Michelle R. Garfinkel, S. Skaperdas, Constantinos Syropoulos
We augment the canonical neoclassical model of trade to allow for interstate disputes over land, oil, water, or other resources. The costs of such disputes in terms of arming depend on the trade regime in place. Under either autarky or free trade, the larger country (in terms of factor endowments) need not to be more powerful. Yet, under free trade, there is a stronger tendency for arming incentives to be equalized and thus for a “leveling of the playing field.�? Depending on world prices, free trade can intensify arming incentives to such an extent that the additional security costs swamp the traditional gains from trade and thus render autarky more desirable for one or both rival states. Furthermore, contestation of resources can reverse a country’s apparent comparative advantage relative to its comparative advantage in the absence of conflict. And, where such conflict is present, comparisons of autarkic prices to world prices could be inaccurate predictors of trade patterns.
{"title":"International Trade and Transnational Insecurity: How Comparative Advantage and Power are Jointly Determined","authors":"Michelle R. Garfinkel, S. Skaperdas, Constantinos Syropoulos","doi":"10.2139/ssrn.1427142","DOIUrl":"https://doi.org/10.2139/ssrn.1427142","url":null,"abstract":"We augment the canonical neoclassical model of trade to allow for interstate disputes over land, oil, water, or other resources. The costs of such disputes in terms of arming depend on the trade regime in place. Under either autarky or free trade, the larger country (in terms of factor endowments) need not to be more powerful. Yet, under free trade, there is a stronger tendency for arming incentives to be equalized and thus for a “leveling of the playing field.�? Depending on world prices, free trade can intensify arming incentives to such an extent that the additional security costs swamp the traditional gains from trade and thus render autarky more desirable for one or both rival states. Furthermore, contestation of resources can reverse a country’s apparent comparative advantage relative to its comparative advantage in the absence of conflict. And, where such conflict is present, comparisons of autarkic prices to world prices could be inaccurate predictors of trade patterns.","PeriodicalId":14396,"journal":{"name":"International Trade","volume":"5 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2009-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75605986","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Following a submission by Brazil at the WTO General Council meeting in Febraury 2008, on the potentially disastrous implications of the MFN provisions in the initialled EPAs between the EU and many ACP States, the debate has increasingly continued as to the undermining effects of the provisions on South-South trade cooperation under the Enabling Clause. Some comments have indeed underscored the potential utility of these provisions in securing for ACP States, simpler rules of origin that may be conceded by the EU in a subsequent FTA with more powerful negotiating countries than the ACP States. This paper follows a different approach to the debate by examining the legality of the MFN clauses in the EPAs rather than the abundant policy-driven debates as earlier depicted. The paper will review the legality of the MFN clause as it could impact on cooperation under the enabling clause. It will also delve into what seems a ‘settled area’, when it reviews the legality of the MFN clause in classical FTAs, questioning the purport of the MFN clause to automatically confer on non-parties to an agreements rights that are negotiated for and having corresponding obligations in a parallel agreement.
{"title":"Legal Issues on the Validity of the MFN Clauses in the EPAs","authors":"A. Ukpe","doi":"10.2139/SSRN.1400023","DOIUrl":"https://doi.org/10.2139/SSRN.1400023","url":null,"abstract":"Following a submission by Brazil at the WTO General Council meeting in Febraury 2008, on the potentially disastrous implications of the MFN provisions in the initialled EPAs between the EU and many ACP States, the debate has increasingly continued as to the undermining effects of the provisions on South-South trade cooperation under the Enabling Clause. Some comments have indeed underscored the potential utility of these provisions in securing for ACP States, simpler rules of origin that may be conceded by the EU in a subsequent FTA with more powerful negotiating countries than the ACP States. This paper follows a different approach to the debate by examining the legality of the MFN clauses in the EPAs rather than the abundant policy-driven debates as earlier depicted. The paper will review the legality of the MFN clause as it could impact on cooperation under the enabling clause. It will also delve into what seems a ‘settled area’, when it reviews the legality of the MFN clause in classical FTAs, questioning the purport of the MFN clause to automatically confer on non-parties to an agreements rights that are negotiated for and having corresponding obligations in a parallel agreement.","PeriodicalId":14396,"journal":{"name":"International Trade","volume":"11 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2009-05-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89116407","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Bilateral investment treaties (BITs) are instruments that aim at promoting and protecting foreign direct investment (FDI). Switzerland holds a leading position worldwide with regard to the negotiation and conclusion of BITs: The Swiss government has ratified 113 of such treaties so