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In this paper we investigate the incidence of the corporation income tax in terms of a two-sector, general equilibrium model, where production decisions are made under uncertainty. The conventional result, derived originally by Harberger (1962), is that if the corporate sector is the capital-intensive sector, then capital must bear a greater burden of the tax, in proportion to its initial share in national income, than labor. This result continues to hold unambiguously under uncertainty only if the relative and the absolute risk aversion of the corporations are non- increasing in profits. Otherwise, the Harberger result may not hold.

This paper extends the Harris-Todaro model with intersectoral capital mobility to include sector specific imported technologies. Technologies are assumed to be embodied in imported capital goods. The small economy in the South, for which the model is defined, can import any amount of these technologies from the North at given royalty rates. We find that if the North agrees to reduce the royalty rate on the industrial technology, both the level and the rate of urban unemployment would rise and the income distribution change against the wage earners, whereas such a reduction for the agricultural technology would have just the opposite effects. A decrease in either royalty rate would increase the national income in the South, although the magnitude of the increase in income would be larger with reduced royalty rate for agricultural rather than industrial technology. The policy implication is that the South should emphasize the import of agricultural technology over the industrial technology.

The purpose of this paper is to examine the implications of uncertainty for resource allocation, real income, and income distribution in terms of a simple two-sector general equilibrium model of a small country where uncertainty is introduced by assuming that production in one sector occurs in a stochastic environment. Assuming decreasing risk aversion, we show that an increase in uncertainty causes the movement of the resources away from the uncertain sector, a decline in expected real income, and a shift in the distribution of income against the factor employed intensively by the uncertain sector.

Welfare effects of customs union are examined for a small open economy with unemployment of labor of Harris-Todaro type and some new results are reported. Specifically, it is demonstrated that for LDCs afflicted with urban unemployment, trade-creating customs union continues to be an effective policy.

Using a model of an economy producing one non-traded good, one traded intermediate good and one traded final good, we have (1) derived plausible conditions under which the output of traded goods responds normally (or positively) to their relative prices, despite the presence of non-traded goods, which in earlier models have produced perverse results. (2) shown that the Metzler paradox continues to hold but under different sufficient conditions. Specifically, a tariff fails to be protective, provided the foreign elasticity of import demand falls short of the home marginal propensity to consume the non-traded good. (3) shown that Corden's celebrated theorem that for a small country a tariff is inferior to an equivalent production subsidy is invalid in a world where intermediate goods are traded.

This paper examines the impact of the presence of a forward exchange market on the financial and operational decisions of a multinational firm. The study concentrates especially on the effects of increased uncertainly and increased risk aversion on the part of the multinational firm. It is shown that the presence of the forward market allows the firm to respond to changes in uncertainly and risk aversion by adjusting its transactions in the forward market while leaving its production and sales decisions unchanged. The forward market, thus, promotes stability with respect to the operational as opposed to the financial variables; and its also makes it possible to adopt decentralized decision making.© 1982 JIBS. Journal of International Business Studies (1982) 13, 59–70

THERE has been a remarkable growth in the literature on multinational corporations (MNCs) in recent years. Much of this literature has been concerned with what John Dunning (1977) calls the OLI framework, where OLI stands for ownership, location and internalization. First the firm should enjoy an ownership advantage, such as a patent, managerial know-how, special marketing technique and so on. Second, tariffs and taxes should be such that it is profitable for the firm to locate production facilities in different countries rather than in one country. Finally, the firm chooses to internalize international transactions rather than use arm's length contracts. The third aspect, internalization, is now being recognized as the essence of multinational activity across countries. This is what mainly distinguishes direct foreign investment from other types of foreign investment. Buckley and Casson (1976), Casson (1979), McCulloch (1984) and Ethier (1984), among others, have emphasized inernalization as the main characteristic of the MNC phenomenon. However, internalization itself derives from two other aspects. One is the international economics of information. That is to say whether or not a particular international transaction should be internalized depends on the outcome of the exchange of asymmetric information between two agents. The second aspect of internalization, emphasized by Pomery (1984), is the socalled "Principal-Agent Problem." That is, if the other agent is likely to abuse or manipulate the exchange of information, then the firm, possessing some specific knowledge, will have to use its own production facilities rather than enter into an arms-length contract with a foreign licensee. Much of the literature cast in the OLI framework has been partial equilibrium in nature. The notable exceptions have been the work of Markusen (1984), Helpman (1984) and Batra and Ramachandran (1980) and Ethier (1984). In this paper we utilize the ownership aspect of the OLI framework and develop a general equilibrium model of the MNCs operating in LDCs. This emphasis on LDCs is noteworthy because, as is well known, there are significant differences between the behavior of global firms in developed and developing countries.

