Essays On The Macroeconomic Effects Of International Trade Policy

"This dissertation is comprised of two essays regarding the way that aggregate economies respond to changes in international trade policy. Both chapters use quantitative models to determine the predicted effects of changes in either tariffs or trade costs on several aggregate variables. In the first chapter, I develop a multi-country heterogeneous firm model to study the aggregate effects of multilateral trade policy over time. The model captures the slow evolution of production and trade networks in response to trade policy as firms make durable and irreversible investments in sourcespecific productive capacity and destination-specific exporting capacity. It also incorporates capital, international assets, firms, and endogenous labor supply while still matching world geography. The model is calibrated to match size and trade flows of the US and its major trade partners as well as the split of trade between consumption, capital, and material goods. I find that the short run fluctuations in the economy following a policy change are a key determinant of the overall gains from trade and that transitions are not simply represented by gradual convergence to a new steady state. Futhermore, I find that the long-run effects of trade are poorly approximated by quantitative models without dynamics. While all the model features are important, the behavior of the domestic economy in the short- and long-run relies most on the semi-fixed trade networks and intertemporal trade incentives. The model is used to evaluate the effects on the US of being left out permanently or temporarily from a world trade liberalization. Being left out is quite costly, with losses in utility concentrated in the initial periods of the liberalization. The second chapter studies the importance of expectations and news regarding trade policy on the macroeconomy. We evaluate the aggregate effects of changes in trade barriers in a model in which trade responds gradually to changes in trade policy and trade policy changes are gradual. Our model offers insights into how changing trade barriers affects the economy and how business cycle shocks can affect trade. We find that a fall in current trade barriers has an expansionary effect while a decline in future trade costs can be recessionary on impact due to a wealth effect. Furthermore, canceling agreed upon declines in barriers is expansionary in the short-run but substantially lowers growth over the medium run. We also find that even controlling for composition, trade tends to lag the recovery in demand for tradables. We propose a method to separately identify expected and unexpected movements in trade costs. A dynamic model of trade requires both aggregate and forward-looking data to accurately identify the source of trade cost variation"--Pages vi-vii.

"This dissertation is comprised of three essays regarding the role of trade barriers for international capital flows and prices. The study aims to understand the effect of changes in trade costs at various aspects: cross-country differentials, global integration, and within-country distributional effects. The first chapter studies the drivers of the US real exchange rate (RER), with a particular focus on its comovement with net trade flows. We consider the entire spectrum of frequencies, as the low-frequency movements account for 83% of the RER's unconditional variance. We introduce a model with heterogeneous firms facing sunk costs of exporting, financial shocks, and trade shocks. The model can fully capture the comovement of the RER and net trade flows at all frequencies, without compromising other major moments at the business cycle frequency. While financial shocks are necessary to capture the RER movements at higher frequencies, trade shocks are essential for lower frequency variation. The second chapter studies the factors accounting for the large, coincident increases in international borrowing and lending and international trade from 1970 to the present. We focus on the rise in annual changes in borrowing and lending across countries as summarized by the rise in the dispersion of the trade balance as a share of GDP. We show that these two salient features - a rise in net and gross international trade - are largely a consequence of a reduction in intratemporal trade barriers rather than a substantial reduction in the frictions on intertemporal trade or greater asymmetries in business cycles. Beyond explaining changes in the distribution of gross and net trade, the fall in frictions on intratemporal trade are consistent with the reduction in dispersion in other key macro time series such as the real exchange rate, terms of trade, and export-import ratio. The third chapter studies the dynamic effect of trade liberalization on wages and consumption, exploiting cross-region variation in the United States at the state level after the U.S.-Korea Free Trade Agreement. A key feature is a theoretically sound measurement of a regional exposure that takes into account the elasticity of substitution and covers all potential channels of tariff impacts. Using the measures for the Local Projection Method, I find that less protection at home is associated with a persistent negative impact: by the 8th quarter, a state at the upper quartile of the barrier cut experienced a decline in wage and consumption that is 1.56 and 1.04 percentage points larger, respectively, than a state at the lower quartile. However, cheaper access to imported inputs has a positive but temporary impact: by the 8th quarter, an upper quartile state experienced an increase in wage and consumption that is 1.62 and 1.45 percentage points larger, respectively. More opportunities to export have little effect."--Pages viii-ix.

