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textabstractWe embed a competitive search model with labor market discrimination, or nepotism, into a two-sector, two-country framework in order to analyze how labor market discrimination impacts the pattern of international trade and also how trade trade affects discrimination. Discrimination, or nepotism, reduces the matching probability and output in the skilled-labor intensive differentiated-product sector so that the country with more discriminatory firms has a comparative advantage in the simple sector. As countries alter their production mix in accordance with their comparative advantage, trade liberalization can then reinforce the negative effect of discrimination on development in the more discriminatory country and reduce its effect in the country with fewer discriminatory firms. Similarly, the profit difference between non-discriminatory and discriminatory firms increases in the less discriminatory country and shrinks in the more discriminatory one. In this way trade can further reduce discrimination in a country where it is less prevalent and increase it where it is more firmly entrenched.

In this paper we show that the Dutch disease can arise solely from inequality in the distribution of natural resource rents. Given two otherwise identical countries that differ only in the ownership shares of the natural resource rents, the country with the less equal distribution will have less production of manufacturing goods and less development of learning-by-doing in this sector. As opposed to conventional models, where income distribution has no effect on economic outcomes, an unequal distribution of the resource wealth can generate the Dutch disease dynamics even in countries with an initial comparative advantage in manufacturing. We also provide a range of empirical tests of our model, including both difference and system GMM estimators in a dynamic panel. To disentangle the effects of inequality and institutional quality we purge our inequality measure of any linear or higher order correlations with institutional quality and repeat our system and difference GMM estimations. Our empirical analysis supports the hypothesis that inequality indeed plays a significant role in whether being resource-rich is a blessing or a curse for a country. The more unequal is the distribution of natural resource rents, the stronger is the disease.

This paper analyzes two prominent institutional rules in the international trading system: a limited cross-retaliation rule characterized by the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) Article 22.3 and a limited punishment rule characterized by the General Agreement on Tariffs and Trade (GATT) Article XXVIII. In general, both rules are designed to limit the countermeasures upon a violation; however, the former rule specifies the limits of composition in retaliation, whereas the latter one designates the limits of retaliation magnitude. We show that, albeit seemingly unrelated, the limited cross-retaliation rule complements the limited punishment rule in permitting greater trade liberalization. Specifically, we show how the limited cross-retaliation rule also helps limit the incentives to violate the trade agreement when the limited punishment rule prevails. (JEL F13, K33, C73)

We embed a competitive search model with labor market discrimination, or nepotism, into a two-sector, two-country framework in order to analyze how labor market discrimination impacts the pattern of international trade and also how trade trade affects discrimination. Discrimination, or nepotism, reduces the matching probability and output in the skilled-labor intensive differentiated-product sector so that the country with more discriminatory firms has a comparative advantage in the simple sector. As countries alter their production mix in accordance with their comparative advantage, trade liberalization can then reinforce the negative effect of discrimination on development in the more discriminatory country and reduce its effect in the country with fewer discriminatory firms. Similarly, the profit difference between non-discriminatory and discriminatory firms increases in the less discriminatory country and shrinks in the more discriminatory one. In this way trade can further reduce discrimination in a country where it is less prevalent and increase it where it is more firmly entrenched.

I introduce stereotype threat in a multiple-productivity signalling model. Existence of multiple self-fulfilling stereotypes, which can generate statistical discrimination, is more likely if there is less variance in the ability distribution. A low endogenously correct stereotype about a group forces higher-ability group members to choose a higher-productivity and a higher separating signal, thereby engaging in counter-stereotypical behaviour. This counter-stereotypical behaviour causes the remaining partially pooling group to have lower average productivity, reinforcing the negative stereotype. The co-existence of stereotype threat and counter-stereotypical behaviour can explain the simultaneity of lower wages and higher education attainment in a group facing labour-market discrimination. Resume: Signaux sur le marche du travail, menace de stereotype, et comportement contre-stereotype. L'auteur introduit une menace de stereotype dans un modele de signalisation des multiples productivites. L'existence de multiples stereotypes porteurs d'autorealisation, qui peuvent engendrer la discrimination statistique, est davantage vraisemblable s'il y a moins de variance dans la repartition des habiletes. Un stereotype depreciatif endogenement correct a propos d'un groupe force les membres du groupe a hautes habiletes a choisir des signaux de haute productivite et qui les separent grandement, et donc a s'engager dans des comportements contre-stereotypiques. Ce comportement contre-stereotypique entraine une productivite moyenne plus faible pour le reste du groupe partiellement agrege, ce qui renforce le stereotype negatif. La coexistence de menace de stereotype et de comportement contre-stereotypique peut expliquer la simultaneite de salaires plus bas et de statut educationnel plus eleve dans un groupe faisant face a la discrimination dans le marche du travail.

This study considers the role of demand-driven changes arising from population aging and how they affect the pattern of international trade as well as trade and immigration policy. An aging society can see a welfare-reducing reduction in its share of manufacturing output and this reduction is magnified by a decrease in trade costs (an increase in globalization). Immigration can ameliorate this outcome if it is directed toward younger immigrants. A unilateral tariff increase can also reduce firm delocation from an aging country, however, a reciprocated tariff increase will unambiguously harm the country with the older average population.

