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International Trade and Trade Policy

Paper Session

Saturday, Jan. 7, 2017 3:15 PM – 5:15 PM

Sheraton Grand Chicago, Missouri
Hosted By: International Economics and Finance Society
  • Chair: Jeffrey H. Bergstrand, University of Notre Dame

Grounded by Gravity: A Well-Behaved Trade Model with External Economies

Andres Rodriguez-Clare
,
University of California-Berkeley
Konstantin Kucheryavyy
,
University of Tokyo
Gary Lyn
,
University of Massachusetts-Lowell

Abstract

This paper presents a multi-industry trade model with industry-level economies of scale that nests a Ricardian model with Marshallian externalities as well as multi-industry versions of Krugman (1980) and Melitz (2003). The behavior of the model depends on two industry-level elasticities: the trade elasticity and the scale elasticity. For the case of two countries, we show that the equilibrium is unique if and only if the product of the trade and scale elasticities is weakly lower than one in all industries. Extensive simulation analysis strongly suggests that this result extends to the case of more than two countries. If the condition for uniqueness is satisfied, then all countries gain from trade, even when the scale elasticity varies across industries. The presence of scale economies tends to lower the gains from trade except if the country specializes in industries with relatively high scale elasticities. On the other hand, scale economies amplify the gains from trade liberalization except if it leads to specialization in industries with relatively low scale elasticities. These and other results are explored at the quantitative level for different values of the scale elasticity.

From Torino to Tychy: The Limits of Offshoring in the Car Industry

Keith Head
,
University of British Columbia
Thierry Mayer
,
Sciences Po

Abstract

This paper estimates the role of country/variety comparative advantage in the decision to offshore assembly of nearly 2000 models of 184 car brands headquartered in 25 countries. While offshoring in the car industry has risen from 2000 to 2013, the top five offshoring brands account for the majority of car assembly relocated to low wage countries. We show that the decision to offshore a particular car model depends on two types of cost (dis)advantage of the home country relative to foreign locations. The first type, the component of assembly costs common to all models, is estimated via a structural triadic gravity equation. The second effect, model-level comparative advantage, is an interaction between proxies for the model's skill and capital intensity and the factor abundance of the headquarters country.

Compulsory Licensing and Patent Protection: A North-South Perspective

Kamal Saggi
,
Vanderbilt University
Eric W. Bond
,
Vanderbilt University

Abstract

In a stylized model involving a developing country (called South) and a foreign patent-holder, we analyze whether and how the incidence and social value of compulsory licensing (CL) depends upon the South's patent protection policy. If South is free to deny patent protection, CL fails to arise in equilibrium and the option to use it makes both parties worse off. If South is obligated to offer patent protection, CL can occur and even yield a Pareto improvement. The ability to control price increases the South's incentive for patent protection as well as the likelihood of CL.

A Direct Test of the Stolper-Samuelson Theorem: The Natural Experiment of Japan

Daniel M. Bernhofen
,
American University
John C. Brown
,
Clark University
Masuyuki Tanimoto
,
University of Tokyo

Abstract

We exploit a natural experiment to test a classic proposition in economics: the Stolper-Samuelson theorem. We assert that Japan’s 19th century trade liberalization provides an unusual opportunity to observe the responses of an economy’s factor prices to changes in goods prices in a time period long enough permitting factors to reallocate in response to these goods price changes but also short enough to fulfill the critical ceteris paribus assumptions of the theory. Employing a unique historical data set which matches market level goods and factor price data with the corresponding matrix of direct and indirect factor input requirements, we provide robust support for the empirical validity of Stolper-Samuelson.
JEL Classifications
  • F1 - Trade