Publications
JOURNAL ARTICLES
"Specific Factors, Learning, and the Dynamics of Trade," International Economic Review 45 (2004), 499-521. paper
In the postwar period, the volume of trade among developed countries has increased at a much higher rate than GDP> This article presents a dynamic general equilibrium model of trade between developed countries that accounts for this pattern of trade dynamics. Countries trade in goods that use good-specific skilled labor and unskilled labor as factors of production. Specific skills are learned on the hjob and there exist positive effects in learning. Small initial differences in the distribution of experts in each country generate an increasing pattern of specialization over time. Knowledge spillovers across sectors are crucial determinants of the trade pattern.
"Lower Subdifferentiability in Minimax Fractional Programming,"Optimization 45 (1999), 1-12, with Juan Enrique Martinez-Legaz.
ARTICLES IN BOOKS
"China's Accession to the WTO and its Effect on State-Owned Enterprises," in Chu T. Ed. The Chinese Economy, East-West Center Publications (forthcoming), with Tianshu Chu.
"Mercosur," in Globalization: Encyclopedia of Trade, Labor, and Politics, Ashish Vaidya, Ed. ABC_CLIO. Santa Barbara, Clalifornia, 2006, 504-512.
Working Papers (by topic)
1. Dynamic Models of Trade
"Trade, Growth, and Convergence in a Dynamic Heckscher-Ohlin model," with Timothy J. Kehoe (under review). paper
This paper studies
the properties of a dynamic Heckscher-Ohlin model —
a combination of a static two-good, two-factor Heckscher-Ohlin trade
model and a two-sector growth model — with infinitely-lived consumers where
international borrowing and lending are not permitted. We
obtain two main results: First,
even if factor prices are equalized, countries that only differ in
their initial endowments of capital per worker may converge or diverge
in income levels over time, depending on the elasticity of substitution
between traded goods. Divergence can occur
for parameter values that would imply convergence in a world of closed
economies and vice-versa. Second,
for general constant-elasticity of substitution production functions,
factor price equalization in a given period does not imply factor price
equalization in future periods.
"Demographics in a Dynamic Heckscher-Ohlin model: Overlapping Generations versus Infinitely-Lived Consumers," with Timothy J. Kehoe (under review). paper
This paper contrasts the properties of dynamic Heckscher-Ohlin models with overlapping generations with those of models with infinitely lived consumers. In both environments, if capital is mobile across countries, factor price equalization occurs after the initial period. In general, however, the properties of equilibria differ drastically across environments: With infinitely lived consumers, we find that factor prices equalize in any steady state or cycle and that, in general, there is positive trade in any steady state or cycle. With overlapping generations, in contrast, we construct examples with steady states and cycles in which factor prices are not equalized, and we find that any equilibrium that converges to a steady state or cycle with factor price equalization has no trade after a finite number of periods.
2. Trade Agreements and Industrial Subsidies: Effects on Total Factor Productivity, Welfare, and the Environment
"China's Accession to the WTO: Implications for the State-Owned Sector," (second round at Review of Economic Dynamics). paper
In December 2001 China became a member of the World Trade Organization (WTO). By signing the accession protocol China not only agreed to reform its trade policy but it also accepted regulations that imply reductions on government subsidies to the state-owned sector. In this paper we claim that the latter, largely ignored in the literature, generate important welfare gains from WTO accession. We develop a dynamic general equilibrium model of a small open economy with state and private enterprises, we calibrate it to the Chinese economy, and we quantitatively assess the economic effects of reducing subsidies to the state sector as required by the WTO. We find the welfare benefits of such reduction in subsidies to be substantial. Using the context of China, this paper identifies a new channel through which WTO accession increases a country's welfare: induced reforms on the state sector and the subsequent increase in economic efficiency.
"Free Trade Agreements and the Environment with Pre-Existing Subsidies: A General Equilibrium Approach," with David L. Kelly. paper
Countries that wish to erect trade barriers have a variety of instruments at their disposal. In addition to tariffs and quotas, countries can offer tax relief, low interest financing, reduced regulation, and other subsidies to domestic industries facing foreign competition. In a trade agreement, countries typically agree to reduce not only tariffs, but also subsidies. We consider the effect of a free trade agreement on pollution emissions. We show that while reducing tariffs may indeed increase output and pollution, reduction of some subsidies required by the trade agreement reduce pollution in general equilibrium for reasonable parameter values. Reducing subsidies has three effects on pollution: (1) reducing subsidies to firms reduces pollution-causing capital accumulation, (2) if subsidized firms are more pollution intensive, then reducing subsidies moves capital and labor from more to less pollution intensive firms, and (3) reducing subsidies concentrates production in more productive firms, increasing output and this pollution. We derive straight forward conditions for which (1) and (2) outweight (3). We then calibrate the model to China in 1997, which is prior to implementing the reforms specifically required by the US-China World Trade Organization Bilateral Agreement. Our model predicts that pollution emissions in China are up to 22.9% lower than a baseline in which China does not enter the WTO, without any pollution abatement policy changes or environmental side agreements.
3. Growth and total factor productivity
"The Role of Entrepreneurship in Producitivity Growth:
Decentralized versus Planned Economies," with Luis Locay. paper
Trends in GDP
and TFP growth in the former socialist economies seem to indicate that
these
economies were converging to unusually low long-run growth rates in the
late
1980s. In this paper we develop an
endogenous growth model of entrepreneurship that is able to account for
the
difference in long-run performance between centrally planned economies
and
market-oriented ones. Long-run growth
rates of output and productivity are determined by the growth of the
stock of
entrepreneurial knowledge, which in turn depends on the share of the
population
involved in entrepreneurial activities and on the time that they spend
on those
activities. We analyze the effect of two
characteristics of centrally planned economies on their growth
performance. First, in centrally planned
economies factors of production are distributed by the central planner
to the
firms’ managers through a contest that uses up some of the managers’
productive
effort. Second, the leadership is
“egalitarian”, in the sense that it treats individuals with different
abilities
equally. We show that these two features reduce the fraction of people
becoming
entrepreneurs/managers, as well as their entrepreneurial effort, which
in turn
reduces long-run output and TFP growth.
We also find that the centrally planned economies have lower income
inequality and slightly higher capital-output ratios.
4. Currency crises
"China's Vulnerability to Currency Crises: A KLR Approach," with Duan Peng (second round at China Economic Review). (NEW VERSION) paper
In this
paper we use the Kaminsky-Lizondo-Reinhart (KLR) (1998) approach to
conduct an ex-post study of the probabilities of
Work in Progress