The various paradoxes of social choice uncovered by Arrow [1], Sen [10] and others1 have led some writers to question the basic assumption of a binary social choice function underlying most of these paradoxes. Schwartz [8], for example, proves an important theorem which may be considered to be a generalization of the famous paradox of Arrow,2 and then lays the blame for this paradox on the assumption of a binary social choice function.3 He then proceeds to define a type of choice functions which, like binary choice functions, define the best elements in sets of more than two alternatives on the basis of binary comparisons, but which, as he claims, have an advantage over binary choice functions, in so far as they always ensure the existence of best elements for sets of more than two alternatives irrespective of the results of binary comparisons.4 The purpose of this paper is to show that even a considerable weakening of the assumption of a binary social choice function does not go very far towards solving some of the paradoxes under consideration, and that if replacing the requirement of a binary social choice function by a Schwartz type social choice function solves these paradoxes, it does so only by violating the universally acceptable value judgment that in choosing from a set of alternatives, society should never choose an alternative which is Pareto inoptimal in that set (i.e., the socially best alternatives in a set should always be Pareto optimal). This argument is substantiated with the help of an extended version of Sen's [10] paradox of a Paretian liberal, and thus a by-product of our analysis is a generalization of the theorem of Sen [10]. The argument itself, however, is more general and applies also to the impossibility result proved by Schwartz [8].

Summary Objective Femoroacetabular Impingement (FAI) and Acetabular Dysplasia are common deformities, which have been implicated as a major cause of hip osteoarthritis (OA). We examined whether these subtle deformities of the hip are associated with the development of radiographic OA and total hip replacement (THR) in women. Design A population-based, longitudinal cohort of 1003 women underwent pelvis radiographs at years 2 and 20. Alpha Angle, Triangular Index Height, Lateral Centre Edge (LCE) angle and Extrusion Index were measured. An alpha angle of greater than 65° was defined as Cam-type FAI. Radiographic OA and the presence of a THR were then determined at 20 years. Results Cam-type FAI was significantly associated with the development of radiographic OA. Each degree increase in alpha angle above 65° was associated with an increase in risk of 5% (Odds Ratio (OR) 1.05 [95% confidence interval (CI) 1.01–1.09]) for radiographic OA and 4% (OR 1.04 [95% CI 1.00–1.08]) for THR. For Acetabular Dysplasia, each degree reduction in LCE angle below 28° was associated with an increase in risk of 13.0% (OR 0.87 [95% CI 0.78–0.96]) for radiographic OA and 18% (OR 0.82 [95% CI 0.75–0.89]) for THR. Conclusions This study demonstrates that Cam-type FAI and mild Acetabular Dysplasia are predictive of subsequent OA and THR in a large female population cohort. These are independent of age, BMI and joint space and significantly improve current predictive models of hip OA development.

(1956). Development of Police Communications. IETE Journal of Research: Vol. 2, No. 3-4, pp. 171-173.

How much have we accomplished in the preceding chapters in terms of the integration of the available literature on individual economic behaviour under uncertainty with the main corpus of the theory of international trade? Not much by some standards and barely enough by others. For the theory of international trade is a vast subject, its applications are immense, and what has been achieved so far is a bare skeleton in comparison with its enormous potential as a subject for future development.

One of the most fundamental issues in international trade theory concerns the determination of a country’s pattern of trade. The problem is to determine what goods a country will export or import. Stated differently, is it possible to prognosticate a country’s configuration of importables or exportables just by examining the characteristics of its closed economy? The answer to this question defines not only a country’s trade pattern but also the basis for the very presence of international trade. In other words, the explanation for the trade pattern is also, in general, an explanation for why a country trades at all.

The modern deterministic theory of international trade has been built upon the salient characteristics of the two-sector, two-factor, general equilibrium model of production. Therefore, the prerequisite to the development of the stochastic theory of international trade is the formulation of a two-by-two general equilibrium model, which takes into account the random nature of the economic environment. This is the task assigned to this chapter.* In pursuit of this goal, we draw extensively on the analytical tools developed in the previous chapter.

While establishing the validity of the Heckscher-Ohlin (H.O.) proposition in the presence of risk-averse behaviour by producers, we introduced a number of assumptions in addition to those which are usually maintained for this type of analysis. It is high time that we justify these assumptions, which required α, its probability distribution, and the producers’ attitudes towards risk to be the same in both countries. Our defence, of course, is the fact that without these assumptions the H.O. theorem may not hold in our stochastic model.