far, which means that about every 23rd BIT worldwide is concluded between Switzerland and a third state. Other alternatives for the protection of FDI include (i) political risk insurance (PRI), such as multilateral and national investment guarantees or private investment insurances, (ii) traditional diplomatic protection, and (iii) state contracts, such as concession agreements.The purpose of this paper is to analyze the importance of BITs as well as alternative instruments to safeguard FDI from an entrepreneurial perspective, and to verify whether Swiss enterprises investing abroad appreciate the efforts undertaken by their government. In this endeavor, the first part of the paper outlines the theoretical framework of different instruments offering political risk protection for FDI. The second part of the paper presents the results of an empirical analysis conducted in Switzerland. In this part, a qualitative analysis through explorative and semi-structured interviews, as well as a quantitative analysis using a two-page questionnaire was conducted.The results of the study indicate that BITs are accepted instruments to safeguard FDI in the community of states, and BITs will remain important to private sector companies as long as no multilateral agreement emerges. Particularly small and medium-sized enterprises (SMEs) appreciate these treaties, while state contracts seem to be the most important alternative to BITs, and PRI schemes are fairly unpopular among Swiss enterprises. Although the relationship between BITs and PRI is by far not clear, it is widely acknowledged among practitioners that there is a need for comprehensive strategies, including PRIs in the first place followed by BITs as well as other international institutions.
{"title":"The Role of Bilateral Investment Treaties (BITs) in Switzerland: Importance and Alternatives from an Entrepreneurial Perspective","authors":"Valentin Jentsch","doi":"10.2139/ssrn.1400747","DOIUrl":"https://doi.org/10.2139/ssrn.1400747","url":null,"abstract":"Bilateral investment treaties (BITs) are instruments that aim at promoting and protecting foreign direct investment (FDI). Switzerland holds a leading position worldwide with regard to the negotiation and conclusion of BITs: The Swiss government has ratified 113 of such treaties so far, which means that about every 23rd BIT worldwide is concluded between Switzerland and a third state. Other alternatives for the protection of FDI include (i) political risk insurance (PRI), such as multilateral and national investment guarantees or private investment insurances, (ii) traditional diplomatic protection, and (iii) state contracts, such as concession agreements.The purpose of this paper is to analyze the importance of BITs as well as alternative instruments to safeguard FDI from an entrepreneurial perspective, and to verify whether Swiss enterprises investing abroad appreciate the efforts undertaken by their government. In this endeavor, the first part of the paper outlines the theoretical framework of different instruments offering political risk protection for FDI. The second part of the paper presents the results of an empirical analysis conducted in Switzerland. In this part, a qualitative analysis through explorative and semi-structured interviews, as well as a quantitative analysis using a two-page questionnaire was conducted.The results of the study indicate that BITs are accepted instruments to safeguard FDI in the community of states, and BITs will remain important to private sector companies as long as no multilateral agreement emerges. Particularly small and medium-sized enterprises (SMEs) appreciate these treaties, while state contracts seem to be the most important alternative to BITs, and PRI schemes are fairly unpopular among Swiss enterprises. Although the relationship between BITs and PRI is by far not clear, it is widely acknowledged among practitioners that there is a need for comprehensive strategies, including PRIs in the first place followed by BITs as well as other international institutions.","PeriodicalId":14396,"journal":{"name":"International Trade","volume":"54 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2009-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87606580","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The record of traditional safeguard provisions of the General Agreement on Tariffs and Trade and the World Trade Organization provides useful information about how a special agricultural safeguard might be made effective. The success of existing safeguard or flexibility provisions to sustain long-run liberalization programs stems from their requiring objective, transparent, and participatory decisions on the application of the import restrictions they allow. The proposed special agricultural safeguard expands by arithmetic formula the bounds within which a Member may impose a new import restriction. Analysis reported here suggests that the formulas provide a poor guide for policy, indicating that they would frequently prescribe action that is not needed and fail to prescribe action when it would be appropriate. Analysis of the existing agricultural safeguard, to which the special agricultural safeguard is similar, indicates that it has functioned not as an allowance for occasional response to unusual situations but as an expansion of the limits Members have accepted through tariff bindings. To be useful, the special agricultural safeguard should do more than provide formulas for import restrictions. It should provide for objective and participatory processes that would bring forward relevant information and guide an objective and balanced accounting of the interests at play.
