Three essays on trade policies in developing countries

Abstract

During the past decade, foreign exchange reserves of China and Japan have increased dramatically. For instance, China’s foreign exchange reserve rose from $954.6 billion in January 2007 to $3.5 trillion in April 2016. China and Japan seem to hold large foreign reserves, much more than are necessary to facilitate their imports. The WTO regulates only tariff and various non-tariff barriers but has made little effort to regulate the bilateral exchange rates because exchange rate practices are within the purview of the IMF. At present, the World Trade Organization (WTO) does not treat currency devaluation as a protective trade policy. In my dissertation, I have chosen three topics in the area of international economics. The first chapter argues that currency devaluation is equivalent to an import tariff, and hence currency devaluation should be treated as a trade policy instrument. The second chapter considers the employment effects of currency devaluations in a Keynesian open economy. Currency devaluation may decrease domestic employment and increase the social welfare. Under plausible conditions, the optimal policy is to get rid of domestic unemployment in input sectors. The third chapter investigates the effects of public capital investment in the export sector for the labor movement and capital formation and identifies the contribution of public capital and other economic factors to the productivity growth rate in the firm sector. We show that the optimal tariffs are positive but decrease to the steady state level.