do big countries win tariff wars yes it is widely believed that tariffs invite retaliation and that the postretaliation equilibrium l eaves all countries worse off than they would be at free trade the a uthors present a simple pure exchange model with two countries and t wo goods and show which endowment patterns are consistent with this belief they find that if one country is substantially bigger than th e other it can expect to gain from a tariff war despite retaliation the model can be extended to show that the advantage obtained by bei ng part of a large trading unit can help explain the formation of cus toms unions copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

reciprocated unilateralism in trade reforms with majority voting this paper shows how unilateral liberalization in one country can increase the voting support for reciprocal reduction in trade barriers in a partner country when trade policies are determined simultaneously in the two countries we show the possibility of multiple political equilibria one in which the countries are both protectionist and another in which they trade freely with each other starting with trade protection in both countries a unilateral reform in one country is shown to bring about a free trade equilibrium that obtains majority support in both countries

property rights and consumption volatility evidence from a land reform in vietnam summary during vietnam s transition from a socialist to a market economy household s property rights over agricultural land were considerably strengthened through a land certification program this resulted in active formal credit and land markets either of which potentially affects consumption levels and volatility this article evaluates the program impact with respect to consumption outcomes in particular it identifies the channel of impact through which improved property rights affect consumption volatility we find that land certification increases consumption levels for rural households but also consumption volatility for a subgroup of households identified by an instrument we show that the certification program affects consumption outcomes of this subgroup through presumably more risky credit based agricultural investment at the intensive margin

the return of the reciprocitarians us trade policy today we are always willing to be trade partners but never trade patsies president ronald reagan state of the union message washington 1987

electoral and partisan cycles between us economic performance and presidential popularity a comment on stephen e haynes in this paper we discuss a recent paper by stephen e haynes in which he relates electoral cycles in political support to electoral cycles in economic variables haynes finds that the cycle in support for republican presidents is explained by the cycle in economic variables whereas the cycle in support for democratic presidents is not in our opinion this shortcoming is due to his specification of the popularity function haynes estimates a popularity function which incorporates the notion that voters reward the incumbent for favourable outcomes score hypothesis our popularity function combines the score hypothesis and the notion that voters cast their ballots for the party that best fits the current economic situation issue hypothesis we show that the electoral cycle in popularity of both republican and democratic presidents is explained very well by the cycle in economic variables

hegemonic stability theory and 19th century tariff levels in europe although the theory of hegemonic stability has attracted an impressive array of adherents current formulations leave many conceptual issues unresolved existing formulations also fail to draw from the theory any implications concerning the process by which a hegemonic state creates and maintains a regime as an example great britain is generally agreed to have been hegemonic in the nineteenth century but britain s behavior was generally inconsistent with that implied by a theory of hegemonic stability i advance an alternative set of explanations for changes in international tariff levels based on the notion of a political business cycle

land ownership security and farm investment comment economists have long argued that increasing security of individual property rights in land leads to increased investment feder and onchan ft are among the first to empirically test this argument in a rigorous way based on data from thailand ft infer that ownership of land title increases capital accumulation and investment their analysis broadens our understanding of the linkages between capital markets and land investment and offers hypotheses for further research this comment raises two issues concerning the ft article first the empirical results are open to several interpretations because of fundamental questions about causality and the definition of ownership security a reinterpretation of the data suggests that the aggregate impact of title on investment may have been small second inference from the thailand study must be made with caution consideration of a more general model suggests other conditions which influence the impact of title on investment and productivity our comments do not diminish the importance of the ft study but raise conceptual issues that may prove useful for future land titling research

the effects of land sales restrictions evidence from south india abstract the effects of land sales restrictions on credit use land investment and cultivation decisions are investigated using data from two villages in south india sales restrictions are found to have little effect on credit supply and demand or demand for land improvements some household characteristics are found to affect investment demand on plots subject to sales restrictions in one village suggesting that the transactions effect of such restrictions may be inhibiting allocative efficiency however we also find that household characteristics influence investment on titled plots and that the magnitude of impact of such characteristics is greater on titled plots these results imply that sales restrictions are not a major source of inefficiency in the villages studied and suggest that the nature of village credit and land markets and enforcement of sales restrictions are critical determinants of the impacts of such restrictions