{"title":"A Special Safeguard Mechanism for Agricultural Imports and the Management of Reform","authors":"J. Finger","doi":"10.1596/1813-9450-4927","DOIUrl":"https://doi.org/10.1596/1813-9450-4927","url":null,"abstract":"The record of traditional safeguard provisions of the General Agreement on Tariffs and Trade and the World Trade Organization provides useful information about how a special agricultural safeguard might be made effective. The success of existing safeguard or flexibility provisions to sustain long-run liberalization programs stems from their requiring objective, transparent, and participatory decisions on the application of the import restrictions they allow. The proposed special agricultural safeguard expands by arithmetic formula the bounds within which a Member may impose a new import restriction. Analysis reported here suggests that the formulas provide a poor guide for policy, indicating that they would frequently prescribe action that is not needed and fail to prescribe action when it would be appropriate. Analysis of the existing agricultural safeguard, to which the special agricultural safeguard is similar, indicates that it has functioned not as an allowance for occasional response to unusual situations but as an expansion of the limits Members have accepted through tariff bindings. To be useful, the special agricultural safeguard should do more than provide formulas for import restrictions. It should provide for objective and participatory processes that would bring forward relevant information and guide an objective and balanced accounting of the interests at play.","PeriodicalId":14396,"journal":{"name":"International Trade","volume":"44 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2009-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83254274","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper discusses the political economy behind the principal trade policy decisions in Russia since independence. I discuss why export restraints were widely employed in the early transition years and why the export quotas proved more difficult to remove than anticipated. Why it was so difficult to resolve the monetary basis for the collapse in trade among the newly independent states. Why the search for rents for Russian industry motivated the creation of a customs union among selected countries in the Commonwealth of Independent States, but also proved its undoing. How Russian leaders initially were exceptionally insightful in seeing WTO accession as a golden opportunity for domestic reform, but why in recent years they have turned to industrial policy for diversification. I discuss the possibly unique political economy of Russia in which political contributions are extracted without political influence.
{"title":"Political Economy of Russian Trade Policy: Early Transition, Customs Unions, WTO Accession and Protection for Industrial Diversification","authors":"David G. Tarr","doi":"10.2139/ssrn.1396813","DOIUrl":"https://doi.org/10.2139/ssrn.1396813","url":null,"abstract":"This paper discusses the political economy behind the principal trade policy decisions in Russia since independence. I discuss why export restraints were widely employed in the early transition years and why the export quotas proved more difficult to remove than anticipated. Why it was so difficult to resolve the monetary basis for the collapse in trade among the newly independent states. Why the search for rents for Russian industry motivated the creation of a customs union among selected countries in the Commonwealth of Independent States, but also proved its undoing. How Russian leaders initially were exceptionally insightful in seeing WTO accession as a golden opportunity for domestic reform, but why in recent years they have turned to industrial policy for diversification. I discuss the possibly unique political economy of Russia in which political contributions are extracted without political influence.","PeriodicalId":14396,"journal":{"name":"International Trade","volume":"20 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2009-04-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81600687","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2009-04-29DOI: 10.1111/j.1467-9701.2009.01167.x
M. Jansen, R. Piermartini
Empirical evidence on migration and trade has established that permanent migration promotes trade. This finding has been interpreted as proof for the role of migrants in reducing trade-related transaction costs such as contract enforcement costs or information costs. This paper contributes to improving our understanding of trade-related transaction costs by analysing empirically whether temporary migrants, like permanent migrants, have an impact on bilateral trade flows. Temporary migrants can be expected to be less integrated in the host country than permanent migrants. At the same time, their knowledge of the home country can, on average, be expected to be more up-to-date. Our findings therefore give insights as to the relative importance of knowledge on the host and the home country for trade-related transaction costs. Using a gravity approach in our empirical analysis, we find that temporary migration has a positive and significant effect on trade and that temporary migration tends to have a stronger and more significant effect on both imports and exports than permanent migration. Interestingly, the role of temporary migrants in reducing trade costs does not appear to be associated with their skills.
