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8 - The challenge of reducing international trade and migration barriers
- Edited by Bjørn Lomborg, Copenhagen Business School
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- Book:
- Global Crises, Global Solutions
- Published online:
- 05 June 2012
- Print publication:
- 09 July 2009, pp 451-515
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Summary
The net economic and social benefits of reducing most government subsidies and opening economies to trade are enormous relative to the costs of adjustment to such policy reform. While barriers to trade in most goods and some services including capital flows have been reduced considerably over the past two decades, many remain. Such policies harm most the economies imposing them, but the worst of the merchandise barriers (in agriculture and textiles) are particularly harmful to the world's poorest people, as are barriers to worker migration across borders. Addressing this challenge would therefore also assist in meeting several of the other challenges identified in this project, including malnutrition, disease, poor education and air pollution.
This chapter focuses on how costly those anti-poor trade policies are, and examines possible strategies to reduce remaining distortions. Three opportunities in particular are addressed. The most beneficial prospect is the Doha Development Agenda of the World Trade Organization (WTO). If that proves to be too difficult politically to bring to a conclusion in the near future, the other two prospects we consider are sub-global preferential reforms such as the Free Trade Area of the Americas (FTAA) initiative, and the freeing up of the international movement of workers.
The chapter begins by defining the challenge. It then summarizes the arguments for removing trade and migration distortions, along with critiques by skeptics, before discussing the various opportunities for reducing subsidies and trade barriers and explaining why we chose to focus on the above-mentioned three.
5 - The economics of isolation and distance
- Edited by Roman Grynberg
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- Book:
- WTO at the Margins
- Published online:
- 05 May 2010
- Print publication:
- 14 December 2006, pp 145-163
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Summary
A recent programme of research at the Centre for Economic Performance at the London School of Economics addresses the role of geography in determining trade flows, the location of economic activity, and the extent of income differentials between countries. Although not directed especially at the problems faced by small or isolated economies, the central issues researched are the interactions between scale and proximity. There are benefits from being large and from being close to centres of economic activity, and the research seeks to understand these benefits, assess their magnitude, and evaluate the rate at which they fall off with distance from the centre. The purpose of this chapter is to draw out some of the implications of this research for small and isolated economies that are deprived of these benefits.
The point of departure is to pose the question, why do isolation and distance matter for economic performance? There are several main considerations. The first is simply that having good access to markets is valuable for firms. The access can derive from two sources: one is proximity to other countries that can bring good access to export markets, and the other is domestic scale, i.e. the extent to which the home market can provide an alternative to exports. Countries that are both remote and small forgo both these sources of market access. The second consideration is access to suppliers of intermediate and capital goods.
Small, remote and poor?
- ANTHONY J. VENABLES
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- Journal:
- World Trade Review / Volume 3 / Issue 3 / November 2004
- Published online by Cambridge University Press:
- 22 December 2004, pp. 453-457
- Print publication:
- November 2004
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The two papers in this special issue both look at the problems that small economies face in participating in the world trading system. For Winters and Martins (W&M) small means small in population; they motivate their analysis with reference to the 82 countries with the smallest population, accounting collectively for less than 0.5% of world population. Many of these countries are also remote, making trade costly. For Mattoo and Subramanian (M&S) the focus is on countries that are small and poor; their list covers the 73 countries which each account for less than 0.05% of world imports and which also have low income. They investigate the engagement of these countries in the WTO. My comments will address both papers, although focus on W&M.
2 - Trade liberalisation and factor mobility: an overview
- from PART ONE - INSIGHTS FROM THEORY
- Edited by Riccardo C. Faini, Università degli Studi di Brescia, Italy, Jaime de Melo, Université de Genève, Klaus Zimmermann, Ludwig-Maximilians-Universität Munchen
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- Book:
- Migration
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- 10 May 2010
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- 23 September 1999, pp 23-48
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Summary
Introduction
A reduction in the cost of one type of international transaction – lower transport costs for goods trade or the liberalisation of a factor flow – generally changes the incentives to make other international transactions. There are many examples of the way in which changing trade barriers may change the incentives for factor mobility, although some of these examples pull in opposite directions. For example, in discussion of EU trade policy towards Eastern Europe it is suggested that making trade in goods easier might reduce the incentives for labour to emigrate (Begg et al., 1992). In the study of migration from Europe to the USA in the late nineteenth century, it is argued that reductions in transport costs for agricultural products increased the incentives for labour migration, both inter-regionally and internationally (Harley, 1978, 1980). In a regional context, it is often suggested that falling transport costs were a trigger for migration to cities, as the costs of feeding the urban population were reduced (Bairoch, 1988).
The objective of this chapter is to provide an overview of theory on the relationship between trade liberalisation and factor mobility. What does theory suggest about the way in which reducing the costs of making some transactions changes the incentives to make others? Under what circumstances will goods-trade liberalisation reduce factor flows, and under what circumstances will it increase them? What are the consequences of these factor flows for trade?
