Showing papers by "Robert C. Feenstra published in 1998"

Integration of Trade and Disintegration of Production in the Global Economy

Abstract: The last few decades have seen a spectacular integration of the global economy through trade. The share of imports (or exports) in GDP for the United States has approximately doubled in the last two decades, and if intra-OECD trade is omitted, the same is true for the OECD countries generally. Trade does remain a seemingly small fraction of U.S. GDP. This is not surprising in view of the fact that large economies trade less with others, and more internally. But the modest share of trade in total national income hides the fact that merchandise trade as a share of merchandise value-added is quite high for the United States and the OECD, and has been growing dramatically. In fact, if one focuses on merchandise trade relative to value-added, the world is much more integrated today than at any time during the past century. The rising integration of world markets has brought with it a disintegration of the production process, in which manufacturing or services activities done abroad are combined with those performed at home. Companies are now finding it profitable to outsource increasing amounts of the production process, a process which can happen either domestically or abroad. This represents a breakdown in the vertically-integrated mode of production—the so-called ‘‘Fordist’’ production, exemplified by the automobile industry—on which American manufacturing was built. A number of prominent researchers have referred to the importance of the idea that production occurs internationally: Bhagwati and Dehejia (1994) call this ‘‘kaleidoscope comparative advantage,’’ as firms shift location quickly; Krugman

Facts and Fallacies About Foreign Direct Investment

Abstract: This paper begins with a summary of the major trends in foreign direct investment over the 1980-1995 period. Following that we present five fallacies, dealing with: the magnitude of foreign investment in Japan; the impact of FDI on the U.S. and Japanese trade balance; the extent to which multinational corporations control U.S. trade; the impact of exchange rate movements on foreign investment flows; and finally, the impact of FDI on welfare of the host country. The paper concludes with a further analysis of the recent trends in foreign investment and their implications for the competition faced by U.S. firms on international markets.

Integration of Trade and Disintegration of Production in the Global Economy

Abstract: The last few decades have seen a spectacular integration of the global economy through trade. The rising integration of world markets has brought with it a disintegration of the production process, however, as manufacturing or services activities done abroad are combined with those performed at home. I compare several different measures of foreign outsourcing, and argue that they have all increased since the 1970s. I also consider the implications of globalization for employment and wages of low-skilled workers, and for trade and regulatory policy, such as labor standards.

Staggered Price Setting and Endogenous Persistence

Abstract: This paper generates persistent effects of a monetary disturbance in the context of staggered price-setters Previous research has been restricted by the CES functional form to price-setting rules that are constant markups over marginal costs The present paper considers a translog form for preferences and an input-output structure for production in the context of a dynamic general equilibrium model of monopolistically competitive staggered price-setters We derive a price-setting rule that is a function of marginal cost and also competitors' prices This rule better captures the interaction of price-setters envisioned in Taylor (1980) and Blanchard (1983) in their early work on staggered contracts The model is able to generate reasonable persistence, and also confirms the conjecture of Taylor and Blanchard that increasing the number of contracting groups increases the degree of persistence

The U.S.-China Bilateral Trade Balance: It's Size and Determinants

Abstract: This paper aims to reduce the range within which the true U.S.-China bilateral trade deficit lies, and identify the determinants of the bilateral trade deficit. We take advantage of detailed Chinese Customs data at the commodity level. Our calculated U.S.-China bilateral trade deficit is $15 billion to $20 billion in 1994, and $16 billion to $22 billion in 1995, compared to the official range of $8 billion to $30 billion, and $9 billion to $34 billion, respectively. The widening of the U.S.-China bilateral trade deficit in recent years reflected various factors, including: (i) macroeconomic forces in the U.S. and China moving in opposite directions, causing their respective overall trade balance to move in opposite directions; and (ii) the accelerated relocation of production of U.S. imports from East Asia to China.

THE U.S.-CHINA BILATERAL TRADE BALANCE: Its Size and Determinants

Abstract: This paper has two aims. The first is to reduce the range within which the true U.S.-China bilateral trade deficit lies. The second is to identify the determinants of the bilateral trade deficit, and offer an assessment of their relative importance. We calculate a smaller range of values for the bilateral trade deficit than in previous studies, due to a new estimation method that takes advantage of our access to detailed Chinese Customs data at the commodity level. For example, the revised U.S.-China bilateral trade deficit is $15 billion to $20 billion in 1994, and $16 billion to $22 billion in 1995, compared to the official range of $8 billion to $30 billion, and $9 billion to $34 billion, respectively. The widening of the U.S.-China bilateral trade deficit in recent years reflected many factors. In our opinion, the two chief factors are (i) macroeconomic forces in the U.S. and China moving in opposite directions, causing their respective overall trade balance to move in opposite directions; and (ii) the accelerated relocation of production of U.S. imports from East Asia to China.

Staggered Price Setting and Endogenous Persistence

Abstract: This paper generates persistent effects of a monetary disturbance in the context of staggered price-setters Previous research has been restricted by the CES functional form to price-setting rules that are constant markups over marginal costs The present paper considers a translog form for preferences and an input-output structure for production in the context of a dynamic general equilibrium model of monopolistically competitive staggered price-setters We derive a price-setting rule that is a function of marginal cost and also competitors' prices This rule better captures the interaction of price-setters envisioned in Taylor (1980) and Blanchard (1983) in their early work on staggered contracts The model is able to generate reasonable persistence, and also confirms the conjecture of Taylor and Blanchard that increasing the number of contracting groups increases the degree of persistence