Douglas Nelson

Endogenous Tariff Theory: A Critical Survey*

Microeconomic theory can serve at least two useful functions in the development of a coherent theory of political economy. First, the logic of individual choice is developed in detail. Second, microeconomic theory may provide a useful framework for the analysis of the economic interests of social actors. While the formal theory of social choice has received considerable development in political science, there is considerably less research explicitly endogenizing political decisions. This paper examines a recent body of research by economists which does attempt to link rational choice with explicit assumptions about economic interests in an attempt to endogenize tariff policy. It is suggested that this line of research is potentially fruitful, but that greater attention needs to be given to the institutional assumptions on both the demand and supply sides of the market for political outputs.

Migration and Trade

Theoretical and empirical research in economics suggests that bilateral migration triggers bilateral trade through a number of channels. This paper assesses the functional form of the impact of migration on trade flows in a quasi-experimental setting. We provide evidence that the relationship is not log-linear. In particular, at small levels of migration (stocks) the elasticity of trade to migration is quite high, and it declines to zero at about 4,000 immigrants. If migration stocks exceed such a level, the evidence suggests that trade will not increase anymore. This suggests that cross-country network and other effects flowing from migration materialize at relatively low levels of migration, but there appears to be satiation as immigrant numbers increase by much.

Trade, Technology, and Wages: General Equilibrium Mechanics

This paper highlights analytical reasons why we believe trade and technology are linked to wage movements in general, and how we should organize our examination of the recent episode of wage and employment erosion in the OECD countries. We start with a graphic tour through the mechanics of general equilibrium theory on trade and wages. This provides a set of implied relationships between wages and factor intensity trends that, together, provide a casual test of the consistency of posited relationships with actual trends. Numeric analysis and a review of the general equilibrium empirical literature follow the theoretical overview.

How Bad is Antidumping?: Evidence from Panel Data

Current research on antidumping suggests a number of channels through which antidumping affects the volume of world trade. This paper uses a structural approach to the gravity model framework to evaluate these hypotheses using data on trade volume over the period 1960-2001. We conclude that the volume and welfare effects have been negative, but quite modest.

International political economy: a tale of two heterodoxies

International political economy (IPE) originated in the early 1970s. For almost 20 years it has been dominated by separate, largely non-communicating schools, one centred on scholarly institutions in Britain, the other associated with the US journal, International Organization (IO). In terms of the evolving norms of both economics and political science, both schools are surprisingly heterodox. Rather than developing strong systematic data collections and systematic theory, the IO school has been characterised by a shifting set of conceptual and metatheoretical debates. The British school, which has tended to take a deliberately critical position, has been characterised by an ever widening set of concerns topical concerns fuelled by a desire to include more and more voices in the study of IPE. These outcomes are explicable only by tracing the specific historical developments of the two schools.

Does Aid Cause Trade? Evidence from an Asymmetric Gravity Model

Anderson and vanWincoop (2003) developed what has become the standard framework for framing and interpreting empirical work using the gravity model. Its main advantage is that it recognizes and tackles the issue of endogeneity of prices. Hoverer, two shortcomings of their framework are that 1) it relies heavily on an assumption of symmetry among countries; and 2) it requires nonlinear estimations. For issues related to North-South trade, the assumption of symmetry is problematic. In this paper we develop an asymmetric extension of the Anderson-vanWincoop framework appropriate to the analysis of North-South trade. To avoid nonlinear estimations, we also use an appropriately extended version of Baier and Bergstrand’s (2006) method of estimating a linear approximation to the model—thus permitting estimation using (“good old”) OLS and easily compute comparative statics. As an illustration of its use, we examine the empirical link between foreign aid and trade. The results are striking. The coefficients are positive and significant, matching a long list of empirical results in the aid and trade literature. However, the comparative statics shows that aid affects prices so as to reduce the volume of trade of non-donor Northern exporters. Since most Northern countries are non-donors, the total volume of exports from the North actually decreases.

Bridging trade theory and labour econometrics: The effects of international migration

This paper surveys current theoretical and empirical research on international migration with a particular emphasis on the links between trade theory and labour empirics.

Intra-industry trade as an indicator of labor market adjustment

Intra-Industry Trade as an Indicator of Labor Market Adjustment. — A growing body of recent empirical research uses measures of change in intra-industry trade as indicators of labor market adjustment. In this paper, we argue that the theoretical foundations for this work are problematic. To make this argument we develop a simple model with both inter- and intra-industry trade and adjustment. We find that changes in domestic absorption, which influence trade flows but which are distinct from production changes, make changes in IIT an unreliable guide to labor market pressure.

Marginal Intraindustry Trade and Labor Adjustment

In the context of Ethiers model of the division of labor, this paper accomplishes three tasks. First, it complements existing literature on the algebraic properties of marginal intraindustry trade (MIIT) measures by embedding one of these measures in a general equilibrium model. Consistent with the existing literature, it is found that change in the Grubel-Lloyd index provides systematically different economic information from change in the MIIT index. Second, it examines the connection between intraindustry trade and intra- industry adjustment. Here it is found that the informal assumption that intraindustry trade generates only intraindustry adjustment cannot be sustained. That is, intraindustry trade will generally induce interindustry adjustment. Finally, because intraindustry trade generates interindustry adjustment, increased intraindustry trade will generally induce long-run changes in relative factor prices. This suggests, given the prominence of intraindustry trade in OECD countries, that there may be problems with inference on the link between trade and wages undertaken in a strict Heckscher-Ohlin framework. Copyright 2000 by Blackwell Publishing Ltd.

Domestic Political Preconditions of US Trade Policy: Liberal Structure and Protectionist Dynamics

This paper examines the set of norms, rules and institutions (the regime) which regulate the domestic politics of international trade policy in the US. It is particularly concerned to explain the simultaneous occurrence of successful participation in multilateral trade liberalization in the GATT and rising levels of protection via the administered protection mechanisms (e.g. anti-dumping and countervailing duty, and escape clause). The explanation of this phenomenon is the development of a new institutional definition of trade policy that permitted executive dominance of trade policy, in conjunction with a changed perception of the role of trade policy by the executive branch. Specifically, it is argued that post-war executives (at least until Reagan) came to associate trade policy with broader foreign policy goals.