variable returns to scale in production and patterns of specialization this paper discusses some trade and welfare implications of the two sector model based on increasing returns to scale irs in one industry and decreasing returns to scale drs in the other it has been shown by horst herberg and murray kemp that given homothetic production functions with irs in one industry and drs in the other the production possibilities frontier ppf is strictly concave to the origin near the irs axis and strictly convex to the origin near the drs axis while this result constitutes an important finding and is contrary to the general impression among economists even twelve years after the publication of herberg and kemp s paper no attempt has been made to analyze its implications for welfare and patterns of specialization in this paper i consider a simple twocommodity model with irs in one industry and drs in the other and discuss some interesting implications of variable returns to scale vrs first i demonstrate that in this model if a small open economy specializes completely in production it will do so in the drs commodity and not in the irs commodity as is generally believed second if at a given price ratio an internal production equilibrium exists a welfaremaximizing small open economy will never specialize completely in production even though the ppf exhibits decreasing opportunity costs over a part of its range third given output generated economies and diseconomies of scale welfare maximization for a small country requires a permanent tax subsidy scheme encouraging expansion of the irs industry and contraction of the drs industry finally in a two country model with identical tastes and technology across the countries free trade equilibrium may result in incomplete specialization by the exporter of the irs commodity and complete specialization by the exporter of the drs commodity in the course of the analysis i argue that tinbergen s formulation of frank graham s case for protecting the irs industry is incorrect i then present a possible reformulation of it in section i the basic production model is introduced in section ii the model is analyzed and in section iii it is argued that all the results continue to hold in the multifactor case

comparative advantage agglomeration economies and trade costs abstract this paper contributes to the theoretical research exploring the interface between comparative advantage locational fundamentals and agglomeration economies a simple model is developed which highlights costly trade of final outputs and of intermediates we derive the novel insight that the interaction between comparative advantage and agglomeration economies involves a fundamental tension which is intricately affected by trade costs a reduction of trade costs fosters the dispersive impact of comparative advantage in sectors governed by this force whilst the impact of agglomeration economies is enhanced by a fall in trade costs in industries where increasing returns prevail the key implication for international trade is that the relative wage between large and small economies is not only shaped by the primitive determinants of agglomeration economies and comparative advantage but also in a different way by trade costs the key implication for an economic geography setting where labor is mobile is that partial agglomeration emerges when agglomeration economies are strong relative to comparative advantage and this is more likely when trade costs are lower higher in industries governed by increasing returns comparative advantage the model provides a foundation for an urban system in which the larger city exhibits more diversity in production

producer services comparative advantage and international trade patterns we unite the theories of factor abundance and monopolistic competition to explore the general equilibrium relations between trade in producer services economies of scale and factor markets in our model two final goods are produced using capital labor and a variety of differentiated producer services that are produced under increasing returns to scale we analyze the implications for comparative advantage and trade in goods between two countries that differ in factor endowments and in technology of service provision moreover we use the concept of the integrated world equilibrium to investigate trade in goods and services also when services require foreign direct investments

a decomposition analysis of the trend in uk income inequality post war britain has experienced a number of dramatic demographic and social changes that have undoubtedly influenced the distribution of income there has been a rise in the number of pensioners whose incomes are relatively low a considerable increase in the number of young and old households living on their own and a remarkable expansion in the proportion of working wives the potential importance of these structural changes suggests that their impact on the income distribution needs to be examined systematically before any attempt can be made to interpret the observed trend in overall income inequality adequately the method usually adopted for this purpose attempts to create a comparable time series of distributions based on the structural characteristics pertaining in one particular year for example if we wished to investigate the effect of shifts in the age structure of the population this approach would disaggregate the distribution in one year tl and estimate what the distribution would have been like if the age structure had been the same as that observed in some other year to on the assumption that other distributional characteristics such as ageincome differentials and inequality within age groups remain invariant to this demographic change the comparison between the actual distribution at t1 and the constructed distribution at t1 with to s age structure is taken to indicate the impact of changes in the age structure over the period concerned this comparison can be presented in terms of quantile shares summary measures of inequality or the entire lorenz curves this approach known as shift share analysis or standardising the inequality series see semple i975 love and wolfson i976 dinwiddy and reed i977 royal commission i977 rowley and henderson i978 macleod and horner i980 is perfectly adequate for simple and straightforward structural changes when several changes are occurring simultaneously however it becomes difficult to identify the contribution of the individual factors and to assess their relative importance to the overall trend in inequality furthermore the combined impact of several structural influences will not in general sum up to the inequality change requiring explanation the purpose of this paper is to propose an alternative method of analysing

rent seeking with bounded rationality an analysis of the all pay auction the winner take all nature of all pay auctions makes the outcome sensitive to decision errors which we introduce with a logit formulation the equilibrium bid distribution is a fixed point the belief distributions that determine expected payoffs equal the choice distributions determined by expected payoffs we prove existence uniqueness and symmetry properties in contrast to the nash equilibrium the comparative statics of the logit equilibrium are intuitive rent dissipation increases with the number of players and the bid cost overdissipation of rents is impossible under full rationality but is observed in laboratory experiments our model predicts this property

