This paper examines the role of Rules of Origin as a commercial policy instrument which targets t... more This paper examines the role of Rules of Origin as a commercial policy instrument which targets the input composition of imports. Using a three country, partial equilibrium structure, we demonstrate conditions under which the imposition of a binding Rule will be welfare improving for an importer facing either competitive export suppliers or an export monopolist. We also show that employing Rules of Origin in this way would be complementary to, rather than a substitute for, conventional optimal tariffs.
The Heckscher-Ohlin-Samuelson (H-O-S) model has played a central role in the pure theory of inter... more The Heckscher-Ohlin-Samuelson (H-O-S) model has played a central role in the pure theory of international trade, contributing to the clarification of such diverse questions as the determinants of comparative advantage, the effects of trade upon factor prices, the effects of economic growth on international trade and vice versa, the relationship between international movements of goods and factors, and so forth. However, contrary to the original intention of Ohlin himself, as has been exemplified in his discussion in Harrod and Hague (1963, pp. 398-399), this model has tended to concentrate on a relatively small number of generic factors of production such as capital and labour, and to neglect the role played by those factors that are somehow specific to various industries. Harrod, on the other hand, emphasized the importance of industry-specific factors many years ago, viewing their relative abundance as a major cause of differences in comparative advantage. (See Harrod, 1957, pp. 19 and 36, 1958; and Harrod and Hague, 1963, pp. 422-423. For his own definition of specific factors see Harrod, 1957, p. 33.) It may be argued, however, that the emphasis on specific factors may lead to a danger of circular reasoning unless one can successfully explain the mechanism that determines the relative supply of these factors. Take the ordinary two-factor, two-commodity H-O-S model, for example, and suppose that a country has a comparative advantage in the labour-intensive (say, textile) industry because of its relative abundance of labour. In the trade equilibrium position a relatively large proportion of labour will be engaged in the textile industry, and those workers in this industry must have acquired specific skills which are necessary to produce textiles. They are specific factors, at least for the short run. It would not be particularly interesting, however, to state that the country has a comparative advantage in the textile industry because it has a relatively abundant supply of textile workers, since they have become relatively abundant as a result of the expansion of the textile industry in which the country has a comparative advantage, and not vice versa. Thus, there is a clear limitation to a theory based on specific factors which does not analyse the mechanism that determines their supplies. On the other hand, it may also be argued that one need not seek merely the long-run determinants of international trade and investment. We may conceive of specific factors such as those whose inter-industry mobility is limited in the short run, and limit our scope to a relatively short period of time, the length of the period being dependent upon the degree of shiffability of a particular factor of production concerned: see the view of Haberler in Harrod and Hague (1963, p. 396). It is in this context that we now
World Scientific Studies in International Economics, Oct 23, 2017
The standard competitive trade model, extended to include many goods and factors, is used to anal... more The standard competitive trade model, extended to include many goods and factors, is used to analyze the effect of goods and factor market integration on average international disparities in the real returns of internationally immobile factors. It is shown that goods market integration decreases international real return differentials for all factors. We derive sufficient conditions for this result to hold for the subgroup of internationally immobile factors as well. While there is a presumption for similar results to hold with international factor market integration, we show that this is true for international migration but in general not for international investment.
This paper examines the role of Rules of Origin as a commercial policy instrument which targets t... more This paper examines the role of Rules of Origin as a commercial policy instrument which targets the input composition of imports. Using a three country, partial equilibrium structure, we demonstrate conditions under which the imposition of a binding Rule will be welfare improving for an importer facing either competitive export suppliers or an export monopolist. We also show that employing Rules of Origin in this way would be complementary to, rather than a substitute for, conventional optimal tariffs.
We use a firm-level dataset for Chinese manufacturing, to estimate productivity spillovers from f... more We use a firm-level dataset for Chinese manufacturing, to estimate productivity spillovers from foreign direct investment (FDI) to local firms. The spillover channels considered include inter-firm labour turnover/mobility; vertical input-output linkages; exporting externalities; and horizontal effects. The roles of these channels are dependent on various factors including export propensity, R&D expenditure per capita, employee training, and ownership structure. We find that export of MNEs is the most prominent spillover channel. Labour turnover and horizontal demonstration and competition bring positive spillovers to SOEs but not to local private firms. Vertical linkages are not found to be significant.
