FEENSTRA, RC, and GH HANSON. 2001. Global Production Sharing and Rising Inequality: A Survey of Trade and Wages. NBER Working Paper.
"One of the most widely-discussed public policy issues in the United States and many other industrial countries is the decline in the wages of less-skilled workers during the 1980s and 1990s, both in real terms and relative to the wages of more-skilled workers. The question is, what factors account for this change?...In this survey, we present a contrary point of view, and argue that international trade is indeed an important explanation for the increase in the wage gap. Our argument rests on the idea that an increasing amount of international trade takes the form of trade in intermediate inputs. This is sometimes called 'production sharing' by the companies involved, or simply 'outsourcing'. Trade of this type affects labor demand in import-competing industries, but also affects labor demand in the industries using the inputs. For this reason, trade in intermediate inputs can have an impact on wages and employment that is much greater than for trade in final consumer goods. As we shall argue, trade in inputs has much the same impact on labor demand as does skill-biased technical change: both of these will shift demand away from low-skilled activities, while raising relative demand and wages of the higher skilled" (1-2).
From the late 70s to the mid 90s, real wages of those with a high school education fell by 13.4%.
Showing posts with label Trade Policy. Show all posts
Showing posts with label Trade Policy. Show all posts
Monday, March 23, 2009
Wednesday, March 18, 2009
Hanson: What happened to fortress Europe?
Hanson, BT. 2003. What happened to fortress Europe?: external trade policy liberalization in the European Union. International Organization 52, no. 01: 55-85.
Many feared that, with the integration of Europe, there would be an inward focus for trade as price incentives would push producers to trade with their European community as tariffs fell. This was refered to as Fortress Europe.
"What is most remarkable about European trade policy in the 1990s is that, despite ominous warnings and theoretical expectations, fortress Europe has not been built. To the contrary, this article shows that since the late 1980s not only have few new trade barriers been erected, but external trade policy in Europe has been significantly liberalized in recent years, even in politically and economically sensitive sectors. This marks a significant departure from the past and occurred at a time when liberalization was least expected" (56).
"I argue that European integration has played a considerable role in the liberalization of European external trade policy by changing the institutional context in which trade policy is made, creating a systematic bias toward liberalization over increased protection" (56).
Many feared that, with the integration of Europe, there would be an inward focus for trade as price incentives would push producers to trade with their European community as tariffs fell. This was refered to as Fortress Europe.
"What is most remarkable about European trade policy in the 1990s is that, despite ominous warnings and theoretical expectations, fortress Europe has not been built. To the contrary, this article shows that since the late 1980s not only have few new trade barriers been erected, but external trade policy in Europe has been significantly liberalized in recent years, even in politically and economically sensitive sectors. This marks a significant departure from the past and occurred at a time when liberalization was least expected" (56).
"I argue that European integration has played a considerable role in the liberalization of European external trade policy by changing the institutional context in which trade policy is made, creating a systematic bias toward liberalization over increased protection" (56).
Cavanagh, Anderson, Serra and Espinosa: Happily ever NAFTA?
Cavanagh, J, and S Anderson. 2002. Happily Ever NAFTA? Foreign Policy 132: 58-60.
The Bad Idea that Failed: Cavanagh and Anderson
"Looking back on its nearly nine years of existence, has NAFTA delivered or disappointed?" (58).
"More than eight years of monitoring reveal that, yes, the accord has boosted investment and trade...And yes, increased international competition may have helped fuel the dramatic rise in labor productivity rates during the 1990s...But workers, communities, and the environment in all three countries have suffered from the agreement's flaws" (58).
"Why have increased trade and investment failed to reduce poverty or raise wages? Part of the answer is that in a globalized marketplace, highly mobile employers have even more power to suppress workers who fight for their faire share of the benefits. And these firms often find allies among governments desperate for foreign investment" (58).
There is no increased spending on the environment. There are wider income gaps. "We argue that strong controls were needed to ensure that trade and investment supported social goals, rather than the narrow interests of large corporations" (59-60).
The Proof is in the Paycheck: Serra and Espinosa
"NAFTA's fundamental objectives as a free trade and investment pact have been achieved" (60). They speculate that this investment spurned on productivity gains in the 90s. They don't agree with claims that NAFTA has harmed the environment, wages or agriculture.
NAFTA cannot be blamed for small farmer poverty in Mexico, as this is a path-dependent problem. NAFTA cannot be blamed for a fall in real Mexican wages b/c the measurement was wrong. NAFTA cannot be blamed for falling environmental spending b/c that was a problem from long ago as well. NAFTA cannot be blamed for rising inequality and the authors argue that "Hard data show that trade liberalization tends to improve income distribution" (62).
Nice Theories, Sad Realities: Cavanagh and Anderson:
NAFTA is not just about trade and investment flows. The evidence you provided was inadequate.
More Accuracy Less Activism: Serra and Espinosa:
No, you're wrong.
The Bad Idea that Failed: Cavanagh and Anderson
"Looking back on its nearly nine years of existence, has NAFTA delivered or disappointed?" (58).
"More than eight years of monitoring reveal that, yes, the accord has boosted investment and trade...And yes, increased international competition may have helped fuel the dramatic rise in labor productivity rates during the 1990s...But workers, communities, and the environment in all three countries have suffered from the agreement's flaws" (58).
"Why have increased trade and investment failed to reduce poverty or raise wages? Part of the answer is that in a globalized marketplace, highly mobile employers have even more power to suppress workers who fight for their faire share of the benefits. And these firms often find allies among governments desperate for foreign investment" (58).
