Marianna Belloc

Institutions and international trade: A reconsideration of comparative advantage

Persistent inconsistency between predictions of standard theoretical models and empirical evidence of international trade dynamics suggests that the traditional understanding of the determinants of actual international trade patterns is incomplete. What is missing? A recent literature suggests paying more attention to the role of the domestic institutional environment. The level and nature of development of the relevant institutions may be shown to affect competitiveness, by altering both production and transaction costs. In the extreme case, alternative institutional architectures that emerge in different countries may be interpreted as the cause of relative advantagesdisadvantage even if technological levels, factor endowments and tastes are identical everywhere. Although in standard international trade models institutions remain implicit, it is hard to explain trade patterns and international competitiveness without taking institutions explicitly into consideration. By reviewing and reorganizing the most interesting contributions on this issue, this survey discusses how institutional diversity affects comparative advantage and international trade dynamics. Copyright Blackwell Publishers Ltd, 2006.

Public Investment and Economic Performance in Highly Indebted Poor Countries: An Empirical Assessment

Abstract Understanding how public investment affects economic performance in highly indebted low‐income countries is crucial in order to implement effective fiscal policies for adjustment with growth. In this paper we provide an empirical analysis to investigate the relationship between public investment, private investment and output. A dynamic econometric procedure is implemented on a selected group of Highly Indebted Poor Countries (HIPCs). Our results provide empirical support for the crowding‐in hypothesis and a positive relation between public investment and output.

Survey of the Literature on Successful Strategies and Practices for ExportPromotion by Developing Countries

Export promotion policies refer to the set of foreign trade policies targeted to exports enhancement. The aim of the present paper is reviewing the wide experience collected by the various countries in the past. Our purpose is two-fold. On the one side, our contribution aims at identifying the best practices so far and provide policy guidelines for the future. On the other, it highlights the policy, institutional and economic complementarities that make successful stories context-specific and warn against “one size fits all policy.”

A two-country NATREX model for the euro/dollar

This paper develops a NATREX (NATural Real EXchange rate) model for two large economies, the Eurozone and the United States, which are fully specified and allowed to interact. The theoretical framework, grounded on dynamic disequilibrium modelling approach in continuous time, provides the basis for empirical estimation. The model is estimated in its structural form as a simultaneous nonlinear differential equations system for the 1975-2003 period. The estimated parameters are then used to derive the simulated Euro/USD NATREX series in- and out-of-sample that offers the benchmark against which the misalignements of the actual real exchange rate are measured.

Co-Evolution Paths of Politics, Technology and Corporate Governance

According to Mark Roe, politics influences corporate governance. The separation between control and ownership is only possible when there is a low “degree of social democracy”. By contrast, systems, characterised by strong employees’ rights, are necessarily balanced by strong and concentrated owners. However, causation may also run in the opposite direction: from strong concentrated ownership to strong employees’ protection. We argue that this form of two-ways cumulative causation may imply the existence of multiple co- evolution paths of Politics, Technology and Corporate Governance. We focus on two stylized alternative co-evolution paths. In the first, the representation of both owners and employees is divided among many agents (“dispersed equilibrium”), while, in the second, their interests are expressed by few concentrated agents (“concentrated equilibrium”). We argue that there is both theoretical and empirical support for the thesis that the direction of causation from politics to corporate governance form is more relevant in a “dispersed equilibrium” while the direction of causation from corporate governance to politics is more relevant in a “concentrated equilibrium”. The paper is structured in three sections. In the first section, we consider the theoretical arguments for which we expect politics to have an important anticipatory role in a “dispersed equilibrium” and a less relevant reactive role in a “concentrated equilibrium”, and we consider some stylized facts concerning American and European Histories that seem to support this view. In the second section, we provide cross-country and dynamic-panel econometric evidence, which is consistent with the arguments developed in the first section. Finally, we argue that each system may have a comparative institutional advantage in particular types of technologies and in certain productive sectors and that, in turn, this specialization may stabilize the related economic and political arrangements. We conclude considering some effects of globalization on the two systems and, in particular, the consequences of the reinforcement of international IPR protection.

