Showing papers on "Free trade published in 1984"

Endogenous Tariff Formation.

Abstract: Interest in the process of tariff formation has grown considerably during the last decade. Robert Baldwin (1976, 1982), William Brock and Stephen Magee (1978, 1980), as well as Ronald Findlay and Stanislaw Wellisz (1982) have suggested alternative models for studying the economic and political forces that interact in determining a country's actual tariff structure.' The underlying premise of these studies is that political decisions on tariff rates are reflections of the selfish economic interests of voters, lobbying groups, politicians, or other decision makers in trade policy matters.2'3 Brock and Magee, as well as Findlay and Wellisz, treat tariff formation as a noncooperative game among competing economic interest groups.4 In Brock and Magee's papers, the tariff positions of opposing political parties are explained, where each party maximizes its chances of being elected, and the probability of reelection hinges on contributions from tariff-sensitive lobbying groups. In Findlay and Wellisz, the economic interests of land and capital owners are opposed, with labor standing on the sidelines. Baldwin, on the other hand, postulates majority voting by owners of productive factors. Hence, Baldwin introduces a collective decision rule to tariff determination which plays a major role in the public choice literature.5 Specifically, he argues that accepted optimal trade policy prescriptions, such as free trade for a small country, would be voted in by factor owners if voters' tastes were homothetic and there were no restrictions on income redistributions, no voting and information costs, and no possibilities for logrolling. However, when these ideal assumptions are gradually removed, Baldwin (1976, p. 71) suggests that actual tariff rates are decisively affected by economic groups which are large in size and whose potential gains or losses are substantial. Baldwin's discussion is rich in detail and offers many valuable insights. Most important, it breaks new ground in suggesting determinants of actual tariffs, such as the distribution of factors of production, the existence of voting costs, and the specific nature of the underlying economic and political system. The purpose of this paper is to study some of these alternative determinants of tariff rates in a rigorously formulated general equilibrium model. In particular, the paper attempts to evaluate the dependence of actual tariff rates on factor-ownership distribution, voter eligibility and participation rules, and the degrees of factor mobility and industry diversification in the economy. The standard assumption on factor ownership, which also is adopted by Baldwin (1982, p. 268), states that each person owns one factor of production only. This implies that all owners of a given factor form a *Department of Economics, University of Cincinnati, Cincinnati, OH 45221. Comments by John Pomery, Raymond Riezman, and Ronald Jones are greatly appreciated. 'In addition to the literature on endogenous tariff formation, there are a number of authors (for example, Jagdish Bhagwati, 1982; Arye Hillman, 1982; and Elias Dinopoulos, 1983), who discuss endogenous tariff adjustments in response to exogenous changes in the international terms of trade. How the initial tariff rate was selected is, however, not part of their decision problem. Also there is a growing empirical tlterature on changing tariff structures of various countries, such as the works by Jonathan Pincus (1975), Richard Caves (1976), G. K. Helleiner (1977), as well as Howard Marvel and Edward Ray (1983). 2The relationship between public policymaking and economic interests is widely discussed in the public choice literature, such as in Anthony Downs (1957), James Buchanan and Gordon Tullock (1962), and Dennis Mueller (1979). 3A quite different approach at explaining tariff structures has been used by Edward Ray (1974). 4For extensions of these modes, see Leslie Young and Magee (1983), Wellisz-Findlay (1983), and Wellisz and John Wilson (1983). 5For a thorough discussion of majority voting rules, see Duncan Black (1948a,b) and Mueller.

International trade policy for oligopolistic industries

Abstract: Almost all of the received theory of international trade, positive and normative, is based on the model of atomistic competition. All individual consumers and producers are assumed to be price-takers. It is recognised that a country may have monopoly power in trade, but this is supposed to be exercised by its government through the use of tariffs. In reality, it is becoming increasingly evident that a significant proportion of international trade takes place in imperfectly competitive markets. Here the individual producers and sellers are aware of their monopoly power, and act to profit from it. The resulting market equilibrium, be it pure monopoly, oligopoly, or monopolistic competition, differs from the textbook Walrasian kind. The determinants and patterns of trade are different, and are differently affected by commercial policy. A new framework of theoretical analysis is therefore required for a proper understanding of many current issues of tradf, and of trade policy. Such research is still in its infancy, but is growing rapidly. This lecture is intended to provide a consolidation, and some extension, of the work. I shall begin by describing the new issues that arise when trade is imperfectly competitive, and some new features of the analysis. Then I shall give a brief and somewhat selective review of the literature. Finally, I shall construct a model that synthesises and extends some of the work on trade policy in the context of oligopoly.

Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition

Abstract: An applied general equilibrium model of a small open economy is described. The model incorporates industrial organization structures heretofore absent from applied G.E. trade models. Scale economies, product differentiation and explicit price setting are novel model features. Some illustrative results for trade liberalization policies are given for a 1976 Canadian data set and contrasted with a conventional constant returns neoclassical model on the same data set. Results from the alternative models differ significantly. (This abstract was borrowed from another version of this item.)

Pareto Inferior Trade

Abstract: The paper shows that between two competitive but risky economies with no insurance markets, free trade may be Pareto inferior to no trade. The model is simple enough to show clearly the role prices play in transferring and sharing risk when there is an incomplete set of markets, but rich enough to exhibit the resulting inefficiencies dramatically. The belief that free trade is Pareto optimal is one of the few tenets of economics which, at least until recently, would have received almost universal assent. The object of this paper is to demonstrate that this belief may not be well founded. We construct a simple model which lacks a complete set of risk markets but which in all other respects satisfies the conventional assumptions of a competitive economy, and show that free trade may be Pareto inferior to no trade. The basic idea behind our model is simple. There are two countries (regions) both of which grow a risky agricultural crop and a safe crop. The output in the two regions is perfectly negatively correlated. (The model can easily be extended to cases where the correlation is zero or even positive, so long as the correlation is not perfect.) In the absence of trade, price rises whenever outpurt falls. If demand functions have unitary price elasticity the price variations provide perfect income insurance for the farmer. With free trade the variations in the output of the risky crop offset each other and stabilize the price, which no longer varies to offset output variations. Consequently, the revenue from the risky crop now varies and the risk faced by the farmers is increased. This induces farmers to shift production away from the risky crop, raising its average price. Since consumers have unit price elasticity and thus spend a constant amount on both crops, the mean income of the farmers remains constant with the opening of trade while its riskiness increases. Consequently, farmers welfare necessarily decreases, as shown in Figure 1. Whereas before trade was opened, consumers bore all the risk, with free trade they bear none, and, other things being equal, this would make them better off. However, the increased riskiness of the risky crop induces farmers to shift their production to the safe crop, and the consequent rise in the average price of the risky crop can make consumers worse off. Near autarky, the risk benefit dominates this allocation effect, as shown in Figure 1, but near free trade the opposite is the case. If the change in supplies and prices is sufficiently large (which it will be if producers are sufficiently risk averse), and if the consumer risk benefits are sufficiently small (which they will be if consumers are not very risk averse), then consumers will be made worse off by opening trade. Since producers are necessarily worse off (in this model), it follows that free trade is Pareto inferior to autarky. The reconciliation of our results with the standard theorems of Welfare Economics in which free trade is Pareto efficient is straightforward-the conventional argument

Monopolistic competition and international trade

Abstract: Henryk Kierzkowski: Introduction James Markusen & James Melvin: The gains-from-trade theorem with increasing returns to scale Avner Shaked & John Sutton: Natural oligopolies and international trade Henrik Horn: Product diversity, trade, and welfare Jonathan Eaton & Henryk Kierzkowski: Oligopolistic competition, product variety, and international trade Frances Stewart: Recent theories of international trade: Some implications for the South Avinash Dixit: Growth and terms of trade under imperfect competition Elhanan Helpman and Assaf Razin: Increasing returns, monopolistic competition, and factor movements: A welfare analysis Kelvin Lancaster: Protection and product differentiation Bruce R. Lyons: The pattern of international trade in differentiated products: An incentive for the existence of multinational firms Paul Krugman: Import protection as export promotion: International competition in the presence of oligopoly and economies of scale James Brander & Barbara Spender: Tariff protection and imperfect competition Wilfred Ethier & Henrik Horn: A new look at economic integration David Greenaway: The measurement of product differe ntiation in empirical analyses of trade flows Index

The hegemon's dilemma: Great Britain, the United States, and the international economic order