understanding new zealand s changing income distribution 1983 1998 a semi parametric analysis this paper analyses income distribution changes in new zealand between 1983 and 1998 we use a semi parametric kernel density approach and a range of inequality summary measures to assess the distributional effects of changes in five sets of factors household structure national superannuation old age pension socio demographic attributes employment outcomes and economic returns to such attributes and employment outcomes changes in household structure and attributes are the main factors contributing to the rise in inequality employment changes and changing returns had a more modest impact the results are qualitatively robust to a variety of equivalization income and weighting measures

note on international differences in service prices and some related empirical phenomena abstract this paper provides an alternative explanation of some important stylized facts of development including the phenomenon of international differences in service prices in terms of differences in factor endowments between countries in so doing this paper advances a general equilibrium model of a small open economy which features non traded goods as well as demand factors thereby incorporating important economic aspects which were neglected by many others an interesting finding which emerges from this exercise is that many puzzles in development can be explained simply in terms of differences in factor endowments between countries

does religious similarity matter in international trade in services impacts of religion on trade in services were examined using gravity models with two estimation methods poisson pseudo maximum likelihood ppml to correct for heteroscedasticity and bias due to the exclusion of zero trade flow and standard heckman correction to compensate for sample selection bias we found that religious similarity contributes to increased international trade in services by establishing trust related institutions second religious pluralism variety fosters trade even more than religious similarity suggesting that in facilitating trade religious openness matters more than religious similarity third a strong dominant religion discourages trade in services whereas the presence of religious minorities encourages trade in services a highly significant inverse mill s ratio imr result indicated the presence of sample selection bias indicating that controls are necessary to prevent estimation bias this study concluded that religion is an important determining factor for trade in services positively affecting interpersonal trust and thereby reducing institutional distance between countries

inside the black box of services evidence from india in general economists have treated the services sector as a black box india where the sector now dominates economic activity is no exception the object of this paper is to develop a taxonomy of the services sector with reference to different economic characteristics analysing data from india we find that it is a set of highly heterogeneous economic activities with respect to productivity enhancing technology characteristics barriers to entry for employment factor use linkages with other sectors and tradability in international markets this is indicative of subsector specific implications for economic growth balance of payments employment the sustainability of services led growth poverty inequality and the different explanations for the growing share of the services sector in total output importantly these implications which lend perspective to the findings of a growing literature on the subject provide a stepping stone for advancing significant research questions both in the context of india and elsewhere copyright oxford university press

sharing the national cake in post reform new zealand income inequality trends in terms of income sources abstract using household economic survey hes data in unit record form this paper examines the trends of household income inequality in new zealand over the period 1984 96 a period that saw new zealand implement a wide range of economic and social policy reform the observed changes in the overall income inequality are then decomposed by income components to measure the contributions of the different sources of personal income to the overall inequality to our knowledge this is the first time that the methodology for disaggregating the gini co efficient including its more recent extensions by lerman and yitzhaki review of economics and statistics 63 1985 151 podder review of income and wealth 39 1993 51 and mookherjee and shorrocks economic journal 92 1982 886 has been applied to micro level new zealand data for computing income inequality and other related indices and measures reported in this study the findings which indicate a steady upward trend in income inequality are examined in the light of the reform policies used at the time their implications for policy are also addressed

dissipation of contestable rents by small numbers of contenders the theory of rent seeking with its origins in the observations of gordon tullock 1967 or to use jagdish bhagwati s 1982 proposed term the theory of directly unproductive profit seeking activities is concerned with the potentially adverse effects on resource allocation of incentives to cap ture and defend artificially contrived rents and transfers the scope for so cial loss proposed by the theory derives from the relation between the value of a contestable prize and the value of the resources attracted into the con test to determine the beneficiary of the prize underlying this social loss is a specification of how rational behavior by optimizing agents links the value of the prize sought to the resources expended it has been traditional to assume competitive behavior in describing the activities of lobbying and influence seeking then if some further condi tions are satisfied l the total value of the resources expended precisely equals the value of the prize sought so dissipation is complete 2 conse quently the social cost associated with contestability of a rent can be in ferred from the value of the rent itself and the detailed and hard to come by information on individual outlays made in the course of the contest be comes unnecessary by basing their analyses on competitive dissipation contributors to the rent seeking literature see the review by robert tollison 1982 have been able to presume that the observed value of a contested rent is an exact measure of the associated social cost of monopoly power or regu lation similarly in the trade theoretic literature where the rights contested are to quota premia or revenues from trade taxes krueger 1974 bhagwati

