No full-text available
To read the full-text of this research,
you can request a copy directly from the author.
The gains from trade in intermediate goods: A Ricardo-Sraffa-Samuelson model
Abstract
This paper develops a model of intermediate and final goods trade based on comparative advantage. Firms endogenously decide whether to produce a final good directly using labour, or indirectly using both labour and intermediate inputs. It is shown that the gains from trade in intermediate and final goods exceeds that from trade in final goods alone. Falling trade and coordination costs result in an endogenous change in the structure of production towards a more fragmented structure, with corresponding implications for trade patterns.
... It has been found that countries that liberalize their trade regimes experience average annual growth rates that are approximately 1.5 percentage points higher than rates prior to trade liberalization. Soo [19] develops a theoretical model and concludes that gains from trade in intermediate and final goods exceed those from trade only in final goods. ...
... Food and beverages 16 Tobacco products 17 Textiles 18 Wearing apparel, fur 19 Leather, leather products and footwear 20 ...
Globalization has led to a rapid increase in the international trade of intermediate goods, which plays a vital role in economic growth. This study investigates whether trade openness facilitates output growth by improving access to intermediate inputs. In particular, it has been examined whether industrial sectors with higher intermediate input diversity grow relatively faster in countries that are more open to trade. Through the adoption of the difference-in-differences approach, we find strong evidence that this is indeed the case based on a large cross-country sample. The empirical estimation indicates that industries more diversified in intermediate inputs will grow by 2.6 percentage points faster in more outward-oriented countries. Furthermore, our results are robust to various specification checks and are unlikely to be driven by omitted variables, outliers, or reverse causality. By identifying the mechanism through which trade openness facilitates output growth, our study highlights the additional gains from trade liberalization that may be undermined by increased protectionism, especially for industrial sectors that rely on diversified intermediate inputs.
... The second-order condition is ∂ 2 W L ∂g 2 = − (3a + c1(9 + 4d))(c1(333 + d(429 + 100d − 240g) − 396g) + 3a(21 + 25d − 60g)) (6 + 5d + 6g) 4 (2.18) ...
The present paper reinterprets the comparative cost principle of David Ricardo in the light of the present global economy. Specifically, Ricardo's inequalities of comparative advantage, based on the famous four coefficients of unit labor requirement (and four related ratios), allow two different, though mathematically equivalent, inequalities. One is the inter-industrial inequality and the other is the intra-industrial inequality. The former represents the view points of policy makers or capitalists making macroscopic choices on appropriate industrial structures and investments, while the latter represents industrialists or shop floor people, making microscopic efforts for improving productivity and surviving the international, inter-factory competition. We can here observe a micro-macro loop between microeconomic individual efforts and macroeconomic processes. Thus, despite the apparent mathematical equivalence of the two inequalities, the conceptual difference is much more profound and meaningful than ordinarily supposed. Ricardo himself did discuss both interpretations in his work, but today's mainstream economics tend to rely too much on the former when it explains the benefit and consequence of comparative advantage. We believe that, by re-emphasizing intra-industrial views, we can re-establish a more balanced understanding of comparative cost principle for describing and analyzing contemporary trade phenomena. We anticipate that Ricardo's 19 th century theory of comparative advantage will increase its importance in the globalized economy in the 21 st century.
Ricardian trade theory is one of the most famous theories of economics but appears to have been little developed. Many attempts were made to extend the theory to multi-country, multi-commodity cases, but none succeeded to construct a general theory that included intermediate goods. A need to include intermediate goods within the theory was evident, but hurdles to introduce intermediate inputs were high. Intermediate goods change the entire structure of analysis; when they are traded, the price of a good is dependent of the prices of imported inputs. Consequently, prices should be determined simultaneously for prices of all countries. The present paper has succeeded in overcoming these difficulties and describes how wages, prices and productions are related. It analyzes the M-country, N-commodity case with choice of techniques and trade of intermediate goods in general terms, thus presenting a new basis for international trade theory. New light was shed on topics like gains and losses from trade, international wage rate discrepancies, and price and quantity adjustments. On a theoretical plane, the new construction eliminates a traditional weakness of the Ricardian theory. The traditional Ricardian theory acknowledged labor as the only input and excluded capital in any form. The new theory, presented here, analyzes capital goods as traded intermediate inputs.
We develop an endogenous growth model with R&D spillovers to study the long-run consequences of offshoring with firm heterogeneity and incomplete contracts. In so doing, we model offshoring as the geographical fragmentation of a firm's production chain between a home upstream division and a foreign downstream division. While there is always a positive correlation between upstream bargaining weight and offshoring activities, there is an inverted U-shaped relationship between these and growth. Whether offshoring with incomplete contracts also increases consumption depends on firm heterogeneity. As for welfare, whereas with complete contracts an R&D subsidy is enough to solve the inefficiency due to R&D spillovers, with incomplete contracts a production subsidy is also needed. Copyright © The editors of the "Scandinavian Journal of Economics" 2009 .
