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

the term structure of euromarket interest rates an empirical investigation abstract this paper is an empirical investigation of the predictability and co movement of risk premia in the term structure of euromarket interest rates we present regression results which suggest that risk premia in three euromarket term structures and on uncovered foreign asset positions move together we test formally the hypothesis that these risk premia move in proportion to a single latent variable we are unable to reject this hypothesis the single latent variable model can be interpreted as in hansen and hodrick 1983 and hodrick and srivastava 1984 as a specialization of the icapm in which assets have constant betas on a single unobservable benchmark portfolio

rent shifting export subsidies with an imported intermediate product abstract this paper examines the implications of foreign or domestic imperfect competition in intermediate goods supply for strategic trade policy assuming cournot competition an export subsidy aimed at shifting rents from foreign to domestic final good producers may also shift rents to foreign suppliers weakening the incentive for the subsidy however the incentive for a subsidy tends to increase if the intermediate good industry is purely domestic or if the industry is purely foreign but the subsidy reduces the price of the imported input alternative rent shifting policies a production subsidy and an import tariff applied to the input are also considered

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

opening the black box of carbon finance additionality the political economy of carbon finance effectiveness across tanzania uganda and moldova summary this paper identifies conditions under which the clean development mechanism and other carbon finance projects effectively generate genuine additional carbon credits relying on a systematic empirical investigation of afforestation reforestation and bioenergy carbon finance projects across tanzania uganda and moldova at low global carbon prices additionality was related to the interests of project developers and their resulting capacities and motivations for project implementation certain organizations with capacity for mitigation projects were curiously not involved with carbon finance a distinction between neo developmental tanzania and liberal neo developmental uganda and moldova political economy preferences explains variation in the presence or absence of effective project developers

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 era of electoral authoritarianism in recent years scholarly attention has shifted from the study of democratization to the phenomenon of electoral authoritarianism in these regimes regular elections are held for national legislatures and chief executives yet they fail to live up to democratic standards of freedom and fairness a range of new research has investigated these regimes and especially the capacity of elections to either dislodge or reinvigorate authoritarian incumbents this article reviews some of the current work on electoral authoritarianism and attempts to find ways to achieve synthesis and better theoretical development it notes the need for greater conceptual consensus attention to context and better evaluation of what electoral competiveness means under authoritarian conditions it argues that the next stage for research should be smaller and contextual comparison that can allow for greater attention to concepts while allowing for strong midrange theory

geographic diffusion and the transformation of the postcommunist world since the collapse of communism the states of postcommunist europe and asia have defined for themselves and have had defined for them two primary tasks the construction of viable market economies and the establishment of working institutions of representative democracy the variation in political and economic outcomes in the postcommunist space makes it without question the most diverse region in the world what explains the variation all of the big winners of postcommunism share the trait of being geographically close to the former border of the noncommunist world even controlling for cultural differences historical legacies and paths of extrication the spatial effect remains consistent and strong across the universe of postcommunist cases this suggests the spatially dependent nature of the diffusion of norms resources and institutions that are necessary to the construction of political democracies and market economies in the postcommunist era the authors develop and adduce evidence for the spatial dependence hypothesis test it against rival hypotheses and illustrate the relationships at work through three theoretically important case studies

the speculative efficiency hypothesis the hypothesis that forward prices are the best unbiased forecast of future spot prices is often presented in the economic and financial analysis of futures markets this paper considers the hypothesis independently of its implications for rational expectations or market efficiency and in order to stress this fact the term speculative efficiency is used to characterize the state envisaged under the hypothesis if a market is subject to efficient speculation the supply of speculative funds is infinitely elastic at the forward price that is equal to the expected future spot price the expected future spot price is a market price determined as the solution to the underlying rational expectations macroeconomic model although the paper is primarily concerned with testing this hypothesis in the foreign exchange market the methodology introduced in the paper is of general application to all futures markets this abstract was borrowed from another version of this item

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

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

term premiums in bond returns abstract this paper examines expected returns on u s treasury bills and on u s government bond portfolios expected bill returns are estimated from forward rates and from sample average returns both estimation methods indicate that expected returns on bills tend to peak at eight or nine months and never increase monotonically out to twelve months reliable inferences are limited to treasury bills and thus to maturities up to a year the variability of longer term bond returns preempts precise conclusions about their expected returns