trade patterns and gains from trade with an intermediate good produced under increasing returns to scale abstract this paper considers a model with one primary factor one intermediate good and two final goods increasing returns to scale are introduced into the production of the intermediate good to analyze trade patterns and gains from trade with two assumptions about the market structure of the intermediate good average cost pricing and monopoly free trade does not necessarily lead to gains for the economy and either specialization or multiple equilibria are obtained this paper also provides interesting comparisons between the types of market structure showing for example that monopoly can be preferred to average cost pricing

the income and tax share of very high income households 1960 1995 this paper presents new information on the fraction of adjusted gross income and of wages and salaries that is reported by taxpayers in the top one half of one percent of the income distribution this corresponds to roughly five hundred thousand households in the late 1990s this paper relies on data from the treasury s individual income tax model for the period 1960 1995 the definition of adjusted gross income is standardized so that changes in the tax law do not affect the measured concentration of agi the results suggest that the share of agi reported by the highest income households increased significantly between the early 1980s and the mid 1990s with most of the increase taking place in the years immediately following the tax reform act of 1986 while we find some evidence of transitory changes in the concentration of income around major tax changes which may be the result of income retiming by high income taxpayers re timing does not seem to explain most of the changes since 1986 this abstract was borrowed from another version of this item

trade in producer services a heckscher ohlin approach trade in services has become topical but little theory has been developed this paper assumes that one commodity and the services of capital are tradable and examines the traditional trade results service trade can produce the same equilibrium as commodity trade but substantial differences exist depending on whether the tradable commodity is capital or labor intensive tariffs on either commodity have the same commodity price effects and will always increase the welfare of the immobile factor labor factor income taxes can also affect trade patterns when both goods and capital services are tradable there is an indeterminacy in trade patterns and tariffs while reducing commodity trade may not reduce welfare

trade in services and the multilateral trade negotiations the dispute between developed and developing countries over the inclusion of services in the uruguay round of trade negotiations reflects critical differences in perspective on substantive issues in particular these substantive divisions arise from the differences between services and goods in matters such as regulation and the requirement in many instances offreedom to move productive factors across national boundaries for example the right to establish that would permit the provider of services to get to the user in addition developing countries see the developed countries as seeking concessions on service trade in exchange for removal of the latter s existing and potential barriers on trade in goods rather than establishing quid pro quos within the service compact itself developing countries have possible export advantages in the service sector and have much to gain by joining actively in negotiating a services compact that permits them to exploit these advantages

are international monetary fund quotas unfavorable to less developed countries a normative historical analysis abstract the international monetary fund criterion of economic size receives normative justification as the determinant of quotas but size must be represented by appropriately measured income reserves and trade the fund s income measure is deficient because it uses exchange rates rather than purchasing power parities to convert figures to a common currency if a favourable quota disparity is defined as an actual quota above the quota predicted by economic size less developed countries had adverse disparities early in imf history but increasingly favorable disparities over time given the inertia of relative quotas members would do well to maximize their initial quota

a model of real national price levels this paper is concerned with the price level in the sense used in a recent paper by kravis and lipsey entitled toward an explanation of national price levels 15 the price level of a particular country relative to the base country is defined as the ratio of the purchasingpower parity ppp to the exchange rate it has become generally recognized that the ppp need not equal the exchange rate even in long run free trade equilibrium and the explanation of the discrepancy is a natural subject of scientific interest there is a voluminous literature on temporary deviations of ppp from the exchange rate that are explained in terms of monetary disturbances and random shocks there is a much smaller literature on long run or structural factors that explain why ppp does not coincide with the exchange rate the present paper falls in the second category we shall assume the economy is in monetary and balance of payments equilibrium the term price level as used in kravis and lipsey 15 may be confusing because that term usually refers to the price of goods in terms of money the term real price level seems more appropriate in that the concept refers to a ratio of two prices the real price level is what the tourist has in mind when he goes to a poor country and remarks my but prices are low here a major feature of the existing literature on long run or structural explanations of the real price level is the emphasis on the distinction between tradables and nontradables it is typically assumed that the law of one price holds for tradables but not for nontradables which are dominated by services the productivity differential model as stated by balassa 2 for example assumes that international differences in labor productivity are greater in commodities tradables than in services it follows that services will be relatively cheap in poor low productivity countries and that consequently the real price level relative to a base country will rise with per capita income recently bhagwati 5 has shown that the low relative price of services in poor countries can be explained by a capital labor model without recourse to the assumption that production functions differ internationally in bhagwati s model rich countries export capital intensive commodities and poor countries export labor intensive commodities but even though commodity prices are equalized through trade complete specialization prevents factor prices from being equalized since services are assumed to be labor intensive relative to any commodity they are cheaper in poor countries than in rich countries

