1 reduction in an importer s tariffs increases the import freight rates by around 0 8 decreases the export freight rates by around 1 1 and increases the export quantity by 0 6 to 1 these findings indicate a new mechanism through which import tariff reductions lead to export expansions

does trade liberalization trigger tax competition theory and evidence from oecd countries this article aims at assessing the empirical relevance of new economic geography models of tax competition we rely on a simple model to specify tax reactions functions which we estimate with a panel covering up to 26 oecd countries over the period 1982 to 2006 we provide striking support for the two main predictions regarding the slope and the constant of the reaction function national governments seem to adjust their corporate tax rate towards the level chosen in countries that are more populated and they tend to set higher corporate tax rates when their country enjoys a high real market potential through the latter effect trade integration exerts a positive influence on the level of corporate taxation however using a theoretically grounded index of bilateral trade integration we also show that trade liberalization gives rise to significant tax interactions in the setting of effective average tax rates in the case of european countries thus exerting a downward pressure on corporate tax rates

trade and climate policies do emissions from international transport matter this paper provides orders of magnitude of the importance of co2 emissions from international transport freight activities under a variety of scenarios regarding trade and climate policies it is based on a stylized multi region multi sector cge model that includes the four modes of international transport air water road and rail and where choices regarding the energy mix and transport mode have been endogeneized a separate decomposition of emission changes into the well known scale composition and technique effects is provided scale effects turn out to be roughly double in international transport than in exports while technique effects are weaker due to less substitutability between energy inputs as a result international transport represents half of the world increase in global emissions when trade liberalization is considered isolately when trade liberalization is coupled with a carbon tax limited to rich countries international transport represents roughly one eigth of the carbon leakage effect

commodity trade and the carry trade a tale of two countries persistent interest rate differentials account for much of the currency carry trade profitability commodity currencies offer high interest rates on average while countries that export finished goods tend to have low interest rates we develop a general equilibrium model of international trade and currency pricing where countries have an advantage in producing either basic inputs or final goods in the model domestic production insulates commodity producing countries from global productivity shocks forcing final good producers to absorb them commodity currency exchange rates and risk premia increase with productivity differentials and trade frictions these predictions are strongly supported in the data this article is protected by copyright all rights reserved

rules of origin and the profitability of trade deflection abstract when a country grants preferential tariffs to another either reciprocally in a free trade agreement fta or unilaterally rules of origin roos are defined to determine whether a product is eligible for preferential treatment roos exist to avoid that exports from third countries enter through the member with the lowest tariff trade deflection however roos distort exporters sourcing decisions and burden them with red tape using a global data set we show that for 86 of all bilateral product level comparisons within ftas trade deflection is not profitable because external tariffs are rather similar and transportation costs are non negligible in the case of unilateral trade preferences extended by rich countries to poor ones that ratio is a striking 98 the pervasive and unconditional use of roos is therefore hard to rationalize

a copula garch approach for analyzing dynamic conditional dependency structure between liquefied petroleum gas freight rate product price arbitrage and crude oil price abstract global liquefied petroleum gas lpg trade shows an increasing trend but is under researched this paper focuses on the lpg market and aims to model the dependence dynamics among lpg freight rates crude oil price and propane location arbitrage conditional copula garch model is applied to estimate dependencies different types of copulas with both time invariant and time varying dependence structures are fitted and their suitability has been compared the findings suggest that firstly baltic lpg blpg freight rate and the arbitrage between propane far east and middle east prices have conditional time varying dependence and the dependence is higher in market downturns furthermore blpg and the arbitrage between far east and us propane prices have symmetric dependence and such a relationship has strengthened since 2013 secondly middle east propane price is found to have the strongest correlation with crude oil prices compared to far east and us propane prices indicating higher sensitivity to crude oil price changes last but not least the relationship between crude oil and blpg is relatively weak and mostly positive

estimating the effects of the container revolution on world trade many historical accounts have asserted that containerization triggered complementary technological and organizational changes that revolutionized global freight transport we are the first to suggest an identification strategy for estimating the effects of the container revolution on world trade our empirical strategy exploits time and cross sectional variation in countries first adoption of container facilities and combines it with product level variation in containerizability and container usage applying our container variables on a large panel of product level trade flows for the period 1962 1990 our estimates suggest economically large concurrent and cumulative effects of containerization and lend support for the view of containerization being a driver of 20th century economic globalization

