Author Archives: jdingel

Fixed export costs: Bilateral or multilateral?

Gordon H. Hanson & Chong Xiang suggest that fixed export costs are multilateral rather than bilateral, meaning that it’s costly for businesses to “go global” but not particularly costly to enter particular countries:

In this paper, we develop a simple empirical method to test two alternative versions of the Melitz (2003) model, one with global fixed export costs and one with bilateral fixed export costs. With global costs, import sales per product variety (relative to domestic sales per variety) are decreasing in variable trade barriers, as a result of adjustment occurring along the intensive margin of trade. With bilateral costs, imports per product variety are increasing in fixed trade costs, due to adjustment occurring along the extensive margin. We apply our approach to data on imports of U.S. motion pictures in 46 countries over 1995-2006. Imports per product variety are decreasing in geographic distance, linguistic distance, and other measures of trade costs, consistent with adjustment to these costs occurring along the intensive margin. There is relatively little variation in the number of U.S. movies that countries import but wide variation in the box-office revenues per movie. The data thus appear to reject the bilateral-fixed-export-cost model in favor of the global-fixed-export-cost model.

On the other hand, motion pictures are not exactly the typical manufacturing product, so I would hesitate to extrapolate from these results to other sectors.

Warsh on the timing of Krugman's Nobel

It’s obvious that Paul Krugman became a Nobel laureate for his economics, not polemics, and I was annoyed by the political, idiotic reactions to the award that obscured the value of his technical work. I don’t think there is any reason at this point to believe that the timing of the award was political, but I am obligated to note that David Warsh, an astute observer of the economics scene, disagrees:

But the fact that the Swedish prize authorities moved Krugman’s contribution to trade theory to the top of their list, ahead of several other skeins of earlier work in other fields that are awaiting recognition, coupled with their decision to give it to him alone, rather than also recognizing Helpman, of Harvard University, his co-author in two influential monographs, was a clear indication that the Swedes wanted to send a message along with the stardust: that they enjoy reading the penetrating and acerbic commentary that he writes in his second career as a twice-a-week newspaper columnist.

Though other economists have noted that awarding Krugman the prize as the Bush administration came to a close generated (unfortunate) political chatter, Warsh is the first I have seen suggest that that was intentional.

Immigration increases the poverty rate — and that’s good!

What’s the implication of this paragraph by Mortimer B. Zuckerman?

So why haven’t overall poverty rates declined further? In a word — immigration. Many of those who come to the United States are not only poor but also unskilled. Hispanics account for much of the increase in poverty — no surprise, since 25 percent of poor people are Hispanic. Since 1989, Hispanics represent nearly three quarters of all increase in overall poverty population. Immigration has also helped keep the median income for the country basically flat for five straight years, the longest stretch of income stagnation on record.

Richard Lamm thinks that it is evidence that “illegal immigration is hurting U.S. taxpayers and the poorest Americans for the benefit of a few.”

I think it’s evidence that averages don’t characterize a distribution very well, especially for a changing population. If poverty rates are only stagnant because the newest members of the population are poor, then that is good news for Americans who have been around a while – their incomes are not as stagnant as the average or median suggests. And being a new American is good news for the “impoverished” too!

Who cares about the American poverty rate when we know that we’re making strides against global poverty through immigration?

[I know others have made this point countless times before, but a brief search yielded only articles drawing the exact opposite inference – that immigration’s contribution to poverty rates means it’s bad to let in immigrants.]

Credit crisis as case for Doha liberalization?

Richard Baldwin says that the financial crisis will make the gap between bound and applied rates pretty important:

National politicians, who have not had the wisdom to constrain themselves in the WTO, will find it almost irresistible to attempt to shift demand to local producers by raising tariffs on final goods.

On the bright side, this destructive protectionism will highlight the value of the tariff bindings that developing nations are offering in the Doha Round negotiations. So far, industrialised country exporters have turned their noses up at the tariff bindings offered by developing countries in the negotiation since they often don’t lower the actual tariff rates.

In financial terms, tariff bindings are options. The value of options rise with volatility—a fact that will become abundantly clear as recession spreads around the globe via trade accounts.

World leaders should seize the moment and “buy” these options now by finishing the Doha Round negotiations. This would send a great positive signal that they are aware that coordinated action is needed on the current account as well as the capital account.

Should, but won’t.

Again, I have seen far more warnings against protectionist reactions to the credit crisis than I have seen calls for such measures. Is all this preemption necessary?

Rising trade costs despite falling oil prices

Oil has fallen to close to $60 per barrel, but Marc Levinson, author of The Box, says that transportation costs are likely to slow globalization. He cites:

  • Ports unable to handle the next generation of massive container ships
  • Intranational ground transportation systems, notably highways and rail, that are increasingly congested
  • “The cost of international trade has been kept artificially low because shippers do not pay for the environmental harm they inflict. Regulators are finally catching up.”

But how should we interpret Levinson’s concluding paragraph, where he writes that “in retrospect, globalization will likely appear not as an inexorable trend but as a temporary stage in economic development” while also conceding that “slower, costlier, and less certain transportation will not put an end to the growth of international trade”?

Clinton vs Collier on the food crisis

While Bill Clinton recently criticized US buy-American food assistance programs and ethanol subsidies, he also promoted food autarky:

Clinton criticized decades of policymaking by the World Bank, the International Monetary Fund and others, encouraged by the U.S., that pressured Africans in particular into dropping government subsidies for fertilizer, improved seed and other farm inputs as a requirement to get aid. Africa’s food self-sufficiency declined and food imports rose…

“Food is not a commodity like others,” Clinton said. “We should go back to a policy of maximum food self-sufficiency. It is crazy for us to think we can develop countries around the world without increasing their ability to feed themselves.”

Paul Collier in Foreign Affairs:

Politicians and policymakers do, in fact, have it in their power to bring food prices down. But so far, their responses have been less than encouraging: beggar-thy-neighbor restrictions, pressure for yet larger farm subsidies, and a retreat into romanticism…

The real challenge is not the technical difficulty of returning the world to cheap food but the political difficulty of confronting the lobbying interests and illusions on which current policies rest. Feeding the world will involve three politically challenging steps. First, contrary to the romantics, the world needs more commercial agriculture, not less. The Brazilian model of high-productivity large farms could readily be extended to areas where land is underused. Second, and again contrary to the romantics, the world needs more science: the European ban and the consequential African ban on genetically modified (GM) crops are slowing the pace of agricultural productivity growth in the face of accelerating growth in demand. Ending such restrictions could be part of a deal, a mutual de-escalation of folly, that would achieve the third step: in return for Europe’s lifting its self-damaging ban on GM products, the United States should lift its self-damaging subsidies supporting domestic biofuel…

Typically, in trying to find a solution to a problem, people look to its causes — or, yet more fatuously, to its “root” cause. But there need be no logical connection between the cause of a problem and appropriate or even just feasible solutions to it. Such is the case with the food crisis. The root cause of high food prices is the spectacular economic growth of Asia. Asia accounts for half the world’s population, and because its people are still poor, they devote much of their budgets to food. As Asian incomes rise, the world demand for food increases… There is nothing to be done about the root cause of the crisis — the increasing demand for food. The solution must come from dramatically increasing world food supply.

Collier’s essay provides many arguments for greater global integration and commercialization of agriculture. Where’s the evidence favoring food autarky as a means of increasing supply?