Search

This paper investigates how authoritarian leaders employ trade openness as a response to rising inequality. Based on the Heckscher-Ohlin model of international trade and models of democratic transition, I argue that unskilled laborers in authoritarian regimes can benefit from engaging in international trade, thus becoming more compliant to the authoritarian rules as their countries integrate into the world economy. Therefore, dictators in labor-abundant countries expand trade to neutralize democratization threats initiated by rising inequality. My argument uses supporting data from around eighty authoritarian regimes during the period from 1963 to 2003. I address endogeneity problems with dynamic panel data and instrumental variable regression models in this paper. My analyses suggest that economic globalization helps strengthen authoritarian regimes. [ABSTRACT FROM AUTHOR]

The process of economic integration over the past two decades has been accompanied by expanding skilled wage premia—a key measure of wage inequality—in most countries. This was also the case for Ugandan wage employees during the 1990s, a period of abrupt trade opening, market reforms and improved relations with neighbouring Kenya. As in other unskilled labour abundant countries, this is a surprising result in light of the standard Heckscher–Ohlin (H–O) framework. By using a novel district-level analysis, I find that in fact increased trade reduced wage inequality in line with the H–O predictions. During the 1990s districts more exposed to the trade boom experienced a rise in wage premia 2.8 percentage points lower relative to less-exposed districts. On the other hand, the intensification of domestic trade across districts and the increase in average education were associated with increased wage premia during the period of analysis. [ABSTRACT FROM AUTHOR]

We study, both theoretically and empirically, how trade imbalances affect the structure of countries' exports and wage inequality. We show that, in a Heckscher-Ohlin model with a continuum of goods, a Southern (Northern) trade surplus leads to an increase (reduction) in the average skill intensity of exports, in the relative demand for skills and in the skill premium in both countries. We provide robust support for the mechanism underlying these predictions using a large panel of countries observed over the past 30 years. Our results suggest that the large and growing North-South trade imbalances arisen over the last three decades may have exacerbated wage inequality worldwide. [ABSTRACT FROM AUTHOR]

A two-country model of oligopoly in general equilibrium is used to show how changes in market structure accompany the process of trade and capital-market liberalization. The model predicts that bilateral mergers in which low-cost firms buy out higher-cost foreign rivals are profitable under Cournot competition. As a result, trade liberalization can trigger international merger waves, in the process encouraging countries to specialize and trade more in accordance with comparative advantage. With symmetric countries, welfare is likely to rise, though the distribution of income always shifts towards profits. [ABSTRACT FROM AUTHOR]

Is a country's ability to enforce contracts an important determinant of comparative advantage? To answer this question, I construct a variable that measures, for each good, the proportion of its intermediate inputs that require relationship-specific investments. Combining this measure with data on trade flows and judicial quality, I find that countries with good contract enforcement specialize in the production of goods for which relationship-specific investments are most important. According to my estimates contract enforcement explains more of the pattern of trade than physical capital and skilled labor combined. [ABSTRACT FROM AUTHOR]

We consider a Heckscher-Ohlin model in which goods and factors of production can be traded, but trade involves transactions costs. Goods trade alone will not equalise factor prices, so there is an incentive for factors to move internationally. We characterise equilibria in which there is no trade, goods trade only, factor movement only, and both trade in goods and factor movement. This generalises the Heckscher-Ohlin model to explain not only the direction of trade, but also the prior question of what gets traded, i.e. how goods and factors are partitioned into tradeables and non-tradeables. [ABSTRACT FROM AUTHOR]

This article discusses several hypotheses on comparative advantage in the presence of imperfect competition and increasing returns to scale. The very existence of product differentiation in turn allows for intra-industry trade and it also implies that there are gains from trade (from consuming more varieties of products) even between economies which are identical in factor endowments, technology and tastes more competition) and to an increase in welfare. The concept is this: if market structures are endogenous, the Heckscher-Ohlin stories about the factor prices and comparative advantage are preserved; but if market structures are exogenous because of entry limitations, they themselves exert an influence on the comparative advantage, and in particular the degree of concentration in a sector and its degree of comparative advantage are positively correlated. The finding thus indicates the robustness of the factor abundance hypothesis under general conditions. More than anything else however, the large group model is meant to smooth out the transition from the existing literature on the large group to the small group case which happens to be algebraically more complicated.