long range growth economic development in the global network of air links we study the impact of international long distance flights on the global spatial allocation of economic activity to identify causal effects we exploit variation due to regulatory and technological constraints which give rise to a discontinuity in connectedness between cities at a distance of 6000 miles we show that these air links have a positive effect on local economic activity as captured by satellite measured night lights to shed light on how air links shape economic outcomes we first present evidence of positive externalities in the global network of air links connections induce further connections we then find that air links increase business links showing that the movement of people fosters the movement of capital in particular this is driven mostly by capital flowing from high income to middle income but not low income countries taken together our results suggest that increasing interconnectedness generates economic activity at the local level by inducing links between businesses but also gives rise to increased spatial inequality locally and potentially globally

global value chains a survey of drivers and measures global value chains gvcs emerged as the paradigm for the international organisation of production for most goods and services production is nowadays vertically fragmented across different countries and this reality gave rise to a significant new strand of research in in ternational trade this article starts by discussing the major driving forces of gvcs in recent decades next it surveys the main measures of gvcs accounting for their different scopes and required datasets the artic le highlights the timing of the contributions to the literature signalling their sequential nature and the trend towards more accurate and data demanding indicators

the decoupling of emerging economies theoretical and empirical puzzle with the growing importance of the emerging economies ees in the international scene a lively debate has begun on whether the national economic cycles are converging or the cycles of ees and advanced economies aes are becoming disconnected the so called hypothesis of decoupling of ees from the aes given the important practical implications that decoupling could have for example on the definition of national and international economic policies and on business strategies aimed at investment diversification and risk management the question kindles not only the interest of academics but also policymakers and practitioners are very interested in the issue the decoupling question has been long debated in different circles and from different points of view this survey aims to retrace the steps of this debate and to provide some suggestions for future empirical researches

the international effects of china s growth trade and education booms china s international trade flows have increased by 500 since 1992 far outstripping gdp growth likewise tertiary education enrollments have increased by 300 we simulate these changes using a multi sector growth model of the chinese and usa economies a decade of trade biased growth in china is found to have a large effect on the usa economy raising gdp approximately 3 4 5 percentage points we also show that the trade bias in china s growth accounts for more than half of the observed growth in tertiary enrolments in china in contrast neutral growth has practically no effect on usa incomes or china s stock of skilled labour finally the simulations reveal that china s education boom per se has practically no long run impact on the usa economy the results thus indicate that the pattern of productivity growth in exports sectors as might be caused by falling trade costs has been critical in transmitting benefits of chinese growth to the world economy they also point to an important link between falling trade costs and human capital formation

uncertainty and optimal social security systems this paper examines the annuity aspect of social security within the framework of an overlapping generations model the duration of life is assumed to be uncertain under a fully funded system demand for social security is determined by each generation so as to maximize expected lifetime utility taking into account the welfare of future generations under a pay as you go system with intergenerational transfers demand for retirement benefits by the working population takes into account taxes paid by descendants it is shown that the two modes of finance are equivalent in terms of all real aggregates effects of changes in expected lifetime and in the birth rate are analyzed starting at the optimal level a compulsory balanced increase in social security taxes and benefits is shown to increase short run savings

the shrinking advantage of market potential abstract how does a country s economic geography evolve along the development path this paper documents recent employment growth in 18 961 regions in eight of the world s main economies overall market potential is losing importance as a correlate of local growth while local employment density is gaining importance in mature economies growth is strongest in low market potential areas in emerging economies the opposite is true though the association with market potential is also weakening there structural transformation away from agriculture can account for some of the observed changes the part left unexplained by structural transformation is consistent with a standard economic geography model that yields a bell shaped relation between trade costs and the growth of centrally located regions

disappointment and dynamic consistency in choice under uncertainty the central proposition of disappointment theory is that an individual forms expectations about uncertain prospects and that if the actual consequence turns out to be worse than or better than that expectation the individual experiences a sensation of disappointment or elation generating a decrement or increment of utility which modifies the basic utility derived from the consequence by incorporating a simple disappointment elation function into a model of individual choice many observed violations of conventional expected utility axioms including violations of savage s sure thing principle and the isolation effect can be predicted and defended as rational and dynamically consistent behaviour

