Simple Trade Model Research Articles

Uncertainty and economic self-sufficiency

Existing formal analysis of international trade under uncertainty has established that it is never optimal to forgo completely the opportunity of trade. This paper uses some simple trade models to derive conditions under which zero trade or complete self-sufficiency is optimal when uncertainty is present. The paper does not advocate extreme policies against international trade and specialization. Its purpose is to show that under certain circumstances involving uncertainty economic self-sufficiency in some goods may be desirable.

Endogenous Investment, Current Account and the Rybczynski Theorem

The purpose of this paper is to construct a simple intertemporal model of investment and international trade. The bulk of trade theory explores the behavior of an economy in a single period framework, and the traditional trade models assume that the agents in the economy save and invest nothing. The bulk of trade theory is also unable to analyze problems concerning the current account imbalance of an economy, since the traditional models assume that the economies never experience an imbalance in their current accounts. We remedy these shortcomings. We extend the standard, single-period two sector model of production to a two-period setting, while explicitly introducing endogenous saving, endogenous investment and international debt. In addition, we focus on some trade theorems traditionally derived from single period models. Bruno [1], Marion [4], and Marion and Svensson [5] have indeed employed two period models to study the effects of oil price changes on the current account of an open economy. The emphasis of their work, however, is quite different, and their models are not readily comparable with the standard two-sector general equilibrium model, largely because they assume perfect international mobility of capital. Dornbusch [2] and Svensson and Razin [7] have also utilized intertemporal models to examine the effects of terms of trade changes on the current accunt. Their emphasis also is quite different from that of the present paper. Further, Dornbusch, and Svensson and Razin focus more on the intertemporal consumption smoothing, and utilize a relatively simplified production structure of the economy. We simplify the consumption side of the economy by introducing proportional consumption (and hence, saving) functions, and develop a more elaborate intertemporal production structure.

Vertical trading and uneven development

The phenomenon of vertical trading, in which the center exports a good involving a high degree of processing which leads to economy-wide learning and the periphery exports a good which does not generate such effects, is formalized in a simple dynamic model of trade. It is shown that the periphery can ‘lose’ from such trade relations. Conditions under which this can occur are shown to involve parameters of the learning functions, and the ‘sizes’ of the two countries.

Do increases in preference similarity (across countries) induce increases in trade?: An affirmative example

We construct a simple model of trade in differentiated products, produced by a non-convex technology, where the volume and value of trade are increasing in the degree of similarity of preferences between the trading economies.

A Simple Theory of International Trade with Multinational Corporations

Using the idea that firm-specific assets associated with marketing, management, and product-specific R & D can be used to service production plants in countries other than the country in which these inputs are employed, I develop a simple general equilibrium model of international trade in which the location of plants in a differentiated product industry is a decision variable. The model is then used to derive predictions of trade pattern, volumes of trade, the share of intra-industry trade, and the share of intrafirm trade as functions of relative country size and differences in relative factor endowments.

A Model of Innovation, Technology Transfer, and the World Distribution of Income

This paper develops a simple general-equilibrium model of product cycle trade. There are two countries, innovating North and noninnovating South. Innovation consists of the development of new products. These can be produced at first only in North, but eventually the technology of production becomes available to South. This technological lag gives rise to trade, with North exporting new products and importing old products. Higher Northern per capita income depends on the quasi rents from the Northern monopoly of new products, so that North must continually innovate not only to maintain its relative position but even to maintain its real income in absolute terms.

Seemingly Unrelated Regression and Regional Price Response Functions: A Study of U. S. Apple Production

Enke problem [3:5]. This familiar problem may be stated as follows: given two or more spatially separated markets for a single commodity, with supply and demand functions specified in each market, and constant unit transport costs between regions, what are the final competitive equilibrium prices in all markets, the equilibrium quantities supplied and demanded in each market, and the level of exports and imports from and to each market? While the equilibrium conditions of these models are interesting because of the extension of economic theory they provide, it is the comparative statics of these interregional trade systems that is more valuable to the applied economist and policy maker.' The particular problem addressed in this paper is the effect that a change in regional supply configuration has on prices in each region within an interregional trade system. However, the analytical tool used here is not a programming model.2 An alternative method of obtaining this information through the direct estimation of regional price response functions is developed, and the procedure is applied to the study of interregional competition in the U.S. apple industry. The following section contains a review of contributions to the solution of the aforementioned Cournot-Enke problem. A simple interregional trade model is developed for apple production, and the comparative statics of the model are examined. Regional price equations that lend themselves to empirical analysis are derived and estimated. Since there is a high probability that regression residuals are contemporaneously correlated, Zellner's seemingly unrelated regression procedure is applied. A final section of the paper contains a discussion of policy implications.

Tariffs and the Distribution of Income: The Importance of Factor Specificity, Substitutability, and Intensity in the Short and Long Run

This paper analyzes the effects of changes in relative commodity prices on the distribution of income among factors of production in the context of two models of a simple, two-good economy. In the first model capital is treated as a specific factor in each industry, with labor mobile between industries. The assumption of specificity determines the direction of factor income changes, with magnitudes depending on substitutability between factors and on intensities of factor use within the two industries. In the second model, capital is viewed as a quasi-fixed factor. For the short run, this model is identical to the model first considered. For the long run, this model is identical to the Stolper-Samuelson model in which the direction and magnitude of factor income changes depend solely on relative factor intensities. The difference between the short-run and long-run determinants of changes in factor incomes gives rise to a conflict between factor owners' short-run and long-run interests.

A Monetary Approach to Balance-of-Payments Analysis

The purpose of this paper is to set forth the general principles which characterize the to balance-of-payments analysis and to illustrate how these principles are applied in a simple model of trade and payments behavior. The exposition of general principles summarizes the three basic features of the monetary approach. At this level of generality, it is argued that a monetary approach is essential for sensible discussion of the balance of payments and that the money-demand function and the money-supply process should play a central role in balance-of-payments analysis, particularly for the long run. The monetary approach, however, is not identified with the view that only money matters, nor is it asserted that the monetary approach is encompassed in any single, specific, theoretical model. Rather, it is argued that the monetary approach encompasses a broad class of models which share certain basic features but can differ in many important respects, particularly concerning short-run processes of adjustment. After the discussion of general principles, these principles will be illustrated by considering the specific question of the effects of a tariff

The Structure of Simple General Equilibrium Models

The following sections are included:IntroductionThe ModelThe Equations of ChangeThe Magnification EffectThe Extended Model: Demand EndogenousThe Aggregate Elasticity of SubstitutionConvergence to Balanced GrowthSavings BehaviorThe Analysis of Technological ChangeReferences