We develop an equilibrium model of industrial structure in which the organization of firms is endogenous. Differentiated consumer
products can be produced either by vertically integrated firms or by pairs of specialized companies. Production of each variety
of consumer good requires a specialized component. Vertically integrated firms can manufacture the components they need, but
they face a relatively high cost of governance. Specialized firms can produce at lower cost, but search for partners is costly,
and input suppliers face a potential holdup problem. We study the determinants of the equilibrium mode of organization when
inputs are fully or partially specialized.
The effects of ISO 9000 diffusion on trade and foreign direct investment (FDI) have gone understudied. We employ panel data reported by OECD nations over the 1995–2002 period to estimate the impact of ISO adoptions on country-pair economic relations. We find ISO diffusion to have no effect in developed nations, but to positively pull FDI (i.e., enhancing inward FDI) and positively push trade (i.e., enhancing exports) in developing nations. Journal of International Business Studies (2008) 39, 613–633. doi:10.1057/palgrave.jibs.8400368
This paper surveys the measurement of trade costs: what we know and don't know but may usefully attempt to learn. Partial and incomplete data on direct measures of costs go with inference on implicit costs from trade flows and prices. Total trade costs in rich countries are large. The ad valorem tax equivalent is about 170 percent when pushing the data hard. Poor countries face even higher trade costs. There is a lot of variation across countries and across goods within countries, much of which makes economic sense. In our survey, theory provides interpretation and perspective and suggests improvements for the future. Some new results are presented to properly apply and interpret gravity theory and handle aggregation.
The practice of sourcing service inputs from overseas suppliers has been growing in response to new technologies that have made it possible to trade in some business and computing services that were previously considered non-tradable. This paper estimates the effects of offshoring on productivity in US manufacturing industries between 1992 and 2000. It finds that service offshoring has a significant positive effect on productivity in the United States, accounting for around 10 per cent of labour productivity growth during this period. Offshoring material inputs also have a positive effect on productivity, but the magnitude is smaller accounting for approximately 5 per cent of productivity growth.
Productivity growth in a sector or economy is the economic basis for improvements in workers' wages. Recent growth of domestic and foreign outsourcing in developed economies greatly complicates the measurement and interpretation of this key economic indicator and may result in inflated and misleading increases in productivity statistics. In the context of United States manufacturing, this article points to several pieces of evidence that suggest these effects of outsourcing and offshoring on productivity measures are significant. These factors may help explain why wage growth for most United States workers has been relatively low in spite of high measured productivity growth.
This paper proposes a Ricardian model to understand the short-run and long-run aggregate effects of increased fragmentation and offshoring on rich and poor countries. The short-run analysis shows that, when offshoring is sufficiently high, further increases in offshoring benefit the poor country and hurt the rich country. But these effects may be reversed in the long run as countries adjust their research efforts in response to increased offshoring. In particular, in the long run, the rich country always gains from increased offshoring, whereas poor countries see their static gains partially eroded by a decline in their research efforts. (JEL F12, F23, L24, M16)
In this paper, we examine the increase in relative wages for skilled workers in Mexico during the 1980s. Rising wage inequality in Mexico is linked to foreign capital inflows. We study the impact of foreign direct investment (FDI) on the skilled labor share of wages in Mexico over 1975–1988. We measure FDI using regional data on foreign assembly plants. Growth in FDI is positively correlated with the relative demand for skilled labor. In regions where FDI has concentrated, growth in FDI can account for over 50 percent of the increase in the skilled labor wage share that occurred in the late 1980s. © 1997 Elsevier Science B.V.
The striking growth in the trade share of output is one of the most important developments in the world economy since World War II. Two features of this growth present challenges to the standard trade models. First, the growth is generally thought to have been generated by falling tariff barriers worldwide. But tariff barriers have decreased by only about 11 percentage points since the early 1960s; the standard models cannot explain the growth of trade without assuming counterfactually large elasticities of substitution between goods. Second, tariff declines were much larger prior to the mid 1980s than after, and yet, trade growth was smaller in the earlier period than in the later period. The standard models have difficulty generating this nonlinear feature. This paper develops a two-country dynamic Ricardian trade model that offers a resolution of these two puzzles. The key idea embedded in this model is vertical specialization, which occurs when countries specialize only in particular stages of a good's production sequence. The model generates a nonlinear trade response to tariff reductions and can explain over 50 percent of the growth of trade. Finally, the model has important implications for the gains from trade.
