Production Of Traded Goods Research Articles

Determinants of Services Trade Agreement Membership

Since about a decade, we have seen a surge in interest as well as in the use of services preferentialism and unilateral services regulations. This paper provides an economic explanation of services regulation and services preferentialism, including their interaction. The paper derives hypotheses based on a numerical welfare analysis where tradable services are treated as a secondary (produced) input in the production of tradable goods. Apart from hypotheses on the emergence of services trade agreements (STAs), the paper derives ones on the stringency of unilateral services provision- a general services trade restrictiveness. For instance, one of the hypotheses is that services trade restrictiveness is endogenous, and it is aligned with economic fundamentals. Another hypothesis suggests that countries are more likely to participate in STAs if the partners' general, unilateral services trade restrictiveness is more similar to theirs. These and other hypotheses are supported by data.

Income Distribution, Factor Endowments, and Trade Revisited: The Role of Non-Tradable Goods

AbstractWe return to the traditional theme of the distributive consequences of international prices and trade policies, focusing on economies relatively abundant in natural resources with a large non-tradable-goods sector. Changes in international prices create an aggregate demand effect which impacts on the earnings of factors employed in the non-traded goods sector. We show that, in economies highly specialized in the production of tradable goods and where the import-competing sector is small, under standard assumptions, terms-of- trade shifts have a neutral effect on factor prices and thus lack distributive effects, quite differently from Stolper-Samuelson scenarios. In economies with sizable import-competing sectors and two “urban” productive factors (e.g. skilled and unskilled labor), changes in the terms of trade do induce distributional tensions through two channels: (i) the exogenous shift in the relative price of tradable goods, and (ii) the endogenous displacement of the demand for non-tradables. We illustrate how, according to the structure of the economy, different patterns of income distribution may arise. Next, we analyze the introduction of trade duties. Trade taxes change relative prices between tradable goods as a terms-of-trade shock does, but also introduce an additional demand mechanism, that depends on the use the government gives to the revenues. If the tax revenues are transferred back to the private sector, the resulting reallocation of spending favors those factors used intensively in the production of non-tradables.

The Competitiveness in the Light of the Balassa-Samuelson Effect

The paper aims to analyze the influence of the Balassa-Samuleson effect on the competitiveness of Bosniaand Herzegovina. As we know, theBalassa and Samuelson argue that developing economies have an appreciating currency, because they have relatively high inflation due to higher productivity growth in the production of tradable goods. This problem has existed, more or less, in all transitional countries in the EasternEurope, and it was particularly stressed in the countries with a fixed exchange rate. This paper just shows that in Bosnia and Herzegovina, in which monetary policy operates on the principles of "currency board", there is an extremely high influence of theBalassa-Samuelson effect, which leads not only to make a competitive position on the international market worse, but it brings up the question of sustainability of the existing currency board system.

Input Substitution, Export Pricing, and Exchange Rate Policy

This paper develops a small open economy model with sticky prices to show why a flexible exchange rate policy is not desirable in East Asian emerging market economies. We argue that weak input substitution between local labor and import intermediates in traded goods production and extensive use of foreign currency in export pricing in these economies can help to explain this puzzle. In the presence of these two trade features, the adjustment role of the exchange rate is inhibited, so even a flexible exchange rate cannot stabilize the real economy in face of external shocks. Instead, due to the high exchange rate pass-through, exchange rate changes will lead to instability in both inflation and production cost. As a result, a fixed exchange rate may dominate a monetary policy rule with high exchange rate flexibility in terms of welfare. In a sense, our finding provides a rationale for the fear of floating phenomenon in these economies. That is, fear of floating may be central banks' rational reaction when these economies are constrained by the trade features mentioned above.

Aid and Dutch Disease in Sub-Saharan Africa

International aid has an ambiguous effect on the macroeconomy of the recipient country. To the extent that aid raises consumer expenditure, there will be some real exchange rate appreciation and a shift of resources away from traded goods production and into non-traded goods production. However, aid for investment in the traded goods sector can mitigate this effect. Also, a relatively high level of productivity in the non-traded goods sector combined with a high level of investment will tend to depreciate the real exchange rate. We examine aid inflows in twenty-six Sub-Saharan African countries and find a variety of macroeconomic responses. Some of the variation in the responses can be explained by variation in observable country characteristics; this has implications for donor policy.