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

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

regime cycles democracy autocracy and revolution in post soviet eurasia research on regime change has often wound up chasing events in the post soviet world because it has frequently assumed that regime change if not simple instability implies a trajectory toward a regime type endpoint like democracy or autocracy a supplemental approach recognizes that regime change can be cyclic not just progressive regressive or random in fact regime cycles are much of what we see in the postcommunist world where some states have oscillated from autocracy toward greater democracy then back toward more autocracy and with recent colored revolutions toward greater democracy again an institutional logic of elite collective action focusing on the effects of patronalpresidentialism is shown to be useful in understanding such cyclic dynamics explaining why revolutions occurred between 2003 and 2005 in ukraine georgia and kyrgyzstan but not in countries like russia azerbaijan and uzbekistan

is there a necessary condition for democracy the role of state capacity in postcommunist countries although postcommunist countries share a common past the variability of outcomes in both democracy and economic reform is very large in the region only a few countries have become western type democracies in central and eastern europe and the baltic by contrast the norm is clearly not democracy for other soviet successor states in this article the author attributes this variation to differences in the infrastructural capacity of the state using both quantitative and qualitative analyses within 26 postcommunist countries the author argues that for democracy to flourish the state must first possess the necessary means to maintain law and order and to protect the rights of citizens in other words to ensure the maintenance and delivery of essential public goods the results show that the links between a strong state that has been able to apply a definitive set of rules and democratic institutions are clear

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

defeating dictators electoral change and stability in competitive authoritarian regimes what explains electoral stability and change in competitive authoritarian regimes this article addresses the question by comparing eleven elections six of which led to continuity in authoritarian rule and five of which led to the victory of the opposition that took place between 1998 and 2008 in competitive authoritarian regimes countries located in the postcommunist region using interviews conducted with participants in all of these elections and other types of data and constructing a research design that allowed the authors to match these two sets of elections on a number of important dimensions they assess two groups of hypotheses those that highlight institutional structural and historical aspects of regime and opposition strength on the eve of these elections and others that highlight characteristics of the elections themselves the authors conclude that the key difference was whether the opposition adopted a tool kit of novel and sophisticated electoral strategies that made them more popular and effective challengers to the regime

a note on exchange rate expectations and nominal interest differentials a test of the fisher hypothesis this note tests the hypothesis that nominal interest differentials between similar assets denominated in different currencies can be explained entirely by the expected change in the exchange rate over the holding period this proposition often called the fisher open hypothesis or the hypothesis of perfect asset substitutability has been a major component of recent theories of exchange rate determination and has important implications for monetary policy 1 the fisher hypothesis differs from the covered interest parity theorem enunciated by keynes 11 while covered interest parity equates the nominal interest differential between financial centers to a known premium or discount on forward foreign exchange and is thus in principle riskless fisher parity involves risk in an essential way the two conditions are equivalent only when forward exchange rates equal expected future spot rates recent theoretical work for example that of grauer litzenberger and stehle 8 kouri 12 and frankel 6 shows that this need not be the case when market participants are risk averse thus while covered interest parity must always hold exactly in an informationally efficient asset market with no transactions costs fisher parity need not nominal interest differentials may reflect risk premia in addition to expected exchange rate movements 2 it should be emphasized at the outset that the tests conducted in this paper are really joint tests of the fisher hypothesis and a weak form of foreign exchange market informational efficiency levich 14 has argued that tests of market efficiency are always joint tests involving some hypothesized structure of normal equilibrium returns below we assume informational efficiency and instead test fisher s hypothesized arbitrage condition that nominal interest differentials equal expected percentage changes in exchange rates

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

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

authoritarian state building and the sources of regime competitiveness in the fourth wave the cases of belarus moldova russia and ukraine this article explores the sources of regime competitiveness in the post cold war era through a structured comparison of regime trajectories in belarus moldova russia and ukraine for the period 1992 2004 an examination of these cases suggests the need for a fundamental rethinking of the commonly held view of the transition process especially in countries that face relatively weak international democratizing pressures approaching these countries as unconsolidated autocracies rather than as simply emerging democracies draws attention to key sources of political competition that have largely been ignored in the literature on competitive regimes thus competitive politics in belarus moldova russia and ukraine were rooted less in robust civil societies strong democratic institutions or leadership than in the inability of incumbents to maintain power or concentrate political control by preserving elite unity controlling elections and or using force against opponents such pluralism by default has been the outgrowth of the strength of anti incumbent national identity and incumbent weakness as defined by a lack of know how ineffective incumbent organization and or the weakness of certain dimensions of state power