Roughly one-third of world trade is intrafirm trade. This paper starts by unveiling two systematic patterns in the volume of intrafirm trade. In a panel of industries, the share of intrafirm imports in total U. S. imports is significantly higher, the higher the capital intensity of the exporting industry. In a cross section of countries the share of intrafirm imports in total U. S. imports is significantly higher, the higher the capital-labor ratio of the exporting country. I then show that these patterns can be rationalized in a theoretical framework that combines a Grossman-Hart-Moore view of the firm with a Helpman-Krugman view of international trade. In particular, I develop an incomplete-contracting, property-rights model of the boundaries of the firm, which I then incorporate into a standard trade model with imperfect competition and product differentiation. The model pins down the boundaries of multinational firms as well as the international location of production, and it is shown to predict the patterns of intrafirm trade identified above. Econometric evidence reveals that the model is consistent with other qualitative and quantitative features of the data. © 2001 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
We propose a theory of the global production process that focuses on tradeable tasks, and use it to study how falling costs of offshoring affect factor prices in the source country. We identify a productivity effect of task trade that benefits the factor whose tasks are more easily moved offshore. In the light of this effect, reductions in the cost of trading tasks can generate shared gains for all domestic factors, in contrast to the distributional conflict that typically results from reductions in the cost of trading goods. (JEL F11, F16)
We investigate the impact of international outsourcing on productivity using plant-level data for Irish manufacturing. Specifically, we distinguish the effect of outsourcing of materials from services inputs. Moreover, we examine whether the impact on productivity is different for plants being more embedded in international markets through exporting or being part of a multinational. Our results show robust evidence for positive effects from outsourcing of services inputs for exporters, either domestic or foreign owned. By contrast, we find no statistically significant evidence of an impact of international outsourcing of services on productivity for firms not operating on the export market.
On examine l'impact de la sous-traitance internationale sur la productivité en utilisant des données sur les établissements irlandais. On distingue la sous-traitance d'intrants qui sont des biens matériels de celle d'intrants de services. On distingue aussi les établissements encastrés dans les marchés internationaux via des liens d'exportations de ceux qui sont parties d'une firme plurinationale. Les résultats montrent des effets importants de la sous-traitance des intrants-services sur la productivité des exportateurs qu'ils soient indépendants ou parties d'une plurinationale. D'autre part, on ne trouve pas de relation statistique significative entre la sous-traitance des intrants-services et la productivité pour les entreprises qui n'opèrent pas sur le marché des exportations.
The first two main sections survey the roles of transnational networks in alleviating problems of contract enforcement and providing information about trading opportunities, respectively. The next section covers how domestic networks influence international trade through their impact on domestic market structure. Two overarching questions unify these sections: how do networks affect efficiency, and will networks grow or shrink in importance for international trade over time. The last main sections develop research agendas for two less studied areas: the role of intermediaries who can connect foreign agents to domestic networks and the ability of transnational production networks to facilitate technology transfer.
We develop a Ricardian trade model that incorporates realistic geographic features into general equilibrium. It delivers simple structural equations for bilateral trade with parameters relating to absolute advantage, to comparative advantage (promoting trade), and to geographic barriers (resisting it). We estimate the parameters with data on bilateral trade in manufactures, prices, and geography from 19 OECD countries in 1990. We use the model to explore various issues such as the gains from trade, the role of trade in spreading the benefits of new technology, and the effects of tariff reduction. Copyright The Econometric Society 2002.
This paper develops a dynamic industry model with heterogeneous firms to analyze the intra-industry effects of international trade. The model shows how the exposure to trade will induce only the more productive firms to enter the export market (while some less productive firms continue to produce only for the domestic market) and will simultaneously force the least productive firms to exit. It then shows how further increases in the industry's exposure to trade lead to additional inter-firm reallocations towards more productive firms. The paper also shows how the aggregate industry productivity growth generated by the reallocations contributes to a welfare gain, thus highlighting a benefit from trade that has not been examined theoretically before. The paper adapts Hopenhayn's (1992a) dynamic industry model to monopolistic competition in a general equilibrium setting. In so doing, the paper provides an extension of Krugman's (1980) trade model that incorporates firm level productivity differences. Firms with different productivity levels coexist in an industry because each firm faces initial uncertainty concerning its productivity before making an irreversible investment to enter the industry. Entry into the export market is also costly, but the firm's decision to export occurs after it gains knowledge of its productivity. Copyright The Econometric Society 2003.
Here is how the 1817 Ricardo comparative advantage trade benefit analysis has to be modified to take account of post-1960 Sraffian benefits from capital-using technologies. By bringing J. S. Mill's demand model up to date in terms of its implicit geometric-mean money-metric utility, specific measurements for real net national product are calculated to partition sources of welfare gains (from output enhancements and taste-preference accommodations) in scenarios of (1) trade between equals, (2) trade between poor and rich nations, and (3) for biased inventions that enable a poor country to take over production of items in which formerly the rich place enjoyed comparative advantage. History of economic doctrine is mined to advance today's frontier of scientific knowledge--a forward-looking function for "Whig history."