Robert C. Feenstra

Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras

In this paper, we examine the increase in the relative wages of skilled workers in Mexico during the 1980s. We argue that rising wage inequality in Mexico is linked to capital inflows from abroad. The effect of these capital inflows, which correspond to an increase in outsourcing by multinationals from the United States and other Northern countries, is to shift production in Mexico towards relatively skill-intensive goods thereby increasing the relative demand for skilled labor. We study the impact of foreign direct investment (FDI) on the share of skilled labor in total wages in Mexico using state-level data on two-digit industries from the Industrial Census for the period 1975 to 1988. We measure the state- level growth in FDI using data on the regional activities of foreign- owned assembly plants. We find that growth in FDI is positively correlated with the relative demand for skilled labor. In the regions where FDI has been most concentrated, growth in FDI can account for over 50 percent of the increase in the skilled labor share of total wages that occurred during the late 1980s.

Using the gravity equation to differentiate among alternative theories of trade

Amplifier apparatus for providing output motion correlated to condition change motion or deflection of a condition responsive element. The amplifier in a preferred embodiment is mounted onto the condition responsive element for floating conjoint movement therewith. A remotely connected actuator, extending into the motion path, defines a pivot axis for a hinged gear sector arm of the amplifier. In pivoting about the actuator axis, the sector arm operably drives a rotatable output shaft supporting a pointer or the like.

Functional equivalence between liquidity costs and the utility of money

We demonstrate a functional equivalence between using real balances as an argument of the utility function and entering money into liquidity costs which appear in the budget constraint. The liquidity costs can be approximately derived from conventional models of money demand, such as the transactions and precautionary models. We also propose a general class of liquidity cost functions and show an exact duality between it and a broad class of utility functions which include real balances. There is a tendency for the cross-derivative between real balances and the consumption good to be non-negative, though this result will not hold for utility functions which are sufficiently concave.

Border Effects and the Gravity Equation: Consistent Methods for Estimation

The CES monopolistic competition model is an especially convenient way to derive the gravity equation, especially when we allow for transport costs and other trade barriers. In that case, we need to take account of the overall price indexes in each country. We review three methods to do so: using published data on price indexes; using the computational method of Anderson and van Wincoop (2001); or using country fixed effects to measure the price indexes. The latter two methods are compared on the dataset dealing with trade between and within Canada and the US. The fixed effects method produces consistent estimates of the average border effect across countries, and is simple to implement, so it might be considered to be the preferred estimation method. Copyright 2002 by Scottish Economic Society.

Symmetric Pass-Through of Tariffs and Exchange Rates Under Imperfect Competition: an Empirical Test

This paper examines the effect of tariffs and exchange rates on U.S. prices of Japanese cars, trucks and motorcycles. In particular, we test whether the long run pass-through of tariffs and exchange rates are identical: the symmetry hypothesis. We find that this hypothesis is easily accepted in our sample. We also find that the pass-through relation varies across products, ranging from about 0.6 for trucks to unity for motorcycles. These coefficients have very different implications for trade policy. We explain the results based on demand, cost and institutional conditions in each industry. We also find weak evidence that the pass-through of exchange rates has fallen in more recent years.

Trade and Uneven Growth

We consider trade between two countries of unequal size, where the creation of new intermediate inputs occurs in both. We assume that the knowledge gained from R&D in one country does not spillover to the other. Under autarky, the larger country would have a higher rate of product creation. When trade occurs in the final goods, we find that the smaller country has its rate of product creation stowed, even in the long run. In contrast, the larger country enjoys a temporary increase in its rate of R&D. We also examine the welfare consequences of trade in the final goods, which depend on whether the intermediate inputs are traded or not.

Quality Change Under Trade Restraints in Japanese Autos

In this paper we investigate the quality change in Japanese car and truck imports over 1979–1985. Car imports have been subject to a quota restraint since April 1981, while compact trucks have faced an ad valorem tariff of 25 percent since August 1980. We find evidence of substantial upgrading in Japanese car imports, with ambiguous quality change in trucks. The welfare cost of the quota restraint in cars exceeds

A homothetic utility function for monopolistic competition models, without constant price elasticity

1,000 per import in 1983 and 1984.

Staggered price setting, translog preferences, and endogenous persistence

Abstract The symmetric translog expenditure function leads to a demand system that has unitary income elasticity but non-constant price elasticities. This expenditure function will be useful in monopolistic competition models, and retains its properties even as the number of goods varies.

Estimating Markups and Market Conduct with Multidimensional Product Attributes

This paper generates persistent real effects of a monetary disturbance in the context of staggered price setters. The model combines two related and reinforcing features: a translog demand structure and a particular input--output production structure. These features offer a rationale why a firm, when computing its own optimal contract price, is influenced by the prices set in other overlapping contracts. Practically, the two features interact in a positive manner and provide a way to generate significant endogenous persistence. Keyword(s): Endogenous persistence; Staggered contracts; Translog preferences