Author Archives: jdingel

"What Governments Maximize and Why: The View from Trade"

An entire paper estimating cross-country regressions with the estimated Grossman and Helpman (1994) weight on welfare as the dependent variable? I’m skeptical, even if the empirical results are plausible (governments are more concerned with welfare in the presence of more informed voters and more checks and balances, less so when media advertising and competitive elections prioritize special interest money).

  • The authors note that their estimates of the “government’s concern for general welfare” parameter are reasonable and thus differ significantly from five previous papers empirically estimating the Grossman-Helpman model. Why do they obtain different results?
  • The OECD countries in the sample largely make trade policy in multilateral negotiations, not a unilateral vacuum, so I am skeptical that the Grossman-Helpman (1994) model even applies.
  • If the authors hadn’t excluded economies without an elected legislature from the sample, how would they have handled Hong Kong’s estimated welfare concern of infinity? (Concern for welfare is inversely related to the tariff level, and Hong Kong’s tariffs are zero.)

“What Governments Maximize and Why: The View from Trade”

An entire paper estimating cross-country regressions with the estimated Grossman and Helpman (1994) weight on welfare as the dependent variable? I’m skeptical, even if the empirical results are plausible (governments are more concerned with welfare in the presence of more informed voters and more checks and balances, less so when media advertising and competitive elections prioritize special interest money).

  • The authors note that their estimates of the “government’s concern for general welfare” parameter are reasonable and thus differ significantly from five previous papers empirically estimating the Grossman-Helpman model. Why do they obtain different results?
  • The OECD countries in the sample largely make trade policy in multilateral negotiations, not a unilateral vacuum, so I am skeptical that the Grossman-Helpman (1994) model even applies.
  • If the authors hadn’t excluded economies without an elected legislature from the sample, how would they have handled Hong Kong’s estimated welfare concern of infinity? (Concern for welfare is inversely related to the tariff level, and Hong Kong’s tariffs are zero.)

Trade remedy usage is up

Chad Bown is keeping an eye on global trends in the use of trade remedies.

Compared to the same time period in 2008, the first quarter of 2009 saw an 18.8% increase in initiated investigations in which domestic industries request the imposition of new import restrictions under trade remedy laws. While the list of new investigations is dominated by India and Argentina, other G-20 members that also initiated at least one new investigation during the first quarter of 2009 include Australia, Canada, China, the European Union and its member states, Mexico, South Africa, Turkey and the United States. China`s exporters were the dominant target for these new investigations that may result in import restrictions, facing over two thirds of the new investigations.

What is the distributional impact of low-skilled immigration to the US?

Dani Rodrik argues that maximizing the gains from trade liberalization should involve considerations of (1) efficiency, (2) second-best imperfections/externalities, and (3) distributional impact.

Rodrik argues that we should not prioritize liberalization of unskilled immigration to the US because it may cause “adverse movements in income distribution.” Unfortunately, Rodrik does not define what constitutes an adverse distributional effect.

I assume that Rodrik would not oppose a Pareto improvement that raised the real income of every member of the population but yielded disproportionate gains to the rich and therefore worsened the Gini coefficient (or other measures of distributional skew). Presumably, the concern about the distributional impact translates into something like a social welfare function that gives greater weight to the less well-off.

But allowing more low-skilled migrants to enter the United States would produce massive gains for those laborers. And immigrants from developing countries are frequently significantly poorer than low-skilled American workers. Significantly improving the welfare of those who are less well-off due to being born on the wrong side of an arbitrary line strikes me as a desirable distributional shift from a global perspective.

Interestingly, Rodrik has previously said that he is closer to Lant Pritchett than George Borjas on immigration:

George thinks the purely national perspective is the right one, and he figures the aggregate gains for the U.S. are small relative to the distributional costs, which makes this bad policy.  For my part, I believe cosmopolitan considerations should enter our calculus when the gains abroad (or to foreign nationals) are sufficiently large, which they would be with temporary labor flows.

So why does Rodrik now want to make low-skilled immigration liberalization a lower priority because it would make domestic unskilled workers worse off?

The Shadow Committee on US Trade Policy

Many of your favorite trade economists are participating in a Shadow Committee on US Trade Policy organized by Gordon Hanson. It’s a “a non-partisan group of economists with an interest in providing informed opinions about international trade and trade policy. Through this web site and periodic meetings, we will discuss current issues regarding US trade policy in an informal but intellectually rigorous manner.”

We’ll see if the group fills a gap not addressed by existing policy shops working on trade policy.

Political economy, MFN, and industrial structure

Robert Lawrence:

Although we call the big three automobile companies, they have basically specialized in building trucks…

But another is that the profit margins have been much higher on trucks and vans because the US protects its domestic market with a twenty-five percent tariff. By contrast, the import tariff on regular automobiles is just 2.5 percent…

In 1962, when implementing the European Common Market, the Community denied access to US chicken producers. In response after being unable to resolve the issue diplomatically, the US responded with retaliatory tariffs that included a twenty five percent tariffs on trucks that was aimed at the German Volkswagen Combi-Bus that was enjoying brisk sales in the US. 

Since the trade (GATT) rules required that retaliation be applied on a non-discriminatory basis, the tariffs were levied on all truck-type vehicles imported from all countries and have never been removed. Over time, the Germans stopped building these vehicles and today the tariffs are mainly paid on trucks coming from Asia. The tariffs have bred bad habits, steering Detroit away from building high-quality automobiles towards trucks and truck like cars that have suddenly fallen into disfavor.

If congress wants an explanation for why the big three have been so uncompetitive it should look first at the disguised largess it has been providing them with for years. It has taken a long time — nearly 47 years —  but it seems that eventually the chickens have finally come home to roost.

I think the blame lies with Congress, but I could see them trying to pass the blame to the GATT’s MFN clause.