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

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

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

on the effects of barriers to international investment a simple model is presented in which it is costly for domestic investors to hold foreign assets the implications of the model for the composition of optimal portfolios at home and abroad are derived it is shown that all foreign assets with a beta larger than some beta plot on either one of two security market lines some foreign assets with a beta smaller than are not held by domestic investors even if their expected return is increased slightly while it is obviously not true that asset markets are completely segmented between countries there is evidence of barriers to international investment although reality seems to lie in that grey area between complete segmentation and no segmentation at all most international asset pricing models are concerned with the extreme case of no barriers to international investment no effort seems to have been made to study the effect on portfolio choice of such barriers which make it costly to hold foreign securities as opposed to domestic securities but which do not in general render international diversification so onerous that investors avoid foreign securities completely casual empiricism suggests that models without barriers to international investment should be suspect those models cannot explain why it appears that in every country investors on average hold more domestic securities than would be required if they held the world market portfolio 2 this paper constructs a model of international asset pricing in which there is a cost associated with holding either long or short risky foreign securities for the sake of simplicity in most of the paper we assume that while domestic investors face barriers to international investment foreign investors face no such barriers it turns out that nothing significant is lost with such an assumption the main conclusions of this paper for the case in which foreign investors face no barriers to international investment are 1 in the presence of barriers to international investment some risky foreign

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

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

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

the covariation of risk premiums and expected future spot exchange rates abstract eugene fama 1984 analyzed the variability and the covariation of risk premiums and expected rates of depreciation we employ three statistical techniques that do not suffer from a potential bias in fama s analysis but we nevertheless conffirms his findings in contrast to his interpretation the results are not necessarily at variance with the predictions of a theoretical model of the risk premium increases in expected rates of depreciation of the dollar relative to five foreign currencies are positively correlated with increases in the expected profitability of purchasing these currencies in the forward market and risk premiums have larger variancies than expected rates of depreciation

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

consumption risk and international equity returns some empirical evidence abstract this paper tests whether real stock returns from four countries are consistent with consumption based models of international asset pricing the paper finds that the consumption based model does not adequately describe these returns during the period of generalized floating exchange rates since restrictions on international capital movements were relaxed considerably in the 1980s the tests are carried out for that sub period as well in contrast to the results for the full sample observed real equity returns during the 1980s are found to be consistent with the predictions of the consumption based model

integration vs segmentation in the canadian stock market this paper examines the issue of integration versus segmentation of the canadian equity market relative to a global north american market we compare the international and domestic versions of the capm and find that integration or the mean variance efficiency of the global market index is rejected by the data segmentation is the preferred model based on a maximum likelihood procedure correcting for thin trading we further divide the sample into securities that are interlisted in canada and the u s and those that are not integration is rejected for both groups which indicates that the source of segmentation can be traced to legal barriers based on the nationality of issuing firms empirical studies of international capital markets have left the issue of segmentation versus integration largely unresolved yet the question of national or international pricing of assets has crucial implications for financial decisions if national stock markets are segmented then international portfolios should display superior risk adjusted performance because some of the priced domestic systematic risk is diversifiable also with segmentation many irrelevance propositions for corporate financial strategy break down home firms face optimal hedging decisions as well as optimal foreign versus home borrowing decisions finally criteria for capital budgeting decisions will be quite different under national and international pricing the purpose of this paper is to shed some light on this integration versus segmentation question for the canadian equity market vis a vis a global north american market in this paper integration is defined2 as a situation where investors earn the same risk adjusted expected return on similar financial instruments in different national markets the key problem of course is the pricing

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

real interest rate equalization and the integration of international financial markets abstract this paper argues that conventional regression tests of real interest rate equality may be misleading because they neglect to consider transactions costs a transactions cost band may inhibit the one to one correspondence between changes in real rates in alternative countries that is presumed by conventional tests statistical problems which may lead to incorrect inferences in conventional tests are also discussed alternative tests which overcome these limitations are developed and applied to real interest rates for ten different countries the alternative tests generate much stronger support for interest parity than is found in the existing literature

