Abstract: This paper develops a general equilibrium 3-good Ricardian model that extends Professor... more Abstract: This paper develops a general equilibrium 3-good Ricardian model that extends Professor Samuelson’s example on the impact of productivity progress published in JEP (summer 2004). Our model highlights Professor Samuelson’s insight that productivity progress can change the pattern of trade which in turn can have dramatic welfare implications. It also shows that while Professor Samuelson is correct that productivity growth in one country can hurt another, the loss is not as permanent as his example appears to suggest. Continuing productivity growth in one country is likely to benefit all trading countries in the long run.
This paper develops a model to study the effects of foreign aid on the creation and distribution ... more This paper develops a model to study the effects of foreign aid on the creation and distribution of wealth in the recipient country. It considers three types of foreign aid: permanent grants to all individuals, temporary grants to uneducated workers, and foreign aid in the form of low interest rate loans to individuals who invest in education. The model shows that the economy may have two long-run equilibria, a rich equilibrium and a poor one. All types of foreign aid can increase the proportion of individuals investing in education, which means more people converging to the rich equilibrium and higher average wealth in the economy. In addition, if permanent or temporary grants are sufficient large, it is possible that the whole economy may converge to the rich equilibrium.
This paper develops a general equilibrium 2x2 Ricardian model that demonstrates the possibility o... more This paper develops a general equilibrium 2x2 Ricardian model that demonstrates the possibility of immiserizing growth as a result of a productivity improvement in a country's export industry. The model also shows that immiserizing growth can be avoided by improving the productivity of the country's comparative disadvantage industry. However this strategy may inflict harm on its trading partner. In comparison, a balanced growth strategy can improve welfare of the growing country without hurting its trading partner.
This paper develops a general equilibrium model to study how the "exorbitant advantage"... more This paper develops a general equilibrium model to study how the "exorbitant advantage" works, whether it is sustainable, and what may be the consequences if it is removed. Its main findings are: (1) the center country that issues the reserve currency enjoys the "exorbitant advantage" in the sense that her current account deficit can be financed by the periphery country¡¯s reserve holdings. The "exorbitant privilege" is predicated on the overvaluation of the reserve currency caused by a higher rate of money growth in the center country; (2) the "exorbitant advantage" is not likely to be sustainable in the long run; (3) if the "exorbitant advantage" is removed, the value of the reserve currency will depreciate, the terms of trade will change against the periphery country and sector composition will change in favour of the tradable sector in the center country and in favour of the non-tradable sector in periphery country. These changes...
This paper develops a set of three models to study the optimal tax-subsidy regime in an economy c... more This paper develops a set of three models to study the optimal tax-subsidy regime in an economy characterised by two deviations from the perfect competition model – negative externality from pollution by the "dirty" industry, and increasing returns in the "clean" industry. Its main conclusions are: (1) the optimal single pollution tax is higher than the Pigouvian level; (2) a combination of pollution tax and quantity subsidy increases consumer welfare at a lower level of pollution tax; (3) the optimal pollution tax can be further lowered and consumer welfare further increased if the quantity subsidy is supplemented by a lump-sum subsidy.
This paper develops two models to study the impact of trade in intermediate goods on wage inequal... more This paper develops two models to study the impact of trade in intermediate goods on wage inequality between skilled and unskilled labor in a developed country and a developing country. The first model assumes symmetric production technologies in the intermediate good. It predicts that trade in the intermediate good will increase wage inequality in the developed country, but decrease wage inequality in the developing country. The second model assumes asymmetric technologies in the intermediate good. It predicts that trade in the intermediate good can lead to an increase in wage inequality in both the developed country and the developing country.
ABSTRACT This paper presents a simple model to investigate the effectiveness of foreign aid. It s... more ABSTRACT This paper presents a simple model to investigate the effectiveness of foreign aid. It shows that foreign aid is most effective if it is given to a market economy with relatively high transaction efficiency. If transaction efficiency in a market economy is low due to, for instance, bad institutions or policies, then foreign aid will either be largely dissipated as transaction costs or can even lead to retrogression of market activities. In either case, it will be more effective to give foreign aid to poor primitive economies with no developed markets. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Asia Pty Ltd
This paper develops a general equilibrium three-goods Ricardian model that extends Samuelson&... more This paper develops a general equilibrium three-goods Ricardian model that extends Samuelson's example on the impact of productivity progress. Our model highlights Samuelson's insight that productivity progress can change the pattern of trade and in turn can have dramatic welfare implications. It also shows that while Samuelson is correct that productivity growth in one country can hurt another, the loss is not as permanent as his example appears to suggest. Continuing productivity growth in one country is likely to benefit all trading countries in the long run. Copyright 2007 The AuthorsJournal compilation 2007 Blackwell Publishing Ltd
This paper develops a general equilibrium Ricardian model with transaction costs to investigate t... more This paper develops a general equilibrium Ricardian model with transaction costs to investigate the determinants of the firm's sourcing decision. It derives conditions under which different sourcing choices and corresponding trade patterns occur in general equilibrium. These conditions suggest that, inter alia, the choice between vertical integration and specialisation depends on the relative internal transaction costs associated with vertical integration and external transaction costs associated with international outsourcing; and that the equilibrium sourcing structures and trade patterns are consistent with a refined theory of comparative advantage that incorporates the effects of transaction costs in international trade.
