Richard A. Brecher

Tariffs, foreign capital and immiserizing growth

For a small tariff-imposing country, within the standard two-commodity two-factor model of international trade, this paper reconsiders the implications of an inflow of capital from abroad. When the host country continues to import the capital-intensive good while remaining incompletely specialized, the analysis shows that the capital inflow must reduce host-country welfare, assuming that the foreign capital receives the full (untaxed) value of its marginal product. Under other circumstances considered, however, the inflow may have different consequences for welfare.

Minimum Wage Rates and the Pure Theory of International Trade

Introduction, 98. — I. The minimum-wage economy, 99. — II. International equilibrium, 109. — III. Summary, 115.

Foreign Ownership and the Theory of Trade and Welfare

Some standard topics in the theory of international trade are reconsidered in this paper by distinguishing between national and aggregate income when fixed supplies of foreign inputs are present within the home country. Under conditions that would ensure a national welfare gain if foreign ownership were absent, international transfer, economic growth, or tariff policy might cause a national welfare loss in the presence of foreign ownership. The techniques developed could be applied to other domestic distinctions (such as those based on race, sex, age, or ethnicity) and to the theory of customs unions in a three-country world.

Tariffs, foreign capital and national welfare with sector-specific factors

Abstract This paper examines the effect on national welfare of an endogenously determined inflow of foreign capital, in the context of a well-known model with sector-specific inputs, both for the case of unrestricted international trade and investment and in the presence of a tariff. The second-best problem of the optimal tax on foreign investment for a given tariff level is also investigated, by application of the concept of shadow prices for primary factors in distorted open economies. The results obtained are then related to analogous propositions derived previously for the standard Heckscher-Ohlin model.

Immiserizing transfers from abroad

Abstract This paper shows that an international transfer payment may paradoxically immiserize the recipient country (or increase the donor countrys welfare), even when world markets are stable, despite the traditional view that such a paradox theoretically requires market instability. To demonstrate this paradoxical possibility, the paper extends the conventional trade-theoretic analysis to admit exogenous distortions created by tax-cum-subsidies in domestic production, or endogenous distortions due to ‘additionality’ requirements imposed by the donor on the recipient. This analysis of immiserizing transfers from abroad immediately suggests significant implications for important policy issues, including the evaluation of real benefits from foreign aid.

DUP Activities and Economic Theory

Abstract This paper considers the theory of Directly Unproductive Profit Seeking (DUP) activities, examining its implications for economic theory. Two classes of DUP activities are distinguished: one where the DUP activity is triggered by policy which is itself exogenously specified (e.g., tariff-revenue seeking resulting from pre-specified tariff); the other where DUP activity endogenises policy fully (e.g., tariff seeking). Implications for both positive and normative argumentation in economic theory are considered in depth for both these classes of DUP activity.

Quid pro quo foreign investment and welfare: A political-economy-theoretic model

Abstract The classic paper by Brecher and Diaz-Alejandro (1977) analyzed the implications of ‘tariff-jumping’ direct foreign investment (DFI) induced by the imposition of an import tariff. We analyze a new type of DFI where it occurs with a view to defusing , not circumventing, protection or rather the threat of protection by the host country. An example is the DFI by Japan in the United States. The decision about the level of foreign investment is taken in the first of a two-period horizon period. This, together with the level of exports in the first period, determines the probability of a quota on exports being imposed in the second period. Policy makers aware of the effects of the first-period decisions on the second period will impose an optimal tariff and an optimal tax (subsidy) on capital exports.

Pareto gains from trade, reconsidered: Compensating for jobs lost

Abstract This paper questions whether commodity taxation can ensure Pareto gains from trade liberalization in the presence of unemployment. To address this question, we extend the standard multi-consumer model of international trade to include efficiency-wage unemployment. Even if trade liberalization does not cause aggregate unemployment to rise, individual workers may lose jobs and would require compensation to maintain their pre-liberalization levels of welfare. This compensation would weaken the incentive to work efficiently and thus reduce the likelihood of Pareto gains. Our analysis in fact establishes that such gains from liberalization are infeasible under certain plausible conditions.

An efficiency-wage model with explicit monitoring : Unemployment and welfare in an open economy

Abstract This paper develops an efficiency-wage model of involuntary unemployment in a small open economy, which uses two factors to produce three goods, one of which is (non-traded) monitoring aimed at reducing shirking by workers in all industries. The analysis shows how a tariff on imports may lower employment but, paradoxically, raise social welfare at the same time. As the paper also demonstrates, the optimal policy combination includes not only taxes on capital and monitoring as well as a subsidy on employment, but also (despite the small-country assumption) a tax on consumption.

The factor content of international trade without factor-price equalization

Abstract Within the basic two-factor multi-commodity model of a two-country world, the present paper shows that international factor-price equalization is unnecessary for deriving the Heckscher-Ohlin theorem in its factor-content version, according to which the bundle of goods exported by the capital-abundant country will use more capital and less labour than the bundle exported from the labour-abundant country. The factor-content version remains valid when the model is generalized to include trade impediments, intermediate goods or additional countries, except perhaps if the first of these extensions is combined with either of the other two.