http://repub.eur.nl/res/aut/2337/ List of Publications en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/30816/ 2011-10-01T00:00:00Z A belief that EU integration is incomplete is often predicated on a comparison to U.S. states. Yet, with low barriers to trade and factor mobility between EU countries, is this belief correct? To address this question, we develop three theoretical predictions regarding the distribution of output and factors across members of an integrated economic area with harmonized policies and free movement of goods and factors. Empirical tests strongly support these predictions for U.S. states and 14 EU countries. Constructing a measure of integration, we find that EU integration rose from the 1960s to equal that of U.S. states by 2000. http://repub.eur.nl/res/pub/17667/ 2010-01-04T00:00:00Z European economic integration is commonly believed to be incomplete, and that further reforms are needed. In this context, the union of U.S. states is considered the benchmark of complete economic integration and is often the basis for comparison regarding the extent of E.U economic integration. Yet, with low trade barriers and with productive factors at least notionally mobile across E.U. countries, is the belief that U.S. states are more integrated than E.U. member states correct? To address this question, this paper first develops three theoretical predictions about the distribution of output and factors that would arise among members of a fully integrated economic area in which goods, capital and labor are freely mobile and policies are harmonized. These theoretical predictions are then empirically tested using data on the output and factor stocks of 14 E.U. member states and the 51 U.S. states (includes District of Columbia) for the period 1965 to 2000. The empirical results convincingly support each theoretical prediction. Hence, contrary to popular belief, the extent of E.U. economic integration is not statistically different from that among U.S. states. http://repub.eur.nl/res/pub/17664/ 2010-01-03T00:00:00Z This paper examines international trade in tainted food and other low-quality products. We first find that for a large class of environments, free trade is the trading system that conveys the highest incentives to produce non-tainted high-quality goods by foreign exporters. However, free trade cannot prevent the export of tainted products, and the condition for tainting to arise becomes more easily satisfied, if the marginal cost of high-quality production increases or if errors of testing product quality matter. We also examine cases of imagebuilding investments and sabotage of rivals, and find that a tariff in either case reduces the foreign firm’s incentives to produce high quality, which in turn tends to increase import tainting. http://repub.eur.nl/res/pub/12962/ 2008-03-01T00:00:00Z This paper considers the nature and the distribution of trade and FDI effects of a potential enlargement of the European Monetary Union (EMU) to the 10 countries that obtained EU membership in 2004. One-way and two-way error component gravity models are estimated using a data set of unbalanced panel data that combine bilateral trade flows among 29 countries and the distribution of outward FDI stocks among these countries. The results reveal a complementarity between trade and investment and a relationship between trade and exchange rate volatility that depend on the sign of bilateral trade balances. Using a simulation-based technique, we find that estimates of FDI effects of EMU range between 18.5% for Poland and 30% for Hungary. http://repub.eur.nl/res/pub/10743/ 2007-09-23T00:00:00Z This paper considers the nature and the distribution of trade and FDI effects of a potential enlargement of the European Monetary Union (EMU) to the ten countries that obtained EU membership in 2004. Intuitively, the implementation of a single currency for these countries means replacing several fluctuating currencies by a common currency. This gives rise to both “level” and “risk” effects of reduced currency movements on trade and investment. Another factor is the nature of the link between trade and FDI. This is also important not only because cross-border factor flows are becoming increasingly important, but also the international trade literature has long recognized that cross-border factor flows and trade in goods and services can be substitutes or complements. Given this background, one-way and two-way error component gravity models are estimated to examine for these theoretical expectations within a dataset of unbalanced panel data that combines bilateral trade flows among 29 countries and the distribution of outward FDI stocks among these countries (including the 10 new EU members). The data generally cover the period from 1990 to 2004. Our empirical results convincingly support: (i) a complementarity between trade and investment, (ii) a relationship between trade and exchange rate volatility that depends on the sign of bilateral trade balances, (iii) a positive effect of EU on trade and investment, and (iv) a positive effect of EMU on foreign investment. Using a simulation-based technique, we find that estimates of FDI effects of EMU range between 18.5 percent for Poland and 30 percent for Hungary. http://repub.eur.nl/res/pub/6581/ 2005-06-01T00:00:00Z We first demonstrate that, within a fully integrated economy (FIE) in which there is free mobility of goods and factors, each FIE member's share of total FIE output will equal its shares of the total FIE stock of each productive factor. This equal-share property implies that, if economic policies are also largely harmonized across FIE members, the growth in any member's output and factor shares can be viewed as a random event. This then implies that the limit distribution of output and factor shares across FIE members will conform to a rank-share distribution that exhibits Zipf's law. This result