Abstract: Liberal international trade regimes do not emerge from the policies of one state, even a hegemonic one. Trade liberalization among major trading states is, rather, the product of tariff bargains. Thus, hegemons need followers and must make concessions to obtain agreements. The liberal trade regimes that emerged in both the 19th and the 20th centuries were founded on asymmetric bargains that permitted discrimination, especially against the hegemon. The agreements that lowered tariff barriers led to freer trade not free trade; resulted in subsystemic rather than global orders; and legitimated mercantilistic and protectionist practices of exclusion and discrimination, and thus did not provide a collective good. Moreover, these trade agreements (and trade disputes as well) had inherently international political underpinnings and did not reflect economic interests alone. Trade liberalization also required a certain internal strength on the part of the government. Furthermore, only a complete political rupturing of relations, such as occurs in wartime, can destroy such a regime. A hegemon's decline cannot do so alone. These arguments are developed in a historical reassessment of the evolution of the international trading order since 1820. Eras commonly seen as liberal, such as the 1860s, are shown to have included a good deal of protection, and eras seen as protectionist, such as the 1880s, are shown to have been much more liberal than is usually believed.

From Normalcy to New Deal: industrial structure, party competition, and American public policy in the Great Depression

Abstract: Industrial partisan preference may be formally modeled as the joint consequence of pressures from labor and the differential impact of the world economy on particular businesses. This “basic” and static model, when extended to cover the money market, can be used to examine questions of political development, including the effects of fluctuations in national income on political coalitions. American institutions and public policy during the New Deal are used to test the theory against empirical evidence, much of it from new primary sources. The rise of the New Deal coalition is traced to changes in the American industrial structure deriving from the boom of the 1920s and the reversal of the U.S. financial position that resulted from World War I, in addition to the well-known labor militancy of the 1930s. The effect of these changes was the rise of a (Democratic) political coalition dominated by capital-intensive, multinationally dominant firms and industries with a strong interest in free trade and a historically unprecedented ability to cope with major industrial upheavals without resort to force. The major public policy initiatives of the New Deal are reexamined from this standpoint.

The Normative Theory of International Trade

Abstract: Publisher Summary Normative economics is concerned with making welfare judgments about policies and economic events This chapter discusses government policies In the case of trade theory, commercial policy-normative economics embraces the study of the welfare consequences of various events when policies are constant The chapter covers the main areas of normative trade theory, but not fully The chapter discusses central parts of policy-orientated normative trade theory on the terms of trade argument for protection It also provides an overview on theory of domestic distortions A major result has been downgrading the role of trade policy and thus rehabilitating the case for free trade, at least aside from the orthodox optimal tariff argument Most arguments for protection, other than the terms of trade argument, turned out to originate in some market failure in the domestic economy—some domestic divergence between prices and marginal costs The first-best policy is then to deal with this divergence directly

Public Goods, Prisoners' Dilemmas and the International Political Economy

Abstract: The theory of public goods and prisoners' dilemma games have been widely used to characterize bargaining situations in international political economy. This paper will suggest, using the example of the hegemonic stability thesis with regard to free trade, that there are qualitative differences between public goods and prisoners' dilemmas, leading to several conclusions. First, insofar as international trade has uncooperative aspects, these are more likely to take the form of prisoners' dilemmas than public goods. Second, hegemons should not find free trade to be their first best strategy, particularly when one considers the power of the hegemon within the context of the pure theory of trade. Third, the uncooperative prisoners' dilemma elements in international trade have been exaggerated relative to the incentives for some form of cooperation between the parties to international trade. Fourth, the distinction between prisoners' dilemmas and public goods, though both may lead to uncooperative interaction, is important because the solution strategies, deterrence and compellence, differ in nature and feasibility.

Chapter 12 Trade policies in developed countries

Abstract: Publisher Summary Modern policy-oriented analysis of trade issues in developed countries focuses mainly on five sets of questions. This chapter discusses the differences in the levels of protection among industries. The industry and economy wide effects of trade liberalization on economic welfare, trade, output, employment and the distribution of income are discussed, and the effectiveness of the government policies are introduced for the purpose of assisting the economic adjustment to increased import. The chapter also discusses the economic effects of discriminatory tariff arrangements such as customs unions and the generalized system of preferences. The economic impact of specific nontariff measures, such as quantitative restrictions, preferential government purchasing policies, export, domestic subsidies, countervailing duties, dumping and antidumping duties, and domestic content requirements are reviewed. The chapter further discusses institutional arrangements and policies that maintain order in the international trading system and in the management of trade-policy conflict. Representative studies are cited with a view to establishing the main research results and suggesting issues on which further research is needed.