My thesis consists of three chapters. The aim of the first two chapters is to investigate the linkages between trade and the cross-country comovement and volatility of GDP growth, while the last chapter is an independent study on how the optimal design of monetary policy depends on the share of labour- and capital-intensive sectors. The first chapter develops a framework to study the effects of international trade on GDP comovement. Using a standard trade-theoretical approach, I first show how the comovement between any pair of countries is linked to shocks affecting both the two countries bilaterally and all other countries. Secondly, I use a calibrated version of the model to assess the importance of the bilateral channel relative to the role of linkages with all other countries. The second chapter investigates whether and how openness to trade may affect macroeconomic volatility. While greater openness provides a powerful channel for transmission of foreign disturbances, it also lowers the exposure to domestic shocks. My co-authors and I show that as long as the volatility of trading partners and covariance of shocks across countries are not too large, trade can act as a channel for the diversification of country-specific shocks and in that way contribute to lower volatility. The third chapter examines what is the optimal measure of inflation in a two-sector economy with nominal frictions, where sectors differ in labour intensity. I find that a welfare-oriented central bank should follow more closely the developments in the less labour-intensive sector. The source of this bias is traced back to a greater sensitivity of the marginal product of labour in that sector, so that output dispersion caused by nominal rigidities generates higher efficiency losses where labour is relatively less abundant.

This volume, a tribute by a group of distinguished economists to the scholarly achievements of Carlos Diaz-Alejandro, examines five areas to which he made important contributions. These economists have been close associates whose own research has been much influenced by his capacity to stimulate and innovate in a variety of subjects. Section 1, on International Trade, reflects his concern with the limits of orthodox analysis, and the need to consider an imperfect world. Section 2 treats an area in which he made early and important contributions, Foreign Investment. The papers provide simple models that have strong policy implications. The contributors to the third section agree on the gravity of the Debt Crisis, and the inability of even strong policy performance by the debtor countries to avert it. Section 4 deals with stabilization and macro-economic policies in the Latin American context. The papers are unified by the need for non-orthodox policies to cope with non-orthodox situations, a conclusion that Carlos regularly reached. The last section, on Economic History, contains a range of papers that give testimony to the breadth of Carlos' interests in this field.

Non-Tariff Barriers, Regionalism and Poverty is a collection of key articles in three important areas of applied international trade research: measuring non-tariff barriers and their effects, the consequences of regional trading arrangements, especially on the countries excluded from them, and the connection between international trade and poverty. Drawing from 30 years of research and experience, L Alan Winters illustrates the development of techniques of this field and his continued commitment to answering real policy questions at the times at which they are debated. The collection shows the ways in which economic and econometric analysis can be used to answer real-world problems rigorously in the area of international trade and trade policy. Readers will find that some of the research included is of current methodological relevance and some of more historical significance. This volume is invaluable to anyone who is keen on developing their knowledge on trade policy, regionalism or poverty — three pressing issues in today's globalized world.

Trade, Stability, and Macroeconomics: Essays in Honor of Lloyd A. Metzler provides information pertinent to the fundamental aspects of trade, stability, and macroeconomics. This book covers a variety of topics, including nontraded and intermediate commodities, prices, production, exchange rates, and wages. Organized into five parts encompassing 22 chapters, this book begins with an overview of the theory of international trade and the effect of a tariff or export tax on domestic prices. This text then defines the supply of the international commodities as a function of their prices and of the output of the domestic commodity. Other chapters consider the Stolper–Samuelson analysis of the effects of protection of the distribution of income. This book discusses as well the theory of external–internal balance or the assignment problem as related to macroeconomic policy in an open economy. The final chapter deals with the dynamic allocation of scarce resources. This book is a valuable resource for economists.