means that growth models of FIE members must embody the assumption of homogeneity of random growth processes across members. Given its importance for our understanding of underlying growth mechanisms for such members, we empirically examine for evidence of Zipf's law for the distribution of output and factor shares of two (presumably) integrated economies: the 51 US states and 14 countries of the European Union (EU). Our findings support Zipf's law for US states and indicate convergence towards this law among EU countries. http://repub.eur.nl/res/pub/12960/ 2005-05-01T00:00:00Z Anti-dumping actions are now the trade policy of choice of developing and transition economies. To understand why these economies have increasingly applied anti-dumping laws, we build a simple theoretical model of vertical intra-industry trade and investigate the strategic incentives of exporting firms to undertake dumping. We show that the definition of dumping matters. Based on a comparison of low-quality and high-quality prices, only unilateral dumping by the low-quality firm obtains. By contrast, the standard WTO definition leads to either reciprocal or unilateral dumping by the high-quality firm, depending on cross-country differences in incomes, the height of tariff protection and on exchange rate changes. http://repub.eur.nl/res/pub/6582/ 2005-05-01T00:00:00Z We show that in a fully integrated economy, in which there is free mobility of goods and factors, each member’s share of total output will equal its shares of total stocks of productive factors (i.e., physical and human capital). We label this result the equal-share relationship. This relationship also holds in the presence of technological differences or costs of factor mobility among members if outputs or inputs are properly measured to reflect such differences or costs. The equal-share relationship is the limiting distribution of output and factors among members of a fully integrated economy, and it constraints the set of policies that can affect each member’s relative growth within an integrated economy. We empirically examine for the equal-share relationship for alternative economic groups (i.e., US states, EU countries, Developing Countries and a World comprising 55 countries). Our findings indicate that the equal-share relationship holds strongly for US states, holds weakly for EU countries, but does not hold for Developing Countries or the World. http://repub.eur.nl/res/pub/12961/ 2005-02-01T00:00:00Z Trade policy and quality leadership in transition economies are analyzed in a duopoly model of trade and vertical product differentiation. We first show that the incidence of trade liberalization is sensitive to whether firms in transition economies are producers of low or high quality. Second, we find that neither free trade nor the absence of a domestic subsidy are optimal: Both a tariff and a subsidy increase price competition and while the former extracts foreign rents the latter results in quality upgrading. Third, there exists a rationale for a government to commit to a socially optimal policy to induce quality leadership by the domestic firm when cost asymmetries are low. Finally, we establish an equivalence result between the effects of long-run exchange rate changes and those of trade policy on price competition (but not on social welfare) http://repub.eur.nl/res/pub/6609/ 2004-11-16T00:00:00Z We build a simple theoretical model to understand why developing and transition economies have increasingly applied anti-dumping laws. To that end, we investigate the strategic incentives of oligopolistic exporting firms to undertake dumping in these economies. We show that dumping may be due to cross-country differences in income, to the extent of tariff protection and to the exchange rate depreciations observed recently. Dumping may arise even if consumers exhaust all arbitrage possibilities. http://repub.eur.nl/res/pub/6610/ 2004-11-01T00:00:00Z We examine an export game where two firms (home and foreign), located in two different countries, produce vertically differentiated products. The foreign firm is the most efficient in terms of R&D costs of quality development and the foreign country is relatively larger and endowed with a relatively higher income. The unique (risk-dominant) Nash equilibrium involves intra-industry trade where the foreign producer manufactures a good of higher quality than the domestic firm. This equilibrium is characterized by unilateral dumping by the foreign firm into the domestic economy. Two instruments of anti-dumping (AD) policy are examined, namely, a price undertaking (PU) and an anti-dumping duty. We show that, when firms' cost asymmetries are low and countries differ substantially in size, a PU leads to a quality reversal in the international market, which gives a rationale for the domestic government to enact AD law. We also establish an equivalence result between the effects of an AD duty and a PU. http://repub.eur.nl/res/pub/6608/ 2004-05-01T00:00:00Z Anti-dumping actions are now the trade policy of choice of developing and transition economies. To understand why these economies have increasingly applied anti-dumping laws, we build a simple theoretical model of vertical intra-industry trade and investigate the strategic incentives of exporting firms to undertake dumping. We show that the definition of dumping matters. Based on a comparison of low-quality and high-quality prices, only unilateral dumping by the low-quality firm obtains. By contrast, the standard WTO definition leads to either reciprocal or unilateral dumping depending on differences in incomes and on the height of tariff protection and of the exchange rate depreciations. http://repub.eur.nl/res/pub/12958/ 2002-06-01T00:00:00Z The paper considers a two-country model of overlapping generations economies with intergenerational transfers motivated by altruism and investment in human capital. We examine