The euro/dollar equilibrium real exchange rate: A continuous time approach

This paper analyses and compares different empirical approaches to the euro/dollar real equilibrium exchange rate. We first survey the alternative approaches present in the literature. Then we focus on the NATural Real EXchange rate and discuss the distinction between reduced form equations and structural estimation methods. Finally, we introduce the continuous time approach and illustrate a two-country model which is specified and estimated in continuous time. The simulated euro/dollar real equilibrium level provides a yardstick against which the misalignment of the actual real exchange rate is evaluated.

The Current Account - Interest Rate Relation as a Nonlinear Phenomenon

The current account – interest rate relationship has been extensively investigated, but always assuming that it is linear. In this paper we examine the linearity versus nonlinearity issue with reference to this relationship in 11 OECD countries, and find overwhelming evidence in favour of nonlinearity. After testing alternative nonlinear specifications, we estimate a smooth transition regression model and a nonlinear VAR model. Finally, we provide a study of the innovation response analysis that shows adjustment behaviours of the two variables. The implications of the results are discussed.

Cultural-Institutional Persistence under International Trade and Factor Mobility

We address two seemingly unrelated empirical anomalies: the remarkable historical persistence of cultural and institutional differences affecting production and distribution even among nations and regions engaged in extensive trading, and the shortcomings of the standard model that predicts inter- national specialization and trade on the basis of differences in factor endowments or technologies. We model the endogenous evolution of both culture (the distribution of preferences affecting individual behavior) and institutions (the distribution of contracts among employers and employees), show- ing that in otherwise identical economies, different cultural-institutional conventions can persist over long periods. Transitions between cultural-institutional conventions occur as a result of decentralized and un-coordinated contractual or behavioral innovations by firms or workers. In a two-good/two- factor/two-country trade model, we then show that: (i) because goods differ in the kinds of contracts and preferences that are appropriate for their production, cultural-institutional differences support differing competitive prices in autarchy, and so provide the basis for specialization and comparative advantage; (ii) the resulting gains from trade raise the cost of deviations from the prevailing culture and institutions and, as a result, trade will impede transitions to the superior convention; and (iii) by contrast, by reducing the cost of innovating, international mobility of factors of production facilitates convergence to superior cultural-institutional conventions. Our model thus provides a possible unified resolution of the anomalies concerning patterns of specialization and trade, and cultural-institutional persistence.Cultural and institutional differences among nations may result in differences in the ratios of marginal costs of goods in autarchy and thus be the basis of specialization and comparative advantage, as long as these differences are not eliminated by trade. We provide an evolutionary model of endogenous preferences and institutions under autarchy, trade and factor mobility in which multiple asymptotically stable cultural-institutional conventions may exist, among which transitions may occur as a result of decentralized and un-coordinated actions of employers or employees. We show that: i) specialization and trade may arise and enhance welfare even when the countries are identical other than their cultural-institutional equilibria; ii) trade liberalization does not lead to convergence, it reinforces the cultural-institutional differences upon which comparative advantage is based and may thus impede even Pareto-improving cultural-institutional transitions; and iii) by contrast, greater mobility of factors of production favors decentralized transitions to a superior cultural-institutional convention by reducing the minimum number of cultural or institutional innovators necessary to induce a transition.

Protection for Sale in the EU

This paper presents estimation of the Grossman-Helpman (1994) model for the EU. We try to address a number of pitfalls that surround the previous empirical literature. First, we suggest a new identification strategy that enables to single out politically organized sectors with specific regard to trade policy. Second, we utilize two alternative measures of trade protection (ad-valorem equivalent of non-tariff barriers and overall restrictiveness) and adopt industrial and trade data at a high level of disaggregation. Finally, we directly obtain the structural coefficients of the model by estimating a nonlinear simultaneous equations system that is tightly linked to theory. We find that the theoretical model is broadly consistent with data and conclusions turn out internally coherent.

International Specialization and Labor Unions: Evidence from OECD Countries

The aim of this paper is to explore the role of the institutional determinants of international comparative advantage. Starting from a theoretically well-founded general-equilibrium framework, where specialization depends on relative factor endowments and technological differences, we study the possible additional effect of labor unions. Using country–year panel data, we obtain that they are an important determinant of relative economic performance for a sample of manufacturing sectors. In particular low wages–labor-intensive industries turn out to be relatively disadvantaged, while high wages–capital-intensive sectors are relatively advantaged by stronger labor unions. We also allow for different institutional scenarios, letting unionization patterns interact with different regimes of bargaining coordination and social security systems. Our main conclusions are not substantially altered.