There is no increased spending on the environment. There are wider income gaps. "We argue that strong controls were needed to ensure that trade and investment supported social goals, rather than the narrow interests of large corporations" (59-60).
The Proof is in the Paycheck: Serra and Espinosa
"NAFTA's fundamental objectives as a free trade and investment pact have been achieved" (60). They speculate that this investment spurned on productivity gains in the 90s. They don't agree with claims that NAFTA has harmed the environment, wages or agriculture.
NAFTA cannot be blamed for small farmer poverty in Mexico, as this is a path-dependent problem. NAFTA cannot be blamed for a fall in real Mexican wages b/c the measurement was wrong. NAFTA cannot be blamed for falling environmental spending b/c that was a problem from long ago as well. NAFTA cannot be blamed for rising inequality and the authors argue that "Hard data show that trade liberalization tends to improve income distribution" (62).
Nice Theories, Sad Realities: Cavanagh and Anderson:
NAFTA is not just about trade and investment flows. The evidence you provided was inadequate.
More Accuracy Less Activism: Serra and Espinosa:
No, you're wrong.
Subramanian and Wei: The TWO Promotes Trade, Strongly but Unevenly
Subramanian, A, and SJ Wei. 2007. The WTO promotes trade, strongly but unevenly. Journal of International Economics 72, no. 1: 151-175.
"This paper furnishes robust evidence that the GATT/WTO has had a powerful and positive impact on trade. The impact has, however, been uneven. GATT/WTO membership for industrial countries has been associated with a large increase in imports estimated at about 30% of world trade. The same has not been true for developing country members, although those that joined after the Uruguay Round have benefited from increased imports. Similarly, there have been asymmetric effects among sectors, with WTO membership associated with substantially greater imports in sectors where barriers are low. These results are consistent with the history and design of the institution, which presided over significant trade liberalization by the industrial countries except in sectors such as food and clothing; l largely exempted developing countries from the obligations to liberalize under the principle of special and differential treatment; but attempted to redress the latter by imposing greater obligations on developing country members that joined after the Uruguay Round" (1).
They argue that Rose's analysis is incomplete in two distinct ways: firstly, the gravity equation must include country-fixed effects, as earlier identified by Anderson and van Wincoop (2003). Additionally, the study should take into consideration the asymmetric ways in which the WTO has worked to improve trade liberalization post WWII. Making these modifications, they find robust evidence that the WTO improves trade.
Three types of liberalization asymmetries: "...between developed and developing countries; between developing countries that join the WTO before and after the Uruguay Round; and between sectors where the TWO has been effective in bringing down trade barriers and those...where it has been less effective" (3).
Use extended gravity model.
Their DV is different from Rose and is imports instead of total trade, which they "deflate" (8) through the US consumer price index.
"One of our main and robust findings is that industrial country WTO membership is associated with greater trade. In our sample, however, all industrial countries are WTO members. How can we be sure that we are picking up a WTO effect rather than an industrial country effect?" (16-7). They try to minimize this through their covariates, but it's still a possibility.
"There is a separate question of whether industrial country liberalization would have taken place without the GATT/WTO. This paper does not and cannot address this question" (17).
"This paper furnishes robust evidence that the GATT/WTO has had a powerful and positive impact on trade. The impact has, however, been uneven. GATT/WTO membership for industrial countries has been associated with a large increase in imports estimated at about 30% of world trade. The same has not been true for developing country members, although those that joined after the Uruguay Round have benefited from increased imports. Similarly, there have been asymmetric effects among sectors, with WTO membership associated with substantially greater imports in sectors where barriers are low. These results are consistent with the history and design of the institution, which presided over significant trade liberalization by the industrial countries except in sectors such as food and clothing; l largely exempted developing countries from the obligations to liberalize under the principle of special and differential treatment; but attempted to redress the latter by imposing greater obligations on developing country members that joined after the Uruguay Round" (1).
They argue that Rose's analysis is incomplete in two distinct ways: firstly, the gravity equation must include country-fixed effects, as earlier identified by Anderson and van Wincoop (2003). Additionally, the study should take into consideration the asymmetric ways in which the WTO has worked to improve trade liberalization post WWII. Making these modifications, they find robust evidence that the WTO improves trade.
Three types of liberalization asymmetries: "...between developed and developing countries; between developing countries that join the WTO before and after the Uruguay Round; and between sectors where the TWO has been effective in bringing down trade barriers and those...where it has been less effective" (3).
Use extended gravity model.
Their DV is different from Rose and is imports instead of total trade, which they "deflate" (8) through the US consumer price index.
"One of our main and robust findings is that industrial country WTO membership is associated with greater trade. In our sample, however, all industrial countries are WTO members. How can we be sure that we are picking up a WTO effect rather than an industrial country effect?" (16-7). They try to minimize this through their covariates, but it's still a possibility.
"There is a separate question of whether industrial country liberalization would have taken place without the GATT/WTO. This paper does not and cannot address this question" (17).
Sunday, March 15, 2009
Krugman: Pop Internationalism
Krugman, PR. 1996. Pop internationalism. Mit Press.
Written in the mid 90s, this slight text responds to a mountain of literature that paints globalization out to be an area of zero-sum competition between states who look more like companies than nations. Krugman presents a standard liberal account for the lack of substantial growth in real wages since the 70s (slower growth in production) and trade theories of comparative advantage to explain how international trade is an arena of overall gains, and not gains that can best be analogized with military battles, etc.