We analyze a simple oligopoly model where …rms can engage in costreducing R&D. We compare two R&D... more We analyze a simple oligopoly model where …rms can engage in costreducing R&D. We compare two R&D regimes: R&D competition and R&D cooperation where …rms can enter in a Research Joint Venture (RJV). We introduce coordination costs for the RJV and examine how these a¤ect the equilibrium outcomes. Further, we examine the question of the equilibrium versus optimal size of the RJV. For a given size of the RJV, its members decrease their own R&D as the anticipated coordination costs increase. This results in lower output and pro…ts. On the contrary, the non-RJV …rms increase their R&D investments in response to the fall in the RJV …rms'R&D.We show that the performance of the RJV in terms of R&D investment, pro…t and welfare in relation to R&D competition is sensitive to the level of coordination costs. Furthermore, we show that, although the RJV as a whole may
We construct a static computable general equilibrium (CGE) model to quantify the endogenous produ... more We construct a static computable general equilibrium (CGE) model to quantify the endogenous productivity spillovers from foreign-invested firms to domestic firms, taking the Chinese economy as a case study. The coefficients of four spillover channels are estimated from econometric analysis. The simulations are conducted under two alternative market structures, namely perfect competition and monopolistic competition. Simulation results indicate that the spillover premia are positive in terms of national total output, GDP and welfare. The spillover effect is more prominent when the market structure is relatively monopolistic. FDI spillovers can also result in more product varieties produced by domestic enterprises, and can also help domestic enterprises increase their production scale.
We introduce financial frictions in a two sector model of international trade with heterogeneous ... more We introduce financial frictions in a two sector model of international trade with heterogeneous agents. The level of specialization in the economy (economic development) depends on the quality of financial institutions. Underdeveloped financial markets prohibit an economy to specialize in sectors where finance is important. Capital flows and international trade are complements when countries differ in the degree of development of their financial sectors. Capital flows to countries with more robust financial institutions which in turn allow their economies to develop sectors that are financially dependent. JEL-Code: F210, G150.
Abstract We consider a simple oligopoly model where firms engage in cost-reducing R&D... more Abstract We consider a simple oligopoly model where firms engage in cost-reducing R&D and compare two R&D regimes: R&D competition and R&D cooperation where firms can enter in a Research Joint Venture (RJV). We introduce coordination costs for the RJV and examine how these affect the equilibrium outcomes. Further, we address the question of the equilibrium versus the optimal size of the RJV. For a given size of the RJV, its members decrease their own R&D as the anticipated coordination costs increase. This results in ...
Traditional treatments of the gains from trade were primarily concerned with the static gains rea... more Traditional treatments of the gains from trade were primarily concerned with the static gains realisable from realigning production in accordance with comparative advantage. In an open economy, resources would be (re)allocated more ‘productively’, taking advantage of the opportunities to import those products in whose production the country is relatively less efficient by exporting those in whose production it is relatively more efficient. These gains are available even if autarky production is technically efficient (i.e. on the production possibility frontier), and in a world where technologies exhibit constant returns to scale, firms are largely irrelevant and the effects of trade on the efficiency of resource use within the industry cannot be explored.
This paper examines the effects of trade liberalization on international disparities in factor re... more This paper examines the effects of trade liberalization on international disparities in factor real returns in a model with more factors than goods. Existing trade interventions are assumed to be “restricting” trade. We find that any bias for or against factor price convergence depends on the underlying source of comparative advantage. Where trade is based on differences in factor endowments,
Historically, trade taxes have been an important source of government revenue in subsistence-orie... more Historically, trade taxes have been an important source of government revenue in subsistence-oriented economies with large informal sectors. As countries developed and economic activity became more market-oriented, governments sourced revenue from broader, more efficient tax bases. But trade taxes remained, with protection of domestic import-competing activity, rather than revenue, becoming their primary motivation. This shift of motivation also facilitated the substitution of alternative policies, quantitative restrictions for example, which would limit import competition without necessarily generating revenue.
The last few decades have seen a significant reduction in trade barriers, which has brought the i... more The last few decades have seen a significant reduction in trade barriers, which has brought the international aspects of competition policies into greater prominence. In this paper we explore the effects of tariffs on the profitability and welfare consequences of mergers in a simple model of the integrated world market for a single homogeneous product in which firms differ in their levels of efficiency. We find that the tariff "protects" less efficient firms from closure through merger if they are import-competing, but makes such closure more likely if they are exporters. Thus a tariff is likely to generate mergers of exporting firms. The implications of the tariff for the global welfare consequences of mergers depend on the tariff's effects on total output. If the tariff reduces (increases) total output, mergers are less (more) likely to raise welfare.
... TIMING AND SEQUENCING ISSUES IN TRADE LIBERALISATION* Rod Falvey and Cha Dong Kim ... Interna... more ... TIMING AND SEQUENCING ISSUES IN TRADE LIBERALISATION* Rod Falvey and Cha Dong Kim ... International donors and lenders (such as the IMF and the World Bank) now often make their assistance conditional on some programme of trade policy reform. ...
