Ricardian Model Of International Trade Research Articles

Between lives and economy: COVID-19 containment policy in open economies

This paper studies containment policies for combating a pandemic in an open-economy context. It does so via quantitative analyses using a model that incorporates a standard epidemiological compartmental model in a general equilibrium multi-country, multi-sector Ricardian model of international trade with input–output linkages. We quantitatively evaluate the long-run welfare and real-income losses due to the short-run pandemic shocks, and we study the role of trade in these effects. We devise a novel approach to computing national optimal policies. We find that (1) the long-run welfare and real-income losses due to just two years of pandemic shocks are substantial; (2) international trade helps buffer both the welfare and real-income losses, and it also saves lives; (3) the computed optimal policies indicate that most countries should have tightened their containment measures relative to what was done; and (4) compared to the case of autarky, the optimal policy under trade is generally more stringent.

PENGARUH RELIGIUSITAS DAN SKALA KECERDASAN BUDAYA TERHADAP ETHNOSENTRISME KONSUMEN BAGI PRODUK ASING 2019

This study seeks to understand the complicated relationship between religiosity and ethnocentrism of consumers by examining the mediating variable of cultural intelligence. The empirical model involves a structural equation model (SEM) with a data collection of 684 internet-user respondents. The results show that there was a positive impact of religiosity on consumer Ethnocentrism. In addition, the results also indicate that cultural intelligence strengthens the relationship between religiosity and ethnocentric consumerism. Overall, this study extends the discussion on cultural identity that incorporate into Ricardian model of international trade.

Between Lives and Economy: Optimal COVID-19 Containment Policy in Open Economies

This paper studies optimal containment policy for combating a pandemic in an open- economy context. It does so via quantitative analyses using a model that incorporates a standard epidemiological compartmental model in a multi-country, multi-sector Ricardian model of international trade with full-fledged input-output linkages. We devise a novel approach in computing optimal national policies in the long run, and contrast these policies with a baseline in which countries maintain their current policies until vaccine availability. The welfare gains under optimal policies are asymmetric as the gains for the set of countries which should tighten up the containment measures are much larger than those which should relax. We also find that the welfare implications of optimal policies in open economies differ significantly from those in closed ones.

Industrial subsidy policy and the optimal level of specialization

Despite compelling rationale based on the theory of comparative advantage for free trade, many countries adopt restrictive trade practices. In this paper we investigate this puzzle in a stylized two-country two-good Ricardian model of international trade. Governments can offer protection to domestic industries via industrial subsidy policy in this model. We prove the existence of a Nash equilibrium in the two-player game where industries choose the level of specialization. We determine the necessary conditions for complete specialization in (a) the free-trade regime; and (b) the protectionist regime implemented through industrial subsidy policy. Our results show that if the government intends to promote complete specialization, then a high degree of comparative advantage and a large elasticity of substitution between export and import goods are required. Empirical evidence on these two parameters indicate that complete specialization is unlikely to survive in the protectionist regime.

Complete Specialization and Government Intervention in International Trade

Despite compelling rationale based on the theory of comparative advantage for free trade, many countries adopt restrictive trade practices. In this paper we investigate this puzzle in a stylized two-country two-good Ricardian model of international trade. Governments can offer protection to domestic industries via industrial subsidy policy in this model. We prove the existence of a Nash equilibrium in the two-player game where industries choose the level of specialization. We determine the necessary conditions for complete specialization in (a) the free-trade regime; and (b) the protectionist regime implemented through industrial subsidy policy. Our results show that if the government intends to promote complete specialization, then a high degree of comparative advantage and a large elasticity of substitution between export and import goods are required. Empirical evidence on these two parameters indicate that complete specialization is unlikely to survive in the protectionist regime.

Did Ricardo Truly Propose the Ricardian Model of International Trade?

Did Ricardo Truly Propose the Ricardian Model of International Trade?

Indivisibilities in the Ricardian model of trade

The idea that goods or factors of production may not be perfectly divisible has important implications for many areas of economics. This paper introduces both types of indivisibilities into the standard Ricardian model of international trade. Indivisibilities give rise to new results compared to the standard model with perfectly divisible goods and factors of production. Both types of indivisibility may result in complete specialisation even in autarky, while goods indivisibility may result in (ex ante) identical consumers consuming different bundles of goods, and hence enjoying different levels of welfare. Both types of indivisibilities lead to efficiency losses relative to the perfectly divisible case. International trade may eliminate efficiency losses resulting from indivisibility in the factors of production, but not those resulting from goods indivisibility. This suggests that the presence of indivisibilities leads to a second-best world, with the consequent implications for policy. The results of the paper are consistent with existing empirical evidence.