Written in the mid 90s, this slight text responds to a mountain of literature that paints globalization out to be an area of zero-sum competition between states who look more like companies than nations. Krugman presents a standard liberal account for the lack of substantial growth in real wages since the 70s (slower growth in production) and trade theories of comparative advantage to explain how international trade is an arena of overall gains, and not gains that can best be analogized with military battles, etc.
Friday, December 19, 2008
Kapstein: Winners and Losers in the Global Economy
Kapstein, EB. 2003. Winners and Losers in the Global Economy. International Organization 54, no. 02: 359-384.
"Is globalization responsible for the growing polarity in wages now being observed in many countries around the world, creating a sharp divide between society's 'winners' and 'losers'? If so, what are the political and economic consequences of that fissure? If not globalization, what is responsible for that trend, and what, if anything, should policy makers do in response?" (359).
This article is a literature review of four texts: Cline (1997); Collins (1998); Rodrik (1997); and Wood (1994).
"The works discussed here represent the most significant recent efforts by economists to explore one aspect of the distributive problem: the effects of deepening international integration on domestic wages in the industrial countries, especially the United States" (360).
This article touches on a very wide range of topics, from the normative foundations of trade policy theory to debates between efficiency and distribution.
"The latest economic research on the relationship between trade and labor demonstrates that the great American high tide of the 1990s has failed to 'lift all boats.' Unskilled workers are struggling in the face of unemployment, job insecurity, and rising income inequality. Of all these developments, rising income inequality is of special concern to many scholars not only because of its political implications for the free trade agenda but also because of its possible economic consequences in terms of lower growth rates in the future. Does the research show, however, that free trade is a cause of labor market problems? It appears that a consensus on that question has finally emerged. Although the early literature by such scholars as Revenga suggested that increasing openness was a significant cause of job displacement and/or falling wages in import-penetrated industries, a second wave of work, led by the Lawrence-Slaughter study, cast doubt on how widespread the economic effects really were. Today, the findings of such scholars as Cline bring us to a middle ground or 'Goldilocks' view: that trade and immigration have had some effect on labor markets in the industrial countries, but they are not solely responsible for the current problems we observe" (380-1).
"Is globalization responsible for the growing polarity in wages now being observed in many countries around the world, creating a sharp divide between society's 'winners' and 'losers'? If so, what are the political and economic consequences of that fissure? If not globalization, what is responsible for that trend, and what, if anything, should policy makers do in response?" (359).
This article is a literature review of four texts: Cline (1997); Collins (1998); Rodrik (1997); and Wood (1994).
"The works discussed here represent the most significant recent efforts by economists to explore one aspect of the distributive problem: the effects of deepening international integration on domestic wages in the industrial countries, especially the United States" (360).
This article touches on a very wide range of topics, from the normative foundations of trade policy theory to debates between efficiency and distribution.
"The latest economic research on the relationship between trade and labor demonstrates that the great American high tide of the 1990s has failed to 'lift all boats.' Unskilled workers are struggling in the face of unemployment, job insecurity, and rising income inequality. Of all these developments, rising income inequality is of special concern to many scholars not only because of its political implications for the free trade agenda but also because of its possible economic consequences in terms of lower growth rates in the future. Does the research show, however, that free trade is a cause of labor market problems? It appears that a consensus on that question has finally emerged. Although the early literature by such scholars as Revenga suggested that increasing openness was a significant cause of job displacement and/or falling wages in import-penetrated industries, a second wave of work, led by the Lawrence-Slaughter study, cast doubt on how widespread the economic effects really were. Today, the findings of such scholars as Cline bring us to a middle ground or 'Goldilocks' view: that trade and immigration have had some effect on labor markets in the industrial countries, but they are not solely responsible for the current problems we observe" (380-1).
Freeman: Are your wages set in Beijing?
Freeman, RB. 2000. 'Are your wages set in Beijing?'. International Political Economy: Perspectives on Global Power and Wealth.
In the last fifth of the 20th century, there was a decreased demand for low skilled labor in developed countries and an increase in this demand in certain developing countries. This sparked a new debate about the effects of developed countries trading with less developed countries. "The new debate focused on one issue: whether in a global economy the wages or employment of low-skilled workers in advanced countries have been A(or will be) determined by the global supply of less-skilled labor, rather than by domestic labor market conditions. Put crudely, to what extent has, or will, the pay of low-skilled Americans or French or Germans be set in Beijing, Delhi and Djakarta rather than in New York, Paris or Frankfurt?" (16).
"One one side of the new debate are those who believe in factor price equalization--that in a global economy the wages of workers in advanced countries cannot remain above those of comparable workers in less-developed countries. They fear that the wages or employment of the less skilled in advanced countries will be driven down due to competition from low-wage workers overseas. On the other side of the debate are those who reject the notion that the traded goods sector can determine labor outcomes in an entire economy or who stress that the deleterious effects of trade on demand for the less skilled are sufficiently modest to be offset readily through redistributive social policies funded by the gains from trade. They fear that the neoprotectionists will use arguments about the effect of trade on labor demand to raise trade barriers and reduce global productivity" (16).
The rest of the article expands upon the above summary.
