Bela Balassa

Bio: Bela Balassa is an academic researcher from Johns Hopkins University. The author has contributed to research in topics: Commercial policy & Trade barrier. The author has an hindex of 51, co-authored 184 publications receiving 20434 citations. Previous affiliations of Bela Balassa include University of Connecticut & Yale University.

The Purchasing-Power Parity Doctrine: A Reappraisal

Abstract: 5_HIE purchasing-power parity doctrine has had its ebbs and flows I over the years. Interest in the doctrine arose whenever existing exchange rates were considered unrealistic and the search began for the elusive concept of equilibrium rates. It was first invokedalthough in somewhat ambiguous terms -in the period of the Napoleonic wars,' it received its christening at the hands of Gustav Cassel during World War I,2 and it was resurrected after World War II.3 It has also had its critics, among others Taussig after World War J4 and Haberler after World War IJ,5 but it has managed to survive nevertheless. In recent years, new efforts have been made to clothe the purchasing-power parity doctrine in the garments of respectability, and a proposal has also been put forward to use this doctrine as a guide in establishing equilibrium exchange rates.6 At the same time, new

Economic Growth in a Cross Section of Countries

Abstract: For 98 countries in the period 1960–1985, the growth rate of real per capita GDP is positively related to initial human capital (proxied by 1960 school-enrollment rates) and negatively related to the initial (1960) level of real per capita GDP. Countries with higher human capital also have lower fertility rates and higher ratios of physical investment to GDP. Growth is inversely related to the share of government consumption in GDP, but insignificantly related to the share of public investment. Growth rates are positively related to measures of political stability and inversely related to a proxy for market distortions.

Does Trade Cause Growth

Abstract: Examining the correlation between trade and income cannot identify the direction of causation between the two. Countries’ geographic characteristics, however, have important effects on trade, and are plausibly uncorrelated with other determinants of income. This paper therefore constructs measures of the geographic component of countries’ trade, and uses those measures to obtain instrumental variables estimates of the effect of trade on income. The results provide no evidence that ordinary least-squares estimates overstate the effects of trade. Further, they suggest that trade has a quantitatively large and robust, though only moderately statistically significant, positive effect on income. (JEL F43, 040)

Scale Economies, Product Differentiation, and the Pattern of Trade

Abstract: For some time now there has been considerable skepticism about the ability of comparative cost theory to explain the actual pattern of international trade. Neither the extensive trade among the industrial countries, nor the prevalence in this trade of two-way exchanges of differentiated products, make much sense in terms of standard theory. As a result, many people have concluded that a new framework for analyzing trade is needed.' The main elements of such a framework-economies of scale, the possibility of product differentiation, and imperfect competition-have been discussed by such authors as Bela Balassa, Herbert Grubel (1967,1970), and Irving Kravis, and have been "in the air" for many years. In this paper I present a simple formal analysis which incorporates these elements, and show how it can be used to shed some light on some issues which cannot be handled in more conventional models. These include, in particular, the causes of trade between economies with similar factor endowments, and the role of a large domestic market in encouraging exports. The basic model of this paper is one in which there are economies of scale in production and firms can costlessly differentiate their products. In this model, which is derived from recent work by Avinash Dixit and Joseph Stiglitz, equilibrium takes the form of Chamberlinian monopolistic competition: each firm has some monopoly power, but entry drives monopoly profits to zero. When two imperfectly competitive economies of this kind are allowed to trade, increasing returns produce trade and gains from trade even if the economies have identical tastes, technology, and factor endowments. This basic model of trade is presented in Section I. It is closely related to a model I have developed elsewhere; in this paper a somewhat more restrictive formulation of demand is used to make the analysis in later sections easier. The rest of the paper is concerned with two extensions of the basic model. In Section II, I examine the effect of transportation costs, and show that countries with larger domestic markets will, other things equal, have higher wage rates. Section III then deals with "home market" effects on trade patterns. It provides a formal justification for the commonly made argument that countries will tend to export those goods for which they have relatively large domestic markets. This paper makes no pretense of generality. The models presented rely on extremely restrictive assumptions about cost and utility. Nonetheless, it is to be hoped that the paper provides some useful insights into those aspects of international trade which simply cannot be treated in our usual models.

Economic Reform and the Process of Global Integration

Abstract: WHEN T H E BROOKINGS Panel on Economic Activity began in 1970, the world economy roughly accorded with the idea of three distinct economic systems: a capitalist first world, a socialist second world, and a developing third world which aimed for a middle way between the first two. The third world was characterized not only by its low levels of per capita GDP, but also by a distinctive economic system that assigned the state sector the predominant role in industrialization, although not the monopoly on industrial ownership as in the socialist economies. The years between 1970 and 1995, and especially the last decade, have witnessed the most remarkable institutional harmonization and economic integration among nations in world history. While economic integration was increasing throughout the 1970s and 1980s, the extent of integration has come sharply into focus only since the collapse of communism in 1989. In 1995 one dominant global economic system is emerging. The common set of institutions is exemplified by the new World Trade Organization (WTO), which was established by agreement of more than 120 economies, with almost all the rest eager to join as rapidly as possible. Part of the new trade agreement involves a codification of basic principles governing trade in goods and services. Similarly, the International Monetary Fund (IMF) now boasts nearly universal membership, with member countries pledged to basic principles of currency convertibility. Most programs of economic reform now underway in the developing world and in the post-communist world have as their strategic aim the