Richard E. Baldwin

Agglomeration and Regional Growth

We review the theoretical links between growth and agglomeration. Growth, in the form of innovation, can be at the origin of catastrophic spatial agglomeration in a cumulative process a la Myrdal. One of the surprising features of the Krugman (1991) model, was that the introduction of partial labour mobility in a standard ‘new trade model’ with trade costs could lead to catastrophic agglomeration. The growth analog to this result is that the introduction of endogenous growth in the same type of ‘new trade model’ can lead to the same result. A difference with the labour mobility version is that the results are easier to derive from the analytical point of view in the endogenous growth version. We show that the relation between growth and agglomeration depends crucially on capital mobility between regions. The absence of capital mobility is at the heart of the possibility of spatial agglomeration with catastrophe. In addition, growth alters the process of location even without catastrophe. In particular, and contrary to the fundamentally static models of the New Economic Geography, spatial concentration of economic activities may be consistent with a process of delocation of firms towards poor regions. Finally, the presence of localized technology spillovers implies that spatial agglomeration is conducive to growth.

The Causes of Regionalism

The traditional explanation of resurgence regionalism nations rests on two pillars. Regionalism is: (i) due to frustration with the WTO process (thought to be too cumbersome for today’s trade issues); and (ii) due to the United States’ conversion from devoted multilateralist to ardent regionalist. This paper argues that the traditional explanation is inconsistent with the facts of North American and European regionalism. It also presents an alternative explanation based on a domino theory of regionalism. Namely, idiosyncratic shocks that deepen or widen regional integration trigger a multiplier or domino effect producing membership requests from countries that were previously happy to be non-members.

Supply‐Chain Trade: A Portrait of Global Patterns and Several Testable Hypotheses

The trade associated with international production networks – supply-chain trade for short – is associated with some of the most momentous global economic changes in the last 100 years. It has transformative implications for the world economy. This paper presents a portrait of the global pattern of supply-chain trade and how it has evolved since 1995.

Trade and growth with heterogeneous firms

This paper explores the impact of trade on growth when firms are heterogeneous. We find that greater openness produces anti-and pro-growth effects. The Melitz-model selection effects raises the expected cost of introducing a new variety and this tends to slow the rate of new-variety introduction and hence growth. The pro-growth effect stems from the impact that freer trade has on the marginal cost of innovating. The balance of the two effects is ambiguous with the sign depending upon the exact nature of the innovation technology and its connection to international trade in goods and ideas. We consider five special cases (these include the Grossman-Helpman, the Coe- Helpman and Rivera-Batiz-Romer models) two of which suggest that trade harms growth; the others predicting the opposite.

Trade-in-Goods and Trade-in-Tasks: An Integrating Framework

We introduce a simple but flexible analytical framework in which both trade in goods and trade in tasks arise. We use this framework to provide versions of the gains-from-trade and the famous four HO theorems (Heckscher-Ohlin, factor-price-equalisation, Stolper-Samuelson, and Rybczynski) that apply to this environment. We extend our framework to accommodate monopolistic competition and two-way offshoring and to integrate theoretical results of the early offshoring literature.

Trade Liberalization with Heterogeneous Firms

This paper examines the various aspects of trade liberalization with heterogeneous firms using the Melitz (2003) model. We find a number of novel results and effects including a Stolper–Samuelson-like result and several results related to the volume of trade, which are empirically testable. We also analyze what might be called an anti-variety effect as the result of trade liberalization. We show that this effect is most pronounced for small countries. This resonates with the often voiced criticism from antiglobalists that globalization leads the world to become more homogeneous by eliminating local specialties. Nevertheless, we find that trade liberalization always leads to welfare gains in the model.

Trade Liberalization and Endogenous Growth: A Q-Theory Approach

This paper has two purposes. It introduces a direct approach to policy analysis in endogenous growth models - the q-theory approach - and uses this to illustrate several new openness-and-growth links that appear when we enrich the economic content of the early trade and growth models. The approach - inspired by Tobins q - is merely a change of state variables and re-interpretation of steady-state conditions. The main difference is its focus on investment, which is after all, the heart of growth models. The approachs simplicity permits us to complicate the early models in interesting directions and to explicitly include trade barriers. The latter allows study of incremental policy reform rather than mere shifts from autarky to free trade (or small deviations from free trade) as in early literature.

Politically realistic objective functions and trade policy PROFs and tariffs

Abstract This paper demonstrates a mathematical correspondence between the deus ex machina tariff formation approach and political economy approach. The correspondence implies that the tariff chosen by lobbying-influenced policy makers will be equivalent to a tariff chosen by a deus ex machina government that gives ‘too much’ weight to profits. This result allows many political economy issues to be addressed in the simple framework of a deus ex machina government which faces a politically realistic objective function (PROF).

Expanding Membership of the European Union

This compelling volume, from the Centre for Economic Policy Research, examines the discussion surrounding expansion of the European Union (EU). The contributors address the key issues in the debate, including the implications of expansion for the global trading system, enlargement-related pressures to reform EU decision-making, and the economic consequences of membership for entrants. Using theoretical techniques to report results and insights, this book not only sheds light on the consequences of Austria, Finland and Sweden joining the EU, but also discusses and evaluates the possible membership of Central European ex-socialist countries. This is an important book for students and scholars interested in regional integration, and also for policy-makers in the new EU member countries and in applicant countries.

The Eastern enlargement of the European Union

This paper examines the prospects and problems of Eastern enlargement. It argues that considerations of stability and long run prosperity are the primary reasons why the EU has promised to enlarge eastward and why the Central and Eastern European nations wish to join. While high politics prompted this promise, opposition from EU special interest groups is likely to delay fulfilment of the promise for many years. If this is the case, Europe should create a series of intermediate steps that would permit the reintegration of Europe to proceed apace. If a quick enlargement does occur, EU politics is likely to become much more complicated. The CEECs would have many votes in the Council of Ministers yet they would be very different economically to the average EU incumbent.