This paper examines the role of Rules of Origin as a commercial policy instrument which targets t... more This paper examines the role of Rules of Origin as a commercial policy instrument which targets the input composition of imports. Using a three country, partial equilibrium structure, we demonstrate conditions under which the imposition of a binding Rule will be welfare improving for an importer facing either competitive export suppliers or an export monopolist. We also show that employing Rules of Origin in this way would be complementary to, rather than a substitute for, conventional optimal tariffs.
The Heckscher-Ohlin-Samuelson (H-O-S) model has played a central role in the pure theory of inter... more The Heckscher-Ohlin-Samuelson (H-O-S) model has played a central role in the pure theory of international trade, contributing to the clarification of such diverse questions as the determinants of comparative advantage, the effects of trade upon factor prices, the effects of economic growth on international trade and vice versa, the relationship between international movements of goods and factors, and so forth. However, contrary to the original intention of Ohlin himself, as has been exemplified in his discussion in Harrod and Hague (1963, pp. 398-399), this model has tended to concentrate on a relatively small number of generic factors of production such as capital and labour, and to neglect the role played by those factors that are somehow specific to various industries. Harrod, on the other hand, emphasized the importance of industry-specific factors many years ago, viewing their relative abundance as a major cause of differences in comparative advantage. (See Harrod, 1957, pp. 19 and 36, 1958; and Harrod and Hague, 1963, pp. 422-423. For his own definition of specific factors see Harrod, 1957, p. 33.) It may be argued, however, that the emphasis on specific factors may lead to a danger of circular reasoning unless one can successfully explain the mechanism that determines the relative supply of these factors. Take the ordinary two-factor, two-commodity H-O-S model, for example, and suppose that a country has a comparative advantage in the labour-intensive (say, textile) industry because of its relative abundance of labour. In the trade equilibrium position a relatively large proportion of labour will be engaged in the textile industry, and those workers in this industry must have acquired specific skills which are necessary to produce textiles. They are specific factors, at least for the short run. It would not be particularly interesting, however, to state that the country has a comparative advantage in the textile industry because it has a relatively abundant supply of textile workers, since they have become relatively abundant as a result of the expansion of the textile industry in which the country has a comparative advantage, and not vice versa. Thus, there is a clear limitation to a theory based on specific factors which does not analyse the mechanism that determines their supplies. On the other hand, it may also be argued that one need not seek merely the long-run determinants of international trade and investment. We may conceive of specific factors such as those whose inter-industry mobility is limited in the short run, and limit our scope to a relatively short period of time, the length of the period being dependent upon the degree of shiffability of a particular factor of production concerned: see the view of Haberler in Harrod and Hague (1963, p. 396). It is in this context that we now
World Scientific Studies in International Economics, Oct 23, 2017
The standard competitive trade model, extended to include many goods and factors, is used to anal... more The standard competitive trade model, extended to include many goods and factors, is used to analyze the effect of goods and factor market integration on average international disparities in the real returns of internationally immobile factors. It is shown that goods market integration decreases international real return differentials for all factors. We derive sufficient conditions for this result to hold for the subgroup of internationally immobile factors as well. While there is a presumption for similar results to hold with international factor market integration, we show that this is true for international migration but in general not for international investment.
This paper examines the role of Rules of Origin as a commercial policy instrument which targets t... more This paper examines the role of Rules of Origin as a commercial policy instrument which targets the input composition of imports. Using a three country, partial equilibrium structure, we demonstrate conditions under which the imposition of a binding Rule will be welfare improving for an importer facing either competitive export suppliers or an export monopolist. We also show that employing Rules of Origin in this way would be complementary to, rather than a substitute for, conventional optimal tariffs.
We use a firm-level dataset for Chinese manufacturing, to estimate productivity spillovers from f... more We use a firm-level dataset for Chinese manufacturing, to estimate productivity spillovers from foreign direct investment (FDI) to local firms. The spillover channels considered include inter-firm labour turnover/mobility; vertical input-output linkages; exporting externalities; and horizontal effects. The roles of these channels are dependent on various factors including export propensity, R&D expenditure per capita, employee training, and ownership structure. We find that export of MNEs is the most prominent spillover channel. Labour turnover and horizontal demonstration and competition bring positive spillovers to SOEs but not to local private firms. Vertical linkages are not found to be significant.