The object of this paper has been to integrate a transport sector, as simply and as directly as possible, into the traditional Heckscher-Ohlin model. The analysis that then followed emphasised the comparison of the results obtained in this structure with the traditional trade theorems and problems. In this way, those modifications and complications introduced by transport costs could best be illustrated. The reader should bear in mind that this approach has required a great sacrifice in generality. The restrictive assumptions of the Heckscher-Ohlin model were imposed to focus on factor endowment differences as the determinant of trade flows. Adopting such a two-factor, three-commodity model, with constant returns to scale and the same production functions in each country implies specialisation in production. This analysis chose to examine the ease where specialisation occurred in the transport industry, whereas a more general model would possibly have both countries producing all commodities. However, given the largely illustrative nature of the theoretical literature in this area, and the many simplifying assumptions that are therefore generally made, a fully general model would seem to be unnecessarily complicated and ambitious. [ABSTRACT FROM AUTHOR]

In a world with multiplicative production uncertainty and implicit labor contracts, we show that the Rybczynski theorem retains its validity; therefore the quantity version of the Heckscher-Ohlin theorem survives as well. We also show that the Stolper-Samuelson theorem may not hold. A small increase in the price of the capital-intensive good may benefit labor. We derive a strong version of the factor price equalization theorem that shows free trade tends to equalize sector-specific unemployment rates and sector-specific factor prices across countries. Finally, we relate trade patterns to international differences in the degree of risk aversion. [ABSTRACT FROM AUTHOR]

This paper studies trade theory for the case of a continuum of goods, two factors, two countries, and Cobb-Douglas demand functions. If factor endowments are similar, factor price equalization obtains and geographic patterns of production are indeterminate; nonetheless the effects of changes in factor endowments on prices and welfare in each country are well defined. Factor price equalization does not obtain if factor endowments are far apart, and the geographic pattern of specialization is then determinate. The effects of changes in endowments on the range of goods produced in each country and on prices of goods and factors are analyzed for this case, and the elasticity of substitution in production is shown to play an important role in determining comparative static outcomes. [ABSTRACT FROM AUTHOR]

This article presents analysis of an open economy to consider a case in which part of the labor force is unemployed. Unemployment exists because the entire labor market is subject to an exogenously specified floor, or minimum, which constrains the real wage to exceed the level required for full employment. Since the means of intervention have been restricted to trade taxes and trade subsidies only, the optimal trade strategy discussed here is not a first-best policy. Much of the standard theory needs revision when the real wage is constrained by a floor. Free trade may be inferior to no trade for the home country. When home exports are capital-intensive and home specialization is incomplete, employment and welfare will be below the autarchic levels. An increase in foreign demand for home exports may be detrimental to the home country. When the home exports are capital intensive and home specialization remains incomplete, employment and welfare will decrease if foreign demand increases.

This paper introduces the concepts of direct and indirect factor trade utility functions and uses them to derive Marshallian and Hicksian factor content functions, which express the quantities of factors of production embodied in net imports as functions of the exogenous variables facing the economy. The properties of these functions are discussed and they are used to derive a number of new results. In particular, it is shown that, in certain circumstances, the existence of gains from trade is sufficient for the Heckscher-Ohlin theorem to hold in its factor content form. [ABSTRACT FROM AUTHOR]

Whether the Heckscher-Ohlin theorem is valid in the presence of produced intermediate products is clearly of considerable importance. To quote from the excellent textbook, The Pure Theory of International Trade and Investment, by Murray Kemp (page 148) [6]: The principal purpose of the present chapter is to show how the standard HeckscherOhlin model of trade can be extended to accommodate intermediate goods and to confirm that the principal theorems proved in earlier chapters carry over with only trivial changes. In other words, the purpose of this chapter is to defend the neglect of intermediate goods in earlier (and later) chapters. Murray Kemp supports his view by proving that the Stolper-Samuelson and the Rybczynski theorems still hold in the presence of traded intermediate products. The present paper contains a rigorous derivation of the conditions under which the basic theorem of ali pure trade models, the Heckscher-Ohlin theorem, can be generalized to allow for produced intermediate products. The paper is divided into two parts. In Part I a proof of the Heckscher-Ohlin proposition is given, which can easily be generalized to take care of traded and non-traded intermediate products. In Part II a model is examined which incorporates traded intermediate products. [ABSTRACT FROM AUTHOR]

Despite several recent contributions which have introduced uncertainty into general equilibrium models, trade theorists continue to assume that the economic environment is nonstochastic. One of the most fundamental theorems in trade theory is the HeckscherOhlin (HO) theorem which asserts that a country exports the commodities which are relatively intensive in the use of its relatively abundant factor. The purpose of this paper is to explore the implications of uncertainty in the production function for the validity of the HO theorem and its offspring, the factor-price equalization theorem. As a byproduct of our analysis, the Rybczynski theorem is also analysed. The HO theorem has been traditionally proved in terms of two alternative definitions of inter-country relative factor abundance, namely the "factor-price" definition and the "physical" definition. We show that the HO theorem cannot be proved in terms of the factor-price definition, but that the theorem is valid in terms of the physical definition even in the presence of uncertainty in the production process. The Rybczynski theorem also continues to hold, but the factor-price equalization theorem does not, even if all the assumptions made customarily for the validity of the theorem are satisfied. The reason for this turns out to be the producers' aversion towards risk. [ABSTRACT FROM AUTHOR]