This chapter addresses these issues in a number of commonly used trade models, each of which illustrates different forces that may be important.
9 - Geography and specialisation: industrial belts on a circular plain
- Edited by Richard Baldwin, Graduate Institute of International Studies, Geneva, Daniel Cohen, Université de Paris I, Andre Sapir, Université Libre de Bruxelles, Anthony Venables, London School of Economics and Political Science
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- Book:
- Market Integration, Regionalism and the Global Economy
- Published online:
- 24 February 2010
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- 26 August 1999, pp 254-273
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Summary
Introduction
What forces determine the spatial pattern of industrial specialisation? Near the top of an economist's list of answers to this question would probably come differences in technology or endowments. A good deal further down we might find geography – the spatial position of locations – and agglomeration – the desire of firms or other economic agents to locate close to each other. This ranking comes in part from the intellectual tradition of economics. We naturally look to preferences, technology and endowments to determine everything. It also comes from the traditional focus of international economics on trade between countries with dissimilar endowments.
The ‘new economic geography’ literature of the last five years has started to redress the balance. Within deeply integrated regions such as the European Union it seems hard to argue that differences in technologies or in endowments of immobile factors are key determinants of patterns of specialisation and trade. And perhaps this also becoming true at the world level as more activities become tradable, and firms and factors of production become increasingly internationally mobile. We need a theory of the location of activity which is not dependent on assumed differences in locations' factor endowments or technologies, but which can address the pattern of location of economic activity in a world in which (almost) everything is mobile. Geography and agglomeration then come to the fore as possible determinants of the location of activity and the pattern of trade.
The ‘new economic geography’ literature focuses on agglomeration and provides analytical foundations for forces which induce agglomeration.
6 - Economic policy and the manufacturing base: hysteresis in location
- Edited by Richard E. Baldwin, Joseph F. Francois, Erasmus Universiteit Rotterdam
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- Book:
- Dynamic Issues in Commercial Policy Analysis
- Published online:
- 13 January 2010
- Print publication:
- 06 May 1999, pp 177-201
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Introduction
Discussion of industrial policy often refers to the importance of maintaining a ‘manufacturing base’, and suggests that there may be some level of activity below which contraction of manufacturing may be difficult to reverse. In simple economic models it is difficult to make sense of this line of reasoning. An adverse shock to industry in one country may cause exit or relocation of firms, but, if the shock is reversed, then those remaining earn a higher return than in the original equilibrium. Entry will occur, and the equilibrium will revert to the initial position.
There are several circumstances in which this need not be the case. One is when there are sunk costs associated with entry and exit (as in the ‘beachhead’ models of Baldwin and Krugman (1989) and Dixit (1989)). It may take a large shock to attract new entrants (importers, in the literature referred to), but once they have paid their fixed costs they are difficult to dislodge. Another circumstance is when there are positive ‘linkages’ between firms in the industry, these linkages causing profits to be an increasing, rather than decreasing, function of the number of firms in the location. With such linkages there is a high degree of interdependence between the location decisions of different firms, and this creates the possibility of agglomeration of activity. An adverse shock may then destroy one centre of activity and cause others to form, in which case, even if the shock is reversed, its effects may not be.
5 - Multinational production, skilled labour, and real wages
- Edited by Richard E. Baldwin, Joseph F. Francois, Erasmus Universiteit Rotterdam
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- Book:
- Dynamic Issues in Commercial Policy Analysis
- Published online:
- 13 January 2010
- Print publication:
- 06 May 1999, pp 138-176
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Introduction
International trade has a long tradition of explaining trade flows and international differences in sectoral production levels by differences in relative factor endowments among countries. Dual results relate real factor rewards to international prices and trade barriers. But factor-proportions trade theory, at least in its traditional competitive formulation, is not well suited to discussions about the role of trade in technologies and knowledge capital in determining real wages and national standards of living. Because of problems relating to the public goods nature of knowledge or to the firm-specific character of knowledge and skills, the services of these assets are often exploited internally within multinational firms in serving foreign markets.
Many theoretical and empirical developments have improved our understanding of which firm-level characteristics lead to industries dominated by multinationals. More recently, we have begun to incorporate these firm-based models into the general equilibrium theory of international trade so that we understand, for example, which country characteristics lead to international activity dominated by direct investment rather than trade.
The purpose of this paper is to exploit these recent developments in order to improve our understanding of how multinationals in turn influence certain variables in equilibrium, outputs and factor prices in particular. While previous work has given us a basis for understanding how country characteristics such as size, relative endowments, and trade costs lead to multinational firms, we now turn to the question of how the introduction of multinational production alters the inter-country distribution of production and the intra-country distribution of income.