{"title":"Temporary Migration and Bilateral Trade Flows","authors":"M. Jansen, R. Piermartini","doi":"10.1111/j.1467-9701.2009.01167.x","DOIUrl":"https://doi.org/10.1111/j.1467-9701.2009.01167.x","url":null,"abstract":"Empirical evidence on migration and trade has established that permanent migration promotes trade. This finding has been interpreted as proof for the role of migrants in reducing trade-related transaction costs such as contract enforcement costs or information costs. This paper contributes to improving our understanding of trade-related transaction costs by analysing empirically whether temporary migrants, like permanent migrants, have an impact on bilateral trade flows. Temporary migrants can be expected to be less integrated in the host country than permanent migrants. At the same time, their knowledge of the home country can, on average, be expected to be more up-to-date. Our findings therefore give insights as to the relative importance of knowledge on the host and the home country for trade-related transaction costs. Using a gravity approach in our empirical analysis, we find that temporary migration has a positive and significant effect on trade and that temporary migration tends to have a stronger and more significant effect on both imports and exports than permanent migration. Interestingly, the role of temporary migrants in reducing trade costs does not appear to be associated with their skills.","PeriodicalId":14396,"journal":{"name":"International Trade","volume":"118 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2009-04-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"72988066","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2009-04-27DOI: 10.1111/j.1467-9396.2009.00827.x
T. Furusawa
International cooperation in trade policies under the auspices of the WTO makes countries “feel” more obliged to uphold agreements. The paper emphasizes the role of the WTO to give moral support: countries incur “psychological costs” when they renege on the agreements that are formally signed under the WTO. Using the concept of Kandori's (2003) “morale equilibrium,” we formalize this idea and show that countries can agree on a cooperative level of the binding tariffs but they occasionally deviate from the agreement, which lowers the morale and invites further deviations in the future.
{"title":"WTO as Moral Support","authors":"T. Furusawa","doi":"10.1111/j.1467-9396.2009.00827.x","DOIUrl":"https://doi.org/10.1111/j.1467-9396.2009.00827.x","url":null,"abstract":"International cooperation in trade policies under the auspices of the WTO makes countries “feel” more obliged to uphold agreements. The paper emphasizes the role of the WTO to give moral support: countries incur “psychological costs” when they renege on the agreements that are formally signed under the WTO. Using the concept of Kandori's (2003) “morale equilibrium,” we formalize this idea and show that countries can agree on a cooperative level of the binding tariffs but they occasionally deviate from the agreement, which lowers the morale and invites further deviations in the future.","PeriodicalId":14396,"journal":{"name":"International Trade","volume":"5 1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2009-04-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89360196","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2009-04-27DOI: 10.1111/j.1749-124X.2009.01141.x
C. Lau, K. To, Zhiming Zhang, Jing Chen
This paper attempts to explore key determinants of competitiveness in the textile and apparel industries, with special reference to Chinese Mainland. The authors conduct a survey that is designed to use productivity, supply-side and demand-side determinants to measure enterprises' competitiveness. The collected survey data is then analyzed using factor analysis to capture the related determining factors indicative of competitiveness at the enterprise level. The findings demonstrate that government policies and related industry infrastructure are the most important determinants of competitiveness in the textile and apparel industries, followed by domestic demand. This suggests that the improvement of industry infrastructure can foster industry performance, and that more resources should be endowed to enhance the domestic business competitiveness of local enterprises. The development of domestic demand will foster the competitiveness of the textile and apparel industries on a more sustainable basis.