We consider the role of demand driven changes arising from population aging and how they affect the pattern of international trade as well as immigration and trade policy. An aging society can see a welfare reducing reduction in its share of manufacturing output and this reduction is magnified by a decrease in trade costs (an increase in globalization). Immigration can ameliorate this outcome if it is directed towards younger immigrants. A unilateral tariff increase can also reduce firm delocation from aging country, however, a reciprocated tariff increase will unambiguously harm the country with the older average population.

Bilateral international tax treaties govern the host country taxation for the vast majority of the world’s foreign direct investment (FDI). Of particular interest is the fact that the tax rates used under these treaties are gradually falling although the treaties themselves do not specify any such reductions. Since there is no outside governing agency to redress treaty violations, such reductions must be both mutually beneficial and self-enforcing. Furthermore, the optimal tax rates must be less than those initially set, otherwise no reductions would be necessary. To explain such behavior, we model a two-country setting with two-way capital flows. In particular, only part of FDI is immediately reversible. As the extent of irreversibility increases, the likelihood of Pareto optimal tax rates obtaining as a self-enforcing outcome in the initial period is reduced. More modest tax reductions, from the non-treaty levels, are still possible. These limited tax reductions generate an increase in bilateral FDI. As countries increase the stock of capital in one another, further reductions in taxes become self-enforcing. Depending on the extent of irreversibility and asymmetry, Pareto optimal tax rates may be obtainable in the long run. Thus, the amount of inbound investment a country can attract may be related to the commitment to which its outbound investment binds it. This final insight provides an additional rationale for the observed pattern of capital flows in which those countries with the greatest outbound capital flows are also those with the highest inbound flows.

Country-of-origin reputations are endogenized in this paper and it is shown that otherwise identical countries can be correctly perceived as differing in their percentage of high-quality producers. These self-fulfilling reputations determine not only the average quality of a country’s exports but also the type of products in which a country specializes. Hence, the pattern of international trade can be determined by this ‘reputational comparative advantage’. An inferior country-of-origin reputation leads to lower national welfare, therefore, several trade and industrial policies that can improve country-of-origin reputation are examined.

1. INTRODUCTION When cultivating a new export market or attempting to expand its share of an existing market, an exporter is likely to find that it has been preceded by its reputation. Minus a readily identifiable brand name, quality reputation may solely reflect the country of origin. For example, when consumers are presented with a large amount of complex product information, they may use the country of origin as a heuristic in forming product impressions without considering other product attributes. (1) In this article I show that this heuristic decision-making process can affect a firm's quality decision and can therefore become self-fulfilling. Hence, any bias that consumers have may be well founded; however, it is only correct because firms respond rationally to it. Colombia's garment industry provides an interesting example of a self-fulfilling unfavorable quality reputation in international trade. As described by Morawetz (1981), a single Colombian garment firm took a contract (for 50,000 men's suits) that was beyond its capability. The poor-quality result so tarnished the American importer's name that other high-quality importers become wary of Colombian-sewn garments. With the payoff to high-quality production reduced, Colombian garment firms then concentrated on low-quality markets, and the newly found unfavorable reputation was justified. In the model constructed here, consumers see only a noisy signal of the product's quality at the time of purchase; therefore, their posterior beliefs are based on this noisy signal and the country-of-origin reputations. As will be made clear, higher-quality firms benefit more from an increase in their country's reputation, so that a better reputation generates an increase in the percentage of high-quality firms. In this way the reputation becomes self-fulfilling and ex ante identical countries can be correctly perceived as differing in their percentage of high-quality producers. I next introduce an economy with two sectors. One sector produces more complex goods, where high quality is not easily verified and is more essential to the product's performance. These may be technology-intensive products, or they may consist of the design and marketing of the goods produced in the other sector. In particular, high-quality production costs and the consumer's value for high-quality goods is greater in this sector. I show that this sector becomes more profitable as the country-of-origin reputation increases. Hence, if one country's equilibrium reputation is low and the other country's equilibrium reputation is high, then the pattern of specialization and international trade can be determined solely by "reputational comparative advantage." (2) Finally, I show that reputational comparative advantage can overshadow a small technological comparative disadvantage in determining the pattern of international trade. Given this pattern of trade and specialization, based on reputational comparative advantage, a high-reputation firm may expend resources to establish a multinational enterprise (MNE) in the low-reputation country. For example, many MNE products require the differing specializations of both the high-and low-reputation countries. Although differing in motivation, this result accords well with more traditional models of vertical MNE. (3) However, this impetus for MNE (as well as its more traditional counterparts) does not explain why the MNE would choose foreign direct investment (FDI) over a less costly licensing arrangement. (4) The quality uncertainty in this model, along with the difference in equilibrium reputations, allows us to address this question. In particular, appropriable reputational rents are generated by FDI when the high-reputation parent firm procures and internalizes production with a low-reputation host firm. This FDI "breaks" the low-reputation equilibrium of the host firm and generates reputational rents. …

We show that the Dutch disease can arise solely because of the distribution of the natural resource rents. In particular, a less equal distribution of the natural resource rents can generate manufacturing sector stagnation and lower long-run growth even for a country with a smaller resource base and (initially) higher manufacturing productivity. In our framework the Dutch disease arises through a shift in demand. The new found wealth from the resource find increases demand for non-tradable luxury consumption services. Labor that could be used to develop the manufacturing sector is pulled into the service sector. Manufactured goods are more likely to be imported and the learning and production process improvements accrue to the foreign exporters. As opposed to conventional models where income distribution has no effect on economic outcomes, an unequal distribution of the resource wealth can generate or further intensify the Dutch disease dynamics within this framework.

