Andrés Rodríguez-Clare

The Value of Trade Agreements in the presence of Political pressures

An argument often heard in favor of trade agreements is that, by committing to free trade, a government can credibly distance itself from domestic lobbies, But several existing models of endogenous protection suggest that governments have no interest in foreclosing interest group pressures since governments derive rents from the political process. We develop a small‐country model in which factors are sector‐specific in the short run but mobile in the long run. We show that in this setting a government may be worse off in the political equilibrium than under commitment to free trade, and hence it may value a trade agreement.

Economic growth: A review essay

Abstract The last decade has seen an explosion of research on economic growth. Based on a selective review of this literature and the recent book on Economic Growth by Robert Barro and Xavier Sala-i-Martin, we see four main challenges for future research. First, to more tightly link theory and evidence. We think a good way of achieving this would be to follow the methodology common in the business cycle literature of simulating models to compare their predictions to the data. Second, to develop new ways to empirically distinguish between competing theories of endogenous growth. Third, to develop more theories of international productivity differences. Finally, to collect detailed country data bearing on the process of technology diffusion.

Trade Theory with Numbers: Quantifying the Consequences of Globalization

We review a recent body of theoretical work that aims to put numbers on the consequences of globalization. A unifying theme of our survey is methodological. We rely on gravity models and demonstrate how they can be used for counterfactual analysis. We highlight how various economic considerations--market structure, firm-level heterogeneity, multiple sectors, intermediate goods, and multiple factors of production--affect the magnitude of the gains from trade liberalization. We conclude by discussing a number of outstanding issues in the literature as well as alternative approaches for quantifying the consequences of globalization.

The division of labor and economic development

Abstract Building on three widely accepted premises (productivity gains from the division of labor, efficiency gains derived from the proximity of suppliers and users of certain inputs, the division of labor is limited by the extent of the market) this paper shows that a small, open economy may be caught in an underdevelopment trap in which a shallow division of labor (i.e., a low variety of specialized inputs) is self-reinforcing. In turn, the shallow division of labor leads to a relatively low rate of return to capital, so foreign investment or domestic capital accumulation may not materialize.

Costly Distortion of Information in Agency Problems

Anecdotal evidence suggests that agents often spend resources distorting information transmitted to principals. We present a model where costly information distortion emerges as equilibrium behavior. The information structure we focus on is intermediate between (and encompasses) the cases of private information and public information: the agent can falsify the privately observed state at some cost. Although the principal can design contracts that induce no falsification, these may involve excessive iinformation rents: falsification can be beneficial in spite of the waste of resources involved, because it helps reduce information rents. We examine how optimal contract and equilibrium payoffs change as the information structure ranges from private to public information.

Clusters and comparative advantage: Implications for industrial policy

Abstract Cases of industrial agglomeration or “clusters” arise in the presence of industry-specific and local externalities, also called Marshallian externalities. The standard argument is that such externalities may justify a policy of infant-industry protection to allow and encourage clusters to emerge. In this paper I explore this carefully, and show that different policy implications emerge under a more realistic modeling of clusters. In particular, rather than distorting prices to promote clusters in “advanced sectors” that may exhibit strong clustering possibilities, countries should focus instead on promoting clustering in current sectors, which have revealed to have the strongest comparative advantage. Import substitution is not a proper way to achieve this.

Chapter 11 Externalities and Growth

Abstract Externalities play a central role in most theories of economic growth. We argue that international externalities, in particular, are essential for explaining a number of empirical regularities about growth and development. Foremost among these is that many countries appear to share a common long run growth rate despite persistently different rates of investment in physical capital, human capital, and research. With this motivation, we construct a hybrid of some prominent growth models that have international knowledge externalities. When calibrated, the hybrid model does a surprisingly good job of generating realistic dispersion of income levels with modest barriers to technology adoption. Human capital and physical capital contribute to income differences both directly (as usual), and indirectly by boosting resources devoted to technology adoption. The model implies that most of income above subsistence is made possible by international diffusion of knowledge.

On Endogenizing Long-Run Growth

This assessment of recent theoretical work on endogenous growth identifies three different engines of long-run growth: (1) the asymptotic average product of capital is positive; (2) labor productivity increases as an external effect of capital accumulation; and (3) there are feedback effects on the cost of accumulating knowledge or innovating. A general model encompassing all three is considered and then used to review different proposed determinants of long-run growth rates. The contribution of endogenous growth theory has been to create a framework in which to explain why economic institutions and policies can have long-run effects on growth rates. Copyright 1993 by The editors of the Scandinavian Journal of Economics.

Clusters and Comparative Advantage: Implications for Industrial Policy

Industrial agglomerations or `clusters` arise in the presence of industry-specific and local externalities, also called Marshallian externalities. The standard argument is that such externalities may justify a policy of infant-industry protection to allow and encourage clusters to emerge. This paper explores that argument and shows that different policy implications emerge under a more realistic modeling of clusters. In particular, rather than distorting prices to promote clusters in `advanced`sectors that may exhibit strong clustering possibilities, countries should focus instead on promoting clustering in current sectors that have demonstrated the strongest comparative advantage. Import substitution is not a proper way to achieve such a goal.