Trade Liberalization among Major World Trading Areas

Abstract: This book provides a much needed quantitative response to the classic question of who gains and who loses in trade liberalization and shows how important the process is for the global economy. It contributes significantly to the debate concerning trade between developed and developing countries. John Whalley describes and uses a numerical general equilibrium model of world trade to explore issues in the area of trade liberalization among major world trading areas - the European Economic Community, the United States, Japan, and developing countries. His book is unique both in using this framework to analyze world trading patterns, and in considering a number of trading areas simultaneously within the same model. It is able to quantify the merits of alternative actions in international trade policy, the ways that the interests of the EEC, the United States, and Japan are similar and ways in which they differ, and show how the interests of less developed countries are affected by various trade liberalization initiatives. Part I provides a description of the model, data sources and adjustments to basic data, and methods for specification and solution of the model. Part II presents results from model applications along with policy conclusions. Applications include analysis of tariff cutting formulae in the Toyko Round, an evaluation of the Tokyo Round trade agreement, examination of incentives for a retaliatory trade protection 'war' between world trade blocs, and analysis of the impact of protectionist policies on North-South trade.

A public choice model of trade union behaviour and membership

Abstract: It is commonly assumed in the microeconomic literature concerned with trade union behaviour that the union maximises an aggregate utility function defined over homogeneous individuals, and that the level of membership is fixed.' The purpose of this paper is to relax these two assumptions. It is suggested below that trade unions may usefully be treated as political organisations comprising heterogeneous individuals and that the effects of union wage policies on the level of membership should be explicitly incorporated into the model. Consider first the assumption that the union is a homogeneous organisation. This is often a convenient simplification, but observation of the behaviour and government of trade unions suggests it is hardly realistic. Trade unions in the United Kingdom are large groups based on a complex organisational structure comprising an executive, a shop steward system, and a body of rank-and-file members. Once the union is considered as a complex organisation, the question arises as to how members' preferences are transmitted through the hierarchical levels, each of which may have conflicting aims. There are two polar theoretical approaches to this question in the industrial relations literature (Clegg, I980). At one extreme, unions are seen as oligarchies unresponsive to members' wishes. Full-time officials, it is argued, secure a monopoly of power to stay in office with the assistance of low membership participation and apathy. At the other extreme, unions are regarded as organisations which are quasi-democratic due to the presence of informal parties or factions, the growth of workplace organisation, and the existence of voting and postal or workplace balloting. These two polar approaches to trade unions as large organisations may be linked up to parallel economic analyses of organisations. If it is believed that trade unions are oligarchies, then it may be enlightening to apply to unions economic models of bureaucracy, or models of the firm comprising both shareholders and management. Alternatively, if it is believed that trade unions are democratic organisations, then public choice behavioural models may be enlightening. The public choice model is chosen in this paper in preference to modern theories of the firm or of bureaucracies, because it is believed that the public choice model represents a closer first approximation to trade union behaviour in the United Kingdom, although of course some particular unions may better fit the oligarchic model. The second major concern of this paper is to relax the assumption of a fixed level of union membership. The use of a fixed membership assumption in the

Can America compete

Abstract: An examination of the performance of U.S. manufacturing in historical and global perspective indicates that, contrary to recent fears, international trade competition has not induced the deindustrialization of America. During the 1970s the U.S. manufacturing sector fared relatively well compared to its counterparts in other industrual countries and its own post-war track record. Most of its problems in the early 1980s are linked to domestic recession and the strong U.S. dollar. A number of implicit assumptions in the current discussion about U.S. industrial performance are shown in this book to be inappropriatechanges in international trade are not the major reason for the declining share of manufacturing in U.S. employment: even though foreign productive capabilities are catching up with those of the United States, the U.S. comparative advantage in high-technology products has increased. The author looks at these and other issues and seeks to clarify some common misperceptions about U.S. manufacturing. He examines long-term trends and changes since 1973 in U.S. manufacturingemployment, capital formation, research and development expenditures, and output. He looks closely at manufacturing trade flows and their major determinants and at the role of trade in the U.S. manufacturing sector. The last part of the book addresses policy options for the United States, including laissez-faire, matching foreign subsidies, and new industrial policies. Changes in U.S. policies are suggested that might facilitate efficient structural trade adjustment, improve trade policy, and compensate for market failures."