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

international investment restrictions and closed end country fund prices some closed end country funds trade at large premiums relative to their net asset values this paper examines whether international investment restrictions raise country fund price net asset value ratios by segmenting international capital markets we test whether a relation exists between announcements of changes in investment restrictions and changes in these ratios using weekly data from may 1981 to january 1989 the results provide evidence that some foreign markets are at least partially segmented from the u s capital market

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

the behavior of eurocurrency returns across different holding periods and monetary regimes recent empirical studies of the risk premium across foreign exchange and other asset markets such as equity and longer term bonds have found conflicting evidence about the latent variable model restrictions of the consumption based intertemporal capital asset pricing model while studies using data for holding periods of one month or less generally reject the model evidence using three month holding periods indicates that the model cannot be rejected when including the returns on long relative to short deposit rates this paper investigates the sources of differences in results using returns on foreign exchange and eurocurrency deposits at three different maturities

term premiums and the integration of the eurocurrency markets abstract this paper provides comparative evidence on the time variation of expected returns across the term of eurocurrency markets first it is shown that forward spot spreads contain substanial information about future changed in 1 month to 5 year rates both in the eurodollar and eurodm markets next a latent variable model is constructed with different benchmark portfolios across currencies integration implies that the time variation of the benchmark portfolios must be the same across currencies little evidence is found against integration of the eurocurrency markets jel g15 g12

a note on euroyen and domestic yen interest rates abstract this study examines interest rate transmission between the london euroyen market and the japanese domestic cd market the results which span 1984 through the beginning of 1993 indicate that these two interest rate series are cointegrated in the earlier part of the sample period causality is strongest from the euroyen market to domestic yen interest rates however strong feedback effects are observed in both directions in more recent years the use of both vector autoregressive modeling and cointegration analysis for forecasting is supported over random walk models

politics and society political diversity and uniformity in households as a theoretical puzzle the authors resolve a theoretical puzzle that characterizes the political preferences of members of social groups by a demonstrating that political homogeneity is a variable to be explained b

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

is it risk explaining deviations from uncovered interest parity abstract this paper analyzes ex ante returns to forward speculation and asks if these returns can be explained by models of a foreign exchange risk premium after presenting evidence that both nominal and real expected speculative profits are nonzero the paper examines if real returns to forward speculation are consistent with consumption based models of risk premia estimates of the conditional covariance between real speculative returns and real consumption growth are presented and like ex ante returns to forward speculation they exhibit statistically significant fluctuations over time and often change sign

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

the fourth wave of democracy and dictatorship noncooperative transitions in the postcommunist world the transition from communism in europe and the former soviet union has only sometimes produced a transition to democracy since the crumbling of the berlin wall in 1989 and the collapse of the soviet union in 1991 most of the twenty eight new states have abandoned communism but only nine of these have entered the ranks of liberal democracies the remaining majority of new postcommunist states are various shades of dictatorships or unconsolidated transitional regimes this article seeks to explain why some states abandoned communism for democracy while others turned to authoritarian rule in endorsing actorcentric approaches that have dominated analyses of the third wave of democratization this argument nonetheless offers an alternative set of causal paths from ancien regime to new regime that can account for both democracy and dictatorship as outcomes situations of unequal distributions of power produced the quickest and most stable transitions from communist rule in countries with asymmetrical balances of power the regime to emerge depends almost entirely on the ideological orientation of the most powerful in countries where democrats enjoyed a decisive power advantage democracy emerged conversely in countries in which dictators maintained a decisive power advantage dictatorship emerged in between these two extremes were countries in which the distribution of power between the old regime and its challengers was relatively equal rather than producing stalemate compromise and parted transitions to democracy however such situations in the postcommunist world resulted in protracted confrontation between relatively balanced powers the regimes that emerged from these modes of transitions are not the most successful democracies but rather are unconsolidated unstable partial democracies

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

the monotonicity of the term premium abstract fama s evidence that the term premium on treasury securities is not monotonically increasing is found to depend entirely on the behavior of bid asked mean returns on 9 and 10 month bills and only during the subperiod 8 64 12 72 when transactions costs as reflected in the bid asked spread are taken into account there is found to be no way to exploit this non monotonicity the anomalous behavior of the quotations is attributed to the treasury s auctions of 9 month bills during the period 9 66 10 72 the hypothesis that the term premium is a monotonically increasing function of maturity remains unrefuted

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

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

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

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