Jaime de Melo

Productivity and externalities: models of export-led growth

In developing countries, industrialization for successful export-led growth has been associated with rapid structural change and growth in productivity. Standard neoclassical growth models have difficulty explaining this change in performance. This paper has developed a simple analytical model incorporating export externalities that capture the large increases in the share of trade and total factor productivity that are associated with export-led growth. It also has developed a second model that breaks growth into its various components, which includes the effects of: (a) factor accumulation; (b) moving factors from areas of low productivity to area of high productivity; (c) exporting heavy and light manufactures; and (d) importing capital goods. The paper implements the second model with data from an archetypal semi-industrial country. The model accounts for the higher total factor productivity growth observed in countries pursuing export-led growth strategies. It also captures the pattern of structural change that such countries experience.

Adjustment and income distribution: A micro-macro model for counterfactual analysis

Abstract This paper presents a structural macro simulation model to quantify the effects of alternative stabilization packages on the distribution of income and wealth. The model combines the explicit microeconomic optimizing behavior characteristic of computable general equilibrium models with asset portfolio behavior of macroeconomic models in Tobins tradition. In this model there are four main mechanisms by which policy changes affect the distribution of income and wealth. First, changes in factor rewards affect directly household income distribution. Second, household real incomes are affected by changes in their respective cost of living indexes. Third, household real incomes are affected by changes in real returns on financial assets since household incomes include income from financial holdings. Fourth, household wealth distribution is affected by capital gains and losses. Illustrative simulations with the model are carried out for a representative economy subject to the interest rate and terms-of-trade shocks of the early 1980s. The simulations suggest a large adverse impact on the distribution of income of a sharp contractionary package.

Product Specific Rules of Origin in EU and US Preferential Trading Arrangements: An Assessment

Building on earlier work by Estevadeordal, we construct a synthetic index (R-index)intending to capture the restrictiveness on market access due to product specific rules of origin (PSRO)that apply at the tariff-line level. The R-index is constructed for rules of origins under NAFTA and under the single list applying to PANEURO, the new regime applying to all EU preferential trade agreements. The R-index highlights how identical PSRO have different impacts across countries, and how the complexity of PSRO varies across sectors. Having controlled for the extent of tariff preference at the tariff-line level, the R-index contributes to account for differences in utilization rates at the tariff line level. The index is then used to assess composition effects across countries subjected to some set of PSRO and to compute estimates of the compliance costs associated with rules of origin under both regimes

A general equilibrium analysis of foreign exchange shortages in a developing economy

An acute shortage of foreign exchange has been a recurring problem for many developing economies. This paper reexamines the foreign exchange gap issue and the debate between structuralists and neoclassicists by providing a quantitative assessment of the role of different assumptions about the values of key trade elasticities. It also seeks to complement the existing descriptive analysis of the consequences of alternative adjustment mechanisms with a quantitative analysis that indicates the relative importance of different behavioural assumptions and policy regimes. The empirical analysis is based on a computable general equilibrium model which is Walrasian in spirit and captures price mechanisms, market interactions, and structural interdependence in a non-linear multisector framework. The analysis lends support to the structuralist view that it is not sufficient to look at problems of adjustment only at the macroeconomic level.

WELFARE COSTS OF U.S. QUOTAS IN TEXTILES, STEEL AND AUTOS

This paper deals with the problems of partial equlibrium analysis by presenting estimates from a static ten sector computable general equilibrium (CGE) model of the U.S. economy calibrated to the year 1984. Following the introduction, the paper is organized as follows. Section 2 outlines the model. Section 3 details the sources of estimates of premia on preexisting QRs (quota rents) in 1984 and the sources for the parameters describing demand and supply elasticities. Welfare and employment estimates of QR removal are presented by industry and in the aggregate in Section 4. Conclusions follow in Section 5.

Openness, Inequality, and Poverty: Endowments Matter

Using tariffs as a measure of openness, this paper finds consistent evidence that the conditional effects of trade liberalization on inequality are correlated with relative factor endowments. Trade liberalization, measured by changes in tariff revenues, is associated with increases in inequality in countries well-endowed with highly skilled workers and capital or with workers that have very low education levels. Similar, although less robust, results are also obtained when decile data are used instead of the usual Gini coefficients. Taken together, the results are strongly supportive of the factor-proportions theory of trade and suggest that trade liberalization in poor countries where the share of the labor force with little education is high raises inequality. Simulation results also suggest that relatively small changes in inequality as measured by aggregate measures of inequality, like the Gini coefficient, are magnified when estimates are carried out using decile data.

Trade policy and resource allocation in the presence of product differentiation

Traditionally, the empirical analysis of the effects of trade policy on resource allocation has relied both on a partial equilibrium framework using effective rates of protection and on a multisector general equilibrium framework. This paper responds to the growing dissatisfaction with the concept of perfect substitutability that has been assumed in these models. It discusses the theorectical properties and implications of one practical specification of product differentation and explores quantitatively the impact of trade policy on relative prices and resource pulls with a general equilibrium model that incorporates product differentiation. An analysis of the implications of product differentation for the autonomy of the domestic price system is extended to include intermediate products. The specification of imperfect substitutability provides a practical way of capturing product differentation both in a partial equilibrium and in a general equilibrium model. However, partial equilibrium based estimates are not likely to be robust when there are substantial policy changes that affect a number of sectors simultaneously.

Who determines Mexican trade policy

Using a political economy approach, the authors analyze the pattern of protection in Mexicos manufacturing sector during the period of trade policy reforms (1985-89), when Mexico experienced significant trade liberalization and an important inflow of foreign direct investment. They take into account the potential effect of foreign direct investment on endogenous tariff formation. It turns out that the data support this analytic approach, in which the formulation of trade policy reflects political support, and in which the presence of foreign direct investment in the sector strongly affects the pattern of tariff protection before and after reform. In Mexican manufacturing, especially, sectors with heavy foreign direct investment received greater protection in import-competing sectors, although the move toward greater openness was associated with a reduction in the influence of industrial and foreign-investor lobbying.

The protectionist bias of duty drawbacks: evidence from Mercosur

In a political-economy setting where tariffs and duty drawbacks are endogenously chosen through industry lobbying, it is shown that full duty-drawbacks are granted to exporters who use imported intermediates in their production. This in turn decreases their incentives to counter-lobby against high tariffs on their inputs. In equilibrium, higher tariffs will be observed on these goods. The creation of a regional block will change the political equilibrium. Duty-drawbacks will be eliminated on intra-regional exports, which in turn will lead to lower tariffs for goods used as inputs by intra-regional exporters. Evidence from Mercosur suggests that the elimination of duty-drawbacks for intra-regional exports led to increased counter-lobbying by users of intermediate products. In its absence the common external tariff would have been on average 3.5 percentage points (25 percent) higher.

Global manufacturing SO2 emissions: does trade matter?

A growth-decomposition (scale, technique and composition effect) covering 62 countries and seven manufacturing sectors over the 1990–2000 period shows that trade, through reallocations of activities across countries, has contributed to a 2–3% decrease in world SO2 emissions. However, when compared to a constructed counterfactual no-trade benchmark, depending on the base year, trade would have contributed to a 3–10% increase in emissions. Finally adding emissions coming from trade-related transport activities, global emissions are increased through trade by 16% in 1990 and 13% in 2000, the decline being largely attributable to a shift of dirty activities towards cleaner countries.