In the last fifth of the 20th century, there was a decreased demand for low skilled labor in developed countries and an increase in this demand in certain developing countries. This sparked a new debate about the effects of developed countries trading with less developed countries. "The new debate focused on one issue: whether in a global economy the wages or employment of low-skilled workers in advanced countries have been A(or will be) determined by the global supply of less-skilled labor, rather than by domestic labor market conditions. Put crudely, to what extent has, or will, the pay of low-skilled Americans or French or Germans be set in Beijing, Delhi and Djakarta rather than in New York, Paris or Frankfurt?" (16).
"One one side of the new debate are those who believe in factor price equalization--that in a global economy the wages of workers in advanced countries cannot remain above those of comparable workers in less-developed countries. They fear that the wages or employment of the less skilled in advanced countries will be driven down due to competition from low-wage workers overseas. On the other side of the debate are those who reject the notion that the traded goods sector can determine labor outcomes in an entire economy or who stress that the deleterious effects of trade on demand for the less skilled are sufficiently modest to be offset readily through redistributive social policies funded by the gains from trade. They fear that the neoprotectionists will use arguments about the effect of trade on labor demand to raise trade barriers and reduce global productivity" (16).
The rest of the article expands upon the above summary.
Wednesday, December 17, 2008
Feenstra: Integration of Trade and Disintegration of Production in the Global Economy
RC Feenstra, Program on Pacific Rim Business and Development, and Davis University of California, “Integration of trade and disintegration of production in the global economy” (1998).
The author does a comparative analysis of different methods for measuring the amount of outsourcing to foreign destinations. Fennstra also argues that this outsourcing has increased steadily since the 1970s.
The author also explores globalization, with an eye towards the impact on wages of those who are arguably most vulnerable in an economy: those with low levels of skill. "In fact, I will argue that by allowing for trade in intermediate inputs, globalization has an impact on employment an wages that are observationally equivalent to the changes induced by technological innovation. The idea that globalization has a minor impact on wages relies on a conceptual model that allows only for trade in final goods, thereby downplaying or ignoring the outsourcing of production activities. The empirical evidence supports a much more prominent role for the optimal decisions of firms to allocate production worldwide, that in turn needs to be incorporated into our theoretical framework" (32).
"...outsourcing has a qualitatively similar effect on reducing the demand for unskilled relative to skilled labor within an industry as does skill-biased technological change" (41).
The author then explores some of the policy implications for the decreased demand of unskilled workers that arises out of an increased drive to outsource production.
"The world has become increasingly integrated through trade in the last several decades, and the structure of trade has shifted towards more outsourcing...I have suggested that to understand the implications of this change, we need to use a conceptual framework where firms allocate their production activities worldwide. While many details of this framework remain to be worked out...I would like to speculate on the type of results that it might yield...First, the globalization of production should bring with it gains from trade that are likely to be substantial...However, we must ask whether these efficiency gains bring costs in terms of the distribution of income" (47).
"If we want to move beyond the possibility of Pareto gains to making actual compensation, it appears that we should give serious consideration to wage subsidies for low-skilled workers" (48).
The author does a comparative analysis of different methods for measuring the amount of outsourcing to foreign destinations. Fennstra also argues that this outsourcing has increased steadily since the 1970s.
The author also explores globalization, with an eye towards the impact on wages of those who are arguably most vulnerable in an economy: those with low levels of skill. "In fact, I will argue that by allowing for trade in intermediate inputs, globalization has an impact on employment an wages that are observationally equivalent to the changes induced by technological innovation. The idea that globalization has a minor impact on wages relies on a conceptual model that allows only for trade in final goods, thereby downplaying or ignoring the outsourcing of production activities. The empirical evidence supports a much more prominent role for the optimal decisions of firms to allocate production worldwide, that in turn needs to be incorporated into our theoretical framework" (32).
"...outsourcing has a qualitatively similar effect on reducing the demand for unskilled relative to skilled labor within an industry as does skill-biased technological change" (41).
The author then explores some of the policy implications for the decreased demand of unskilled workers that arises out of an increased drive to outsource production.
"The world has become increasingly integrated through trade in the last several decades, and the structure of trade has shifted towards more outsourcing...I have suggested that to understand the implications of this change, we need to use a conceptual framework where firms allocate their production activities worldwide. While many details of this framework remain to be worked out...I would like to speculate on the type of results that it might yield...First, the globalization of production should bring with it gains from trade that are likely to be substantial...However, we must ask whether these efficiency gains bring costs in terms of the distribution of income" (47).
"If we want to move beyond the possibility of Pareto gains to making actual compensation, it appears that we should give serious consideration to wage subsidies for low-skilled workers" (48).
Monday, December 8, 2008
Marquez: Bilateral Trade Elasticities
J Marquez, “Bilateral Trade Elasticities,” Review of Economics and Statistics 72, no. 1 (1990): 70-77.
"This paper estimates income and price elasticities for bilateral world trade....The paper finds that bilateral trade elasticities exhibit enough of a dispersion to suggest that the direction of trade is sensitive to changes in income and prices" (70).
The findings of this article are the following: bilateral trade elasticities differ quite a bit from one relationship to another. "Out of 56 elasticity estimates, 8 are negative, 25 vary between 0.1 and 2.0, and 23 are greater than 2" (72). Additionally, countries can be grouped as to whether they tend to have low income elasticities or high elasticities: "The 'low' income elasticity countries are Japan and LDCs; the 'high' income elasticity countries are Canada, Germany, the United Kingdom, the United States and other industrialized countries; the income elasticities for OPEC's bilateral imports are near unity" (72). Thirdly, import elasticities stemming from OPEC countries are near zero, as they mainly compromise oil.
