Author Archives: jdingel

Clinton on KORUS FTA

WaPo:

[Hilary Clinton] will oppose the free-trade agreement with South Korea — and for the narrowest of special-interest reasons… Ms. Clinton objects that South Korean manufacturers sell many more cars here than do American carmakers over there. Never mind that the agreement requires Korea to remove discriminatory tariffs and taxes on U.S. cars; never mind that U.S. tariffs on Korean cars can “snap back” if Korea doesn’t keep its word. Not good enough, says Ms. Clinton. What more could she have wanted for Detroit? She won’t say.

Via Fredrik Erixon.

Weekend reading

My exams are next week, but after that I promise a return to actual blogging — more than mere links and excerpts!

In the meantime, you might enjoy:

Dan Drezner & others discussing global governance at Cato Unbound.

A Business Week story on measuring productivity gains in the presence of offshoring: “But new evidence suggests that shifting production overseas has inflicted worse damage on the U.S. economy than the numbers show. BusinessWeek has learned of a gaping flaw in the way statistics treat offshoring, with serious economic and political implications. Top government statisticians now acknowledge that the problem exists, and say it could prove to be significant.” [HT: Thoma]

VoxEU, a new portal from the CEPR featuring numerous top economists, including recent columns by Paul Collier & Tony Venables, Andrew K. Rose, Simon Evenett, and others.

Measuring regionalism

Richard Pomfret has a great article in this month’s edition of The World Economy discussing how to think about the prevalence of preferential trade:

The main problem with using counts of RTAs as measures of the increasing importance of regionalism is that, while some agreements are important, many RTAs are inconsequential. Clearly, all notified RTAs should not carry equal weight…

The numbers are inflated because RTAs which cover both trade in goods and trade in services (Australia-Thailand, Japan-Mexico and Panama-El Salvador) require MFN waivers under both GATT and GATS; such double-counting only occurs after 1995 when the GATS came into effect, which biases comparison of the numbers notified before and after the establishment of the WTO…

Counting RTAs is not just a poor measure of the extent of regionalism; it can lead to nonsensical conclusions about trends in the global economy due to the treatment of regional disintegration and integration. The replacement of a regional bloc by a web of bilateral or plurilateral agreements increases the number of RTAs, and by the counting criterion indicates an increase in regionalism. Conversely, the replacement of a network of minor RTAs by a single RTA can be interpreted as a decline in regionalism…

The main reason for the rapid increase in the number of RTAs during the 1990s was the proliferation of bilateral and plurilateral free trade agreements among countries of the former Council for Mutual Economic Assistance and among successor states to Yugoslavia, the USSR and Czechoslovakia… In sum, the increased number of RTAs in the 1990s and early 2000s was largely driven by a decline in regionalism and shift towards multilateralism on the part of two dozen formerly centrally planned economies…

Despite the increased attention being paid to regional arrangements, the hold of multilateralism is stronger than ever as practically all trading nations have now acceded to the WTO, with lower trade barriers and stronger trade dispute settlement procedures than ever before. Perceptions of WTO enfeeblement reflect a tendency of news reporting to highlight conflict rather than accord.

Full article (Blackwell Synergy journal access required).

Japanese industrial policy

Marcus Noland says industrial policy is failing Japan (pdf):

Japan faces significant challenges in encouraging innovation and entrepreneurship. Attempts to formally model past industrial policy interventions uniformly uncover little, if any, positive impact on productivity, growth, or welfare. The evidence indicates that most resource flows went to large, politically influential “backward” sectors, suggesting that political economy considerations may be central to the apparent ineffectiveness of Japanese industrial policy.

Rather than traditional industrial or science and technology policy, financial and labor market reforms appear more promising. As a group, Japan’s industrial firms are competitive relative to their foreign counterparts. Japan falls behind in the heavily regulated service sector. The problems are due less to a lack of industrial policy than to an excess of regulation. Japan may have more to gain through restructuring the lagging service sector than by expending resources in pursuit of marginal gains in the industrial sector.

Heterogeneous firms, trade liberalization & “good jobs”

Don Davis & James Harrigan provide theoretical grounding for public worries in “Good Jobs, Bad Jobs, and Trade Liberalization”:

Globalization threatens “good jobs at good wages”, according to overwhelming public sentiment. Yet professional discussion often rules out such concerns a priori. We instead offer a framework to interpret and address these concerns. We develop a model in which monopolistically competitive firms pay efficiency wages, and these firms differ in both their technical capability and their monitoring ability. Heterogeneity in the ability of firms to monitor effort leads to different wages for identical workers – good jobs and bad jobs – as well as equilibrium unemployment. Wage heterogeneity combines with differences in technical capability to generate an equilibrium size distribution of firms. As in Melitz (2003), trade liberalization increases aggregate efficiency through a firm selection effect. This efficiency-enhancing selection effect, however, puts pressure on many “good jobs”, in the sense that the high-wage jobs at any level of technical capability are the least likely to survive trade liberalization. In a central case, trade raises the average real wage but leads to a loss of many “good jobs” and to a steady-state increase in unemployment.

NBER working paper.

Heterogeneous firms, trade liberalization & "good jobs"

Don Davis & James Harrigan provide theoretical grounding for public worries in “Good Jobs, Bad Jobs, and Trade Liberalization”:

Globalization threatens “good jobs at good wages”, according to overwhelming public sentiment. Yet professional discussion often rules out such concerns a priori. We instead offer a framework to interpret and address these concerns. We develop a model in which monopolistically competitive firms pay efficiency wages, and these firms differ in both their technical capability and their monitoring ability. Heterogeneity in the ability of firms to monitor effort leads to different wages for identical workers – good jobs and bad jobs – as well as equilibrium unemployment. Wage heterogeneity combines with differences in technical capability to generate an equilibrium size distribution of firms. As in Melitz (2003), trade liberalization increases aggregate efficiency through a firm selection effect. This efficiency-enhancing selection effect, however, puts pressure on many “good jobs”, in the sense that the high-wage jobs at any level of technical capability are the least likely to survive trade liberalization. In a central case, trade raises the average real wage but leads to a loss of many “good jobs” and to a steady-state increase in unemployment.

NBER working paper.