what s the point of reciprocal trade negotiations exports imports and gains from trade this paper explains why trade policy makers may prefer reciprocal trade negotiations rtn to unilateral tariff reductions utr for economic reasons it answers puzzles like why wto reciprocity and strengthens the unnecessarily weak case made for the wto by those who downplay or dismiss benefits from foreign tariff reductions ftr rtn is superior to utr because it provides economic benefits that utr cannot namely ftr benefits which are clearer than potentially important utr benefits whereas each policy offers efficiency gains any terms of trade effect of utr generally detracts from these gains while any terms of trade effect of ftr is typically beneficial especially for a small price taking country with this benefit augmenting ftr s efficiency gains moreover benefits from reductions in foreign barriers may come from several sources they are not solely the result of terms of trade improvement or economies of scale the two benefits already noted in the literature though often dismissed for example with foreign ntb elimination possible home benefits are shown even with rising costs and terms of trade deterioration rtn is also superior to utr because by eliminating protection in either ntb or tariff form rtn provides an escape from not only a terms of trade prisoners dilemma but many other previously unrecognised prisoners dilemmas including one in international rent transfers and several others with no economies of scale or terms of trade motivation of course if superior rtn is not an option utr may well be desirable if reciprocity is an option but only in a narrower cu or fta form such reciprocity may still be superior to utr or it may be inferior theory cannot unambiguously rank these

credit constraints and productivity in peruvian agriculture this article evaluates the performance of a rural credit market in peru we develop a model that shows that collateral requirements imposed by lenders in response to asymmetric information can lead not just to quantity rationing but also to transaction cost rationing and risk rationing just like quantity rationing these two additional forms of nonprice rationing adversely affect farm resource allocation and productivity we test the insights of the model using a panel data set from northern peru we estimate the returns to productive endowments for constrained and unconstrained households using a switching regression model we find that consistent with the theory productivity is independent of endowments for unconstrained households but is tightly linked to endowments for constrained households we estimate that credit constraints lower the value of agricultural output in the study region by 26

a theory of managed trade this paper proposes a theory that predicts low levels of protection during periods of normal trade volume coupled with episodes of special protection when trade volumes surge this dynamic pattern of protection emerges from a model in which countries choose levels of protection in a repeated game facing volatile trade swings high trade volume leads to a greater incentive to defect unilaterally from cooperative tariff levels therefore as the volume of trade expands the level of protection must rise in a cooperative equilibrium to mitigate the rising trade volume and hold the incentive to defect in check copyright 1990 by american economic association

the impact of market friendly reforms on credit and land markets in honduras and nicaragua summary this article explores the impacts on credit access and agrarian structure of land market liberalization policies undertaken in honduras and nicaragua during the 1990s like liberalization efforts pursued in many latin american countries these market friendly reforms were designed to activate land transfers and enhance agricultural efficiency in large part by improving the access of the rural poor to both credit and land markets panel data sets gathered in honduras and nicaragua are used to compare title credit and land access patterns before and after the reforms descriptive nonparametric regression analyses show that despite major gains in titling across the land size spectrum and some increase in land market activity the other hoped for improvements in credit and land access did not occur and appear unlikely to occur without further policy attention to credit markets

remittances and income smoothing due to inadequate savings and binding borrowing constraints income volatility can make households in developing countries particularly susceptible to economic hardship we examine the role of remittances in either alleviating or increasing household income volatility using mexican household level data over the 2000 through 2008 period we correct for reverse causality and endogeneity and find that while income smoothing does not appear to be the main motive for sending remittances in a non negligible share of households remittances do indeed smooth household income on average other variables surrounding income volatility are also considered and evaluated

politically realistic objective functions and trade policy profs and tariffs abstract this paper demonstrates a mathematical correspondence between the deus ex machina tariff formation approach and political economy approach the correspondence implies that the tariff chosen by lobbying influenced policy makers will be equivalent to a tariff chosen by a deus ex machina government that gives too much weight to profits this result allows many political economy issues to be addressed in the simple framework of a deus ex machina government which faces a politically realistic objective function prof