"Using bilateral trade shares as weights, table 2 estimates the multilateral elasticities implied by the bilateral estimates of table 1. Based on a comparison to previous estimates...the aggregate income elasticities are consistent with the literature...The estimated price elasticities are also consistent with the literature: they are negative, range between -0.5 and -1.1, and are statistically significant" (74).
"This paper estimates income and price elasticities for bilateral world trade....The paper finds that bilateral trade elasticities exhibit enough of a dispersion to suggest that the direction of trade is sensitive to changes in income and prices" (70).
The findings of this article are the following: bilateral trade elasticities differ quite a bit from one relationship to another. "Out of 56 elasticity estimates, 8 are negative, 25 vary between 0.1 and 2.0, and 23 are greater than 2" (72). Additionally, countries can be grouped as to whether they tend to have low income elasticities or high elasticities: "The 'low' income elasticity countries are Japan and LDCs; the 'high' income elasticity countries are Canada, Germany, the United Kingdom, the United States and other industrialized countries; the income elasticities for OPEC's bilateral imports are near unity" (72). Thirdly, import elasticities stemming from OPEC countries are near zero, as they mainly compromise oil.
"Using bilateral trade shares as weights, table 2 estimates the multilateral elasticities implied by the bilateral estimates of table 1. Based on a comparison to previous estimates...the aggregate income elasticities are consistent with the literature...The estimated price elasticities are also consistent with the literature: they are negative, range between -0.5 and -1.1, and are statistically significant" (74).
Thursday, December 4, 2008
Kindleberger: The Rise of Free Trade in Western Europe
CP Kindleberger, The Rise of Free Trade in Western Europe, 1820-1875 (MIT, 1974).
The piece begins by exploring exactly what the effects of an imposed tariff on trade are for a given country. There are ten, but not all of these need to be taken into consideration for this study ("...on price, trade, production..., consumption, revenue, terms of trade, internal income distribution, monopoly, employment and the balance of payments" (20)).
A tariff increases domestic prices above world prices. This reduces domestic demand, spurns domestic production and reduces domestic consumption.
As a note on collective action: "That diffuse interests are less well served than concentrated ones in the legislative process is widely accepted in the theory of tariff formation in comparing producers and final consumers. Households count for little in tariff-making since the interest of any one is too small to stir it to the political effort and financial cost necessary to achieve results" (22).
There are a variety of explanations for why free trade took hold when it did. Some claim that it was promoted by vested interests. Others claim it was a result of increasing democratization. Kindleberger tells the story in great detail on a case-study basis, of which, I skimmed.
"My first conclusion reached from this survey was that free trade in Europe in the period from 1820 to 1875 had many different causes. Whereas after 1879, various countries reacted quite differently to the single stimulus of the fall in the price of wheat...before that the countries of Europe all responded to different stimuli in the same way. Free trade was a part of a general response to the breakdown of the manor and guild system" (49-50).
The piece begins by exploring exactly what the effects of an imposed tariff on trade are for a given country. There are ten, but not all of these need to be taken into consideration for this study ("...on price, trade, production..., consumption, revenue, terms of trade, internal income distribution, monopoly, employment and the balance of payments" (20)).
A tariff increases domestic prices above world prices. This reduces domestic demand, spurns domestic production and reduces domestic consumption.
As a note on collective action: "That diffuse interests are less well served than concentrated ones in the legislative process is widely accepted in the theory of tariff formation in comparing producers and final consumers. Households count for little in tariff-making since the interest of any one is too small to stir it to the political effort and financial cost necessary to achieve results" (22).
There are a variety of explanations for why free trade took hold when it did. Some claim that it was promoted by vested interests. Others claim it was a result of increasing democratization. Kindleberger tells the story in great detail on a case-study basis, of which, I skimmed.
"My first conclusion reached from this survey was that free trade in Europe in the period from 1820 to 1875 had many different causes. Whereas after 1879, various countries reacted quite differently to the single stimulus of the fall in the price of wheat...before that the countries of Europe all responded to different stimuli in the same way. Free trade was a part of a general response to the breakdown of the manor and guild system" (49-50).
Tuesday, September 23, 2008
Gowa: Allies, Adversaries, and International Trade
Gowa, J., 1994. Allies, Adversaries, and International Trade, Princeton University Press.
“In this book, I develop what I hope is an intuitively appealing and analytically rigorous explanation of the impact of power politics on inter-state trade. In order to do so, I construct a very simple game-theoretic model to address the question of substantive importance.. That question is whether free trade is more likely within than across alliances. More precisely, I address this question: Under what, if any, conditions does it make sense for states to trad3e more freely with their allies than with their adversaries?” (5-6).
“…I analyze the impact of the anarchic structure of international politics on the exchange of goods and services among states. Prior to doing so, I argue that hegemonic stability theory, the preeminent system-level theory of the relationship between power politics and free trade, does not resolve the question of the political correlates of open international markets…Here, I* summarize the core argument of this book. I contend that the play of power politics is an inexorable element of any agreement to open international markets, because of the security externalities that trade produces. These externalities arise because the source of gains from trade is the increased efficiency with which domestic resources can be employed. As a consequence, trade frees economic resources for military uses. Thus, trade enhances the potential military power of any country that engages in it. The anarchic structure of the international system…compels its constitute states to attend closely to the military power and potential of both prospective and actual allies and adversaries. It does so because the absence of any supranational authority in the international system enables a state either to threaten or to actually resort to force at any time to achieve its goals. The probability that a state will do so depends in part upon its power. The latter, in turn, depends partially upon its real income. As a consequence, the real-income gains that motivate free trade are also the source of the security externalities that can either impede or facilitate trade: Trade with an adversary produces a security diseconomy; trade with an ally produces a positive externality. In either case, agreements to open international markets create a divergence between the private and social costs of trade…In other words, because trade generates security externalities adherence to a policy of free and non-discriminatory trade may not be optimal for states in an anarchic international system…I consider these external effects explicitly. Doing so leads me to two conclusions: (1) free trade is more likely within than across political-0miliitary alliances; and (2) the evolutionary prospects of alliances vary: those that are the products of bipolar systems are more likely to evolve into free-trade coalitions than are their mutipolar counterparts” (6-7).