The theory of gains from trade is almost as old as economics itself. Early contributions in trade theory were motivated by the desire to demonstrate the speciousness of protectionist policies advocated by the Mercantilist School. Adam Smith was among the first to point out the beneficial effects of international trade because it provided expanded opportunities for ‘division of labour’, or for what the modern writers call ‘specialisation’.

In the previous chapter our analysis focused entirely on the implications of inter-industry flows for various theorems in trade theory. As noted there, most of the trade literature on intermediate products concerns the commodities which serve the dual role of goods used for final consumption and as productive inputs. However, there exists another class of intermediate goods which are produced solely to be used as productive inputs and not for final consumption at all. Such goods may be called pure intermediate goods, and include produced inputs like raw materials, spare parts, steel, etc. The current literature in trade theory pays scant attention to the implications of such products. If the ramifications of pure intermediate products ran closely parallel to those of inter-industry flows, the current neglect of the former could be easily vindicated. However, as will be demonstrated in this chapter, there are important differences between the implications of the two types of material inputs, crucial among them being the fact that, unlike with the inter-industry flows, the gross and net factor-intensity rankings need not be identical in the presence of pure intermediate products. This implies that those traditional theorems in trade theory that depend exclusively on the nature of the differences between the factor intensities in the two final products may no longer be valid in the model that allows for the presence of pure intermediate products, even though these theorems continued to be valid in the model with inter-industry flows.

There is a general agreement among economists that perfect competition is a ‘myth’. Yet the bulk of the analysis in trade theory — and economic theory in general — has been carried out under this ‘mythical’ assumption. Perhaps the best case that can be made for a perfect market is that it provides an ‘ideal’ yardstick to evaluate the efficiency of existing systems which generally fail to satisfy the stringent requirements of competitive conditions. This suggests that the assumption of perfect markets, which up to the previous chapter contributed much to the simplicity of our analysis, stands in need of replacement. Relaxing this assumption in turn permits a wide variety of production systems such as monopoly, oligopoly, imperfect factor markets, etc., all of which, individually or collectively, may characterise the production side of a country. In order to bring the analysis down to manageable proportions, some selectivity in the choice of alternative systems is unavoidable. In this chapter we relax the assumption of perfect factor markets, while product markets continue to be perfect. The discussion of the product market distortions is postponed until the next chapter.

Until now we have assumed that goods are produced with the help of primary factors only, but since in practice much of the production activity would come to a halt if there were no intermediate products — goods which are produced to be used as inputs in other goods — this assumption, although a convenient one, is very unrealistic. There is hardly any justification for this assumption, even though the bulk of trade theory has ignored the presence of material inputs which constitute a very large proportion of the total volume of world trade.† It is only recently that trade theorists have come to recognise the importance of intermediate products in the production process, but even here the general tendency has been to defend the neglect of the treatment of material inputs in the earlier literature. In his book on trade theory, for example, Kemp ([7], p. 148), citing Vanek [10], defends the neglect of the incorporation of intermediate goods in earlier trade theory. In some respect, this neglect may be justified. Many properties of the general equilibrium model presented in the previous chapters carry over to the model with intermediate goods. However, there are some crucial differences which have not been recognised before. The analysis of such similarities and differences is the subject-matter of this chapter.

Why do countries impose tariffs? The main objective of the tariff-imposing country, apart from curbing imports and possibly capturing the advantage of its natural monopoly power in trade, is to encourage the domestic production of the import-competing industries whose survival is threatened by foreign competition. Until recently, the protective effects of a tariff on the imports of a final good were taken for granted. It was generally believed that a higher rate of tariff or a higher nominal rate of protection would lead to a higher output level for the protected commodity. With the recognition by trade theorists of the importance of trade in intermediate goods, a new measure of protection, widely known as the effective rate of protection (E.R.P.), has been evolved to take into account the implications of the entire tariff structure, rather than tariffs on individual imported commodities, for the pattern of output in the economy. In contrast to the theory of nominal protection, which analyses the impact of tariffs on the total value of final goods, the E.R.P. measures the percentage change in the contribution of the domestic primary factors or, what is the same thing, in the value-added of an industry as the economy moves from a free trade situation to one of protected trade.