services linkages and the value added content of trade services trade constitute roughly one third of trade on a value added basis and much of this is concentrated in margin services transport logistics linked to trade in goods however producer services are also part of the value added contained in traded goods this is especially true in high income countries where services account for roughly 70 percent of value added working with data a set of global social accounting matrices spanning intermittent years from 1992 to 2007 this paper examines the services embodied in trade on a value added basis this includes not only the direct and indirect contribution of services to value added contained in a given country s exports but also the extent to which third country value added in services through intermediate linkages of imported goods and services are also embodied in production and trade this exercise serves to highlight not only the importance of non tradables in trade but also by extension the importance that productivity foreign affiliates sales and trade and investment in services may hold for interdependence and cross border linkages

explaining service price differences in international comparisons this paper reexamines observed international differences in the price of services and the positive correlation of these with per capita gdp differences using a general trade model with a nontraced sector the authors find that differences in countries factor endowments populations trade policies and trade balances will have ambiguous and sometimes opposite effects on their service prices and real incomes estimating the service price equation using recent data suggests that larger endowments of agricultural land minerals and capital larger trade deficits and higher prices for tradables increase service prices conversely larger populations and labor forces reduce service prices copyright 1991 by american economic association

a theoretical explanation of some stylized facts of economic growth this paper presents a three good two country general equilibrium model that is consistent with several stylized facts of economic growth the three goods are manufactures agriculture and services manufactures are subject to economies of scale the model predicts that services a nontraded good must be more expensive in the country with higher per capita income it also shows that as per capita income increases we should expect the productivity in commodities relative to services to rise the model is able to generate many other stylized facts of economic growth

economic reform in new zealand 1984 95 the pursuit of efficiency between 1984 and 1995 new zealand changed from a closed and centrally controlled economy to one of the most open countries in the oecd the reforms liberalizing the economy were notable for their very comprehensive coverage and innovations that included performance contracts for senior civil servants and the central bank legislated constraints on fiscal expenditure decisions backed by accrual accounting tax neutrality subsidy free agriculture and no industry specific regulation of competition modern microeconomics contributed much to policy design economic growth has been vigorous since 1991 but a different sequencing of reforms may have enhanced outcomes

why are services cheaper in the poor countries in their important work on international comparisons of national incomes and of comparative price structure kravis heston and summers i982 p 8 have noted that services are much cheaper in the relative price structure of a typical poor country than in that of a rich country this phenonomen has been documented now fairly systematically by the data gathered under their guiding hand of the united nations international comparison icp which covers 34 countries table i reproduced from their work i982 and fig i based on rows 3 and ii 13 indeed show this tendencyfor the relationship between relative service prices and real per capita gdp in this kravis heston summers 34 country 6 group sample the tendency is strongly evident except for the intermediate groups iii and iv

trade factor prices and the gains from trade with increasing returns to scale existing analyses seem to suggest that national increasing returns to scale are not a very useful tool for analysing trade owing to problems such as multiple equilibria and the tendency towards complete specialization the purpose of this paper is to construct a model in which there are in fact determinant relationships among country size the direction of trade the gains from trade and international factor price differences in the model differences in country size determine the direction of trade which in turn determines factor price differences and limits the possible distribution of the gains from trade commerce international prix des facteurs de production et les gains de l change dans un contexte de rendements croissants a l echelle les analyses conventionnelles semblent suggerer que les rendements croissants h l 6chelle au niveau national ne constituent pas une avenue prometteuse dans l analyse du commerce international parce que de tels rendements creent une presomption en faveur de la specialisation complete et conduisent a des situations d 6quilibres multiples le but de ce m6moire est de construire un mod le dans lequel il existe des rapports determinants entre la dimension du pays la direction des 6changes les gains de l echange et les differentiels internationaux entre les prix des facteurs de production dans ce mod le les differences entre les pays en termes de dimension d6terminent la direction du commerce international laquelle d6termine le differentiel entre les prix des facteurs de production et limite l eventail des r6partitions possibles des gains de l echange

services tradeability trade liberalization and foreign direct investment textabstractthe article analyzes a two country general equilibrium model to examine the role played by services in the world economy services play an increasingly important role in the world economy as observed for instance by the growing share in employment production exports and foreign direct investment firms increasingly delegate costly knowledge intensive intermediate stage processing activities in their production processes to specialized outside producers in order to gain cost advantages countries generally differ in the extent to which producers in final goods sectors have the opportunity to gain cost advantages by using knowledge intensive producer services in the article the authors concentrate on trade patterns between countries that are similar in all respects except that one country lacks a producer services sector the authors also develop a general equilibrium model in which a home country and a foreign country both produce a manufactured good and a basic commodity called food

classroom games rent seeking and the inefficiency of non market allocations economics is often taught at a level of abstraction that can hinder some students from gaining basic intuition however lecture and textbook presentations can be complemented with classroom exercises in which students make decisions and interact the approach can increase interest in and decrease skepticism about economic theory this feature offers short descriptions of classroom exercises for a variety of economics courses with something of an emphasis on the more popular undergraduate courses suggestions for future columns and comments on past ones should be sent to charles holt c o journal of economic perspectives department of economics university of virginia charlottesville virginia 22903 3288