a test of trade theories when expenditure is home biased we develop a criterion to distinguish two dominant paradigms of international trade theory constant returns perfectly competitive models and increasing returns monopolistically competitive models our analysis makes use of the pervasive presence of home biased expenditure it predicts that countries relative output and their relative home biases are positively correlated in increasing returns sectors the home bias effect while no such relationship exists in constant returns sectors this discriminating criterion turns out to be robust to a number of generalisations of the baseline model our empirical results suggest that the increasing returns model fits particularly well for the mechanical and electrical engineering industries which account for close to half of manufacturing output

the trade reducing effects of market power in international shipping abstract developing countries pay substantially higher transportation costs than developed nations which leads to less trade and perhaps lower incomes this paper investigates price discrimination in the shipping industry and the role it plays in determining transportation costs in the presence of market power shipping prices depend on the demand characteristics of goods being traded we show theoretically and estimate empirically that ocean cargo carriers charge higher prices when transporting goods with higher product prices lower import demand elasticities and higher tariffs and when facing fewer competitors on a trade route these characteristics explain more variation in shipping prices than do conventional proxies such as distance and significantly contribute to the higher shipping prices facing the developing world a simple back of the envelope calculation suggests that eliminating market power in shipping would boost trade volumes by 5 9 for the us to 15 2 for latin america our findings are also important for evaluating the impact of tariff liberalization cargo carriers decrease shipping prices by 1 2 for every 1 reduction in tariffs

causes of world trade growth in agricultural and food products 1951 2000 a demand function approach the objective of the present study is to analyse the causes of the growth of international agricultural and food trade in volume terms from 1951 to 2000 the results suggest that income growth has been the principal reason for this expansion while exchange rate stability and the real price of agricultural products played only a minor role multilateral trade liberalization and trade costs given their long term stability are not elements that could have stimulated their growth finally the intensive liberalization of trade which took place in various economic regions especially in europe became a key factor in promoting agricultural trade among the countries participating in regional trade agreements the study results also indicate that the determinants of trade growth for these goods were different to those for other goods and other periods

implications of comtrade compilation practices for trade barrier analyses and negotiations u n commodity trade comtrade statistics have major shortcomings for many analyses relating to tariffs and other trade barriers the use of a cost insurance freight valuation base for these data results in an upward sometimes severe bias in the implied dutiable value of imports for countries that utilize free on board tariffs this problem can be greatly exacerbated by the general trade system procedure used to compile the u n statistics as opposed to the special trade practice used for the world trade organization integrated database u s international trade commission statistics show that the combined effects of these biases can reach magnitudes that preclude the legitimate use of comtrade for many tariff trade simulations or related trade negotiations

job search and savings wealth effects and duration dependence this article studies a risk averse worker s optimal savings and job search behavior as she moves back and forth between employment and unemployment we show that job search effort is negatively related to wealth under the assumption of additively separable utility consequently job search exhibits positive unemployment duration dependence because wealth is drawn down to smooth consumption as the spell progresses finally given optimal search savings still provide imperfect insurance against income fluctuations precautionary savings are built up during employment spells and run down during unemployment spells but the consumption path will not be perfectly smooth over states

the international reorganisation of auto production this paper analyzes the patterns of bilateral trade flows of auto components over the last decade by applying network analysis results show the rise of a number of emerging economies in asia and central and eastern europe as important parts suppliers but their role is still largely peripheral in fact there was a strengthening of the world s leading producers with a more hierarchical division of labor within their regions especially in europe regionalization of production declined in all of the groups of auto parts examined with the exception of electrical parts where a regional production network is emerging in asia

factor proportions and the growth of world trade abstract most of the expansion of global trade since 1980 has been of the north south kind between capital abundant developed and labour abundant developing countries based on this observation i argue that the recent growth of world trade is best understood from a factor proportions perspective using data on trade barriers and estimates of capital labour ratios for a group of 45 economies between 1980 and 2008 i find that a calibrated factor proportions model can generate significant trade growth during this period amounting to 90 of the observed rise in north south trade the opening up of china alone accounts for three quarters of the predicted increase in line with the model i present evidence that china s liberalisation has raised the exports and imports of capital abundant countries relative to more labour abundant economies overall my findings suggest that factor proportions theory may be useful for interpreting several quantitative and qualitative aspects of growing world trade in a period during which the group of large open economies has become significantly less homogenous

