Kazumichi Iwasa

Indeterminacy in the free-trade world

We show that indeterminacy arises in a discrete-time competitive two-country dynamic model of international trade in which externalities, imperfect competition, public goods, and government intervention are assumed away. The present model is a standard dynamic trade model in the sense that there is neither an international credit market nor international factor mobility, and these intrinsic features are a source of indeterminacy. Indeterminacy is implied by the condition for the existence of a steady state.

POVERTY TRAPS AND INFERIOR GOODS IN A DYNAMIC HECKSCHER–OHLIN MODEL

We extend the dynamic Heckscher-Ohlin model in Bond et al. (2009) and show that if the labor intensive good is inferior, then there may exist multiple steady states in autarky and poverty trap can arise. Poverty traps for the world economy, in the form of Pareto dominated steady states, are also shown to exist. We show that the opening of trade can have the e¤ect of pulling the initially poorer country out of a poverty trap, with both countries having steady state capital stocks exceeding the autarky level. However, trade can also pull an initially richer country into a poverty trap, with both countries having lower steady state capital stocks in free trade than they would in autarky. These possibilities are a sharp contrast with dynamic Heckscher-Ohlin models with normality in consumption, where the country with the higher (lower) capital stock than the other will reach the steady state where the level of welfare is higher (lower) than at the autarkic steady state.

Indirect network effects and the impact of trade liberalization: A note

In this note, we examine how trade liberalization affects production structure in the presence of indirect network effects (hardware/software systems). For these purposes we construct a simple two-country model of trade with two incompatible hardware technologies. It is shown that, given that both types of hardware exist before trade liberalization, liberalization and increased intra-industry trade in software products may reduce the variety of hardware technology via intensified network effects. It is also shown that, contrary to the findings of previous studies on intra-industry trade, some consumers may become worse off as the result of trade.

A Dynamic Heckscher-Ohlin Model and Inferior Goods

Under the assumption that a pure consumption good is labor intensive, we examined the properties of a two-country dynamic Heckscher-Ohlin model that allows for preferences to be non-homothetic (Bond et al. (2009)). In this paper, we assume that a pure consumption good is capital intensive and study the properties of the model. If both goods are normal, each country will have a unique autarkic steady state, and all steady state equilibria are saddle points. We also consider the case in which one good is inferior, and show that this can lead to multiple autarkic steady states and the possibility of inderminacy under free trade as in Bond et al. (2009).

Chapter 10 Pareto-Improving Trading Clubs without Income Transfers

Purpose – We ask how far the Kemp–Wan Pareto-improving result can hold without inter-country transfers. Methodology/approach – Assuming that the standard revenue and expenditure functions exist, we consider tariff adjustments for some group of countries such that they makes member countries better off without affecting non-member countries (a la Kemp–Wan). Findings – Any group of countries can engage in a Pareto-improving non-discriminatory tariff reform without income transfers, if (i) there are more than two tradable goods and (ii) the initial tariff vectors of the member countries satisfy the non-proportionality condition. We then show that if these two conditions hold then countries can form a Pareto-optimal customs union. Depending on initial conditions, transfers may be necessary for the customs union to be Pareto-improving. Originality/value of paper – The Pareto-improving result of this chapter is based on tariff reform only.

Discrete dynamics in a two-country model with a durable good

In this paper, we extend Doi et al. (2007) in the sense that households in both countries consume a durable good. Although this generalization makes the model much complicate, it will be shown that under the standard Cobb–Douglas preferences, the model has a unique steady state and saddle-point stability.

THE EFFECTS OF HOME BIAS IN A MODEL OF ENDOGENOUS GROWTH

We examine the effects of home bias in preferences in a two country model of endogenous growth without markets for international lending and borrowing. We show that the presence of a consumer preference for domestic goods can result in a multiplicity of prices consistent with trade balance when the elasticity of substitution between goods is sufficiently low. However, the uniqueness condition is always satisfied when home bias is due to transport costs. We derive conditions for existence, uniqueness, and saddle path stability of the balanced growth path. We also examine the effect of home bias on the terms of trade and the speed of convergence to the balanced growth path.

Competing Industrial Standards and the Impact of Trade Liberalization

The main purpose of this study is to illustrate, with simple trade theory, the relationship between competing industrial standards and trade liberalization. We assume that there are two competing industrial standards in an international context, each of which applies to a group of differentiated products. A product can be used only in combination with other products based on the same industrial standard. We examine the impact of trade liberalization (i.e., a decline in trade costs) on consumers’ choice of a standard. It will be shown that the degree of indirect network effects, captured with substitution between differentiated products, plays an important role as a determinant of the impact of trade liberalization.