Quality Differentiation and Comparative Advantage

We introduce quality differentiation into a Ricardian model of international trade. We show that (1) quality differentiation allows industrialized countries to be active across the full board of products, complex and simple ones, while developing countries systematically specialize in simple products, in line with novel stylized facts. (2) Quality differentiation may thus help to explain why richer countries tend to be more diversified and why, increasingly over time, rich and poor countries tend to export the same products. (3) Quality differentiation implies that the gains from inter-product trade mostly accrue to developing countries. (4) Guided by our theory, we use a censored regression model to estimate the link between a country's GDP per capita and its export quality. We find a much stronger relationship than when using OLS, in line with our theory.

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An empirical demonstration of classical comparative cost theory: a correction to Balassa ()

In this study, I provide corrections to the estimation results reported by Balassa (1963) on testing the implications of the Ricardian model of international trade. While all of his estimation results have changed, his main conclusions still pertain. I conjecture that the errors are most likely due to computing errors.

A Ricardian model of international trade with oligopolistic competition

This paper studies a Ricardian model of international trade with a continuum of products in a general equilibrium model in which firms engage in oligopolistic competition. It provides a bridge between trade models based on perfect competition and models based on imperfect competition. Compared with a model based on perfect competition, the incorporation of fixed cost leads to the result that an increase of domestic labor may increase the relative wage of the domestic country.

Pricing-to-Market in a Ricardian Model of International Trade

We study the implications for international relative prices of a simple Ricardian model of international trade with imperfect competition and variable markups, providing a tractable account of firm-level and aggregate prices. We show that both trade costs and imperfect competition with variable markups are needed to account for pricing-to-market at the firm and aggregate levels. We also show that international trade costs are essential, but pricing-to-market is not, to account for a high volatility of tradeable consumer prices relative to the overall CPI-based real-exchange rate.

International trade and consumption network externalities

This paper studies the effects of trade liberalization in the presence of consumption network externalities. The framework is applicable to the choice of network products and sheds light on the debate on globalization and culture. In an extended Ricardian model of international trade the paper shows that: (i) trade is not Pareto inferior to autarky if the free trade equilibrium is unique; (ii) trade is not Pareto superior to autarky if both countries are diverse (network competition) under free trade, but can be if each country is homogenous (network monopoly); (iii) and when multiple free trade equilibria exist everybody in a country can lose from free trade if that country is homogenous under autarky. Consumers of imported network goods tend to gain, while consumers of exported network goods tend to lose from trade liberalization.

Exports and productivity in a small open economy: a causal analysis of aggregate Norwegian data

The direct link from growth in export to growth in productivity—the export-led growth hypothesis—is analyzed using aggregated Norwegian quarterly time series data from 1968 to 1992. By applying techniques of multivariate cointegration, a statistical congruent vector autoregression (VAR) model serves as a general point of departure for structural testing and identification of causal links. The results show that labor productivity can be regarded as “super exogenous” with respect to the parameters in a simulaneous system of export price and export volume. We can thus not reject the hypothesis of “productivity-led” growth, as predicted by e.g. the Ricardian model of international trade or some of the models within the “new” trade theory.

Perfect Competition and Endogenous Comparitive Advantage

This paper analyzes a dynamic Ricardian model of international trade in which relative differences in technology are endogenously determined by investments in innovation by competitive firms. It considers the impact of these investments on trade patterns and the effect of trade patterns on rates of innovation and growth. The main result is that the dynamic effects of trade need not be positive when both countries specialize investments in the goods in which they have a comparitive advantage. In addition, trade can lead to an inefficient pattern of specialization in innovation and have negative welfare effects.

Two Views of the British Industrial Revolution

There are two views of the British Industrial Revolution in the literature today. The more traditional description sees the Industrial Revolution as a broad change in the British economy and society. This broad view of the Industrial Revolution has been challenged by Crafts and Harley who see the Industrial Revolution as the result of technical change in only a few industries. This article presents a test of these views using the Ricardian model of international trade with many goods. British trade data are used to implement the test and discriminate between the two views of the Industrial Revolution.