in a non-stationary competitive equilibrium the optimal provision of education with and without capital market integration. First, we explore how regimes of education provision—public, private or mixed—arise and how they affect the dynamics of autarkic economies. Second, we study the effects of capital market integration, in equilibrium, on the optimal provision of education. Third, we show that capital market integration enhances government intervention in the provision of public education (to improve the welfare of its constituents) and consider various solutions to such a competition. http://repub.eur.nl/res/pub/6819/ 2002-04-29T00:00:00Z The paper studies the effects of cross-country differences in the production process of human capital on income distribution and growth. Our overlapping gen- erations economy has the following features: (1) consumers are heterogenous with respect to parental human capital and wealth; (2) intergenerational transfers take place via parental education and, public investments in education financed by taxes (possibly, with a level determined by majority voting); (3) due to investment in human capital, which is a factor of production, we have endogenous growth. We explore several types of cross-country variations in the production of human capi- tal, some attributed to 'home-education' and others related to 'public-education', and their effect upon intragenerational income inequality and growth along the equilibrium path. We also indicate how the level of public education affects human capital formation and the conditions leading to poverty traps. http://repub.eur.nl/res/pub/12957/ 2002-02-09T00:00:00Z The paper considers a two-country model of overlapping generation heterogenous economies with intergenerational transfers carried out in the form of bequest and investment in human capital. We examine in competitive equilibrium the transitory and long-run effects of capital markets integration. First, we explore how the regime of public education affects the dynamics of the integrated economy. Second, we study the effects of capital markets integration, in equilibrium, on the intragenerational income distribution in both the host and investing country. http://repub.eur.nl/res/pub/6836/ 2001-11-09T00:00:00Z The paper studies the determinants of income distribution and growth in an overlapping generations economy with heterogenous households. Our framework has the following main features: heterogeneity of consumers with respect to wealth and parental human capital; intergenerational transfers, accomplished via investment in the education of the younger generation. Heterogeneity in income results from the distribution of human capital across individuals in a non-degenerate way. The human capital production is affected by 'home-education' , provided by the parents, as well as 'public-education , which is provided equally to all young individuals of the same generation. Due to investments in human capital our economy exhibits endogenous growth. First, we explore the effects of technological change in human capital formation, upon the distribution of income at each date along the equilibrium path. Second, we study the impact of such technogical progress on growth and relate these results to the income distribution inequality. Third, we provide numerical simulations to quantify the effect of changes in the parameters of the model. Simulation results include exact Gini coefficients and tax rate on labor determined endogenously through majority voting. http://repub.eur.nl/res/pub/6923/ 2000-12-01T00:00:00Z This paper focuses on ignored issues regarding the impact of trade reforms in transition economies. These economies are primarily characterized by a low quality of their products, large depreciations of their currencies, and a high degree of government intervention in economic activity. These elements are embedded in a duopoly model of vertical product differentiation and international trade. First, we show that trade liberalization in transition economies reduces the output of local firms. Second, neither free trade nor zero subsidy is optimal. There exists a rationale for infant-industry protection in that a commitment by the government to use a socially optimal trade and industrial policy can release the domestic firm from low-quality production. Since greater profits are derived from high-quality products, this enables local firms to finance productivity and technology improvements. Third, in terms of social welfare, no equivalence result between the effects of exchange rate changes and the optimal trade policy can be obtained. http://repub.eur.nl/res/pub/12956/ 2000-01-01T00:00:00Z We derive the equilibrium joint distribution of exchange rate and commodity price in a two-country rational expectations model. The correlation between commodity price and exchange rate appears crucial for the stability of commodity markets. This result arises from the common practice to quote commodity prices in consuming countries' currency, which subjects producing countries to the currency risk. Welfare results of commodity price stabilization are obtained and facilitate the interpretation of the position taken by industrialized countries long opposed to international commodity agreements. We apply our model to the Philippines and investigate the potential effects of the International Sugar Agreement (ISA) on the various conditional volatilities of the model. We conclude on the relative ineffectiveness of these agreements in limiting fluctuations of sugar prices. http://repub.eur.nl/res/pub/7708/ 1999-12-22T00:00:00Z We study the optimal trade policy against a foreign oligopoly with endogenous quality. We show that, under the Most Favoured Nation (MFN) clause, a uniform tariff policy is always welfare improving over the free trade equilibrium. However, a nonuniform tariff policy is always desirable on welfare grounds. First best policy