conditional versus unconditional trade concessions for developing countries we consider a small open economy that faces a commitment problem in trade liberalization we examine how the relationship with a large trading partner affects the ability of the small countrys government to sustain free trade through a reputational mechanism if the small country s government is patient enough it can overcome its domestic commitment without the help of the large country unconditional liberalization by the large trading partner has an ambiguous effect on the small country s dynamic incentives liberalization through a reciprocal trade agreement in which the large country lowers its tariffs conditionally on the small country doing the same unambiguously dominates unconditional liberalization by the large country as a way of boosting trade reforms and reinforcing policy credibility in the small country however if capacity in the import competing sector can only be reduced gradually a conditional reciprocal agreement may require an asynchronous exchange of concessions with the large country liberalizing before the small country

incentives and the de soto effect this paper explores the consequences of improving property rights to facilitate the use of fixed assets as collateral popularly attributed to the influential policy advocate hernando de soto we use an equilibrium model of a credit market with moral hazard to characterize the theoretical effects and also develop a quantitative analysis using data from sri lanka we show that the effects are likely to be nonlinear and heterogeneous by wealth group they also depend on the extent of competition between lenders there can be significant increases in profits and reductions in interest rates when credit markets are competitive however since these are due to reductions in moral hazard that is increased effort the welfare gains tend to be modest when cost of effort is taken into account allowing for an extensive margin where borrowers gain access to the credit market can make these effects larger depending on the underlying wealth distribution

reciprocated unilateralism in trade policy abstract using the menu auction approach to endogenous determination of tariffs and allowing additionally for lobby formation itself to be endogenous this paper analyzes the impact of unilateral trade liberalization by one country on its partner s trade policies we find that such unilateral liberalization may induce reciprocal tariff reductions by the partner country intuitively unilateral liberalization by one country has the effect of increasing the incentives for the export lobby in the partner country to form and to lobby effectively against the import competing lobby there for lower protection

review of de soto s the mystery of capital in the mystery of capital hernando de soto promotes his explanation of why formal capital markets function poorly in developing countries de soto argues that much of the population of developing countries lacks access to credit not because they lack assets but because ownership of their property is secured informally which prevents the use of property as collateral the inability to convert assets into capital keeps the developing world from benefiting from capitalism

the perversity of preferences gsp and developing country trade policies 1976 2000 industrial countries maintain special tariff preferences namely the generalized system of preferences gsp for imports from developing countries critics have highlighted the underachieving nature of such preferences but developing countries continue to place the gsp at the heart of their agenda in multilateral negotiations what effect do such preferences have on a recipient s own trade policies the authors develop and test a simple theoretical model of a small country s trade policy choice using a dataset of 154 developing countries from 1976 through 2000 they find that countries removed from the gsp adopt more liberal trade policies than those remaining eligible the results corrected for endogeneity and robust to numerous alternative measures of trade policy suggest that developing countries may be best served by full integration into the reciprocity based world trade regime rather than continued gsp style special preferences

land tenure and property rights theory and implications for development policy this article explores the nature of property rights systems their evolution and their effect on resource allocation it is argued that certain institutional arrangements for land rights have evolved in order to reduce uncertainty and increase efficiency in credit as well as in land markets of particular relevance to developing countries the article emphasizes the contribution of public sector infrastructure to effective land rights systems an appendix to the article presents a formal model analyzing the effects of security of land rights on land prices the intensity of cultivation and the use of credit empirical evidence from thailand supports several of the propositions derived from the model

land reallocation in an agrarian transition liberalising key factor markets is a crucial step in the transition from a socialist control economy to a market economy however the process can be stalled by imperfect information high transaction costs and covert resistance from entrenched interests the article studies agricultural land reallocation in the wake of vietnam s efforts to establish a free market in land use rights following de collectivisation inefficiencies in the initial administrative allocation are measured against an explicit counterfactual land allocation responded positively but slowly to the initial inefficiencies there is no sign that the transition favoured the land rich or that it was thwarted by local officials vietnam s agrarian transition has closely followed a now classic policy scenario for economies in transition first one privatises the main productive assets in this case agricultural land use rights then one legalises their free exchange in the first step the de collectivisation of vietnam s agriculture meant that the land that had previously been farmed collectively was to be allocated by administrative means across households within each commune without a market mechanism to guide the process it can be expected that inefficiencies in land allocation would remain with some households having too much land relative to a competitive market allocation and some too little ravallion and van de walle 2004 document evidence of such inefficiencies in the initial administrative allocation at the time of de collectivisation