Efficiency wages in a Ricardian model of international trade

This paper examines the implications of efficiency wages for international trade in a simple extension of the Ricardian model, in which labour performs two different tasks in production, and where workers are imperfectly monitored in the performance of one of the tasks. As a result of the factor market distortion, the one-factor economy may behave like a Heckscher-Ohlin model. An important result is that transfers of income have efficiency-reducing effects, and hence the standard aggregate analysis of trade policy may be inappropriate.

On the General Structure of Ricardian Models with a Continuum of Goods: Applications to Growth, Tariff Theory, and Technical Change

A continuum of goods is introduced into the general Ricardian model of international trade. By looking at the derived demand for labor, it is demonstrated that the analysis of the model can be reduced to the analysis of an equivalent model of pure exchange in which each country essentially trades its own labor for the labor of other countries. Furthermore, unlike the case where the number of goods is finite, the derived demand for labor becomes a differentiable function of the relative wages of the different countries. How this facilitates the analysis of comparative statics exercises is illustrated by establishing a number of propositions in the theory of growth, technical change, and tariffs. THE RICARDIAN MODEL IS perhaps the simplest formulation in which the technology can be explicitly incorporated into an analysis of international trade. In a general form, it consists of an arbitrary number of countries each of whom use only one factor of production, called labor, to produce an arbitrary number of goods. Each country has a constant returns to scale technology but they differ in the relative amounts of labor required to produce different goods. This generates an incentive for each country to specialize in the production of only certain goods which in turn generates the gains from trade. Although the model is frequently employed to illustrate many of the basic principles of international trade, it is not commonly used to examine those issues which require a detailed analysis of comparative statics. Questions such as how a shift in demand affects the pattern of trade and the relative prices of goods, or the corresponding impact of a tariff, technical change, or growth in the labor force are generally analyzed either with simpler models which do not explicitly incorporate the technology at all or else more sophisticated models which include a technology with several factors of production. The problem with the Ricardian model is that the qualitative properties of the results typically depend upon the pattern of specialization. In order to determine the general equilibrium effect of a small change in the tariff rates, for instance, we must know precisely which countries are completely specialized in the production of which goods and which goods are jointly produced by more than one country. A general analysis of any of these issues, therefore, will require a separate analysis for each possible pattern of specialization. Even with two countries and two goods, there are generally several cases to examine. An even more serious defect is the fact that the first order effect in any one of these cases tells only part of the story of what happens in a world with many goods and discrete parameter changes. In general, a change in some

Technological and Price Uncertainty in a Ricardian Model of International Trade

Despite the fact that international trade is one of the riskiest economic activities, there has been remarkably little attempt to incorporate uncertainty into the formal theory. One of the few published papers dealing with this issue is the important contribution by Brainard and Cooper [3]. However, their formal analysis is rather restrictive in that they deal only with the quadratic utility and focus primarily on the case where the country is required to make all its decisions-both production and consumption-before the uncertainties are resolved. The present paper introduces uncertainty into a Ricardian model of international trade. While this technology is somewhat more restrictive than the neoclassical production possibility frontier considered by Brainard and Cooper, it nevertheless is an interesting case to start with in view of the fundamental role the Ricardian case has played in the development of international trade theory. Furthermore, it is of considerable interest to determine to what extent the extreme implications regarding the patterns of specialization associated with the classical Ricardian model remain after the introduction of uncertainty. In other respects the present analysis is more general than the Brainard-Cooper model. In the first place we try as far as possible to derive propositions based on general utility functions, although where appropriate, we use special cases to illustrate particular propositions. In establishing these propositions a crucial role is played by the indirect utility function which enables us to analyse the behaviour most conveniently in terms of the familiar Arrow-Pratt measures of risk aversion. The model is developed for a small country, in which domestic technology and the international trading price (which it takes as given) are both subject to uncertainty. We develop a kind of two-stage analysis in which production decisions are made before the random technological parameters and the actual trading price are known, while trading and thus consumption decisions are made after the uncertainties are resolved. In view of the lags associated with production and the fact that most international trade takes place at previously established prices, this seems to be the most plausible case to consider. Brainard and Cooper did not consider it on the grounds of analytical intractability, but in fact the analysis is no more difficult than the case they examine where all decisions are made under uncertainty.