industrialization convergence and patterns of growth the long run behavior of national growth rates has long been of great interest because it sheds light on future income disparities across countries as well as the prospective income of individual countries recently the interest has been further stimulated for the neoclassical growth model 6 31 and new endogenous growth models 16 26 yield sharply different predictions while the neoclassical growth model predicts that countries with similar preferences and technology will converge to similar levels of per capita income endogenous growth models predict that there will be no such tendency in this regard a substantial body of empirical study has examined whether the regression of the growth rate on the level of income per capita indeed produces a negative coefficient as predicted by the neoclassical model evidence is mixed however in particular the regression results are very sensitive to the selection of countries typically the results for relatively developed countries are consistent with the convergence hypothesis 3 11 but the results for the samples including less developed countries are rather in conflict with the convergence argument 9 27 the goals of this paper are 1 to document a stylized nonlinear humped pattern in growth 2 to demonstrate how an explicit recognition of this pattern helps reconcile the conflicting results on convergence and the conditional convergence result below and 3 to suggest a potential explanation for the humped pattern from a view of industrialization section ii shows that there exists an economically and statistically significant hump in the growth rate of postwar cross country data on average middle income countries grew the fastest high income countries the next and low income countries the slowest thus a negative correlation between growth rates and income per capita is observed when low income countries are excluded from the sample but no such correlation is found for a larger class of countries to find the factors that can explain the fast growth of middle income countries this paper first considers the most widely used three explanatory variables in growth regressions the investment to gdp ratio the percentage of age group enrolled in secondary education and the rate of population growth both parametric and nonparametric analyses show that these variables cannot explain the humped pattern middle income countries grew far faster than could be explained by

the distribution sector and the development process are there patterns yes roger r betancourt i introduction in this article we bring together three separate strands of literature that have a bearing on the issue of whether or not there are patterns in the role of the distribution sector during the course of economic development the first strand of literature extends the kuznets 1966 tradition by searching for empirical regularities in the evolution of the share of services in gross domestic product gdp during the process of development both chenery and syrquin 1975 176 and syrquin and chenery 1989 21 26 use time series data for a cross section of countries to conclude that the share of services rises during the course of economic development measured by per capita income kravis et al 1983 corroborate this finding for a given year 1975 when per capita gdp expenditures are converted into a common unit using exchange rates but they find the share of services to be constant across per capita income levels when per capita gdp expenditures are converted at purchasing power parity rates panagariya 1 988 develops a general equilibrium three sector model that explains how economies of scale in the industrial sector and constant returns in agriculture and services can generate both of these results because services represent a rather heterogeneous category including telecommunications and domestic service within its fold the question immediately arises as to whether any of the services subcategories exhibit the same or a different pattern as the aggregate category the distribution sector defined as retail plus wholesale trade is a well established subcategory of services that accounts for a substantial portion of gdp in most countries 13 5 is the average share over the 74 countries and time period 1950 1983 in our data set should we expect the share of the distribution sector in gdp to exhibit the same rising pattern with the level of development as the share of services by juxtaposing two strands of recent literature we shall argue that on the contrary one should expect an inverted u pattern instead of a rising pattern for the share of the distribution sector as development proceeds one thread of recent literature focuses on the economic function of the distribution sector in this second subsection of literature betancourt and gautschi 1988 relying on earlier work by bucklin 1973 argue that the economic function of the retail sector is to provide consumers with a set of distribution services or implicit outputs together with the explicit items bought at retail betancourt 1993 adapts the analysis to encompass the wholesale sector a key finding in this literature is the existence of economies of scale with respect to the provision of distribution services ofer 1973 oi 1992 and betancourt and malanoski 1999 this finding contradicts directly one of the basic assumptions on which panagariya 1988 based his explanation of the pattern for services another area of recent literature focuses on development as specialization and stresses the increasing returns associated with specialization ray 1998 chs 4 5 provides an overview of various aspects of this literature romer 1987 is an early contributor to this thread of literature in the context of endogenous growth models locay 1990 stresses that the association of development with specialization leads to an increase in the variety of products available this increasing variety implies higher levels of assortment need to be provided by the distribution sector and it provides the link between the two recent strands of literature that allows us to explain how the inverted u pattern emerges the production of assortment is subject to increasing returns and by embedding this production in a simple economy wide model we generate a share for the distribution sector that increases in the early stages of development but eventually declines the arguments are elaborated in detail in the next section

externalities and growth accounting this paper tackles two puzzles the high empirical elasticity of aggregte output with respect to the measured capital input and the seemingly high variability of growth rates over countries in the medium run we find that one need not invoke increasing returns or externalities to capital to explain these two puzzles rather they are consistent with a constant returns to scale aggregate production function so long as the exogenous solow residual process has enough persistence in it in our model causality runs exclusively from knowledge to capital and therefore the apparent absence of an external effect to the capital input says nothing about the importance of spillovers in the creation of knowledge copyright 1991 by american economic association

