Assessing Dead Aid “as an economist’s book,” dagny comes away frustrated.

Previous mentions of Dead Aid: 1, 2, 3

Jagdish Bhagwati, Douglas Irwin, and Susan Schwab are debating the merits of “Buy American” against Leo Gerard (United Steelworkers), John MacArthur (Harper’s Magazine), and Jeff Madrick (New York Review of Books) at NYU on Monday evening. NPR should post the podcast shortly thereafter.

The opposition’s lack of economists is notable, but I have yet to read an economist defend the “Buy American” clause, so you can’t blame the Intelligence Squared event organizers for the unbalanced panel. When Bhagwati and Stiglitz agree that a policy is foolish, you can be pretty confident it is.

Bill Easterly offers a pictorial essay featuring maps of shipping routes and airline routes:

Randall Soderquist calls on the G20 to deliver on duty-free, quota-free market access for poor countries.

Daniel Ikenson celebrates the globalisation and fragmentation of supply chains that confound labeling a product “Made in America” in “No Longer Us vs Them: Trade Policy for the 21st Century.”

International Economy asks the experts: “World trade has been collapsing faster than global GDP – indeed, faster than at any time since the Great Depression. How is this possible?” See the answers (pdf) from Jagdish Bhagwati, Barry Eichengreen, Gary Hufbauer, and others. They discuss commodity prices, the global fragmentation of the supply chain, and trade finance.

Steve Hanke had the shortest answer: “World trade is elastic with respect to global GDP. Accordingly, when global GDP slumps, we should expect an outsized plunge in world trade. Given the disruption in trade finance that has accompanied the Panic of 2008, we should also expect the current trade plunge to be more pronounced than usual. No surprises here.”

HT: Emmanuel

The third edition of Doug Irwin’s Free Trade Under Fire came out this month. I haven’t seen a copy yet (Princeton University Press – feel free to get in touch), but it promises new updates covering “off-shoring services, the impact of trade on wages, and the implications of trade with China.” Here’s a comparison of the old and new tables of contents:

Ann Harrison:

What we find is that a one percentage point increase in occupation-specific import competition is associated with a 0.25 percentage point decline in real wages. While some occupations have experienced no increase in import competition (such as teachers), import competition in some occupations (such as shoe manufacturing) have increased by as much as 40 percentage points. The contrasting experiences of workers in textiles and apparel-related sectors compared to many service sector employees such as teachers helps to explain why some parts of the US economy have been deeply affected by globalisation while others have not.

We also examine the impact of increased offshoring by US multinational firms on wages of workers in the US. We find that when US companies increase their offshoring activities to low-income countries, this hurts US wages, but that more offshoring to high-income countries is associated with an increase in US wages.

Lucas Davis and Matthew Kahn on cash for clunkers:

International trade in used durables acts as a substitute for explicit “cash for clunkers” programmes. In developing nations, there is significant demand to drive such “clunkers”. Over the last two decades, an unprecedented increase in private vehicle ownership has taken place in the developing world. The total number of registered vehicles in non-OECD countries increased from 110 million to 210 million between 1990 and 2005 and, by some estimates, is forecast to increase to 1.2 billion by 2030 (Dargay, Gately, and Sommer 2008). Rising income explains a large share of this growth. Another important but rarely discussed factor is international trade in used vehicles. High-income countries export large quantities of used vehicles to low-income countries. The scope for continued expansion of trade is enormous. For example, in 2007 there were 768 total vehicles per 1000 people in the US compared to 30 per 1000 in China and only 12 per 1000 in India…

The US “cash for clunkers” programme is likely to displace international trade in used vehicles. While US households and new vehicle manufacturers benefit from this programme, households in the developing world who demand low-quality, cheap vehicles are made worse off.

The social environmental consequences of such incentive programmes hinge on several behavioural parameters. Our NAFTA research has documented that the US is exporting relatively high-polluting vehicles to Mexico but that these vehicles are cleaner than the average vehicle currently registered in Mexico. This suggests that trade lowers the average vehicle emissions in both countries. Since Mexico’s total base of registered vehicles is much smaller than the US, the composition shift is much more quantitatively important for Mexico than it is for the US.

Climate change depends on the total amount of global greenhouse gas emissions. Consequently, the aggregate impact of cash for clunkers will depend on how it changes behaviour both in the US and countries that import used vehicles from the US. Cash for clunkers will affect behaviour in importing countries by increasing the price of used vehicles. What will drivers in these countries do without the supply of cheap clunkers from the US? Will they continue to drive even older vehicles? If so, “cash for clunkers” may slow vehicle retirement rates abroad, aging the stock of vehicles in countries that import used vehicles from the US at the same time the vehicle stock in the US becomes younger.

The Economist has a long article on global trade in its most recent issue: “World trade is no longer collapsing and fears of rampant protectionism have not been realised. Even so, the way to revival looks far from smooth.”

The NBER’s summer institute closes out next week with the international trade and investment workshop. Most of the papers to be presented are available online already.