This paper shows how Dutch disease effects may arise solely from a shift in demand following a natural resource discovery. The natural resource wealth increases the demand for non-tradable luxury services due to non-homothetic preferences. Labor that could be used to develop other non-resource tradable sectors is pulled into these service sectors. As a result, manufactures and other tradable goods are more likely to be imported, and learning and productivity improvements accrue to the foreign exporters. However, once the natural resources diminish, there is less income to purchase the services and non-resource tradable goods. Thus, the temporary gain in purchasing power translates into long-term stagnation. As opposed to conventional models where income distribution has no effect on economic outcomes, an unequal distribution of the rents from resource wealth further intensifies the Dutch disease dynamics within this framework.

This paper shows how Dutch disease effects may arise solely from a shift in demand following a natural resource discovery. The natural resource wealth increases the demand for non-tradable luxury services due to non-homothetic preferences. Labor that could be used to develop other non-resource tradable sectors is pulled into these service sectors. As a result, manufactures and other tradable goods are more likely to be imported, and learning and productivity improvements accrue to the foreign exporters. However, once the natural resources diminish, there is less income to purchase the services and non-resource tradable goods. Thus, the temporary gain in purchasing power translates into long-term stagnation. As opposed to conventional models where income distribution has no effect on economic outcomes, an unequal distribution of the rents from resource wealth further intensifies the Dutch disease dynamics within this framework.\

This paper analyzes two prominent institutional rules in the international trading system: a limited cross-retaliation rule characterized by the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) Article 22.3 and a limited punishment rule characterized by the General Agreement on Tariffs and Trade (GATT) Article XXVIII. In general, both rules are designed to limit the countermeasures upon a violation; however, the former rule specifies the limits of composition in retaliation, whereas the latter one designates the limits of retaliation magnitude. We show that, albeit seemingly unrelated, the limited cross-retaliation rule complements the limited punishment rule in per- mitting greater trade liberalization. Specifically, we show how the limited cross-retaliation rule also helps limit the incentives to violate the trade agreement when the limited punishment rule prevails.

We introduce stereotype threat in a multiple-productivity signalling model. Existence of multiple self-fulfilling stereotypes, which can generate statistical discrimination, is more likely if there is less variance in the ability distribution. A low endogenously-correct stereotype about a group forces higher-ability group members to choose a higher-productivity and a higher separating signal, thereby engaging in counter-stereotypical behaviour. This counter-stereotypical behaviour causes the remaining partially-pooling group to have lower average productivity, reinforcing the negative stereotype. The co-existence of stereotype threat and counter-stereotypical behaviour can explain the simultaneity of lower wages and higher education attainment in a group facing labour-market discrimination.

It is well-known that there are no pure strategy Nash equilibria (PSNE) in the standard three-candidate spatial voting model when candidates maximize their share of the vote. When all that matters to the candidates is winning the election, however, we show that PSNE do exist. We provide a complete characterization of such equilibria and then extend our results to elections with an arbitrary number of candidates. Finally, when two candidates face the potential entrant of a third, we show that PSNE no longer exist, however, they do exist when the number of existing candidates is at least three.

Recent work demonstrates the importance of developing high quality output in order to compete in export markets and other recent studies verify the prevalence of fixed and ongoing trade costs while participating in those markets. I consider the joint choice of quality and export promotion costs when trade relationships are subject to temporary disputes. When transparency is low and macroeconomic instability is high, disputes arrive more frequently and, therefore, firms may inefficiently choose lower levels of quality and export promotion. These, in turn, build shallower trading relationships with less trade volumes and higher tariffs, and generate greater trade reductions during the more common trade disputes. Several institutional features of the WTO dispute settlement mechanism that are generally lacking in preferential trade agreements such as improved transparency, dispute investigation, and the provision to recommend asymmetric continuation payoffs can ameliorate these inefficient quality choice outcomes. Hence, lower quality output and lower quality trading relationships may be more endemic to countries that depend on preferential trading areas as opposed to the WTO.

A notable feature of many recent trade agreements is the gradual, rather than immediate, reduction of trade barriers. In this paper we model trade liberalization as a cooperative relationship that evolves gradually in a non-cooperative environment. We show that specialization, capacity irreversibility and the development of trade-partner specific capital increase the benefit of continuing the liberalizing relationship and decrease, over time, the lowest obtainable self-enforcing tariff. By increasing the penalty of future defection, sunk costs ensure that the self-enforcing trading relationship starts slowly, but once in progress the level of cooperation continues to improve.