new issues in the uruguay round and beyond the general agreement on tariffs and trade gatt is a treaty establishing a framework of rules and principles for policies affecting merchandise trade it also provides a forum in which sovereign states periodically engage in reciprocal trade liberalisation and rule making 2 as a result of substantial reductions in tariffs through periodic rounds of multilateral negotiations rule making has gradually become as if not more important than liberalisation per se starting with the kennedy round i964 7 but especially in the tokyo i973 9 and uruguay i986 rounds an increasing number of agenda items involved the negotiation of rules and disciplines for specific trade related domestic policies rather than further reductions in tariffs and other border measures rules pertaining to product standards subsidies and government procurement were prominent items on the agenda of the tokyo round the uruguay round further expanded the multilateral negotiating agenda by adding trade related investment measures trims trade related intellectual property rights trips and measures affecting the contestability of service markets the trend for multilateral trade negotiations to address domestic policies shows no sign of abating calls for a post uruguay round negotiation have identified issues such as competition policy foreign direct investment fdi regulations innovation policies and the interaction between trade and environmental policies as possible topics for discussion 3 in part the steady agenda expansion reflects changes in the structure of the global economy the managerial and technological innovations of the last decade such as just in time inventory management and the increased tradeability of services created pressures for greater specialisation and geographical splintering of production this in turn made regulations pertaining to services fdi transfer of technology and protection of intangible assets more important for both governments and firms flows associated with services fdi and intellectual property ip are smaller than merchandise trade but are quite substantial table i reveals that global merchandise trade in i990 was 3 5 trillion while world trade in commercial services was about 820 billion global receipts for ip were some 33 billion and income flows

goods services and trade within the framework of the heckscher ohlin model this paper addresses some of the positive issues related to trade in durable goods nondurables and services the pattern of trade between countries is analyzed under two of a number of possible regimes governing trade in services in one case only durables and nondurables can be traded internationally in the other the firms exporting durables also service the units sold abroad the volume and direction of trade in goods is shown to be determined not only by factor endowments of countries but also by whether or not services are tradable copyright 1989 by the london school of economics and political science

an assessment of the united nations scale of assessments from a developing country standpoint abstract the united nations apportionment of its expenses among its member countries is examined in a public choice context the special nature of un produced public goods the un voting rules and its zero sum method of allocating expenses all act to reduce the size of un output and to exacerbate country group conflict the developing country groups throw a disproportionate burden of un financing on the developed countries this result is captured by a model of un burden sharing both more rational and simpler than the un practice jel f33 h41

the potential bias in producer service employment estimates the case of the canadian space economy footloose information technology producer services are increasingly viewed as the new engines of regional growth and employment creation the claim is often that appropriate government policy can engineer comparative advantage in that direction by means of judicious subsidisation the evaluation of such claims relies on accurate statistical data we argue that attempts to distinguish in survey data or official statistics the subset of services commonly but unofficially known as producer services from consumer and government services may result in a potential bias with implications for public policy an input output model is developed for estimating this bias by decomposing service industry data into its producer and consumer services content this method can give a truer estimate of the actual employment in producer services at various spatial levels we find a systematic bias in official data and a non systematic bias in survey data the model is applicable to countries and regions for which input ou

the politics of government decision making a theory of regulatory capture the paper develops an agency theoretic approach to interest group politics and shows the following 1 the organizational response to the possibility of regulatory agency politics is to reduce the stakes interest groups have in regulation 2 the threat of producer protection leads to low powered incentive schemes for regulated firms 3 consumer politics may induce uniform pricing by a multiproduct firm 4 an interest group has more power when its interest lies in inefficient rather than efficient regulation where inefficiency is measured by the degree of informational asymmetry between the regulated industry and the political principal congress

comment on the interpretation and misinterpretation of inequality decompositions by income sources summary this paper discusses interpretations of different inequality decomposition rules when inequality is decomposed by income sources it argues that authors of a recent article based their conclusions on misinterpreted decomposition results it also argues that marginal effects derived as elasticities of inequality with respect to uniform increases in income from each source are easily interpreted and can be compared across different decomposition rules

economic policy and the relative price of services in ldcs abstract low relative prices of nontraded services are a feature of developing economies recent explanations focus on structural issues such as factor endowments and returns to scale this paper argues that economic policy may also contribute to low ldc service prices in a three sector model with wage differentials financial repression unambiguously depresses both per capita real income and the price of nontraded goods in contrast to most current models tariffs and production subsidies can also depress nontraded goods prices

european competition policy in manufacturing and services a two speed approach the paper examines whether differences in the nature of competition between manufacturing and service activities are reflected by similar differences in ec competition the two differences between manufacturing and services which are mainly emphasized are local versus global competition and regulatory controls the paper finds that the implementation of ec competition policy instruments has differed significantly between manufacturing and services in terms of both the time profile and the type of instrument it also finds that the conflicts between competition industrial and trade policies are generally far greater in manufacturing than in services because trade offs between competition and competitiveness are less likely in the latter copyright 1993 by oxford university press