We analyze a simple oligopoly model where …rms can engage in costreducing R&D. We compare two R&D... more We analyze a simple oligopoly model where …rms can engage in costreducing R&D. We compare two R&D regimes: R&D competition and R&D cooperation where …rms can enter in a Research Joint Venture (RJV). We introduce coordination costs for the RJV and examine how these a¤ect the equilibrium outcomes. Further, we examine the question of the equilibrium versus optimal size of the RJV. For a given size of the RJV, its members decrease their own R&D as the anticipated coordination costs increase. This results in lower output and pro…ts. On the contrary, the non-RJV …rms increase their R&D investments in response to the fall in the RJV …rms'R&D.We show that the performance of the RJV in terms of R&D investment, pro…t and welfare in relation to R&D competition is sensitive to the level of coordination costs. Furthermore, we show that, although the RJV as a whole may
We construct a static computable general equilibrium (CGE) model to quantify the endogenous produ... more We construct a static computable general equilibrium (CGE) model to quantify the endogenous productivity spillovers from foreign-invested firms to domestic firms, taking the Chinese economy as a case study. The coefficients of four spillover channels are estimated from econometric analysis. The simulations are conducted under two alternative market structures, namely perfect competition and monopolistic competition. Simulation results indicate that the spillover premia are positive in terms of national total output, GDP and welfare. The spillover effect is more prominent when the market structure is relatively monopolistic. FDI spillovers can also result in more product varieties produced by domestic enterprises, and can also help domestic enterprises increase their production scale.
We introduce financial frictions in a two sector model of international trade with heterogeneous ... more We introduce financial frictions in a two sector model of international trade with heterogeneous agents. The level of specialization in the economy (economic development) depends on the quality of financial institutions. Underdeveloped financial markets prohibit an economy to specialize in sectors where finance is important. Capital flows and international trade are complements when countries differ in the degree of development of their financial sectors. Capital flows to countries with more robust financial institutions which in turn allow their economies to develop sectors that are financially dependent. JEL-Code: F210, G150.
Abstract We consider a simple oligopoly model where firms engage in cost-reducing R&D... more Abstract We consider a simple oligopoly model where firms engage in cost-reducing R&D and compare two R&D regimes: R&D competition and R&D cooperation where firms can enter in a Research Joint Venture (RJV). We introduce coordination costs for the RJV and examine how these affect the equilibrium outcomes. Further, we address the question of the equilibrium versus the optimal size of the RJV. For a given size of the RJV, its members decrease their own R&D as the anticipated coordination costs increase. This results in ...
Traditional treatments of the gains from trade were primarily concerned with the static gains rea... more Traditional treatments of the gains from trade were primarily concerned with the static gains realisable from realigning production in accordance with comparative advantage. In an open economy, resources would be (re)allocated more ‘productively’, taking advantage of the opportunities to import those products in whose production the country is relatively less efficient by exporting those in whose production it is relatively more efficient. These gains are available even if autarky production is technically efficient (i.e. on the production possibility frontier), and in a world where technologies exhibit constant returns to scale, firms are largely irrelevant and the effects of trade on the efficiency of resource use within the industry cannot be explored.
This paper examines the effects of trade liberalization on international disparities in factor re... more This paper examines the effects of trade liberalization on international disparities in factor real returns in a model with more factors than goods. Existing trade interventions are assumed to be “restricting” trade. We find that any bias for or against factor price convergence depends on the underlying source of comparative advantage. Where trade is based on differences in factor endowments,
Historically, trade taxes have been an important source of government revenue in subsistence-orie... more Historically, trade taxes have been an important source of government revenue in subsistence-oriented economies with large informal sectors. As countries developed and economic activity became more market-oriented, governments sourced revenue from broader, more efficient tax bases. But trade taxes remained, with protection of domestic import-competing activity, rather than revenue, becoming their primary motivation. This shift of motivation also facilitated the substitution of alternative policies, quantitative restrictions for example, which would limit import competition without necessarily generating revenue.
The last few decades have seen a significant reduction in trade barriers, which has brought the i... more The last few decades have seen a significant reduction in trade barriers, which has brought the international aspects of competition policies into greater prominence. In this paper we explore the effects of tariffs on the profitability and welfare consequences of mergers in a simple model of the integrated world market for a single homogeneous product in which firms differ in their levels of efficiency. We find that the tariff "protects" less efficient firms from closure through merger if they are import-competing, but makes such closure more likely if they are exporters. Thus a tariff is likely to generate mergers of exporting firms. The implications of the tariff for the global welfare consequences of mergers depend on the tariff's effects on total output. If the tariff reduces (increases) total output, mergers are less (more) likely to raise welfare.
... TIMING AND SEQUENCING ISSUES IN TRADE LIBERALISATION* Rod Falvey and Cha Dong Kim ... Interna... more ... TIMING AND SEQUENCING ISSUES IN TRADE LIBERALISATION* Rod Falvey and Cha Dong Kim ... International donors and lenders (such as the IMF and the World Bank) now often make their assistance conditional on some programme of trade policy reform. ...
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