Robert E. Baldwin

Shifts in U.S. Relative Wages: The Role of Trade, Technology and Factor Endowments

A basic relationship of the standard general equilibrium trade model relating product-price changes to factor-price changes is usedtogether with other economic relationships based on this modelto investigate empirically the importance of changes in trade, technology, and factor endowments in accounting for the shifts in relative wages of less-educated workers compared to more-educated workers from 1967 to 1996. In the early part of the period when wage inequality decreased, the dominant explanatory factor seems to have been a relative increase in the supply of highly educated labor. However, since the late 1970s, none of the three economic forces considered can alone account for the observed changes in relative wages, prices, outputs, net exports, and factor-use ratios. In particular, both education-biased technical progress that was greater in industries that intensively used more-educated labor and increased import competition in industries that intensively used less-educated labor seem to have played important roles in bringing about the increase in wage inequality during the 1980s and 1990s.

DETERMINANTS OF TRADE AND FOREIGN INVESTMENT: FURTHER EVIDENCE*

A LTHOUGH considerable progress has ,Albeen made analytically and empirically within the last few years in better understanding the factors that determine the commodity composition of a countrys international trade, there still remain many unresolved questions. There is widespread agreement, however, that a simple two-factor (capital and labor) version of the Heckscher-Ohlin theory is inadequate. Such assumptions of this traditional theory as identical production functions among countries for identical commodities, the homogeneity of labor supplies, constant returns to scale, and the international immobility of productive factors seem to be sufficiently violated in the actual world so that relative proportions of capital and labor are but one of several factors influencing the commodity pattern of trade. Nevertheless, the simple factor proportions theory has not been thoroughly tested against the trade patterns of large numbers of countries.1 Perhaps the high proportion of seemingly paradoxical results from tests made on the trade of a limited number of countries is due to the nonrepresentativeness of the sample selected. The comparatively few country tests are also insufficient to indicate clearly just what the relative importance and degree of generality is of elements other than physical capital and labor as determinants of the commodity structure of trade, e.g., research effort providing technological leadership to a country and relative supplies of human capital. Another subject on which there is inadequate knowledge concerns the determinants of the commodity pattern of direct foreign investment. Are they the same as those that determine commodity trade? Moreover, what is the relationship between trade and direct foreign investment? The purpose of this paper is to present additional empirical findings that relate to these questions in the trade and investment area. More specifically, the value of capital per worker that is embodied in exports versus import-competing production is estimated for some 35 countries using capital/labor industry coefficients and sectoral input-output coefficients based, alternatively, on United States, European Economic Community (EEC), and Japanese production data. These direct and indirect factor content ratios are then compared with a measure of the relative capital/labor endowments ratios in the countries. Utilizing U.S. measures, the relative importance of human capital, economies of scale, and research and development activities is also ascertained. The analysis of direct foreign investment is based on U.S. data and consists of relating such industry characteristics as capital/ labor ratios, skill and educational levels and the height of tariffs and transportation costs that protect a domestic industry to the ratio of direct foreign investment to total investment in an industry.

An analysis of ITC decisions in antidumping, countervailing duty and safeguard cases

An Analysis of ITC Decisions in Antidumping, Countervailing Duty and Safeguard Cases. — This paper investigates the economic factors that best explain the decisions of the International Trade Commission in administering the injury provisions of U.S. antidumping, countervailing duty, and safeguard laws during the 1980s. Utilizing the economic data collected by the Commission for each investigation, it attempts to ascertain through regression analysis how strictly the commissioners have been interpreting these laws in recent years in terms of the economic conditions required for finding that an industry has been injured and for establishing a casual relationship between imports and this injury.ZusammenfassungEine Analyse von Entscheidungen der Internationalen Trade Commission (ITC) in Fällen von Antidumping, Ausgleichszöllen und Schutzklausein. — In dem Aufsatz werden die wirtschaftlichen Faktoren untersucht, die die Entscheidungen der International Trade Commission bei der Anwendung der Schadensregeln in den US-Gesetzen über Antidumping, Ausgleichszölle und Schutzklauseln in den 80er Jahren am besten erklären. Die Autoren verwenden die ökonomischen Daten, die die Kommission für jede Untersuchung zusammengestellt hat, und versuchen mit Hilfe von Regressionsanalysen zu ermitteln, wie streng die Kommissionsmitglieder in den letzten Jahren diese Gesetze interpretiert haben, im Hinblick auf die ökonomischen Bedingungen, die Voraussetzung für die Feststellung sind, daß eine Industrie einen Schaden erlitten hat und daß ein Kausalzusammenhang zwischen Einfuhren und diesem Schaden besteht.

Exchange Rate Policy and Economic Development

The maintenance of overvalued exchange rates has become almost standard policy in the underdeveloped countries. Just as domestic inflationary pressures invariably accompany major development efforts, so too do balance of payments difficulties. Rather than meet these problems with exchange depreciation, most poor countries have attempted to eliminate their adverse payments balance by imposing quantitative trade restrictions. They advance three main supporting arguments in adopting this alternative. First, overvaluation coupled with quantitative controls stimulates diversification in the structure of production. Secondly, depreciation of an overvalued currency causes a rise in domestic prices and thus merely aggravates the problem of controlling inflation. Thirdly, an overvalued rate enables the country to improve its income terms of trade.

Inflation and Development

Professor Bruton first provides a brief and very clear summary of the aggregative conditions for price stability. If, as he notes, planned investment plus the difference between planned government expenditure and receipts exceeds planned private saving, and if there is sufficient finance to carry out the planned expenditures, inflation will occur in an economy. Besides the obvious limitation of the supply of aggregative resources on the ability of a country to accumulate capital without inflation, there are many specific aspects of the resource problem that affect inflationary pressures. These include such factors as particular input shortages, the mobility of the various productive means, the production lags associated with different types of investment, and the extent of unemployment in the economy. It is these types of factors to which the author turns his attention in the main part of the book. Specifically, he examines two aspects of the inflation problem along these lines,namely, the implications of the growth in financial assets for development and the micro-aspects of inflation.