Rolf Weder

The New Growth Theory and Coasean economics: Institutions to capture externalities

The New Growth Theory and Coasean Economics: Institutions to Capture Externalities. — This paper presents the main theoretical arguments which lead many adherents of the New Growth Theory to the conclusion that externalities in research and development are important for economic growth and warrant government subsidies. In contrast, the authors point to private institutions like associations, company structures and industry clusters which can capture such externalities. An international comparison of private R&D investment and special features of institutions in Switzerland and Japan are in line with this hypothesis. Thus, the argument for R&D subsidies made by the New Growth Theory is considerably reduced.ZusammenfassungDie neue Wachstumstheorie und Coase. Institutionen zum Erfassen externer Effekte. — In dem Aufsatz werden die wichtigsten theoretischen Argumente vorgestellt, aus denen viele Anhänger der neuen Wachstumstheorie schlieβen, daβ Forschung und Entwicklung externe Effekte haben, daher für das wirtschaftliche Wachstum wichtig sind und eine staatliche Förderung rechtfertigen. Die Autoren betrachten diese Folgerung im Lichte privater Institutionen wie Verbände, Unternehmensstrukturen und die regionale Konzentration von Industrien, von denen behauptet wird, daβ sie die externen Effekte, die im Mittelpunkt der neuen Wachstumstheorie stehen, einfangen. Ein internationaler Vergleich von privaten F&E-Investitionen und spezielle Merkmale von Institutionen in der Schweiz und in Japan stimmen mit dieser Hypothese überein. Die Verfasser kommen zu dem Schluβ, daβ die Existenz solcher Institutionen die Berechtigung von Subventionen für Forschung und Entwicklung, wie sie von der neuen Wachstumstheorie befürwortet werden, erheblich verringert.

Comparative home-market advantage: An empirical analysis of British and American exports

This paper derives and tests the hypothesis that a country exports relatively more of those goods for which it has a relatively larger home market, i.e., a comparative home-market advantage. This prediction is based on a two-country, many-good intraindustry trade model with economies of scale, international transaction costs and differences in expenditure shares and country size. The data from 1970 to 1987 of 26 industries of the manufacturing sector in the United States and the United Kingdom supports this hypothesis. It is also shown that the relationship between home-market size and export structure becomes significantly stronger for industries with high fixed costs. JEL no. F12, F14, F17

Comparative advantage and bilateral foreign aid policy

This paper formulates the problem of bilateral aid allocation in terms of the comparative advantage framework. It is argued that the adaptability of this framework to foreign aid critically depends on the assumption that each donors aid budget is spent to a large extent on its home market. This assumption is not contradicted by empirical evidence. An analysis of Swiss foreign aid data then suggests that there is scope for considerable gains from specialization. We conclude that donors should coordinate their behavior according to their comparative advantage to achieve an optimal allocation of global aid resources.

Sunk costs and cartel formation: Theory and application to the dyestuff industry

We first develop a simple model of entry showing that cartels are more likely to emerge during periods of downturns and in industries with significant sunk costs. Cartel formation is also accompanied by a decline in profits. We then use the framework to investigate the emergence of the Swiss dyestuff export cartel during the inter-war period and find empirical evidence that supports the main predictions of the model. The analysis indicates that sunk costs and entry may be important determinants of cartel formation and are complementary to the traditional cartel stability conditions.

Do Vertical Linkages Limit Protectionism? Switzerland in the Multifibre Arrangement

The multifibre arrangement (MFA) heavily restricted the world trade in textiles and clothing (T&C) from 1974 to 1994. Switzerland joined the MFA as one of 44 signatory economies in 1974, but never applied its discriminatory instruments. To explain this peculiar behaviour, we apply international trade theory as well as files gathered from the Swiss Federal Archives. Our analysis suggests that Switzerland used the MFA, first, as an instrument to seek better market access, and second, as an option to protect its T&C industry if required. Switzerland refrained, however, from exercising the option mainly because of the existence of an important vertically related export industry, that is the Swiss textile machinery industry.

How to Explain the High Prices in Switzerland

SummaryThis article challenges the view that a lack of competition and a high level of regulations are the main causes of Switzerland’s high prices. First, we point out a number of stylized facts which are inconsistent with this popular view. Second, we econometrically asses the “competition-regulation hypothesis” together with the well-established determinants from the real exchange rate literature in a panel of 22 OECD countries from 1970 to 2004. We find that changes in the terms of trade and the degree of openness, and to a minor extent in government expenditures and the current account, explain the movements in the Swiss real exchange rate reasonably well over the last 35 years. Changes in regulations and competition as well as in relative productivities perform poorly as explanatory variables.

To Wait or Not to Wait: Swiss EU-Membership as an Investment under Uncertainty

SummaryWhy do some countries join the EU earlier than others, why do others wait? In order to address this question we apply the theory of investment under uncertainty (Dixit and Pindyck, 1994) to the decision on EU-membership. We present the idea in a simplified model of two periods to study how the value of waiting depends among other things on the expected benefits, the degree of uncertainty and the adjustment costs. The approach gives rise to a country’s position to deliberately postpone a membership in order to keep the option to join later if this is desirable. The model, thus, may explain delayed accession to the EU. We apply this framework to Switzerland by quantifying some of the crucial determinants of the value of waiting and qualitatively compare these findings with the experiences of other countries. We find evidence that adjustment costs are relatively high for Switzerland whereas net annual benefits are limited and subject to an increased degree of uncertainty.

Agreements of Economic Integration and the Choice of National Environmental Policies

This paper analyzes the question whether and in which respect agreements of (regional) economic integration affect the choice of environmental policies by individual countries. We focus our interdisciplinary analysis on the agreements of the World Trade Organization (WTO), the European Union (EU) and the European Economic Area (EEA). We find that these agreements primarily restrict a countrys choice among possible instruments to achieve a certain environmental level or target, but do, in principle, not restrict its choice with regard to the environmental target or level itself. We also show that this type of restriction is likely to benefit the individual countries and the world as a whole because it tends to promote the implementation of more efficient environmental policy instruments. A brief analysis of the case of Switzerland illustrates this point.

A Note on Political Contestability and the Future of the European Union

In this paper, we argue that, first, the contestable‐markets hypothesis increases our understanding of why and how public referenda and initiatives are beneficial for the political decision‐making process and, second, that these direct‐democratic instruments could solve some of the current and pending institutional problems of the European Union (EU) and reshape its process of political integration. The Lisbon Treaty includes some attempts in this direction which, however, are half‐hearted and thus hardly increase the democratic control of the EU by its member states and their citizens.

WTO Trade Policy Review for Switzerland: In Need for a New Paradigm

This paper argues that the World Trade Organization (WTO) and one of its important instruments, Trade Policy Review (TPR), should refocus on what they were created for: trade policy. This strategy is shown to be well‐founded in international trade theory. In contrast, the TPR 2017 on Switzerland and Liechtenstein deals with a large number of policies that are not or only indirectly related to international trade, but lie at the core of a countrys self‐identification and sovereignty. It is concluded that the world trade system would gain in political support and thus benefit if countries were limited in their interference at the border, but enjoyed more freedom in their national policies.