Determinants Of Trade Patterns Research Articles

Why do Similar Countries Choose Different Policies? Endogenous Comparative Advantage and Welfare Gains

Similar countries often choose very different policies and specialize in very distinct industries. This paper proposes a mechanism to explain policy diversity among similar countries from an open economy perspective. I study optimal policies in a two country model when policies affect determinants of trade patterns. I show that welfare gains from trade can provide sufficient incentive for asymmetric equilibrium policies, even if the two countries have identical economic fundamentals. Any asymmetric equilibrium exhibits greater production specialization than the common autarky optimum; this is the source of welfare gains. For this same reason, a more asymmetric Nash equilibrium Pareto dominates a less asymmetric one. I characterize necessary and sufficient conditions for existence of such asymmetric equilibrium. All equilibria are asymmetric if income is sufficiently convex in policy, and production technologies and consumer preferences are not strongly biased in favor of one of the factors of production. As an application, I consider a model where skill distribution is the determinant of trade patterns and the policy in question is education policy. When heterogeneous agents choose their skill levels optimally, optimal skill function is convex in government policy. In this application, the general sufficient condition requires that the education cost of agents is relatively inelastic with respect to skill.

Explaining Trade Flows: Traditional and New Determinants of Trade Patterns

An empirical tradition in international trade seeks to establish whether the predictions of factor abundance theory match with the data. The relation between factor endowments and trade in goods (commodity version of Hecksher-Ohlin) provide mildly encouraging empirical results. But in the analysis of factor service trade and factor endowments (factor content version of HO), the results show that it performs poorly and reject strict HOV models in favor of modifications that allow for technology differences, consumer’s preferences differences, increasing returns to scale or cost of trade. In this paper we test if these “new” determinants help us to improve our estimation of trade patterns in commodities. Since the commodity version allows obtaining a large panel data we also compare two periods, pre and post 1980. We use a Heckman procedure to allow for non linearity in the relation between factors endowments and net exports and between trade intensity and net exports. The results show that adding the “new” determinants of factor content studies help us to improve the prediction of being specialized in the different manufactured products. However specialization according to factor endowments is stronger than ever, especially concerning the specialization according to human capital endowment. Trade patterns are also determined by trade intensity. Here differences in technology, trade policy, transport and transaction costs, explain the difference in trade intensity.

A simple model of service trade with time zone differences

This note proposes a two-country model of service trade that captures the role of time zone differences as a determinant of trade patterns. It is shown that the utilization of communication networks induces dramatic change in industrial structure due to firms taking advantage of time zone differences.

On Chamberlinian‐Ricardian Trade Patterns

AbstractThis study provides a simple, many‐industry model of trade which emphasizes the interaction between cross‐country technical heterogeneity (i.e., a Ricardian aspect) and monopolistic competition among producers of differentiated products (i.e., a Chamberlinian aspect) as determinants of trade patterns. It is shown that the emergence of intra‐industry trade is crucially dependent on the shape of the technology index schedule, which is obtained as a step‐function.

National technology gaps and trade — an empirical study of the influence of globalisation

This paper examines the hypothesis that economic internationalisation is acting to reduce the importance of national technology ‘gaps’ as determinants of trade patterns and performance. The cross-country analysis uses two approaches to assess the dynamic nature of the relationship between national investment in technological capability (proxied by both R&D activity and human capital) and technology-intensive (TI) trade performance. Natural resource endowment and the changing impact of physical capital formation are also investigated. The study includes approximately 48 nations and is based on data from the mid-1970s to 1990. The empirical evidence from one approach undertaken does not support the globalisation hypothesis as national investment in technology and human capital is shown to have maintained its link to international trade success in TI manufactures over the study period. However, the findings of the alternative approach are ambiguous. A positive association between technology investment catch-up and ongoing TI manufacturing trade performance is evident for the newly industrialised economies (NICs), but the results suggest that an inverse relationship may apply for many of the ‘mature’ Western economies.

Determinants of the Commodity Composition of U.S. Trade: A Discriminant Analysis Approach

Using trade and industry data disaggregated to the four-digit S.I.C. level, the paper analyzes various hypotheses related to directions of U.S. international trade. The study concludes that capital intensity, skill intensity, and, to a lesser degree, economies of scale and industry structure are important determinants of trade patterns. Tariffs appear usually to be established against foreign industries that threaten domestic ones, but there exists limited evidence that tariffs can reverse expected directions of trade.

Investment and Trade for a Developing Economy with Economies of Scale in Industry

Economists have long been aware of the importance of increasing returns to scale in many activities, and particularly as the partial determinant of trade patterns. However, the technical problems which arise in attempting to formulate and solve economic models incorporating increasing returns-or, similarly, externalities-are formidable and have led to a concentration on other issues which can be analysed using convex theory. Some of the most interesting problems which are presented by economies of scale concern the nature and scheduling of investment, and thus one of the primary justifications of planning has been the need to take best advantage of increasing returns and externalities. Recently some work on these problems has been done by Weitzman [6], Dixit, Mirrlees and Stern [3], and in a quantitatively-oriented model by Westphal [8]. The present paper is a further attempt to examine planning with increasing returns to scale. It differs from those mentioned in its explicit introduction of trade and in the fact that the economies of scale do not depend on the size of plant, but on the scale of industrial production. This last feature means that the analysis does not focus on the lumpiness of investments, but rather on the inter-industry ramifications of increasing returns. The model specified depicts an underdeveloped country which is gradually investing to build up its industrial sector. Trade is vital to such a country both for the import of capital goods and in order to relieve it of the need to build up all industries in such a way as to balance supply with domestic demand for consumption and inter-industry input requirements. For convenience it is assumed that all capital goods are imported; this interpretation is not, in fact, restrictive because we could view the export surplus as measuring the domestic resources available for investment purposes. The model has been set up to focus our attention on the investment allocation problem in such an economy. For this reason we assume that capital is non-shiftable between industries; in other words once capital has been invested in industry i it cannot subsequently be transferred to industry j. This is not an unreasonable assumption when considering underdeveloped countries, and has the virtue that it emphasizes the inter-industry aspects of development rather than aggregative savings/ investment behaviour. A further feature of the model which emphasizes these issues is the assumption that there is no substitution in production processes, which are specified in terms of known input requirements per unit of output. These input needs fall as output is increased-hence the economies of scale. In fact, one could interpret the reasons underlying the decline in input coefficients rather broadly to incorporate a variety of external economies, learning, or some form of technical progress. Clearly these possibilities could be expanded upon for discussion in their own right, but it suffices for present purposes to use the all-embracing term of increasing returns. Though the usual analytical techniques of optimal control theory do not give sufficient conditions for the optimal path, they do provide ample information about necessary

The Relationship Between the Income and Price Elasticities of Demand for United States Exports

R ECENT empirical studies in international trade, by Junz and Rhomberg [10], Kreinin [14] and in a major contribution, by Houthakker and Magee [6], have stressed the importance of different price and income elasticities of demand for exports and imports among countries as determinants of trade patterns. However, questions as to why such differences in elasticities arise remain open. An important component of the problem is whether the price and income elasticities of demand for individual exporters' products vary systematically across customer markets. This paper attempts partially to address the latter issue by examining the elasticities of United States exports of manufactured goods. The major finding is that a relationship exists between the competitiveness of United States manufactured goods exports in various foreign countries and the nature of the customer market. The result has implications, outlined below, for projections of future United States trade balances.