The American disease

Abstract: In this provacative study of the "disease" afflicting American industry today, George Lodge, a distinguished professor at the Harvard Business School, reveals the malady as a psychological disorder, characterized by a refusal to face the facts of interdependence in a competetive world; by a reluctance to confront the grave inadequacies in the operation of our great institutions--business, labor, and government; and by the fact that "leaders do not lead; those with responsibility do not fight. Timidity, born of resignation, discourages change." Lodge begins by defining the disease through its symptoms: failing industries, stubborn unemployment, lagging economic growth, stagnant productivity, overseas competition, focus on short-term financial gain, and, perhaps most telling, the pervasive feeling among Americans that their land of plenty has become a land of want. He examines the gradually changing roles and relationships between government, great corpoations, and trade unions that are nevertheless obscure by traditional and detrimental assumptions, distrust, and a set of ideologies that are increasingly inefficient, ineffective, inconsistent, and irrelevant. And he finds the incoherence of American industrial policy exemplified by the fact the we preach the old virtues of free trade and the sanctity of the market while in actuality we pursue a strategy--including tax incentives and trade subsidies--the misshapes the free market. Based on interviews with more than 150 leaders of the nation's institutions, The American Disease goes beyond diagnosis to offer logical and feasible proposals to cure this dangerous condition. Lodge suggests, for example, that the office of the United States Trade Representative be expanded and strengthened to deal with the growing pressure for protection against imports and with the confusion among our trading partners. He shows why business and labor must work together more closely in a non-adversarial way with federal and local government to determine community needs. He explains why Washington will be forced to direct the future of electric power in America, rather than leave the decisions to fifty different sets of state regulators. And he makes a number of recommendations to alter the ways in which corporations manage themselves and deal with government, and to reduce the social and economic costs that are implicit in these changes. George C. Lodge believes that recovery from our institutional ailments is possible, and this timely and perceptive book offers a resoundingly rational course toward that crucial goal.

The normative theory of international trade

Abstract: Publisher Summary Normative economics is concerned with making welfare judgments about policies and economic events. This chapter discusses government policies. In the case of trade theory, commercial policy-normative economics embraces the study of the welfare consequences of various events when policies are constant. The chapter covers the main areas of normative trade theory, but not fully. The chapter discusses central parts of policy-orientated normative trade theory on the terms of trade argument for protection. It also provides an overview on theory of domestic distortions. A major result has been downgrading the role of trade policy and thus rehabilitating the case for free trade, at least aside from the orthodox optimal tariff argument. Most arguments for protection, other than the terms of trade argument, turned out to originate in some market failure in the domestic economy—some domestic divergence between prices and marginal costs. The first-best policy is then to deal with this divergence directly.

International Trade, Foreign Investment, and the Formation of the Entrepreneurial Class

Abstract: In this paper, I examine the argument that free trade may be harmful to less developed countries, because such international competition inhibits the formation of a local entrepreneurial class.I view the entrepreneur as the manager of the industrial enterprise, as well as the agent who bears the risks associated with industrial production. A two-sector model of a small open economy is developed in which the size of the entrepreneurial class is endogenous.It is shown that the entrepreneurial class is smaller under free trade than would be first-best optimal in the presence of efficient risk-sharing institutions such as stock markets. Nonetheless, there are potential gains from trade, and any protectionist policy that increases the number of entrepreneurs will have deleterious welfare consequences.

An Empirical Test of the Impact of the Threat of U. S. Trade Policy: The Case of Antidumping Duties

Abstract: Importing nations frequently employ instruments of trade policy for the purpose of retaliating against the practices of foreign exporting firms or their governments. These retaliatory actions, which include such measures as antidumping duties and countervailing duties, obviously influence trade patterns when implemented. It might also be argued that such retaliatory trade policies affect trade patterns not only by actual implementation, but also by the threat of implementation. That is, the foreign exporting firm (or government) might incorporate the threat of retaliation by the government of the importing country into its own action and in so doing alter trade patterns. For example, a foreign exporting firm which has been dumping in its export market might lower its margin of dumping' in an attempt to avoid retaliation by the importing country. Here, the mere threat of antidumping duties is sufficient to alter the pattern of trade. The use of retaliatory trade policies has increased in recent years, as the levels of protection afforded by tariffs have been reduced through multilateral trade negotiations and as the trade laws governing the use of these mechanisms have been liberalized. Moreover, it seems likely that import-competing firms will rely increasingly on these measures as they become more familiar with the legal and administrative mechanisms necessary to obtain retaliatory protection. As a result of the increased use of retaliatory measures (as well as other developments to be detailed below), there is reason to believe that foreign exporting firms have increasingly recognized the threat of retaliatory trade restrictions and have adjusted their behavior accordingly. This paper examines the effects of the threat of the imposition of antidumping duties by the United States upon the pricing behavior of firms exporting to the United States during the period 1976-198 1. Moreover, it tests the hypothesis that foreign firms have become more sensitive to the threat of the imposition of antidumping duties over this time period. Before detailing the hypotheses to be tested, it will prove useful to briefly examine the U.S. antidumping mechanism.

