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To purchase or authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1467-9787.2008.00545.x Byline: Donald R. Davis (1), David E. Weinstein (2) Abstract: ABSTRACT. Theories featuring multiple equilibria are widespread across economics. Yet little empirical work has asked if multiple equilibria are features of real economies. We examine this in the context of the Allied bombing of Japanese cities and industries in World War II. We develop a new empirical test for multiple equilibria and apply it to data for 114 Japanese cities in eight manufacturing industries. The data provide no support for the existence of multiple equilibria. In the aftermath even of immense shocks, a city typically recovers not only its population and its share of aggregate manufacturing, but even the industries it had before. Author Affiliation: (1)Department of Economics, Columbia University and NBER, 420 W. 118th St. MC 3308, New York, NY 10027. (2)Department of Economics, Columbia University and NBER, 420 W. 118th St. MC 3308, New York, NY 10027. E-mail:david.weinstein@columbia.edu Article History: Received: May 2006; accepted: April 2007.

Traditional neoclassical models of comparative advantage suggest that, all else equal, a country with idiosyncratically strong demand for a good will be an importer of that good. However, there is a contrary tradition that emphasizes the advantages of a large home market as a foundation for exports of a good. One recent formalization of this home market approach falls within what is termed the new economic geography. This paper integrates core models of Heckscher-Ohlin and Krugman [American Economic Review 70 (1980) 950] to investigate whether such home market effects matter empirically in manufacturing for a set of OECD countries. The evidence suggests that home market effects are important for a broad segment of OECD manufacturing. Keywords: Increasing returns; Economic geography; Comparative advantage JEL classification: F1; D5; E1

Examining the relationship between factor endowments and production patterns using data from Japanese prefectures and from OECD nations, we find evidence of substantial production indeterminacy. Regressions of outputs on endowments yield prediction errors six to 30 times larger for goods traded relatively freely than for non-traded goods. We argue that a compelling explanation for these results is the existence of more goods than factors in the presence of trade costs. If so, regressions of trade or output on endowments have weak theoretical foundations. Furthermore, since errors are largest in data sets where trade costs are small, we explain why the common methodology of imputing trade barriers from regression residuals has produced counterintuitive results. Keywords: Factor endowments; Heckscher-Ohlin-Vanek; Production indeterminacy; Trade barriers JEL classification: F1; F11; F13; D2

This paper presents an analysis of the effects of market structure on the propensity of firms to dump goods. The analysis of Brander and Krugman is extended to show that in the presence of transportation costs, bilateral intra-industry trade is not possible without dumping. Contrary to the conventional wisdom, this paper finds that firms in markets with a large number of domestic competitors are more prone to dump unilaterally than firms in less competitive markets. This dumping is not predatory but may result in export prices being below average cost.

Economists have long known the importance of focusing on 'real' as opposed to 'nominal' variables in order to understand a wide range of economic outcomes including growth, productivity, and welfare. [...]