This paper develops a model to study the effects of foreign aid on the cre-ation and distribution... more This paper develops a model to study the effects of foreign aid on the cre-ation and distribution of wealth in the recipient country. It considers three types of foreign aid: permanent grants to all individuals, temporary grants to uneducated workers, and foreign aid in the form of low interest rate loans to individuals who invest in education. The model shows that the economy may have two long-run equilibria, a rich equilibrium and a poor one. All types of foreign aid can increase the proportion of individuals investing in education, which means more people converging to the rich equilibrium and higher aver-age wealth in the economy. In addition, if permanent or temporary grants are sufficient large, it is possible that the whole economy may converge to the rich equilibrium.
This paper investigates how monetary shocks are transmitted internationally. It shows that where ... more This paper investigates how monetary shocks are transmitted internationally. It shows that where a national currency is used as an international medium of exchange, the international money is non-neutral. In particular, an increase in the supply of international money leads to a transfer of real resources to the international money-issuing country from its trading partner. It induces an expansion of the non-tradable sector in the international money-issuing country, and an expansion the tradable sector in its trading partner. The real impact of a monetary shock is greater under a fixed exchange rate system than under a flexible exchange rate system.
This paper develops a theoretical model to study features of the spontaneous growth of private en... more This paper develops a theoretical model to study features of the spontaneous growth of private enterprises in China’s Zhejiang province. The model predicts that in a developing economy where the market environment is immature or unstable, the ownership structure of a typical private enterprise involves a cooperative arrangement between a party with management skills and another party with Guanxi (connections). As the market environment becomes more stable, the ownership share of the party with management skills increases. This result is confirmed by empirical evidence. Observations of the pattern of private sector growth suggest that ownership structures of private enterprises were strongly influenced by the market environment. Empirical analysis based on a survey of 296 firms in Ningbo city of China shows that the perceived importance of both government and family Guanxi declined with perceived improvements in market stability.
Abstract: This paper studies a multinational firm’s transfer price decisions in imperfectly com... more Abstract: This paper studies a multinational firm’s transfer price decisions in imperfectly competitive market settings. It investigates whether the firm’s optimal transfer price coincides with the arm’s length price and examines how the firm might respond if it is compelled to follow the arm’s length principle. The main findings are: (1) in the absence of tax transfer incentives, the firm’s optimal transfer price does not coincide with the arm’s length price. If the firm is compelled to follow the arm’s length principle, it has an incentive to circumvent the arm’s length principle by keeping two sets of books, one for internal management, and another for tax reporting purposes; (2) the arm’s length principle can affect the MNF’s decision on whether or not to foreclose its competitor. Absent profit shifting incentives, the firm will foreclose its downstream competitor. Imposing the arm’s length principle induces the firm to supply its competitor, but the firm c...
Abstract: This paper develops a general equilibrium 3-good Ricardian model that extends Professor... more Abstract: This paper develops a general equilibrium 3-good Ricardian model that extends Professor Samuelson’s example on the impact of productivity progress published in JEP (summer 2004). Our model highlights Professor Samuelson’s insight that productivity progress can change the pattern of trade which in turn can have dramatic welfare implications. It also shows that while Professor Samuelson is correct that productivity growth in one country can hurt another, the loss is not as permanent as his example appears to suggest. Continuing productivity growth in one country is likely to benefit all trading countries in the long run.
This paper develops a model to study the effects of foreign aid on the creation and distribution ... more This paper develops a model to study the effects of foreign aid on the creation and distribution of wealth in the recipient country. It considers three types of foreign aid: permanent grants to all individuals, temporary grants to uneducated workers, and foreign aid in the form of low interest rate loans to individuals who invest in education. The model shows that the economy may have two long-run equilibria, a rich equilibrium and a poor one. All types of foreign aid can increase the proportion of individuals investing in education, which means more people converging to the rich equilibrium and higher average wealth in the economy. In addition, if permanent or temporary grants are sufficient large, it is possible that the whole economy may converge to the rich equilibrium.