land tenure and agricultural productivity in africa a comparative analysis of the economics literature and recent policy strategies and reforms summary this paper examines the convergence and divergence of results from economic studies of the relationships between land tenure security and agricultural productivity in africa and how these results have been incorporated into recent agricultural poverty alleviation and land policy documents the paper finds that there are both areas of convergence and divergence in the economics literature similarly the attention given to land tenure and its perceived effects on productivity varies considerably in the policy literature the significant heterogeneity in findings itself suggests that policy responses must pay attention to local context and the overarching macro and sectoral conditions within which tenure systems operate

a theory of trade policy leadership abstract this paper constructs a two country model of bilateral trade negotiations in the presence of political uncertainty to demonstrate that unilateral trade liberalization may be an optimal policy for a large country the political uncertainty is due to producer opposition to trade agreement ratification in the foreign country unilateral liberalization by the home country has a salutary effect on negotiations because it mitigates the pain of potential ratification failure on the foreign country it also promotes foreign ratification because it effectively punishes foreign import competing producers for lobbying against an agreement these benefits are shown to outweigh up to a point the terms of trade cost that the home country must suffer when it actually liberalizes unilaterally in equilibrium therefore we see a pattern in which the home country unilaterally liberalizes for several periods until ratification in the foreign country succeeds at which point foreign country finally reciprocates we also demonstrate that contrary to the standard optimal tariff result there may be an inverse relationship between the home country s monopoly power and its optimal unilateral tariff

global value chains labor organization and private social standards lessons from east african cut flower industries summary this article examines the opportunities and challenges that private social standards pose for labor organizations it explores different labor responses to private social standards in east african cut flower industries the analysis incorporates the concept of labor agency in global value chain analysis and reveals how retailer driven chains offer more room for labor organizations to exercise their agency than the traditional cut flower value chains labor organizations have been able to influence social standard setting and implementation and to use standards to further labor representation at production sites however labor organizations ability to seriously challenge the prevailing governance structure of the cut flower value chain appears extremely limited

welfare effects of british free trade debate and evidence from the 1840s the classical economists engaged in a vigorous debate over whether britain s tariff reductions in the 1840s should be made contingent on tariff liberalization abroad some notably robert torrens believed that a unilateral tariff reduction would so deteriorate british terms of trade as to outweigh efficiency gains and make the country worse off in this paper britain s foreign trade elasticities are estimated for this period in a simultaneous equation model they are used in a simple general equilibrium model that explicitly takes the terms of trade into account to assess the welfare impact of tariff reductions the results indicate that britain would have been made worse off from a unilateral tariff reduction however foreign tariff reductions mitigated the terms of trade deterioration and could easily have made britain better off

reputation and equilibrium characterization in repeated games with conflicting interests a two person game is of conflicting interests if the strategy to which player one would most like to commit herself holds player two down to his minimax payoff suppose there is a positive prior probability that player one is a commitme nt type who will always play this strategy then player one will get a t least her commitment payoff in any nash equilibrium of the repeated game if her discount factor approaches one this result is robust against further perturbations of the informational structure and in striking contrast to the message of the folk theorem for games with incomplete information copyright 1993 by the econometric society

land titling and rural transition in vietnam abstract we examine the impact of the 1993 land law of vietnam which gave households the power to exchange transfer lease inherit and mortgage their land use rights we use household surveys before and after the law was passed together with the considerable variation across provinces in the speed of implementation of the reform to identify the impact of the law we find that the additional land rights led to statistically significant increases in the share of total area devoted to long term crops and in labor devoted to nonfarm activities however these changes are not large in magnitude and appear to be driven mainly by the increased security of tenure provided by the law rather than by increased access to credit markets or greater land market participation

the size of trading blocs market power and world welfare effects abstract we construct an n country n commodity trade model to analyze the implications of bloc size for nash equilibrium tariffs and welfare the relationship between the absolute size of symmetric trading blocs and their market power is ambiguous and we illustrate how this relationship varies with model parameters in contrast sufficiently large increases in the relative size of a bloc enhance its relative market power and cause the welfare of its country members to rise above the free trade level we establish the existence of an optimal bloc size and study the dependence of optimal size on the parameters of the model

