American Regionalism and Global Free Trade

A free trade agreement supports global free trade since trade barriers tend to divert trade in favor of members, but not reduce imports. The term: 'mutual assured deterrence' is used to refer to a regional free trade association that has the feature that no member can gain individually from the imposition of a barrier against a non- member. Mutual assured deterrence is shown to be possible for a surprisingly rich set of partners. A customs union is compatible with global free trade if the vast majority of trade takes place naturally within the confines of the association. A customs union that is likely to have this property would combine countries to form a nearly exact economic replica of the globe. The economic combination of Mexico and the United States doesn't form a replica of the global economy because, compared with Asia, North America has relatively high capital per worker even after adding the Mexican workforce. However, NAFTA does seem to have the property of mutual assured deterrence, and may for that reason amount to a commitment to global free trade as well as regional free trade.

A Heckscher-Ohlin View of Sweden Competing in the Global Market

In this paper we explore the hypothesis that the Swedish malaise comes from the interaction of the Swedish welfare state with changes in the global marketplace. External commerce can expose Swedish workers in exporting and import-competing industries to competition from low-wage foreign workers that is incompatible with an extensive welfare system. The Heckscher-Ohlin theory that is the foundation of this paper allows a high-wage equilibrium without government intervention even though there is increasing competition from low-wage suppliers, if capital is abundant and if production is concentrated on the most capital intensive products. Then the unskilled workers can be employed at high wages either in the tradables or nontradables sector. However, Swedish investment rates have not been high enough to maintain the position that it had two decades ago. This we express in the form of the Heckscher-Ohlin Crowding Hypothesis: Swedish difficulties in its interactions with the global marketplace come from an eroding lead in capital abundance. Though losing its distinctiveness in capital abundance, Sweden remains well supplied with soft-wood forests. Although contributing substantially to GDP forest resources can also imply lower wages for unskilled workers and greater income inequality. A country with abundant forest resources and produce capital intensive products as well as pulp and paper, but a country with more moderate supplies of capital can find much of its capital deployed in pulp and paper and end up with a mix of tradables including relatively labor-intensive products. This product mix may dictate relatively low wages for unskilled workers since the marginal unskilled worker may be employed in sectors which globally award low wages.

International Trade Theory: The Evidence

This paper provides a critical look at recent empirical work in international trade theory. The paper addresses the issue of why empirical work in international trade has perhaps not been as influential as it could have been. The paper also provides several suggestions on directions for future empirical research in international trade.

The International Economics of Transitional Growth: The Case of the United States

This paper develops a general equilibrium two country, two commodity dynamic simulation model of international trade in commodities and financial claims. The model generalizes the Heckscher-Ohlin static theory of trade by incorporating costs of quickly adjusting levels of capital stocks in particular industries; i.e., capital mobility in the short run is permitted, but at a price. The model predicts Heckscher-Ohlin relationships, including factor price equalization, in the long-run, but not during the economy's transition path to its ultimate steady-state. An interesting feature of the model is that it provides a determinate solution to the long-run inter- national allocation of the world's capital stock. This is true despite the fact that the Rybchinski-theorem holds in the long-run. The simulation model of international trade with costly capital stock adjustment appears capable of explaining many features of the patterns of factor price equalization, international investment, and changes in comparative advantage that have characterized the post-war period.

Empirical Tests of Alternative Models of International Growth

Recent changes in patterns of international trade and growth have rekindled interest in the relationships among trade, growth, and the international distribution of income. Three alternative models can serve as a theoretical foundation for an empirical analysis of these relationships. The first is the standard Heckscher-Ohlin-Samuelson (Ho) trade model with equalnumbers of factors and goods and incomplete specialization. The second model allows complete specialization and more goods than factors. The third model posits short run capital immobility. Each of these models has quite different implications for the determination of wage levels and growth rates.The conclusions that we draw from this research are rather mixed. Each of the models perform well on certain criteria and poorly on others. While the standard HO model clearly fails to satisfy certain cross-equation constraints, national endowments are remarkably good predictors of the locus of international production. There are, however, significant nonlinearities in the relationship between factor allocations and national endowments. Such nonlinearities are predicted by the uneven version of the HO model. At odds with both of these models is our finding that lagged values of inputs providean important explanation of current factor demands. Such correlations are suggested by the adjustment cost model.