an experimental investigation of efficient rent seeking the debate about the measurement of the amount of rent dissipated in rent seeking activities is unable to be answered by observations from the naturally occurring environment current theoretical investigations have indicated that a number of factors will affect the amount of rent that can be assumed to be dissipated by rent seeking the theory of efficient rent seeking predicts that the number of rent seekers their risk posture their ability to enter and exit the rent seeking process and the manner in which the probability of receiving a rent is determined will affect the amount of rent that is dissipated

trade protectionism in australia its growth and dismantling protection from import competition was a defining feature of the birth of the australian federation in 1901 for the next 70 years the extent of protection grew and broadened from mainly tariffs to also involving import licencing after world war ii there was a one off 25 across the board cut in tariffs in 1973 and some dismantling of agricultural subsidies but that was followed by the re imposition of import quotas for the most protected manufactured goods then in the mid 1980s a new reformist government began a long process of dismantling all protection as part of an overall economic reform program that also involved de regulation privatization and moving to a flexible exchange rate the rewards included three decades of faster economic growth and an unprecedented rise in australians living standards this paper provides a history of economic thought on the pros and cons of protectionism for the small distant natural resource rich australian economy and a survey of the literature on the extent effects and political economy reasons behind the growth of australian protection and its eventual dismantling

the political economy of international trade enduring puzzles and an agenda for inquiry a similar set of concepts has been central to the literatures on the formation of trade policy coalitions and the new economics of institutions the political and economic consequences of the degree to which assets are specific to a particular economic activity in this survey the authors take the necessary first step of summarizing the main findings of these two literatures and then suggest ways in which the issue might be joined in addition to providing a more coherent understanding of the findings of these two literatures and some new directions for them the authors show that many puzzles remain in the field of trade politics puzzles for which there are no appealing answers or where there are answers no strong evidence in support of them this essay then in addition to being a theoretical review of the literature puts forward an agenda for future study of international trade politics

financial development and the price of services this article explores the links between financial development and the low relative price of services in less developed countries ldcs the empirical phenomenon of services priced lower in ldcs than in developed countries dcs is now quite thoroughly documented in the data gathered by i kravis a heston and r summers in their important work with the united nations international comparison project following r mckinnon and e shaw recent work emphasizes the importance of financial development in successful economic growth 2 we use a simple three sector model with nontraded goods to trace causal connections between financial policies and the structure of relative prices using data on relative prices from the international comparison project study we show that the extent of financial repression is a significant predictor of the spread of relative service goods prices across nations at differing stages of development as well as among ldcs alone the term financial repression describes a set of policies that aim to extract revenue from the financial system and to use the financial system to funnel resources into specific sectors of the economy 3 governments can extract revenue via forced sales of government debt to the banking system this is usually accomplished through a variety of reserve requirements which in many ldcs exceed 50 of deposits 4 interest rate controls on both loan rates and deposit rates are used to channel credit to politically worthy sectors or to specific projects so that the implicit subsidy does not appear on the government s balance sheet rates of monetary growth inconsistent with sta

nontradable goods prices and per caita income an application to regional korean data pooled time series cross sectional regional data for korea over the period 1985 1991 are used to investigate points which emerged from the united nations international comparison project the results based on a regional analysis are opposite to those of the icp the prices of services do not increase more rapidly in fast growing than in slow growing regions this regional analysis provides constradictory evidence to the widely recognized stylized fact that the prices of nontradables increase with real per capital income by a larger margin than the prices of tradables increase

factor mobility trade and welfare abstract the paper develops a north south model which is driven by scale economies in the modern sector the model predicts that skilled and unskilled labor migrate from south to north and capital migrates from north to south migration of skilled labor and capital exhibits complementarity with trade while migration of labor may exhibit complementarity or substitutability if the terms of trade effects are ignored small movements of all factors affect the welfare of the population in south negatively and of that in north positively the effects of migration on the terms of trade are ambiguous in general

aggregate demand shifts income distribution and the linder hypothesis the intraindustry trade literature emphasizes nonhomothetic preferences and incomes as important determinants of aggregate demand and trade patterns the authors provide evidence for such preferences particularly that the structure of income driven demand shifts is related to indices of linder type product characteristics and that income distribution is a significant factor in determining aggregate expenditures these results imply that as general income levels rise the relative volume of trade in manufactured consumer goods should rise and the total volume of trade should rise independent of changes in the intercountry difference between income levels copyright 1996 by mit press