the thai rural credit system public subsidies private information and segmented markets thailand has sought to increase farmers access to credit by government intervention in 1966 it created a government agricultural bank to lend solely to farm households and beginning in the late 1970s it required commercial banks to lend heavily in the rural sector either directly or by making deposits in the agricultural bank the result was an enormous expansion of credit in the rural sector but because formal lenders were either unable or unwilling to solve the information problems involved in the broad range of rural credit transactions the informal credit sector wbich charged interest rates many times higher than the formal sector continued to thrive using household surveys and surveys of moneylenders this article provides a detailed analysis of the ways in which lenders in the informal sector have solved the information problems of providing credit the authors argue that the informal sector is competitive and that high interest rates reflect high information costs not the scarcity of funds this article reports on a set of investigations of the impact of thai government policies to expand bank lending in the rural sector their purpose was to increase farmers access to capital and reduce their dependence on informal lenders fifteen years after the principal government measures were introduced we hope to be able to answer several questions how has the expansion of formal sector lending affected the informal sector did the increase in the supply of formal credit reduce the business of informal lenders and lower interest rates in the informal market what has been the performance of the formal credit system in terms of coverage efficiency and incidence lacking time series data on the informal sector we cannot give a direct answer to these questions but we can with confidence say that the informal lenders are still very much alive by examining the behavior of the rural credit market at the present time we can throw an indirect light on what transpired over the last fifteen years our main findings are the following on the basis of our 1984 85 survey of households and moneylenders

structural reforms and labor market outcomes international panel data evidence this paper explores the impact of structural reforms on a comprehensive set of macro level labor market outcomes including the unemployment rate the average wage index and overall and female employment levels and labor force participation rates together these outcome variables capture the overall health of the labor market and the aggregate welfare of workers yet there seems to be no other comprehensive empirical investigation in the existing literature of the impact of structural reforms at the cross country macro level on labor market outcomes other than the unemployment rate data were collected from a variety of sources including the world bank world development indicators the international monetary fund international financial statistics and the international labor organization key indicators of the labor market the resulting dataset covers up to 88 countries the majority being developing for 10 years on either side of structural reforms that took place between 1960 and 2001 after documenting the average trends across countries in the labor market outcomes up to 10 years on either side of each country s structural reform year the authors run fixed effects ordinary least squares as well as instrumental variables regressions to account for the likely endogeneity of structural reforms to labor market outcomes overall the results suggest that structural reforms lead to positive outcomes for labor unlike related literature the paper does not find conclusive evidence on unemployment redistributive effects in favor of workers along the lines of the stolper samuelson effect may be at work

reputation and equilibrium selection in games with a patient player a single long run player plays a simultaneous move stage game against a sequence of opponents who play only once but observe all previous play let the stackelberg strategy be the pure strategy to which the long run player would most like to commit himself if there is positive prior probability that the long run player will always play the stackelberg strategy then his payoff in any nash equilibrium exceeds a bound that converges to the stackelberg payoff as his discount factor approaches one when the stage game is not simultaneous move this result must be modified to account for the possibility that distinct strategies of the long run player are observationally equivalent

regionalism in a multilateral world recent regional initiatives have been addressed from a vinerian perspective of trade creation and trade diversion this is true of both policy oriented economists who tend to be critical of the initiatives and theorists who have added dynamic and gametheoretic elements to the vinerian structure this paper describes the stylized facts of much recent regional integration and develops an alternative model the analysis suggests that regional integration far from threatening multilateral liberalism may in fact be a direct consequence of the success of past multilateralism and an added guarantee for its survival

external trade diversion exclusion incentives and the nature of preferential trade agreements in a game of endogenous trade agreements between three countries we show that while the pursuit of customs unions cus prevents global free trade from emerging as a coalition proof nash equilibrium the pursuit of free trade agreements ftas does not this result reflects the relatively flexible nature of ftas whereas each fta member can independently undertake further trade liberalization with respect to the non member cu members must do so as a group due to their common external tariff by diverting members exports away from the non member both types of trade agreements induce the non member to voluntarily lower its import tariffs

risk rationing and wealth effects in credit markets theory and implications for agricultural development we develop a model that shows that asymmetric information can result in two types of credit rationing conventional quantity rationing and risk rationing whereby farmers are able to borrow but only under high collateral contracts that offer them lower expected well being than a safe subsistence activity after exploring its incidence with respect to wealth we show that risk rationing has important policy implications specifically land titling will be only partially effective because it does not enhance producers willingness to offer up the collateral needed to secure loans under moral hazard constraints efforts to enhance agricultural investment and the working of agricultural credit markets must step beyond land titling and also deal with risk copyright 2008 oxford university press