This article examines the possibility of income losses from increased efficiency or factor accumulation in the presence of tariffs. The adoption of more efficient technology and the accumulation of factors of production are generally assumed to increase the real income available to an economy. But when a country is following a protective policy improved efficiency in the protected industry or accumulation of the factor used intensively in that industry will actually reduce the country's real income, over a range of change set by the degree of protection. This possibility of income-reducing growth is relevant to the fact that countries industrializing by means of protectionist and import-substitution policies are frequently dissatisfied with the results. This note presents a formal demonstration of the possibility, in terms of the standard Heckscher-Ohlin model of international trade. It is an interesting reflection on policy that protectionists usually demand increased protection when comparative advantage shifts against the protected industries, in effect claiming that part of the increased productive potential inherent in such a shift should be spent on the increased support of these industries.

The article examines the proofs of the theorems on comparative advantage: Ricardian and Heckscher-Ohlin. While none of the analysis offered here is intrinsically novel, it is presented in a manner which has fairly important implications for a full understanding not evident in either oral or written tradition--of the postulates underlying these theories of comparative advantage. More significantly, it is shown that certain restrictions on demand conditions have to be specified even when the Ricardian theorem and the Heckscher-Ohlin theorem (using the price definition of factor abundance) are to be proved. In Section II, addressed to the Ricardian propositions, it is shown that the Ricardian theorem requires the specification of restrictions (albeit reasonable) on demand in addition to the postulates always stated. Opportunity is also taken to note that the Ricardian corollary is invalid owing to the familiar multiplicity of production equilibria in the Ricardian model. Finally, in Section III, which discusses the Heckscher-Ohlin propositions, it is argued that while the assumption that the consumption pattern be identical between countries regardless of income levels is correctly held to be required only when the physical definition of factor abundance (to be discussed later) is used, it is incorrect to maintain that no restrictions at all need to be put on demand when the price definition is adopted.

The article discusses the concept of factor production with particular reference to capital, proposed by the Heckscher-Ohlin theory. The Heckscher-Ohlin theory considers international trade as a means of reallocating already existing factors of production in order to increase output. Comparative cost theory, to which the factor proportions hypothesis is a particular component, is generally assumed to be long-run theory. In the long run theory sufficient time has been allocated for full response to a given price stimulus. A natural resource gets converted to a factor only after some preliminary investment work has been performed upon it. Investment is generally assumed as the precondition for the creation of any factor supply. The situations under which the factor will be brought into existence, and under which it will or will not continue to be supplied, are controlled by the nature of this investment work. If the amount of required preliminary investment work is considerable, the factor-service supply curve may be quite inelastic even for substantial price rises.

This article presents investment criteria, productivity and economic development in a developing economy. For better or worse, industry physical output targets in the less developed countries are usually determined by planning authorities on the basis of population projections, income elasticity of demand considerations, political pressures, and after a more or less casual resolution of comparative advantage vs. balanced growth conflicts. Although such a ranking of technological choices according to the intensity of use of the scarcest resource admittedly has validity under only certain very restrictive assumptions, the lure of its statistical feasibility and rule-of-thumb theoretical soundness has been too much for most development practitioners to resist. Consequently, a meaningful criterion which emerges with respect to the relative importance of these "static " and "dynamic " considerations is what may be called the reinvestment-capital ratio. The comparative "dynamic efficiency" implied by the various technological choices must now be taken into account.

In a recent paper in this review Batra has explored the implications of production uncertainty for the validity of the Heckscher-Ohlin theorem and its by-product the Rybczynski theorem. We will show that there is an error in one of Batra's equations and that this error, contrary to his claim, invalidates the Rybczynski as well as the HeckscherOhlin theorems. [ABSTRACT FROM AUTHOR]

Cross-country econometric analysis informed by Heckscher–Ohlin trade theory suggests that the concentration of Africa's exports on unprocessed primary products is caused largely by the region's combination of low levels of education and abundant natural resources. In some African countries, the share of manufactures in exports could be raised by improving infrastructure and policies. For most of Africa, however, the highest priority is to raise the absolute level of exports in all sectors, and particularly in sectors based on natural resources, following a development path more like that of land-abundant America than of land-scarce Asia. [ABSTRACT FROM AUTHOR]