{"title":"Determinants of Competitiveness: Observations in China's Textile and Apparel Industries","authors":"C. Lau, K. To, Zhiming Zhang, Jing Chen","doi":"10.1111/j.1749-124X.2009.01141.x","DOIUrl":"https://doi.org/10.1111/j.1749-124X.2009.01141.x","url":null,"abstract":"This paper attempts to explore key determinants of competitiveness in the textile and apparel industries, with special reference to Chinese Mainland. The authors conduct a survey that is designed to use productivity, supply-side and demand-side determinants to measure enterprises' competitiveness. The collected survey data is then analyzed using factor analysis to capture the related determining factors indicative of competitiveness at the enterprise level. The findings demonstrate that government policies and related industry infrastructure are the most important determinants of competitiveness in the textile and apparel industries, followed by domestic demand. This suggests that the improvement of industry infrastructure can foster industry performance, and that more resources should be endowed to enhance the domestic business competitiveness of local enterprises. The development of domestic demand will foster the competitiveness of the textile and apparel industries on a more sustainable basis.","PeriodicalId":14396,"journal":{"name":"International Trade","volume":"13 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2009-04-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87923352","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2009-04-27DOI: 10.1111/j.1467-9396.2009.00826.x
Eiji Horiuchi, Jota Ishikawa
We examine the relationship between tariffs and technology transfer from the North to the South in an oligopolistic model. Technology is embodied in a key component which only the North firm can produce. Interestingly, a decrease in the tariff on the final good as well as an increase may induce technology transfer. If the South subsidizes the final-good production or imports of the intermediate good, technology transfer is also facilitated. However, the welfare effects are different between tariffs and subsidies. Our analysis suggests that the South should take pro-competitive policies to induce technology transfer and enhance welfare.
{"title":"Tariffs and Technology Transfer through an Intermediate Product","authors":"Eiji Horiuchi, Jota Ishikawa","doi":"10.1111/j.1467-9396.2009.00826.x","DOIUrl":"https://doi.org/10.1111/j.1467-9396.2009.00826.x","url":null,"abstract":"We examine the relationship between tariffs and technology transfer from the North to the South in an oligopolistic model. Technology is embodied in a key component which only the North firm can produce. Interestingly, a decrease in the tariff on the final good as well as an increase may induce technology transfer. If the South subsidizes the final-good production or imports of the intermediate good, technology transfer is also facilitated. However, the welfare effects are different between tariffs and subsidies. Our analysis suggests that the South should take pro-competitive policies to induce technology transfer and enhance welfare.","PeriodicalId":14396,"journal":{"name":"International Trade","volume":"8 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2009-04-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74049885","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2009-04-27DOI: 10.1111/j.1467-9396.2009.00829.x
Eric W. Bond, Robert A. Driskill
We examine the conditions for multiplicity of equilibrium in a dynamic, two-country model of trade with a durable good of the type proposed by Shimomura (1993, 2004 ). If trade must balance in each period, we show that there will be a unique autarkic steady-state equilibrium and that the principle of comparative advantage will hold if the nondurable good is not inferior. A necessary condition for the existence of multiple steady-state equilibria with free trade is that the marginal propensity to consume a good be higher in the exporting country. We provide an example with three steady states where the "extreme" steady states are saddle points and the "middle" steady state will be either a source or a sink, depending on the intertemporal elasticity of substitution. If there is international lending, this example has the property that there is a range of initial endowments for which there are three distinct and Pareto-optimal (saddle) paths that can be equilibria. We also show that there must be a unique saddle path from any endowment point with international capital markets when preferences are identical, homothetic, and have constant intertemporal elasticity of substitution. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.
{"title":"Income Effects, Wealth Effects, and Multiple Equilibria in Trade Models with Durable Goods","authors":"Eric W. Bond, Robert A. Driskill","doi":"10.1111/j.1467-9396.2009.00829.x","DOIUrl":"https://doi.org/10.1111/j.1467-9396.2009.00829.x","url":null,"abstract":"We examine the conditions for multiplicity of equilibrium in a dynamic, two-country model of trade with a durable good of the type proposed by Shimomura (1993, 2004 ). If trade must balance in each period, we show that there will be a unique autarkic steady-state equilibrium and that the principle of comparative advantage will hold if the nondurable good is not inferior. A necessary condition for the existence of multiple steady-state equilibria with free trade is that the marginal propensity to consume a good be higher in the exporting country. We provide an example with three steady states where the \"extreme\" steady states are saddle points and the \"middle\" steady state will be either a source or a sink, depending on the intertemporal elasticity of substitution. If there is international lending, this example has the property that there is a range of initial endowments for which there are three distinct and Pareto-optimal (saddle) paths that can be equilibria. We also show that there must be a unique saddle path from any endowment point with international capital markets when preferences are identical, homothetic, and have constant intertemporal elasticity of substitution. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.","PeriodicalId":14396,"journal":{"name":"International Trade","volume":"76 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2009-04-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90081324","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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