Kindleberger is seen as the father of hegemonic stability theory, though he preferred to use the word “leader” to “hegemon”, as the later connoted control and coercion. The argument went something like this: international trade is a public good, and in order to have this public good be freely available, there had to be a hegemon to support its diffusion. Public goods are non-rival and non-excludable (the examples given by Gowa are nuclear deterrence and clean air). With public goods, there is obviously the problem of free riders in rationalist models.
Gowa then explores alliances from a rationalist perspective. He defines an alliance as, following Holsti, Hopmann and Sullivan, “a formal agreement between two or more nations to collaborate on national security issues” (32). Gowa points out three kinds of alliances: defense pacts, nonaggression pacts and ententes mandating cooperation in war (32). Alliances can make sense from a realist perspective when they successfully balance.
“Trade with an ally produces a positive externality; trade with an adversary creates a security diseconomy. A s a result, ceteris paribus, free trade is more likely within than across political-military alliances” (120).
“In this book, I develop what I hope is an intuitively appealing and analytically rigorous explanation of the impact of power politics on inter-state trade. In order to do so, I construct a very simple game-theoretic model to address the question of substantive importance.. That question is whether free trade is more likely within than across alliances. More precisely, I address this question: Under what, if any, conditions does it make sense for states to trad3e more freely with their allies than with their adversaries?” (5-6).
“…I analyze the impact of the anarchic structure of international politics on the exchange of goods and services among states. Prior to doing so, I argue that hegemonic stability theory, the preeminent system-level theory of the relationship between power politics and free trade, does not resolve the question of the political correlates of open international markets…Here, I* summarize the core argument of this book. I contend that the play of power politics is an inexorable element of any agreement to open international markets, because of the security externalities that trade produces. These externalities arise because the source of gains from trade is the increased efficiency with which domestic resources can be employed. As a consequence, trade frees economic resources for military uses. Thus, trade enhances the potential military power of any country that engages in it. The anarchic structure of the international system…compels its constitute states to attend closely to the military power and potential of both prospective and actual allies and adversaries. It does so because the absence of any supranational authority in the international system enables a state either to threaten or to actually resort to force at any time to achieve its goals. The probability that a state will do so depends in part upon its power. The latter, in turn, depends partially upon its real income. As a consequence, the real-income gains that motivate free trade are also the source of the security externalities that can either impede or facilitate trade: Trade with an adversary produces a security diseconomy; trade with an ally produces a positive externality. In either case, agreements to open international markets create a divergence between the private and social costs of trade…In other words, because trade generates security externalities adherence to a policy of free and non-discriminatory trade may not be optimal for states in an anarchic international system…I consider these external effects explicitly. Doing so leads me to two conclusions: (1) free trade is more likely within than across political-0miliitary alliances; and (2) the evolutionary prospects of alliances vary: those that are the products of bipolar systems are more likely to evolve into free-trade coalitions than are their mutipolar counterparts” (6-7).
Kindleberger is seen as the father of hegemonic stability theory, though he preferred to use the word “leader” to “hegemon”, as the later connoted control and coercion. The argument went something like this: international trade is a public good, and in order to have this public good be freely available, there had to be a hegemon to support its diffusion. Public goods are non-rival and non-excludable (the examples given by Gowa are nuclear deterrence and clean air). With public goods, there is obviously the problem of free riders in rationalist models.
Gowa then explores alliances from a rationalist perspective. He defines an alliance as, following Holsti, Hopmann and Sullivan, “a formal agreement between two or more nations to collaborate on national security issues” (32). Gowa points out three kinds of alliances: defense pacts, nonaggression pacts and ententes mandating cooperation in war (32). Alliances can make sense from a realist perspective when they successfully balance.
“Trade with an ally produces a positive externality; trade with an adversary creates a security diseconomy. A s a result, ceteris paribus, free trade is more likely within than across political-military alliances” (120).
Monday, August 4, 2008
Devarajan et al.: Policy Lessons from Trade-Focused, Two-Sector Models
Devarajan, S., Lewis, J. & Robinson, S., 1990. Policy Lessons from Trade-Focused, Two-Sector Models. Journal of Policy Modeling, 12(4), 625-657.
These authors create a one country, two-sector, three good CGE trade model that is designed to be simple, or, in their words, minimalist. The benefits to this are clear: the CGE becomes much less of a black box. They call it the 1-2-3 model.
“The model has three actors: a producer, a household, and the rest of the world” (627).
“The 1-2-3 model is different from the standard neoclassical trade model with all goods tradable and all tradables perfect substitutes with domestic goods. The standard model, long a staple of trade theory, yields wildly implausible results in empirical applications” (630). One way to work around this is building on the word of Salter (1959) and Swan (1960) that separates tradables from non-tradables.