Productivity of Nations: A Stochastic Frontier Approach to TFP Decomposition

This Paper Tackles the Problem of Aggregate TFP Measurement Using Stochastic Frontier Analysis (SFA). Data From Penn World Table 6.1 are Used to Estimate a World Production Frontier For a Sample of 75 Countries Over a Long Period (1950-2000) Taking Advantage of the Model Offered By Battese and Coelli (1992). We Also Apply the Decomposition of TFP Suggested By Bauer (1990) and Kumbhakar (2000) to a Smaller Sample of 36 Countries Over the Period 1970-2000 in Order to Evaluate the Effects of Changes in Efficiency (Technical and Allocative), Scale Effects and Technical Change. This Allows Us to Analyze the Role of Productivity and Its Components in Economic Growth of Developed and Developing Nations in Addition to the Importance of Factor Accumulation. Although not Much Explored in the Study of Economic Growth, Frontier Techniques Seem to Be of Particular Interest For That Purpose Since the Separation of Efficiency Effects and Technical Change Has a Direct Interpretation in Terms of the Catch-Up Debate. The Estimated Technical Efficiency Scores Reveal the Efficiency of Nations in the Production of Non Tradable Goods Since the GDP Series Used is Ppp-Adjusted. We Also Provide a Second Set of Efficiency Scores Corrected in Order to Reveal Efficiency in the Production of Tradable Goods and Rank Them. When Compared to the Rankings of Productivity Indexes Offered By Non-Frontier Studies of Hall and Jones (1996) and Islam (1995) Our Ranking Shows a Somewhat More Intuitive Order of Countries. Rankings of the Technical Change and Scale Effects Components of Tfp Change are Also Very Intuitive. We Also Show That Productivity is Responsible For Virtually All the Differences of Performance Between Developed and Developing Countries in Terms of Rates of Growth of Income Per Worker. More Important, We Find That Changes in Allocative Efficiency Play a Crucial Role in Explaining Differences in the Productivity of Developed and Developing Nations, Even Larger Than the One Played By the Technology Gap

Corporate dynamism in new growth paradigm

In Serbia, like in most of countries in the region, after the hit of the global economic crisis, the awareness of the necessity to change the economic growth model has arisen. In other words, in order to provide a sustainable growth path, there is almost a consensus to re-orientate the economy from the growth based on borrowing, consumption and imports growth to the one based on the growth of investments in the production of tradable goods and services and exports growth. Furthermore, relevant international institutions especially point to, as the key prerequisite and the segment where reforms in the whole region of transition countries should be concentrated in order to support the shift to the sustainable growth track, the increase of the competitiveness of the economy and improvements in business environment. This paper is aimed at looking over from the aggregate level - macroeconomic standpoint onto the micro level in an attempt to clarify the Serbian economy structure - its performances, and try to find if they are related to the precrisis borrowing. To that end, we have analyzed financial data of around 5,000 largest companies operating in Serbia from 2007 to 2009. The main results imply the Serbian economy being highly-concentrated, nevertheless, with the substantial dispersion with regards to company performances, as well as their indebtedness. The main conclusion which may be drawn from the empirical results is the necessity of intensifying the dynamism of business activities in Serbia. In other words, one of the key prerequisites for the so-called structural reforms would be to enhance the institutional business frame, implying the intensification of the mobility of key production factors - capital and labour.

Consumption and real exchange rates with incomplete markets and non-traded goods

This paper addresses the consumption–real exchange rate anomaly. International real business cycle models based on complete financial markets predict a unitary correlation between the real exchange rate and the ratio of home to foreign consumption when subjected to supply-side shocks. In the data, this correlation is usually small and often negative. This paper shows that this anomaly can be successfully addressed by models that have an incomplete financial market structure and a non-traded as well as traded goods production sector.

Consumption and Real Exchange Rates With Incomplete Markets and Non-Traded Goods

This paper addresses the consumption-real exchange rate anomaly. International real business cycle models based on complete financial markets predict a unitary correlation between the real exchange rate and the ratio of home to foreign consumption when subjected to supply side shocks. In the data, this correlation is usually small and often negative. This paper shows that this anomaly can be successfully addressed by models that have an incomplete financial market structure and a non-traded as well as traded goods production sector.

International competitiveness of Turkish agriculture: a case for horticultural products

Abstract This paper defines competitiveness as the ability of a country to increase its share of domestic and export markets, especially when they have a comparative advantage in a product and can produce at a lower opportunity cost. This paper briefly covers the theoretical information on this topic and provides empirical evidence of how domestic resource cost (DRC) can determine international competitiveness. A country is said to have a comparative advantage in the production of tradable goods if that country's production is efficient; if not, then it has a comparative disadvantage. The concept of comparative advantage has two meanings: The first definition states that efficiency of production is compared to two or more trading nations, and when the nations with the lowest opportunity costs are relatively more efficient, they have a comparative advantage. The other meaning of comparative advantage refers to the efficiency of different kinds of production within the domestic economy, which are compared i...

On the Consumption-real Exchange Rate Anomaly

This paper addresses the consumption-real exchange rate anomaly. International real business cycle models based on complete financial markets predict a unitary correlation between the real exchange rate and the ratio of home to foreign consumption when subjected to supply-side shocks. In the data, this correlation is usually small and often negative. This paper shows that this anomaly can be successfully addressed by models that have an incomplete financial market structure and a non-traded as well as traded goods production sector.

