Ai-Ting Goh

Opportunity Cost, Trade Policies and the Efficiency of Firms

Abstract This paper analyzes the effects of trade policies on the technological effort of a firm entering a new market in the context of a developing country. We depart from previous literature by bringing into focus the opportunity cost of technological effort. A firm that spends time in acquiring a more efficient technology delays the commercialization of its products, thus incurring an opportunity cost in terms of profits forgone. Protection increases both the opportunity cost and the benefits from technological effort. In the case of linear demand function and constant returns to scale technology, protection is shown to unambiguously reduce the protected firms technological effort. Export subsidy is also shown to reduce technological effort when the potential level of exports under free trade is high.

Should Small Countries Fear Deindustrialization

Will small countries deindustrialize when opening up to trade with large countries? Donald Davis (1998 ) shows that for the home market effect to lead to deindustrialization of small countries, trade costs for homogeneous goods must be sufficiently smaller than trade costs in differentiated goods, a condition which is not supported by empirical evidence. We show that if differentiated goods production uses tradable inputs small countries can become deindustrialized when trading with a sufficiently large country and if trade costs are low. Copyright

Quality Assurance and the Home Market Effect

The home market effect is considered as a distinguishing feature of models of trade with increasing returns to scale in production and imperfect competition. However, some empirical studies found the existence of home market effect even in constant returns to scale industries. In this paper we build a model of intra-industry trade based upon quality assurance and show the existence of the home market effect without increasing returns in the production technology. This throws into question the rationale of empirical studies attempting to validate the increasing returns model of trade based upon testing the existence of the home market effect.

Trade, employment and fertility transition

This paper investigates the link between trade and fertility in developing countries. Household fertility is determined by the time cost of children. Women working in the manufacturing sector face a higher time cost, and hence desire fewer children than women working in the agricultural sector. If the developing country has a comparative advantage in labour-intensive manufactures, then trade raises the demand for female labour in the manufacturing sector, thus lowering fertility.