James Harrigan

OECD imports and trade barriers in 1983

Abstract This paper uses a monopolistic competition model and 1983 cross-country data on trade barriers, trade flows, and manufacturing production to estimate the import-reducing effects of trade barriers. Data on non-tariff barriers come from UNCTAD, and data on tariffs and estimated transport costs are also used. While there is great heterogeneity across industries, the general conclusion is that in 1983 tariffs and transport costs were a more substantial barrier to trade in manufactures between developed countries than were non-tariff barriers. Japan is found to have the highest barriers and the United States is found to have the lowest barriers.

Estimation of Cross-Country Differences in Industry Production Functions

International trade economists typically assume that there are no cross-country differences in industry total factor productivity (TFP). In contrast, this paper finds large and persistent TFP differences across a group of industrialized countries in the 1980s. The paper calculates TFP indices, and statistically examines the sources of the observed large TFP differences across countries. Two hypotheses are examined to account for TFP differences: constant returns to scale production with country-specific technological differences, and industry-level scale economies with identical technology in each country. The data support the constant returns/different technology hypothesis over the increasing returns/same technology hypothesis.

Distance, Time, and Specialization: Lean Retailing in General Equilibrium

Transport time increases with distance traveled, and time is valuable. We show the implications of these facts for global specialization and trade: products where timely delivery is important will be produced near the source of final demand, where wages will be higher as a result. In the model, timely delivery is important because it allows retailers to respond to final demand fluctuations without holding costly inventories, and timely delivery is possible only from nearby locations. Using a unique dataset that allows us to measure the retail demand for timely delivery, we show that the sources of U.S. apparel imports have shifted in the way predicted by the model, with products for which timeliness matters increasingly imported from nearby countries.

Specialization and the Volume of Trade: Do the Data Obey the Laws?

The core subjects of trade theory are the pattern and volume of trade: which goods are traded by which countries, and how much of those goods are traded. The first part of the paper discusses evidence on comparative advantage, with an emphasis on carefully connecting theory models to data analyses. The second part of the chapter first considers the theoretical foundations of the gravity model, and then reviews the small number of papers that have tried to test, rather than simply use, the implications of gravity. Both parts of the paper yield the same conclusion: we are still in the very early stages of empirically understanding specialization and the volume of trade, but the work that has been done can serve as a starting point for further research.

Openness to trade in manufactures in the OECD

Abstract How open are the advanced economies to trade with each other? In this paper, openness is calculated relative to the predictions of the monopolistic competition trade model using data on manufacturing trade and production in the OECD in 1985. The paper finds that (1) Japan imports much less than other large OECD countries, while the European countries have larger import volumes than does the US, (2) Japan and the US engage in less intra-industry trade than the rest of the OECD, and (3) the EU countries are less open to imports from Japan and the US than those countries are open to imports from the EU.

Factor endowments and the international location of production: Econometric evidence for the OECD, 1970–1985

Abstract This paper uses data on manufacturing output and factor endowments for 20 OECD countries from 1970 to 1985 to examine the production side of the factor proportions model. Under well-known conditions, there will be a linear Rybczynski relationship between sectoral outputs and factor endowments across countries. This proposition is investigated, using the Kalman filter and maximum likelihood techniques to estimate time-varying parameter models. The results indicate that capital and unskilled labor are sources of comparative advantage for most industries, while skilled labor is a source of comparative disadvantage. Residual analysis shows that the neoclassical model has poor explanatory power.

Scale Economies and the Volume of Trade

This paper offers a theoretical explanation of why previous attempts to statistically explain intraindustry trade have been unsuccessful and proposes an econometric approach that tests the implications of the monopolistic competition model for the volume of trade. Using disaggregated data on 1983 manufacturing trade within the OECD, the paper finds strong evidence that bilateral imports depend systematically on the exporting countrys output and somewhat weaker evidence that the volume of trade is higher in sectors with larger scale economies. Copyright 1994 by MIT Press.

Skill Biased Heterogeneous Firms, Trade Liberalization, and the Skill Premium

We propose a theory that rising globalization and rising wage inequality are related because trade liberalization raises the demand facing highly competitive skill-intensive firms. In our model, only the lowest-cost firms participate in the global economy exactly along the lines of Melitz (2003). In addition to differing in their productivity, firms differ in their skill intensity. We model skill-biased technology as a correlation between skill intensity and technological acumen, and we estimate this correlation to be large using firm-level data from Chile in 1995. A fall in trade costs leads to both greater trade volumes and an increase in the relative demand for skill, as the lowest-cost/most-skilled firms expand to serve the export market while less skill-intensive non-exporters retrench in the face of increased import competition. This mechanism works regardless of factor endowment differences, so we provide an explanation for why globalization and wage inequality move together in both skill-abundant and skill-scarce countries. In our model countries are net exporters of the services of their abundant factor, but there are no Stolper-Samuelson effects because import competition affects all domestic firms equally.

Factor supplies and specialization in the world economy

A core prediction of the Heckscher-Ohlin theory is that countries specialize in goods in which they have a comparative advantage, and that the source of comparative advantage is differences in relative factor supplies. To examine this theory, we use the most extensive dataset available and document the pattern of industrial specialization and factor endowment differences in a broad sample of rich and developing countries over a lengthy period (1970-92). Next, we develop an empirical model of specialization based on factor endowments, allowing for unmeasurable technological differences and estimate it using panel data techniques. In addition to estimating the effects of factor endowments, we also consider the alternative hypothesis that the level of aggregate productivity by itself can explain specialization. Our results clearly show the importance of factor endowments on specialization: relative endowments do matter.

U.S. Wages in General Equilibrium: the Effects of Prices, Technology, and Factor Supplies, 1963-1991

Wage inequality in the United States has increased, and many suspect that the main causes are changes in technology, international competition, and factor supplies. Our empirical model estimates the general equilibrium relationship between wages and technology, prices, and factor supplies. The model is based on the neoclassical theory of production, and is implemented by assuming that GDP is a function of prices, technology levels, and supplies of capital and different types of labor. We find that relative factor supply and relative price changes are both important in explaining the growing return to skill. In particular, we find that capital accumulation and the fall in the price of traded goods served to increase the return to education.