The overarching theme of this dissertation is the analysis of institutional and macroeconomic factors that shape and interact with international trade. Chapters 1, 2 and 4 of this dissertation examine how institutional arrangements impact trade policy decisions and bilateral trade flows, while chapter 3 analyzes how the structural composition of trade affects macroeconomic development. Chapters 1 and 2 focus on the emergence of trade disputes in the World Trade Organization (WTO). Starting out in chapter 1 with a thorough stylized facts analysis of the usage pattern of the WTO dispute settlement mechanism, chapter 2 develops and empirically tests a model of members' selection into WTO disputes which can account for a number of key discoveries in the data. In particular, I extend the standard WTO theory by incorporating a link between endogenous trade policy formation and agreement violation and dispute filing decisions. I show that countries are more likely to engage in trade disputes as complainants or defendants when they have a small ``tariff overhang'', which represents the difference between bound tariffs (by WTO negotiations) and the actually applied tariffs. Chapter 3 considers the question whether the structure of a nation's trade flows has a clear-cut effect on economic growth. In the growth determinants literature, numerous alternative candidate regressors have been motivated by alternative theories but not one trade regressor has been robustly related to growth. Instead of relying on aggregate trade measures as previous studies, chapter 3 proposes a structured approach and examines the diversity of sectoral exports as a potential growth determinant. Controlling for model uncertainty and endogeneity, chapter 3 shows that export diversity serves as a crucial growth determinant for low income countries, an effect that weakens with the level of development. Chapter 4 examines to what extent underlying differences in the design of preferential trade agreements (PTAs) are responsible for the observed heterogeneity in PTA effects on bilateral trade flows. Controlling in the estimation framework for multilateral resistance terms and bilateral heterogeneity to reduce omitted variable and endogeneity biases, chapter 4 shows that PTAs focusing on goods trade liberalization and the legal enforceability of agreement provisions are most successful in raising trade flows. Moreover, countries' efforts to harmonize product standards and other regulations decrease bilateral trade flows, at least initially. The results also show that the underlying agreement dimension effects mostly operate through the intensive margin of trade.

Research papers, economic policy, economic development, India - examines development policy, trade policy, balance of payments, agricultural policy, inflation, income distribution, economic planning, productivity policy, etc.; studies the repercussions on employment, basic needs fulfilment, low income families, etc; evaluates the impact on developing countries of development aid, economic aid and economic cooperation.

Gottfried Haberler's contributions to the field of international trade and finance began in the 1920s with a seminal paper on comparative costs. His continuing contributions to open economy analysis, development, business cycles and inflation, the theory of money, and rational expections are highlighted in this selection of 27 essays spanning the years 1925 to 1980. The essays are divided into five major sections, representing the subdisciplines of Haberler's most significant work. The first section on international trade contains his work on comparative costs, comparative advantage, and the location of production and international trade. A section on international finance deals with the state of the international monetary system under conditions of world recession, control over international reserve, U.S. balance-of-payments policy, currency depreciation and the terms of trade, and transfer and price movements. The topic of inflation and business cycles is covered in the third section, with essays on income policies, stagflation, and the Great Depression, and the international transmission of inflation. Section four deals with economic development, and the concluding section contains essays on the theory of money and general macroeconomic theory. Several articles are translated here for the first time and there is a complete bibliography of Haberler's work up to 1980. Gottfried Haberler is Professor Emeritus of Economics, Harvard University, and Resident Scholar at the American Enterprise Institute. Anthony Koo is Professor of Economics at Michigan State University.

Demonstrates the essential connection between theoretical academic research and the creation of economic policy, reflecting his belief that the study of economics should lead to improvement of the social order and of the quality of human life. Herbert Giersch is one of Germany's most prominent economists and an outstanding contributor to the debate on European economic policy. Openness for Prosperity brings together his major essays in macroeconomic policy, written or published over the past two and a half decades. In these twenty nontechnical essays, Giersch clearly demonstrates the essential connection between theoretical academic research and the creation of economic policy, reflecting his belief that the study of economics should lead to improvement of the social order and of the quality of human life. Some of the policy positions that Giersch favors are free trade, limits to government, and openness of economies to future possibilities.The chapters are arranged in two parts with the first focusing on economic growth and structural change and the second on issues of monetary policy, inflation, and exchange rates. The essays are arranged chronologically according to the dates of publication or writing to suggest how topics and emphases have changed over time.The first part, reflecting Giersch's support of Schumpeter's views, includes essays on aspects of growth, protectionism in foreign trade, the role of entrepreneurship in the 1980s, prospects and problems for European economic integration in the 1990s, the lessons to be learned from West Germany's transition to a market economy, and the author's vision of the European and world economies at the end of this century. In the second part, essays address such issues as flexible exchange rates, indexation, IMF surveillance over exchange rates, neglected aspects of inflation, the effect of central bank independence on monetary policy, and the relationship between real exchange rates and comparative economic growth.