The Adjustment Process and the Timing of Trade Liberalization

Abstract: This paper examines the appropriate time path of the tariff rate for a small open economy that has decided to move from protection of import competing industries to free trade. Adjustment costs for moving resources to alternative uses do not provide a rationale for gradual adjustment of the tariff rate because in the absence of distortions, rational optimizing agents will make socially appropriate investment decisions with respect to adjustment when they are qiven correct price signals. Some distortions of the adjustment process imply the desirability of gradual adjustment of the tariff rate to slow adjustment, but other distortions imply the desirability of subsidizing imports in the short run in order to speed movement of resources out of previously protected industries. Concern with the income redistribution effects of reductions in the tariff rate(which usually injure owners of factors in previously protected industries) does provide a general rationale for a gradual move to free trade. The influence of the unemployment consequences of tariff reduction on the appropriate path of commercial policy depends on the nature and shape of the respone of the rate of resource reallocation to the level of unemployment in previously protected industries.

Trade Liberalization among Major World Trading Areas

Abstract: This book provides a much needed quantitative response to the classic question of who gains and who loses in trade liberalization and shows how important the process is for the global economy. It contributes significantly to the debate concerning trade between developed and developing countries.John Whalley describes and uses a numerical general equilibrium model of world trade to explore issues in the area of trade liberalization among major world trading areas - the European Economic Community, the United States, Japan, and developing countries. His book is unique both in using this framework to analyze world trading patterns, and in considering a number of trading areas simultaneously within the same model. It is able to quantify the merits of alternative actions in international trade policy, the ways that the interests of the EEC, the United States, and Japan are similar and ways in which they differ, and show how the interests of less developed countries are affected by various trade liberalization initiatives.Part I provides a description of the model, data sources and adjustments to basic data, and methods for specification and solution of the model. Part II presents results from model applications along with policy conclusions. Applications include analysis of tariff cutting formulae in the Toyko Round, an evaluation of the Tokyo Round trade agreement, examination of incentives for a retaliatory trade protection 'war' between world trade blocs, and analysis of the impact of protectionist policies on North-South trade.John Whalley is Professor of Economics at the University of Western Ontario.

The Adjustment Process and the Timing of Trade Liberalization

Abstract: This paper examines the appropriate time path of the tariff rate for a small open economy that has decided to move from protection of import competing industries to free trade. Adjustment costs for moving resources to alternative uses do not provide a rationale for gradual adjustment of the tariff rate because in the absence of distortions, rational optimizing agents will make socially appropriate investment decisions with respect to adjustment when they are qiven correct price signals. Some distortions of the adjustment process imply the desirability of gradual adjustment of the tariff rate to slow adjustment, but other distortions imply the desirability of subsidizing imports in the short run in order to speed movement of resources out of previously protected industries. Concern with the income redistribution effects of reductions in the tariff rate(which usually injure owners of factors in previously protected industries) does provide a general rationale for a gradual move to free trade. The influence of the unemployment consequences of tariff reduction on the appropriate path of commercial policy depends on the nature and shape of the respone of the rate of resource reallocation to the level of unemployment in previously protected industries.

Beneath the Commerce of Nations: A Theory of International Economic Structures

Abstract: Drawing upon the theory of hegemonic stability, this paper advances a theory of international economic structures. It places particular emphasis on analyzing the whole structure of the international economy, and not simply the absence or presence of hegemony. It finds that there is no axiomatic relationship between hegemony and free trade or declining hegemony and protection. By differentiating between non-hegemonic structures, moreover, the theory of international economic structures also calls into question the appropriateness of the 'British' or '1930' analogy for the future of the present international economy. Finally, the theory is briefly examined through the cases of American trade policy in the inter-war period and the 1970s and early 1980s. The conclusion argues against simplistic analogies between the two periods and maintains that a considerable potential does exist for collective leadership of the international economy in the 1980s. Drawing upon the decline of the Pax Britannica in the late 19th century and the inter-war period, current variants of the theory of hegemonic stability predict that America's declining hegemony will lead to increased economic instability, international conflict and national protectionism. Gilpin, in particular, has argued that there are three possible scenarios for the present and future international economy.