on the pervasiveness of home market effects paul krugman s model of trade predicts that the country with the relatively large number of consumers is the net exporter and hosts a disproportionate share of firms in the increasing returns sector he terms these results home market effects this paper analyses three additional models featuring increasing returns firm mobility and trade costs to assess the robustness of home market effects to alternative modelling assumptions we find strikingly similar results for two of the models that relax assumptions about the nature of demand competition and trade costs however a model that links varieties to nations rather than firms can generate opposite results

labor market search effort with reference dependent preferences we incorporate forward looking reference dependent preferences into a simple job search framework and show that people with strong aversion to losses may choose not to search for a job despite economic incentives to do so we also discuss the policy implications

airplanes and comparative advantage abstract airplanes are a fast but expensive means of shipping goods a fact which has implications for comparative advantage the paper develops a ricardian model with a continuum of goods which vary by weight and hence transport cost comparative advantage depends on relative air and surface transport costs across countries and goods as well as stochastic productivity a key testable implication is that the u s should import heavier goods from nearby countries and lighter goods from faraway counties this implication is tested using detailed data on u s imports from 1990 to 2003 looking across goods the u s imports nearby exporters have lower market share in goods that the rest of the world ships by air looking across exporters for individual goods distance from the us is associated with much higher import unit values these effects are large which establish that the model identifies an important influence on specialization and trade

global production sharing exploring australia s competitive edge cross border dispersion of production processes within vertically integrated global industries global production sharing has been an increasingly important structural feature of economic globalisation in the recent decades this paper examines patterns and determinants of global production sharing with an emphasis on how australian manufacturing fits into global production networks gpns though australia is a minor player in gpns there is evidence that australian manufacturing has a distinct competitive edge in specialised skill intensive tasks in several industries such as aircraft medical devices machine tools measuring and scientific equipment and photographic equipment specialisation in high value to weight components and final goods within gpns which are suitable for air transport helps australian manufacturing to overcome the tyranny of distance in world trade being predominantly relationship specific australian gpn exports are not significantly susceptible to real exchange rate appreciation

transportation costs and international trade in the second era of globalization while the precise causes of postwar trade growth are not well understood declines in transport costs top the lists of usual suspects however there is remarkably little systematic evidence documenting the decline this paper brings to bear an eclectic mix of data in order to provide a detailed accounting of the time series pattern of shipping costs the ad valorem impact of ocean shipping costs is not much lower today than in the 1950s with technological advances largely trumped by adverse cost shocks in contrast air shipping costs have dropped an order of magnitude and airborne trade has grown rapidly as a result as a result international trade has also experienced a significant rise in speed

the place premium bounding the price equivalent of migration barriers large international differences in the price of labor can be sustained by differences between workers or by natural and policy barriers to worker mobility we use migrant selection theory and evide

beyond the home market effect market size and specialization in a multi country world the standard two country model of international trade with monopolistic competition predicts a more than proportional relationship between a country s share of world production of a good and its share of world demand for that same good a result known as the home market effect we first show that this prediction does not generally carry through to the multi country case as production patterns are crucially affected by third country effects we then derive an alternative prediction that holds whatever the number of countries considered this new prediction takes into account important features of the real world such as comparative advantage due to cross country technological differences and lack of factor price equalization c 2009 elsevier b v all rights reserved

saving social security and uncertainty since alteration of the saving behavior of the present working generation may have such a significant impact on capital stock growth some concern has arisen about the effect of the social security system on saving behavior in response to this concern numerous empirical and theoretical analyses have been forthcoming most of the theoretical analyses either in the form of overlapping generations models 9 11 or simpler life cycle models 6 15 have indicated that unless specific parameter values utility functions and in some cases production functions are chosen the effect of a social security system on saving is indeterminate for example kurz 11 has shown that the introduction of a simple pay as you go social security system in an overlapping generations model in which individuals do not have a leisure choice will not have a predictable effect on the steady state level of the capital stock unless parameter values and the form of the production function are known similarly in life cycle models that include a leisure choice the effect of social security is difficult to determine although feldstein 6 shows that when the leisure choice is suppressed in such a model a social security system will have a negative impact on saving this indeterminacy has not been completely resolved by empirical work although the bulk of evidence 7 8 10 12 tends to support the view that social security has depressed saving in the past unfortunately with the exception of the work of sheshinski and weiss 16 little of the theoretical analysis deals with the effect on saving behavior of participants who are faced with uncertainty about future prices wages and social security benefits sheshinski and weiss have shown that in an overlapping generations model with uncertain lifetimes the effect of increasing the role of social security through balanced increases in benefits and contributions will actually lead to an increase in saving their analysis however does not include a leisure choice nor does it deal with other forms of uncertainty facing participants consequently we still lack more complete answers to the following basic questions will the introduction of a social security program in the presence of uncertainty

