Rod Falvey

Intellectual Property Rights and Economic Growth

Interest in links between protection of intellectual property and growth has been revived by developments in new growth theory and by the WTOs TRIPS Agreement. The relationship between the strength of a countrys intellectual property rights (IPRs) regime and rate of growth is ambiguous from a theoretical standpoint, reflecting the variety of channels through which technology can be acquired and their differing importance at different stages of development. We investigate the impact of IPR protection on economic growth in a panel of 79 countries using threshold regression analysis. We show that whilst the effect of IPR protection on growth depends upon the level of development, it is positively and significantly related to growth for low- and high-income countries, but not for middle-income countries. This suggests that, although IPR protection encourages innovation in high-income countries, and technology flows to low-income countries, middle-income countries may have offsetting losses from reduced scope for imitation. Copyright

Exports, Restructuring and Industry Productivity Growth

The impact of firm level productivity heterogeneity on export market entry has been the subject of theoretical innovation and extensive empirical scrutiny in recent years. The latter has focused on falling trade costs and firm level productivity, notwithstanding the fact that theory also points up links between trade and industry level productivity. This paper decomposes productivity growth in Sweden into its various components and links exporting to net entry and reallocation effects. We show that exporting has a sizeable impact on industry productivity growth which is independent of the links between exporting and firm productivity.

Exporting and Productivity Growth: Theory

Traditional treatments of the gains from trade were primarily concerned with the static gains realisable from realigning production in accordance with comparative advantage. In an open economy, resources would be (re)allocated more ‘productively’, taking advantage of the opportunities to import those products in whose production the country is relatively less efficient by exporting those in whose production it is relatively more efficient. These gains are available even if autarky production is technically efficient (i.e. on the production possibility frontier), and in a world where technologies exhibit constant returns to scale, firms are largely irrelevant and the effects of trade on the efficiency of resource use within the industry cannot be explored.

Market Size and the Survival of Foreign-Owned Firms

We develop a general equilibrium model with heterogeneous firms and foreign direct investment cost uncertainty and investigate the survival of foreign-owned firms. The survival probabilities of foreign-owned firms depend on firm-level characteristics, such as productivity, and host country characteristics, such as market size. We show that a foreign-owned firm will be less likely to be shut down when its parent firms productivity is higher and its indigenous competitors are less productive. Although a larger market size will always reduce the survival probability of indigenous firms, it can lead to a higher survival probability for foreign-owned firms if their parent firms are sufficiently productive.

The Skill Content of Inter- and Intra-Industry Trade: Evidence for the UK

In this paper we investigate the relative importance of net exchanges of skills embodied in intra-industry and inter-industry trade for the UKs trade with some middle income countries. We also separately measure the net exchanges of skills embodied in vertical and horizontal intra-industry trade. We find that there are substantial factor exchanges involved in intra-industry trade, implying that traditional factor content studies may have seriously underestimated the actual factor content of total trade flows. This means that the adjustment effects of intra-industry trade may be greater than is often presumed. We also find, in line with theory, that vertical IIT involves similar net exchanges of labour of different skills to that of inter-industry trade, while horizontal intra-industry trade involves much smaller net exchanges of skills.

Trade liberalisation and growth: a threshold exploration

Openness and trade liberalisation variables are consistently estimated to have significant positive coefficients in panel growth regressions. Many arguments have been advanced as to why and how more open or liberalised economies might grow faster, but the specific channels this process uses have begun to be investigated only recently. We continue these efforts by including a variable identifying the date of trade liberalisation in a system of equations that captures the determinants of growth in per capita income. Four ‘channels’ are considered: capital formation, the share of government, the economys openness to trade and its price distortions. We include the liberalisation variable in the equation explaining each channel, and allow for thresholds on its coefficient depending on the ‘years since liberalisation’. These estimated coefficients can also differ by region. In this way, we can identify the channels through which trade liberalisation affects growth and uncover the timing of the adjustments involved.

Human Capital and Adjustment to Trade

The labour market consequences of globalisation are controversial. Fears that the process of increased integration into world markets implies increasing job losses and downward pressure on wages are widespread, often resulting in demands for import protection. Growing concerns about the importance of such adjustment costs are evident in the policy community. This debate also has a direct consequence for policy: there have been recent reforms of the USA’s compensation scheme for trade-displaced workers and a new EU Globalisation Adjustment Fund has been created.

Endowment Differences and the Composition of Intra-Industry Trade

This paper investigates the relationship between differences in endowments and different types of trade, in particular vertical intra-industry trade (VIIT). We build a general equilibrium framework based on a hybrid of the Chamberlain-Heckscher-Ohlin and the specific factors models that generates predictions about how the shares of different types of intra-industry and net trade flows change with differences in endowments. We also present some empirical evidence for European Union trade with its 51 major trading partners. The econometric models of the determinants of the different types of trade confirm the theoretical predictions, namely that the effect of cross country differences in the endowments of trading partners on the share of vertical IIT in total bilateral trade differs from their effect on both horizontal IIT and net trade. The share of horizontal IIT (net trade) decreases (increases) for all increases in absolute endowment differences, but the share of vertical IIT can both increase and decrease with increases in endowment differences.

Trade, Human Capital and Labour Market Adjustment

This paper highlights the way in which workers of different age and ability are affected by trade liberalisation. A general-equilibrium model of trade and human-capital is constructed. Individuals differ not only in their endogenous education-level but also in their exogenous age. They can, at any point in their lives, skill-upgrade through (costly) schooling. Trade-adjustment is analyzed as a problem in investment-theory. We find that adjustment can take a long time and older-workers differ from younger-workers in the proportion of population negatively affected and severity of losses. Results suggest that trade-adjustment-assistance should focus on older-unskilled-workers in skilled-abundant-countries and younger-skilled-workers in unskilled-labour-abundant-countries.

Relative Backwardness or Absorptive Capacity: How Does Knowledge Spill Over Across Borders?

In this paper we search for evidence of North-South trade-related knowledge spillovers from a sample of five major OECD countries to 45 developing countries using panel data. We then extend the analysis to examine whether the impact of domestic factors affects the extent of knowledge spillovers. In particular, we investigate whether knowledge spillovers are stronger, the further a country is behind the technological leader, or whether they are stronger in countries with higher levels of absorptive capacity. Our results suggest that the impact of trade-related knowledge spillovers on growth does not depend upon how far a country is behind the technological leader, but that knowledge spillovers are stronger in countries with higher levels of absorptive capacity.