Chapter 9 Uncertainty in trade models

Abstract: Publisher Summary The chapter evaluates variety of models, each involving uncertainty in the context of international trade. Uncertainty has many potential roles in microeconomic models of international trade. It creates a rationale for additional markets and hence both added dimensions for potential gains from trade and a plethora of results contingent upon the particular market structure assumed. In addition, uncertainty arises in issues concerning the existence and form of extra market organizations and institutions. The role of uncertainty, and its policy implications, varies both across models of a given type—considering the advisibility of free trade with and without complete markets—and across types of models. For some purposes, results are preserved by treating trade and production in equities rather than in the traditional physical commodities. In other areas, the presence of uncertainty increases the possible explanations of market failure—considering the role of pecuniary externalities with incomplete markets. In addition, uncertainty is linked to the existence and extent of extra market institutions and organizations. The variety of potential models, even within the context of uncertainty and international trade, suggests that it must forgo the comfort of strong conclusions, either positive or normative. The outcome often depends on the extent of markets and/or the extent of extra market institutions, with their implicit patterns of potential externalities—yet perhaps the justification for the study of international economics is that national boundaries do affect the nature and extent of markets and institutions in many ways.

The timing and sequencing of a trade liberalization policy

Abstract: Assuming that trade liberalization can make a significant contribution to increased efficiency and growth in LDC's, a crucial issue is the sequencing over time of the various policy easures required in an economy starting with a high level of government intervention in trade. This paper delineates the critical elements which would have to be examined in-the determination of an appropriate path, and defines the criteria for such an examination. The major issues raised are: (a) the speed of the process of toplementation of liberalization; in particular, the pros and cons of onestage vs. a multi-stage implementation; .(b) the attributes of the various stages of implementation; and (c) the relationship between import liberalization and other policies in the general sequence of-introduction of policy reforms. The paper also provides areview of the available 2mp1rical Literature on liberalization experience. THE TIMING AND SEQUENCING OF A TRADE LIBERALIZATION POLICY I. SUBJECT MATTER Liberalization policy iR often contemplated as a measure of primary importance, expected to improve the allocation of the economy's resources, lead to greater efficiency, expand the economy's output, and accelerate its growth. The manner in which such policy is introduced the desirable path of policy implementation -should be an inseperable element in the consideration of such policy. Yet, while comprehensive studies concerned with liberalization periods as a whole are available, the problem of phasing and sequencing of trade policy has not usually been addressed either in the empirical investigations or in the analytical literature of liberalization policy. The present paper intends to define the issue of trade-policy sequencing: to identify its major components in a fashion which would make them subject to further study, and in particular to formulate them in a manner which could provide an analytical framework for empirical research. Liberalization policy is defined as actions leading to the contraction of effective protective rates; i.e., the lowering-of the leu'els of such rates, and the reduction of their variance. It should be noted that in an environment of import barriers, in which policieZ are biased in favor of import substitution, the introduction of policies which provide incentives for the production of exportables will constitute such an act of liberalization, as their effect will be to reduce the variance of protection across sectors and move the economy towards a neutral trade regime. A complete liberalization would mean the elimination of all protection (save for a few exceptions to be noted shortly) and a near-zero variance in the system. The term "liberalization policywill be reserved here to actions concerned with

Rent-Seeking and Trade Policy: An Industry Approach

Abstract: The model of rent-seeking presented in this paper is consistent with the observation that labor and management in an industry almost always adopt the same position concerning the desirability of import protection versus trade liberalization. The paper also discusses the size of the returns to rent-seeking relative to the costs of lobbying, factors influencing the type of government assistance sought by an industry, and ways in which the benefits and costs of protection can be made more widely known to both the industries concerned and the general public.

Keynes and Protection

Abstract: The paper traces the development of Keynes's views of free trade and protection and their relationship to British economic policy from 1922 to 1946.“Is there anything that a tariff could do which an earthquake could not do better?”