trade costs 1870 2000 what has driven trade booms and trade busts in the past century and a half was it changes in global output or in the costs of international trade to address this question we derive a micro founded measure of aggregate bilateral trade costs based on a standard model of trade in differentiated goods these trade costs gauge the difference between observed bilateral trade and frictionless trade in terms of an implied markup on retail prices of foreign goods thus we are able to estimate the combined magnitude of tariffs transportation costs and all other macroeconomic frictions that impede interna tional trade but that are inherently difficult to observe we use this measure to examine the growth of global trade between 1870 and 1913 its retreat from 1921 to 1939 and its subsequent rise from 1950 to 2000 we find that trade cost declines explain roughly 55 percent of the pre world war i trade boom and 33 percent of the post world war ii trade boom while a precipi tous rise in trade costs explains the entire inter

the nature of oil shocks and the global economy abstract this paper identifies the main driving force behind oil price shocks in 1970 2006 by applying a simple identification strategy of supply driven and demand driven price shocks the identification hypothesis states that supply driven oil price shocks have a negative impact on the macroeconomic activity of countries which are net consumers of oil while demand driven oil price shocks do not have negative effects in order to identify global demand driven shocks a weighted aggregate gdp series of countries which are net consumers of oil is constructed over 1970 2006 the key result is that the main driving force behind oil price shocks has changed from supply driven shocks in 1970 1992 to demand driven shocks in 1992 2006

heterogeneous trade costs and wage inequality a model of two globalizations abstract we develop a model for analyzing the distributional effects of two globalizations and their interdependence we distinguish between two trade cost reductions i trade liberalizations in the 1980s which increased trade in low skill intensive goods denoted l globalization and ii reductions in communication costs due to the it revolution which raised trade in middle skill intensive goods during the 1990s denoted c globalization we consider a north south trade economy in which the north is skill abundant a freely traded final good is produced using high skill services and a bundle of inputs inputs differ on the intensity of middle and low skill workers required to be produced and are subject to heterogeneous trade costs in the north we find that wage inequality increases in the l globalization during the c globalization wage polarization emerges the relative wage of high to middle skill workers increases while the relative wage of middle to low skill workers is hump shaped we find a complementarity between the two globalizations wage polarization is delayed by the extent of trade in the l globalization in the south we find that wage inequality increases in both globalizations finally we show how asymmetric participation in the c globalization of two southern countries generates a discontinuous pattern of specialization the southern country participating in the c globalization specializes in the least and most skill intensive traded inputs

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

reference dependent job search evidence from hungary we propose a model of job search with reference dependent preferences with loss aversion relative to recent income the reference point in this model newly unemployed individuals search hard since consumption is below their reference point over time though they get used to lower income and thus reduce their search effort in anticipation of a benefit cut their search effort rises again then declines once they get accustomed to the lower postcut benefit level the model fits the typical pattern of exit from unemployment even with no unobserved heterogeneity to distinguish between this and other models we use a unique reform in the unemployment insurance ui benefit path in 2005 hungary switched from a single step ui system to a two step system with overall generosity unchanged the system generated increased hazard rates in anticipation of and especially following benefit cuts in ways the standard model has a hard time explaining we estimate a model with optimal consumption endogenous search effort and unobserved heterogeneity the reference dependent model fits the hazard rates substantially better than plausible versions of the standard model including habit formation our estimates indicate a slow adjusting reference point and substantial impatience likely reflecting present bias jel codes d03 j64 j65