We adapt our two-country, two-sector, two-factor static model developed in Markusen and Venables (1995a, 1996).
Preface
- Edited by L. Alan Winters, University of Birmingham, Anthony Venables, University of Southampton
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- Book:
- European Integration
- Published online:
- 07 September 2010
- Print publication:
- 23 May 1991, pp xv-xv
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Summary
This volume contains the proceedings of the conference ‘The Impact of 1992 on European Trade and Industry’, which was organised by the Centre for Economic Policy Research, the Centro Interuniversitario di Studi Teorici per la Politica Economica and Confindustria in Urbino on 15–16 March 1990. The programme committee comprised Stefano Micossi, Anthony J. Venables and L. Alan Winters. Much of the work reported forms part of the Centre for Economic Policy Research's programme ‘The Consequences of “1992” for International Trade’, supported by the UK Department of Trade and Industry and the Foreign and Commonwealth Office. This research is also funded by the Commission of the European Communities under the SPES programme.
We are grateful to Cillian Ryan who acted as Rapporteur for the conference, to Sarah Wellburn, Ann Shearlock and David Guthrie of the CEPR for logistical help with the conference and the volume, and to Barbara Docherty, who served as Production Editor. We are also grateful to Richard Portes, Director of the CEPR, for his support and encouragement for the conference and programme of research in general. Ente Nazionale Idrocarburi provided excellent conference facilities, and the German Marshall Fund of the United States contributed to the travel costs entailed. Finally we should express our gratitude to the participants at the conference, whose contributions to the debate and stimulating comments helped to make the conference and volume so successful. The contributions to this volume represent a small step towards the complete analysis of 1992 and, indeed, some of the institutional details discussed may change as the process of integration and the Uruguay Round run to completion.
1 - European integration: trade and industry
- Edited by L. Alan Winters, University of Birmingham, Anthony Venables, University of Southampton
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- Book:
- European Integration
- Published online:
- 07 September 2010
- Print publication:
- 23 May 1991, pp 1-8
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Summary
The completion of the internal market in the European Community (EC) has now been the subject of much research. The likely direct effects of ‘1992’ have been catalogued and quantified, and the possible implications of these changes for trade and industry have been estimated. Emerson et al. (1988) provides the best overview of this work, and it is fair to say that something of a consensus has developed around it. ‘1992’ is expected to increase competition, encourage some rationalisation of industry and thereby generate efficiency gains, possibly yielding net benefits amounting to several per cent of EC income.
Comforting though the consensus is, it is built on relatively shaky foundations. Emerson et al. (1988) represents a high point of applied economics, combining the results of several different modes of analysis in an original and innovative fashion. The study did not, however, have the time, or the intention, to explore the mutual consistency of such approaches, nor to elucidate the precise mechanisms involved in some of the economic relationships assumed. Nor, of course, did it examine the full range of consequences and alternative approaches to predicting the effects of ‘1992’. These tasks have fallen to academic researchers. While there has been a huge volume of comment and casual analysis of the completion of the market, the detailed work required to analyse these issues is only just beginning to appear.
The studies in this volume comprise a number of explorations going beyond the Emerson consensus. They do not offer a comprehensive reappraisal of ‘1992’, but rather seek to examine particular issues in greater detail.
2 - Completing the internal market in the EC: factor demands and comparative advantage
- Edited by L. Alan Winters, University of Birmingham, Anthony Venables, University of Southampton
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- Book:
- European Integration
- Published online:
- 07 September 2010
- Print publication:
- 23 May 1991, pp 9-30
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Summary
Introduction
The aim of this study is to set partial equilibrium models of the effects of completion of the internal market on particular industries into a wider general equilibrium framework. The contribution of industry-level partial equilibrium models is to capture the effects of 1992 on intra-industry trade, on competition, and hence on prices, output and welfare. As was demonstrated in Smith and Venables (1988), a pro-competitive policy change, such as completion of the internal market, can lead to substantial increases in firm scale, bringing welfare gains from lower prices and, with increasing returns to scale, lower average costs.
Partial equilibrium studies alone can for two reasons provide an incomplete, and possibly misleading, picture of the effects of completion of the internal market. First, it is assumed that resources drawn into the industry under study are available at a price equal to their marginal social opportunity cost. If one imperfectly competitive industry's expansion is – because of overall resource constraints – another's contraction, then this assumption is invalid. Employing this assumption may cause us to misestimate the welfare change associated with a policy. Second, the partial equilibrium studies assume that resources are available to the industry at a constant price, so input supply curves are horizontal. If input supply curves to each industry are in fact upward sloping, partial equilibrium studies will overestimate the quantity effects of the policy. Input supply considerations affect not only inputs of primary factors, but also inputs of intermediates, which may themselves be produced by imperfectly competitive industries, so generating ‘linkages’ between industries.