They claim that their 1-2-3 model is Walrasian, even though there are macro-level closures. “The additions of government, savings-investment, and the balance of trade are done in ways that retain the notion of flow equilibrium and do not strain the Walrasian paradigm” (642). They also highlight two different approaches on “macro closures”: in the first approach, macro-level factors are exogenous. “In the second approach, the CGE model is extended to include variables typically found in macro models…and to expand the notion of equilibrium to incorporate asset markets and expectations. The intent is to build CGE models that move beyond the Walrasian paradigm and directly incorporate macro phenomena” (642).
The started with the 1-2-3 model, then added macro-level factors like tariffs, subsidies, taxes, savings and investment. The addition of savings and investment brought up the need to discuss closure rules. Thus, a minimalist CGE model is built upon to make it more realistic.
These authors create a one country, two-sector, three good CGE trade model that is designed to be simple, or, in their words, minimalist. The benefits to this are clear: the CGE becomes much less of a black box. They call it the 1-2-3 model.
“The model has three actors: a producer, a household, and the rest of the world” (627).
“The 1-2-3 model is different from the standard neoclassical trade model with all goods tradable and all tradables perfect substitutes with domestic goods. The standard model, long a staple of trade theory, yields wildly implausible results in empirical applications” (630). One way to work around this is building on the word of Salter (1959) and Swan (1960) that separates tradables from non-tradables.
They claim that their 1-2-3 model is Walrasian, even though there are macro-level closures. “The additions of government, savings-investment, and the balance of trade are done in ways that retain the notion of flow equilibrium and do not strain the Walrasian paradigm” (642). They also highlight two different approaches on “macro closures”: in the first approach, macro-level factors are exogenous. “In the second approach, the CGE model is extended to include variables typically found in macro models…and to expand the notion of equilibrium to incorporate asset markets and expectations. The intent is to build CGE models that move beyond the Walrasian paradigm and directly incorporate macro phenomena” (642).
The started with the 1-2-3 model, then added macro-level factors like tariffs, subsidies, taxes, savings and investment. The addition of savings and investment brought up the need to discuss closure rules. Thus, a minimalist CGE model is built upon to make it more realistic.
Thursday, March 6, 2008
Meseguer: Poilcy Learning, Policy Diffusion and the Making of a New Order
Meseguer, Covadonga. (2005). "Policy Learning, Policy Diffusion, and the Making of a New Order". Annals of the American Academy of Political and Social Science, 598, 67-82.
"This article surveys the role of learning as mechanism of policy diffusion in the context of the creation of a new political order” (67).
Mexeguer examines how learning from the examples of others may have contributed to policy diffusion and liberalization in the later decades of the 20th century. Specifically, the author examines whether or not countries and polities learned from failed collectivization and interventionism policies. This article attempts to more broadly contextualize the idea of learning as a tool of policy diffusion, examine alternative perspectives and explain the difficulties of testing this empirically.
“I argue that although learning is suggested as a fundamental mechanism of diffusion of the previous wave of deregulation and privatization and of the current wave of regulatory reforms, we still lack the empirical tests to evaluate the impact that learning may have had on these two trends” (68).
Learning is a voluntary act (71). It also implies an adaptation of beliefs (72). “Rational learning, in short, would imply convergence i9n policy choices. This is a model of learning that seems to match the sort of trend this chapter seeks to explain” (72).
Bounded learning is placed in contrast to rational learning. “Rather than scanning all information, governments look at relevant information” (72).
“Empirically, there is a strong evidence for the hypothesis that emulation has driven the adoption of a wide range of economic and social policy reforms. There is also strong evidence that emulation is behind the very recent ascendance of the regulatory state…The truth is that the empirical evidence we can rely on is still limited and partial (79).
"This article surveys the role of learning as mechanism of policy diffusion in the context of the creation of a new political order” (67).
Mexeguer examines how learning from the examples of others may have contributed to policy diffusion and liberalization in the later decades of the 20th century. Specifically, the author examines whether or not countries and polities learned from failed collectivization and interventionism policies. This article attempts to more broadly contextualize the idea of learning as a tool of policy diffusion, examine alternative perspectives and explain the difficulties of testing this empirically.
“I argue that although learning is suggested as a fundamental mechanism of diffusion of the previous wave of deregulation and privatization and of the current wave of regulatory reforms, we still lack the empirical tests to evaluate the impact that learning may have had on these two trends” (68).
Learning is a voluntary act (71). It also implies an adaptation of beliefs (72). “Rational learning, in short, would imply convergence i9n policy choices. This is a model of learning that seems to match the sort of trend this chapter seeks to explain” (72).
Bounded learning is placed in contrast to rational learning. “Rather than scanning all information, governments look at relevant information” (72).
“Empirically, there is a strong evidence for the hypothesis that emulation has driven the adoption of a wide range of economic and social policy reforms. There is also strong evidence that emulation is behind the very recent ascendance of the regulatory state…The truth is that the empirical evidence we can rely on is still limited and partial (79).
Thursday, February 14, 2008
Rogowski: Commerce and Coalitions
Rogowski, Ronald. (1989). Commerce and coalitions : how trade affects domestic political alignments. Princeton, N.J.: Princeton University Press.
This text posits that there will be domestic political coalitions or divisions based on a country’s natural relative endowments if they engage in free trade. He creates a handy metric for determining whether or not there will be tension in a given country that is a 2x2 box. Along the x-axis there is a distinction made between countries that are relatively abundant in land or labor. Along the Y axis, countries are separated into relatively capital rich and poor nations.