Financial Constraints and Exchange Rate Flexibility in Emerging Market Economies

Empirical evidence from the Asian financial crisis of 1997-1998 suggests that exchange rate depreciation may have had a contractionary effect on the traded good sector of the worst-hit economies. Many writers have suggested that this was caused by exchange rate sensitive credit constraints affecting the production sector. This paper documents some of this evidence, and uses it to develop a structural model that features an important role for credit constraints in the financing of traded goods production. We show that this model can explain why emerging market governments would be more concerned with variations in exchange rates than would be implied by standard 'optimal currency area' criteria. Moreover, the model implies that monetary policy may be a very ineffective tool in emerging market economies.

Aid Flows and “Dutch Disease” in a General Equilibrium Framework for Pakistan

The impact of development aid has been mainly studied through one-sector and or partial equilibrium models, such as the two-gap framework, “Dutch disease” models, and fiscal response models. These approaches tend to capture inadequately the general equilibrium effects of aid inflows, resulting from income and relative price responses, as well as from the effects on the financial constraints on investment by public and private sector agents in the economy. This article applies a multisectoral general equilibrium framework with a full specification of financial sector relations to Pakistan, overcoming the indicated shortcomings. The model tries to capture the Pakistan economy characterized by commodity and financial market imperfections and structural differences in savings and investment behavior of institutional agents. Model simulations suggest aid inflows tend to generate fairly strong Dutch disease effects in the case of Pakistan. However, more use of aid inflows to alleviate financing constraints on investment of household firms, which are mainly active in traded goods production, could mitigate the Dutch disease effects, whereas nominal exchange rate adjustment appears counterproductive. Comparative country analysis applying similar CGE models for Mexico, the Philippines, and Thailand indicates that the findings for Pakistan are not easily generalizable and depend strongly on the existing economic structure, investment and savings behavior of institutional agents, and the allocation additional capital inflows among public and private sector agents

COMOVEMENTS OF BUDGET DEFICITS, EXCHANGE RATES, AND OUTPUTS OF TRADED AND NON‐TRADED GOODS

Between 1974:I‐1989:II, it appears that U.S. budget deficits and real exchange rates are correlated. This paper attempts to provide a structural explanation of these comovements in government budget deficits and exchange rates. The model expands on previous works to include fiscal policy considerations in a stochastic set‐up. It shows that within a simple two‐country cash‐in‐advance constraint model, it is possible to have a positive correlation between budget deficits and exchange rates, as well as a negative correlation between exchange rates and domestic traded goods production.

Devaluation, Fiscal Deficits, and the Real Exchange Rate

This article examines the use of fiscal policies to sustain the effects of a nominal devaluation on the real exchange rate. It is shown that the magnitude of the change in the real exchange rate depends not only on the size of the devaluation and the degree of fiscal adjustment but also on the means by which the fiscal deficit is reduced. The change in the nominal exchange rate necessary to maintain the depreciation of the real exchange rate will depend on whether the fiscal deficit is eliminated by increasing taxes or by reducing government expenditures on traded and nontraded goods. The required depreciation of the domestic currency will be larger if the fiscal deficit is reduced by increasing taxes than it will be if the deficit is cut by lowering government expenditures. Further, the depreciation would be smaller if the cuts in expenditure fell on traded rather than nontraded goods. This result implies that the authorities must ensure consistency between exchange rate action and policies to reduce fiscal imbalances in order to achieve a desired level of the real exchange rate necessary to attain balance of payments equilibrium. The real exchange rate represents a key relative price in the economy and policies to change it are often the centerpiece of adjustment programs designed to improve international competitiveness and shift resources toward the production of tradable goods. Consequently, it is critical for policymakers to have some idea of the magnitude and time path of the likely response of the real exchange rate to nominal exchange rate action. It is a well-accepted proposition, however, that a nominal devaluation will only have a transitory effect on the real exchange rate. In the long run domestic wages and prices will rise by the full amount of the devaluation and the real exchange rate will return to its original level. To alter the real exchange rate on a permanent basis, therefore, devaluation has to be supplemented by policies that restrain the increase in domestic factor costs that results from a devaluation. Generally speaking, the effects of a devaluation on the real exchange rate can

Export pricing, flexible exchange rates, and divergence in the prices of traded goods

A model of firm pricing where customers adjust slowly to price differences is extended to an exporting firm under flexible exchange rates. The foreign currency price the firm sets determines both current net revenue and the rate of investment in market share. Real exchange rate changes lead to price revisions, but the protracted adjustment of customers prompts a smaller price response to transitory changes in the real exchange rate. The model accounts for observed variations in traded goods prices across countries and the failure of exporting firms to pass through exchange rate changes, but, in contrast to static models, does not predict frequent reallocation of traded goods production.