Recent years have witnessed a steadily growing application of the standard two-factor, two-good model to the solution of questions that arise in a growing economy, questions that were first raised in a seminal contribution by Oniki and Uzawa [5]. Although some insights as to what happens in the economy under conditions of growing factor supplies and technology were gained in Chapter 6, the nature of our analysis there was essentially comparative statics, for we were concerned primarily with the implications of exogenous and once-for-all growth in factor supplies. In the present chapter, however, our concern will be the development of a dynamic model where labour grows exogenously at a certain given rate, but where capital grows endogenously as a result of the savings habits of the factor owners. Oniki and Uzawa and, following them, otherst have used a technique which, for want of a better substitute, I call the ‘production function’ technique. The mathematical calculations under this technique are quite lengthy and oppressive, and a superficial glance is sufficient to discourage the student from getting seriously involved with the problem. Fortunately, the technique suggested by the activity-analysis approach used in the past chapters cuts down the length of the derivations and makes the issues susceptible to better comprehension.

Every country produces goods which cannot be traded at all either because of the nature of the goods, like houses, services, etc., or because of political barriers preventing, for example, the export of certain strategic military equipment, or because of artificial trade barriers like prohibitive tariffs. In all the preceding chapters we ignored the presence of such products, much at the expense of economic reality. The objective of this chapter is to examine how and to what extent the results derived from the two-traded-goods model are modified when a non-traded final good is incorporated into the framework.

The previous chapter was devoted to the analysis of factor market imperfections in the presence of international trade. The quintessence of the chapter was that the existence of distortions in factor markets could cause reversals in nearly all the results derived from the standard undistorted model. Throughout our analysis there, product markets were still assumed to be perfect. In this chapter we turn to the other side of the exercise and assume that different goods are produced by different monopolists, but that factor markets continue to be perfect. It is worth pointing out here that within the theory of market imperfections it is the distortions in factor markets that have borne the brunt of attack from the trade theorist, whereas the existence of distortions in product markets, perhaps because of the intractability of the problem, has by and large been ignored.

In the last chapter we studied how changes in the commodity-price ratio occur under the thrust of variations in the factor-price ratio, the overall capital/labour ratio and the relative rate of technical advance in the two industries. Any theory attempting to explain the basis of international trade must always commence with the theory of resource allocation and production in a closed economy. This task having been accomplished in the previous chapters, we are now in a position to pinpoint the factors that determine a country’s pattern of trade. The issue is what goods a country will export and import. Stated differently, is it possible to predict a country’s configuration of exports and imports just by examining the characteristics of a closed economy? Seeking a clear-cut answer to this query constitutes the subject-matter of this chapter.

Because of its long chronicle, the theory of nominal tariffs has earned a pivotal place in the literature on the pure theory of international trade. Historically, the main concern of this theory has been with the implications of tariffs on the imports of final products, and it is only recently that the trade theorist has begun to explore the implications of tariffs on the imports of intermediate products, despite their existence in practice for centuries. The fast-proliferating literature concerned with the latter question is surveyed in the chapter on effective protection; the present chapter is concerned solely with the issues arising from the imposition of nominal tariffs.

The analysis of interrelations between economic expansion and the terms of trade cannot boast of a long, uninterrupted history. Here and there one may come across a few scattered references to terms of trade in studies of the incidence of technological innovations on the growing country’s net gain from growth in the works of Mill [18], Edgeworth [9], Bastable [2] and Ohlin [19]; of the desirability of the policy of protection in the wake of technical improvements in what is known as the German tariff controversy;† of the celebrated transfer problem sparked primarily by Thornton [22] and Hume [14] and subsequently resurrected by Taussig [21] and Keynes [17] (in the famous debate over the German reparations problem); finally, of the impact of international capital movements featuring in the works of Fanno [10], Iverson [15] and Ohlin [19]. But the avowed application of the tools of general equilibrium analysis to the diagnosis of the behaviour of the terms of trade consequent upon growth is only a post-war phenomenon. Whatever ingenuity the problem of shifts in inter-country commodity prices elicited from the economist in the pre-war era was, with a few exceptions,‡ incidental; it arose not because of an interest in the application of economic theory to the problem of economic development, which itself never figured prominently in neo-classical writings, but was due to the economist’s preoccupation with some other issues of current importance wherein considerations of the terms of trade were unavoidable.

One of the elemental, though most important, questions in international trade concerns the determination of a country’s pattern of trade. Stated differently, why are countries induced to import goods if they can produce them at home? The answer to these questions, however, requires a prior comprehension of the structure of production in a closed economy or autarky. It is this latter question with which the present chapter is concerned. Specifically, we wish to determine the factors which influence commodity prices in the absence of trade.