the cost of rent seeking evidence from cellular telephone license lotteries the inventors of the theory of rent seeking used an analogy with competitive markets to conclude that all monopoly rents would be dissipated in the competition to obtain the property rights to them 23 29 subsequent theorists showed that this conclusion is quite sensitive to assumptions about foresight risk aversion conjectures and bias 15 21 30 since little quantitative information about actual rent seeking competitions is available the theory has developed in an empirical vacuum in this paper we attempt to fill that vacuum with an estimate of rent seeking expenditure by applicants in the federal communications commission s fcc cellular telephone license lotteries held between 1986 and 1989 we go on to compare expenditures with estimates of the value of the licenses at stake these lotteries constitute a unique natural experiment any u s citizen was eligible to enter each geographic lottery once and only once for an expense which we calculate as modest the lotteries were widely publicized and heavily entered there were over 320 000 applications one per market filed for 643 cellular licenses and third party application preparers entered the market rapidly because licenses were awarded sequentially prospective participants in later lotteries could find out that expected net returns from earlier lotteries were positive because of undersubscription the value of the prize was known because sales of previously awarded licenses had begun to take place before later lotteries were held and market analysts were using such sale prices to value licenses not yet awarded the later lotteries seem almost optimally contrived to maximize the dissipation of rents yet comparing the resources invested in entry the price of a fully prepared application with the rents available the market value of cellular telephone licenses shows that dissipation was far short of complete

a model of trade and growth with a non traded service sector this paper incorporates a nontraded service sector into an otherwise neoclassical model of trade and growth the author s model can explain why the relative price of services the expenditure share of services and the employment share of the service sector all tend to rise with the level of per capita income which is determined in the long run by the ratio of the saving rate to the rate of labor growth and the level of labor augmenting technical progress the author also finds that a rich country with a high level of technical progress ceteris paribus has comparative advantage in producing capital intensive goods

risk aversion and rent seeking an extension and some experimental evidence theoretical investigations indicate that the risk attitudes of individuals will effect the amount of rent that can be assumed to be dissipated by rent seeking activities following this line of investigation we extend hillman and katz s work to a small numbers case and demonstrate that the degree to which a monopoly rent is dissipated is dependent upon the structure of the risk attitudes of two risk averse individuals

approximating the effective protection coefficient without reference to technological data when proposals for reform of tariff or subsidy policies are made attempts to predict the effect on incentives are frequently hampered by the need for input output technical data this article develops and illustrates the use of a methodology for approximating effective protection coefficients epcs when such data are unavailable or outdated it derives the equations which approximate the epc from statistical analysis of a cross section of existing epc studies for four agricultural commodities corn cotton rice and wheat informational requirements for computing approximations include the nominal protection coefficients on output and tradable inputs and readily available macroeconomic data these approximation equations perform well in an out of sample test

factor mobility and wage inequality in the presence of specialisation based external economies abstract by making use of a simple general equilibrium model that is relevant to a high income developing country or a newly industrialised country this paper examines the link between factor mobility and wage inequality it is shown that in the presence of specialisation based external economies emigration of skilled as well unskilled labour increases wage inequality even if the income shares of capital are identical across industries on the other hand outflow of capital decreases wage inequality

trade in producer services and returns due to specialization under monopolistic competition this paper demonstrates that liberalizing trade in services while yielding efficiency gains associated with comparative advantage may yield additional gains for both importing and exporting countries because of an increased division of labor a model is developed in which producer services coordinate and control the specialized members of complex production processes the model is used to analyze trade in services and its effect on the division of labor and the realization of returns from specialization this differs from the recent literature on traded services and specialization because of the explicit role introduced for services in the specialization process

service sector protection considerations for developing countries the inclusion of services in the uruguay round of multilateral trade negotiations has focused attention on the protection of domestic service suppliers against competition from foreign suppliers issues arising from these negotiations however may obscure another and more important issue the case for unilateral liberalization this article first surveys methods of protection in the service sector and then examines the likely cost of protection particular attention is given to developing countries what evidence there is suggests that the costs of protection may be high the article also discusses economic principles that could guide a review of policy toward international transactions in the service sector quantitative restrictions or bans on foreign service suppliers whether they wish to supply through trade or establishment cannot easily be defended in economic terms and provide an obvious first target

factor proportions and relative wages the supply side determinants of wage inequality supply side factors may contribute to rising wage inequality first certain changes in the supply of skills allegedly exacerbate wage inequality women s increased labor force participation and increased immigration are the leading candidates both allegedly reduce the wages of less skilled men however immigration s impact on wage inequality has been minor and the effects of women s participation is inconclusive second in evaluating the likelihood that human capital investment will mitigate future inequality evidence suggests that rising returns to education have increased the proportion of young people attending college limiting the growth of inequality among high wage workers

major determinants of ocean freight rates for grains an econometric analysis econometric analysis of ocean grain rates suggests that ship size and trade volume are of approximately equal importance with distance in determining rates use of large ships reduces at sea costs and hence the role of distance but larger ships appear to incur higher port costs which suggests that efficient port facilities are required for scale economies to be realized policies to improve shipping technology and increase trade volume can lead to lower rates reduce geographic differences among exporters and thus lead to more competitive markets this implies that the role of transportation in trade analysis should not be ignored