This is not an attempt to explain all of the effects of trade, but rather to provide a metric that can potentially be useful in determining some of the effects of increased or decreased trade on different coalitions in a given nation. The remainder of the text is an attempt to apply the theory to historical example. At times this is seamless and elegant, and other times it stretches too far to make causal connections that do not exist.
This text posits that there will be domestic political coalitions or divisions based on a country’s natural relative endowments if they engage in free trade. He creates a handy metric for determining whether or not there will be tension in a given country that is a 2x2 box. Along the x-axis there is a distinction made between countries that are relatively abundant in land or labor. Along the Y axis, countries are separated into relatively capital rich and poor nations.
This is not an attempt to explain all of the effects of trade, but rather to provide a metric that can potentially be useful in determining some of the effects of increased or decreased trade on different coalitions in a given nation. The remainder of the text is an attempt to apply the theory to historical example. At times this is seamless and elegant, and other times it stretches too far to make causal connections that do not exist.
Thursday, February 7, 2008
Goldstein, et. al.: Intstitutions in International Relations
Goldstein, Judith L., Rivers, Douglas, & Tomz, Michael. (2007). Institutions in International Relations: Understanding the Effects of the GATT and the WTO on World Trade (Vol. 61, 37-67): Cambridge Journals Online.
This article attempts to right a wrong. The wrong is the absences of a statistical link between membership in an international institution like the GATT and a decreased level of tariffs. See Milner 2005 and Rose 2004.
Goldstein et. al. deploy a statistical method that attempts to show that, while there is not a direct correlation between GATT membership and decreased trade tariffs, there is an important statistical connection if you broaden the circle of GATT members to measure the degree to which countries are embedded in the international system through agreements, etc.
The authors accomplish this by looking at two factors: institutional standing and institutional embeddedness (38). Standing is seen as being distinct from formal group membership, as some international agreements, “give rights and obligations not only to formal members, but also to territories and groups that never signed the agreement” (39). Goldstein et. al. also looks at member nations who are in negotiation with different international agreements, but who have not accented to full membership. “In summary, these nonmember participants received the core rights of the GATT/WTO, that is, access to other markets on MFN terms, and they reciprocated that right to other members of the organization” (42).
They then use a statistical method that standardized their country data using the gravity model of trade. Their results show that other examinations of this problem were too myopically focused on official, formal GATT/WTO membership while ignoring other variables that would affect country participation. When those additional variables are considered, statistical models will show a causal connection.
The table that sums up the whole project in a 3x3 format is Table 3. This shows the trade interaction between three groups of countries: formal member nations, nonmember participant nations, and non-participant nations. It shows a reduction in trade as the relationships move further away from the trade interactions of formal members and nonmember participants, dropping off whenever there is a trade interaction with non-participants. A table of countries and whether or not their participation is not included with the study, which would be helpful. An additional interesting table is Table 4, which shows the decreasing efficacy of subsequent trade negotiations in increasing trade.
Wednesday, February 6, 2008
Milner and Kubota: Why the Move to Free Trade?
Milner, HV, and K Kubota. 2005. Why the Move to Free Trade? Democracy and Trade Policy in the Developing Countries. International Organization 59, no. 01: 107-143.
This article traces two global trends that emerged out of the 1970’s and attempts to casually link them using statistical methods. The first trend that is highlighted is the increase in democracy. The second trend that she highlights is the global reduction in tariffs. Her dependent variable is the later, and independent the former.
She initially looks at alternative explanations for changing economic policies. Some focus on economic crises. Others talk about external, ideational pressure emanating from hegemonic forces. Finally, and oddly multicolliniar with her second example, some examine the rise of neoliberal policies as being a force that contributes to decreases in tariffs. She rejects these as being sufficient to explain the global decrease in trade tariffs. For her, this change is accounted for by the increase in global democracy.
Firstly, she makes a causal claim about her variables and tries to construct a qualitative argument for why they are connected. She claims that democracies are better than autocracies at freeing governance from selective interest groups (113). She also claims that the “selectorate”, the group of people that legitimize and support the rule of a politician, changes sufficiently in a democracy. The selectorate in a democracy will be interested in more free trade because this will benefit the whole population. In an autocratic regime, the selectorate will be a small interest group and they will be more interested in promoting protectionist measures (115-7).
“Democratization will thus enfranchise a new group of voters with preferences for lower levels of protectionism” (116).
“In sum, in developing countries where autocratic governments depend on support from a small selectorate and thus are not responsive to the overall population, the governments can employ extensive protectionism. Democratization, however, may break down the old coalition supporting protectionism, and can thus lead to change in the status quo” (117).
She goes on to deploy a (relatively) large-n study of 179 countries, Polity IV democracy numbers and relatively weak tariff numbers (by her own omission – p. 122). She finds, through OLS analysis, that there is a correlation between levels of democratization and decreased tariffs. This, she concludes, links up with her qualitative account of how democracy causes reductions in tariffs.
A critique of this paper could go something like this: the causation that she highlights is not very strong, though it clearly does exist. However, this weak causation does not at all mean that her qualitative story is legitimate. The drivers of the linkage between democracy and reduced tariffs could be one of many things, and this research project does little to promote a humble approach to understanding why a slight quantitative correlation may be present.
It is really interesting that there is some correlation between her independent and dependent variables. However, her case is weakly made and her qualitative story is full of holes.
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