the quality income effect and the selection of location we analyze a location choice model with two vertically differentiated firms and two regions with different consumer income we find that the high quality producer settles in the poor region and the low quality one in the rich region when income disparities are sufficiently high and goods are differentiated enough this apparently counter intuitive result is not determined by technology or size issues rather it relies on the relationship between regional income disparities and product quality which we call the quality income effect

how do the trans pacific economies affect the usa an industrial sector approach this paper studies how the trans pacific region affects the us economy in terms of business cycle transmission we use a large data set consisting of disaggregated sectoral industrial production indexes from selected countries in the region and employ a factor augmented vector autoregression favar approach to analyse the transmission of shocks in different industries we find that a positive output shock in the entire trans pacific region has positive effects on the majority of us manufacturing sectors we also find that sectoral shocks in five sectors of the trans pacific region have a large impact on the overall us economy three of the five sectors displayed strong same sector responses relative to the overall response suggesting that vertical production linkages might play a key role in the transmission of shocks our results highlight the importance of examining industrial sectors in studying the transmission of shocks in the trans pacific region

reference dependent risk attitudes we use koszegi and rabin s 2006 model of reference dependent utility and an extension of it that applies to decisions with delayed consequences to study preferences over monetary risk because our theory equates the reference point with recent probabilistic beliefs about outcomes it predicts specific ways in which the environment influences attitudes toward modest scale risk it replicates classical prospect theory including the prediction of distaste for insuring losses when exposure to risk is a surprise but implies first order risk aversion when a risk and the possibility of insuring it are anticipated a prior expectation to take on risk decreases aversion to both the anticipated and additional risk for large scale risk the model allows for standard consumption utility to dominate reference dependent gain loss utility generating nearly identical risk aversion across situations

endogenous pricing to market and financing costs abstract this paper explains why relative ppp should hold more tightly in emerging markets and why pricing to market would be observed more frequently in the oecd countries it studies the endogenous determination of pricing to market in a real option model with time dependent transportation costs where the future terms of trade are random allowing time dependent transportation costs adds a dimension of investment to the pre buying of imports implying that financial considerations determine the frequency of pricing to market and the deviations from relative ppp if the expected discounted cost of last minute delivery is higher than pre buying one exercises the option of spot market imports if the realized terms of trade are favorable enough pricing to market is observed in countries characterized by low terms of trade volatility and low financing costs in these circumstances imports are pre bought and the spot market for imports is inactive in countries where the financing costs and the terms of trade volatility are high few imports are pre bought the price of imports is determined by the realized real exchange rate and a version of relative ppp holds with an intermediate level of terms of trade volatility and of financing costs a mixed regime is observed if the realized real exchange rate is weak pricing to market would prevail increasing consumers welfare by shielding them from the adverse purchasing power consequences of weak terms of trade if the realized real exchange rate is favorable enough more imports are purchased in the spot market and the relative ppp would hold higher financing costs increase the cost of pre buying imports reducing thereby the frequency of pricing to market increasing the expected relative price of imports reducing the expected deviations from relative ppp and reducing welfare

uncertain inflation and social security indexation abstract this paper provides a theoretical analysis of the effects of the insurance feature of social security indexation on portfolio allocation and the stability of income and consumption of the retiree within the framework of a life cycle model of allocation under uncertainty the paper shows that the magnitudes of such effects depend on the importance of social security in total wealth the covariance of real portfolio returns with the inflation rate and more importantly whether there exists market failure in providing for inflation insurance

measuring international trade costs the costs of international trade have become an increasingly important item in trade negotiations under the heading trade facilitation and element of trade theory but definition and measurement of trade costs remain in their infancy this paper argues that the most conceptually appropriate measure is the gap between cost insurance freight cif and free on board fob values of traded goods but that this must be measured on a consistent volume of trade such data are only available for a few countries we calculate cif fob gap values for the three largest trading nations that report such data australia brazil and the usa these values provide plausible estimates of ad valorem trade costs for the three importing countries and for all countries exports the estimates indicate that although trade costs have fallen over the last two decades average trade costs now exceed the average tariff rate on imports into the usa and australia country rankings by the cif fob gap values differ significantly from those by commonly used proxies for trade costs such as the indicators of time and cost in the world bank s doing business database and analysis based on such proxies is likely to produce misleading results