Volume 10, Issue 4

Because China’s economic structure is different from that in OECD countries, using conventional neo-classical competitive trade models to analyze the welfare and trade impacts of trade related policy change can be misleading. In particular, both the exchange rate regime and output and pricing policies of state owned enterprises (SOE’s) will have effects on trade and welfare which differ from a classical competitive model. This paper present a numerical model that captures the combined and interactive effects of three policy elements in prototype form of tariffs, policy towards SOEs in the industrial sector, and an exchange rate regime supporting large trade surpluses and additions to foreign reserves. The model has non neutral monetary features, endogenous trade imbalances and average product pricing of labor in goods. We do not claim it to be fully representative of modern China, but it does go some way beyond simple competitive models used elsewhere and points to different conclusions of policy impact. We calibrate our model to 2006 data, and then evaluate the impacts both singly and in combination of: tariff liberalization, a move to more freely floating exchange rates, and SOE enterprise reform. Results show that large differences in policy have a different impact relative to a classical competitive model. SOE reform and a freely floating Chinese exchange rate have more impact on China’s welfare than tariff liberalization. Policies of RMB appreciation and increasing China’s money stock reduce China’s trade surplus. In the traditional competitive model, trade liberalization impacts both imports and exports, while in our central case model, with endogenously determined trade surplus, trade liberalization has little effect on exports. Most of the policy impact is on imports and the trade surplus. SOE reform of China’s manufacturing sector significantly decreases production of China’s manufacturing sector and increases production in China’s other sectors.

The purpose of this paper is to relate total factor productivity to the problem of economic growth in Latin America. Slow economic growth has been the most important problem in the modern history of the region. The paper extensively reviews the literature on the determinants of economic growth in Latin America and shows that the slow growth of total factor productivity (TFP) seems to be the primary problem. Further, this problem is linked to the quality of institutions in the region. Unfortunately, the concept of institutional quality is very difficult to define in a meaningful way. This affects public policy towards economic growth in the region. Finally, it is shown that the problem that has been identified may be crucial for Latin America but the region is hardly unique in this regard.

Monetary authorities of many open economies have been regularly intervening in foreign exchange markets for years to limit volatility in exchange rates and/or push exchange rates back to some desired level. Such interventions have taken the form of actual and oral official interventions. Review of studies investigating the effectiveness of interventions reveals one major issue, related to the assumption that interventions are mostly sterilized. This assumption might lead to unreliable results when changes in interest rates and interventions are both used as explanatory variables for exchange rates.One major consistent finding is that intervention has a significant but short-lasting effect on exchange rates. Studies have reached this conclusion by investigating whether intervention has been effective in turning around the exchange rate over the few days, weeks or months following intervention(s). Only a few studies have investigated and provided evidence that intervention has been effective in limiting long swings in exchange rates.Studies testing for the effectiveness of interventions specifically through the signaling channel also provide evidence on the importance of macroeconomic variables for exchange rates. The significance of official intervention and official communication for exchange rate movements combined with the importance of macroeconomic variables for exchange rates provide a role for official intervention and parity announcement to influence exchange rate movements and limit the magnitude of exchange rate swings.

The effects of NAFTA on Mexico’s environment were of great concern pre-NAFTA and have continued to be a matter concern in the post-NAFTA era. As the many studies and evidence presented in this paper show, Mexico’s environment in the post-NAFTA period has not suffered as much as pessimists feared, nor has it improved as much as optimists hoped. This outcome is consistent with theory and evidence from Environmental Kuznets Curves in that Mexico’s macroeconomic performance has been inadequate to raise Mexico’s per capita income to levels needed to cross estimated turning points for many pollutants. Seen in this light, Mexico’s environmental quality will continue to be a mixture of modest improvements along with modest setbacks until the economy exhibits strong and sustained growth.

The U.S.-Mexico border region has two important but often overlooked characteristics. First, it is the physical place of most of the integration between the United States and Mexico, including market driven integration such as trade flows, migration, and investment as well as policy driven integration such as security cooperation, infrastructure development, and emergency response. Second, the border region has a growing transnational population that lives, works, goes to school, and participates in family and social networks on both sides of the border. Recent U.S. policy has hardened the border in response to concerns about terrorism, drug and human trafficking, undocumented migration, and arms smuggling. The consequences of these policies include disruption of the on-going economic integration, large external costs imposed on the growing transnational population, and barriers to progress on a number of issues of national importance, including dispute resolution, migration, and environmental management, among others. The paper identifies and discusses the advantages of the three different definitions of the border in current usage: counties and municipios that touch the border; the 100 kilometer boundary first set by the La Paz Agreement and later amended to 300 kilometers in Mexico and 100 in the U.S.; and the ten states that are along the border. The hardening of the border is partly the result of a lack of border institutions and the inability of border residents to speak in a common voice when they talk to their capitals. This is changing, however, as new institutions such as the Border Governors Conference take on a more active role in promoting the interests of border states and border regions. An examination of a recent Delphi survey of border decision-makers shows a high degree of cross border agreement on the goals and needs of the region in key areas such as competitiveness, security, and sustainability.

This paper offers a global perspective of the political economy of the liberal trading system since the Great Depression and examines four major intellectual and socio-political challenges facing international trade and globalization going forward, including: (1) income redistribution, (2) the rise of Asia and a potential shift in comparative advantage, (3) the rise of China and the national security argument, and (4) the lack of compelling dynamic evidence supporting free trade. Given the growing domestic and global discontent with free trade, and the fact that these exacerbating issues remain, this paper suggests that U.S. and global trade policies may shift away from the liberal trading system.

In the debate about United States subsidies of private sector R&D, it is sometimes argued that the state of our technology is closely related to our current account deficits, particularly in what has been called the “Advanced Technology Products” (ATP) trade account. The corollary is that taking appropriate actions to increase research and development activities will both improve our technology and reduce the size of the ATP trade account deficit. The paper exams this proposition in a two-country two-firm intra-industry trade model, where firms play a two-stage quality-quantity game. The primary result of the paper is that if, as compared to its trading partners, the United States has about the same demand function but higher production costs then increases in R&D are likely to reduce an ATP trade account deficit. If, on the other hand, both costs and the value customers place on the product are high in the United States as compared to its trading partners, then increases in R&D are likely to increase the size of the ATP trade account deficit.