typically consists of setting a subsidy on the low-quality product and a tax on high-quality one. Another example of such a nonuniform tariff policy is a Regional Trade Agreement (RTA). We show that, if a welfare improvement is possible through a RTA, it is always with the low- quality producing country that it has to be achieved. http://repub.eur.nl/res/pub/12953/ 1998-12-01T00:00:00Z We investigate the strategic incentives for vertical foreign direct investment by oligopolistic firms under exchange rate uncertainty. Domestic final good firms meet their input requirements either by investing abroad and producing directly through a subsidiary (intra-firm trade) or by buying from an oligopolistic market abroad (inter-firm trade). Firms undertaking vertical investment can bid up the input price faced by their rivals through strategic purchase. We demonstrate the possibility of vertical foreclosure, multiple equilibria, complementarity and bunching of investment decisions. Increase in the variability of exchange rate has positive effects on foreign direct investment and trade in the intermediate good; an appreciation of investor's currency has similar effects. http://repub.eur.nl/res/pub/12950/ 1998-01-01T00:00:00Z Analyzes international trade where consumer preferences exhibit country bias. Why country biases arise; How trade can occur in the presence of country bias; Implication for the pattern of trade and specialization. http://repub.eur.nl/res/pub/12951/ 1998-01-01T00:00:00Z Evaluates the effect of exchange rate and commodity price uncertainty from cost and production on a competitive risk-averse exporting firm's behavior. Role of forward-future markets in the presence of background uncertainty; Information on the behavior of the firm when missing markets were introduced. http://repub.eur.nl/res/pub/12966/ 1998-01-01T00:00:00Z The book was written with two objectives in mind. First, to give students, practioners and researchers a text that encompasses the important theoretical and applied developments in the field and bringst to the fore those questions, left unanswered by traditional trade models, which the more recent models have sought to address. Second, to provide the student of international trade with a single text that integrates theory, applied analysis and the formal testing of theory. The design of the book reflects our conviction that linking theory and data during the learning process is key. Throughout the book, theory is interwoven with empirical analysis, the latter stressing methodology as well as results. http://repub.eur.nl/res/pub/12949/ 1997-01-01T00:00:00Z We unite the theories of factor abundance and monopolistic competition to explore the general equilibrium relations between trade in producer services, economies of scale and factor markets. In our model, two final goods are produced using capital, labor, and a variety of differentiated producer services that are produced under increasing returns to scale. We analyze the implications for comparative advantage and trade in goods between two countries that differ in factor endowments and in technology of service provision. Moreover, we use the concept of the integrated world equilibrium to investigate trade in goods and services, also when services require foreign direct investments. http://repub.eur.nl/res/pub/12971/ 1995-01-01T00:00:00Z http://repub.eur.nl/res/pub/12972/ 1995-01-01T00:00:00Z Using subsidized buyer credit as a policy tool, it is shown that the general result of strategic trade policy, namely that, by committing itself to an export subsidy, any government can favorably change the outcome of the Cournot oligopoly, does not necessarily hold. http://repub.eur.nl/res/pub/12424/ 1992-06-01T00:00:00Z We advance an explanation for the choice of the invoice currency of international trade contracts on the basis of strategic bargaining considerations. The choice of the invoice currency originates in a situation in which each trader takes into account the other party's bargaining power. The latter depends on the individual discount factor, whether one is the first or second proposer, and whether one is on the short or long side of the market. Along these lines we explain the Grassman bias for trade contracts to be invoiced in the exporter's currency. http://repub.eur.nl/res/pub/12426/ 1992-01-01T00:00:00Z For currencies with well developed forward markets several papers have investigated the conjectured negative relationship between trade and short term exchange rate volatility, without being very successful. A theoretical explanation for the empirical anomalies is provided by solving explicitly for the forward rate. Because importers and exporters are on opposite sides of the forward market, so is their exposure towards exchange rate volatility. Moreover, which trade flow benefits and which one loses from increased volatility is determined by the signs of the aggregate net foreign currency exposure and the aggregate measure of risk aversion. http://repub.eur.nl/res/pub/12456/ 1985-01-01T00:00:00Z Vanwege de apartheidspolitiek in Zuid-Afrika overweegt de gemeente Rotterdam een handelsboycot van met name olie tegen dit land af te kondigen. Om tot een weloverwogen stellingname te komen heeft zij besloten een onderzoek te laten doen naar de effecten van een dergelijke boycot voor de economic van het Rijnmondgebied. De economische kosten zouden dan afgewogen kunnen worden tegen de, merendeels politieke, baten. Dit artikel, gebaseerd op het rapport Werkgelegenheidsaspecten van een olieboycot tegen Zuid-Afrika, inventariseert de gevolgen van een Rotterdamse boycot. Een dergelijke boycot kan verschillende vormen aannemen. Er kan sprake zijn van een eenzijdig embargo op de export van olie naar Zuid-Afrika, maar het is ook mogelijk dat Zuid-Afrika tegenmaatregelen neemt, zoals een boycot van Rotterdam. In dit artikel wordt een aantal verschillende scenario's besproken.