This paper develops a general equilibrium 2x2 Ricardian model that demonstrates the possibility o... more This paper develops a general equilibrium 2x2 Ricardian model that demonstrates the possibility of immiserizing growth as a result of a productivity improvement in a country's export industry. The model also shows that immiserizing growth can be avoided by improving the productivity of the country's comparative disadvantage industry. However this strategy may inflict harm on its trading partner. In comparison, a balanced growth strategy can improve welfare of the growing country without hurting its trading partner.
This paper develops a general equilibrium model to study how the "exorbitant advantage"... more This paper develops a general equilibrium model to study how the "exorbitant advantage" works, whether it is sustainable, and what may be the consequences if it is removed. Its main findings are: (1) the center country that issues the reserve currency enjoys the "exorbitant advantage" in the sense that her current account deficit can be financed by the periphery country¡¯s reserve holdings. The "exorbitant privilege" is predicated on the overvaluation of the reserve currency caused by a higher rate of money growth in the center country; (2) the "exorbitant advantage" is not likely to be sustainable in the long run; (3) if the "exorbitant advantage" is removed, the value of the reserve currency will depreciate, the terms of trade will change against the periphery country and sector composition will change in favour of the tradable sector in the center country and in favour of the non-tradable sector in periphery country. These changes...
This paper develops a set of three models to study the optimal tax-subsidy regime in an economy c... more This paper develops a set of three models to study the optimal tax-subsidy regime in an economy characterised by two deviations from the perfect competition model – negative externality from pollution by the "dirty" industry, and increasing returns in the "clean" industry. Its main conclusions are: (1) the optimal single pollution tax is higher than the Pigouvian level; (2) a combination of pollution tax and quantity subsidy increases consumer welfare at a lower level of pollution tax; (3) the optimal pollution tax can be further lowered and consumer welfare further increased if the quantity subsidy is supplemented by a lump-sum subsidy.
This paper develops two models to study the impact of trade in intermediate goods on wage inequal... more This paper develops two models to study the impact of trade in intermediate goods on wage inequality between skilled and unskilled labor in a developed country and a developing country. The first model assumes symmetric production technologies in the intermediate good. It predicts that trade in the intermediate good will increase wage inequality in the developed country, but decrease wage inequality in the developing country. The second model assumes asymmetric technologies in the intermediate good. It predicts that trade in the intermediate good can lead to an increase in wage inequality in both the developed country and the developing country.
ABSTRACT This paper presents a simple model to investigate the effectiveness of foreign aid. It s... more ABSTRACT This paper presents a simple model to investigate the effectiveness of foreign aid. It shows that foreign aid is most effective if it is given to a market economy with relatively high transaction efficiency. If transaction efficiency in a market economy is low due to, for instance, bad institutions or policies, then foreign aid will either be largely dissipated as transaction costs or can even lead to retrogression of market activities. In either case, it will be more effective to give foreign aid to poor primitive economies with no developed markets. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Asia Pty Ltd
This paper develops a general equilibrium three-goods Ricardian model that extends Samuelson&... more This paper develops a general equilibrium three-goods Ricardian model that extends Samuelson's example on the impact of productivity progress. Our model highlights Samuelson's insight that productivity progress can change the pattern of trade and in turn can have dramatic welfare implications. It also shows that while Samuelson is correct that productivity growth in one country can hurt another, the loss is not as permanent as his example appears to suggest. Continuing productivity growth in one country is likely to benefit all trading countries in the long run. Copyright 2007 The AuthorsJournal compilation 2007 Blackwell Publishing Ltd
This paper develops a general equilibrium Ricardian model with transaction costs to investigate t... more This paper develops a general equilibrium Ricardian model with transaction costs to investigate the determinants of the firm's sourcing decision. It derives conditions under which different sourcing choices and corresponding trade patterns occur in general equilibrium. These conditions suggest that, inter alia, the choice between vertical integration and specialisation depends on the relative internal transaction costs associated with vertical integration and external transaction costs associated with international outsourcing; and that the equilibrium sourcing structures and trade patterns are consistent with a refined theory of comparative advantage that incorporates the effects of transaction costs in international trade.
This paper develops a model to study the effects of foreign aid on the cre-ation and distribution... more This paper develops a model to study the effects of foreign aid on the cre-ation and distribution of wealth in the recipient country. It considers three types of foreign aid: permanent grants to all individuals, temporary grants to uneducated workers, and foreign aid in the form of low interest rate loans to individuals who invest in education. The model shows that the economy may have two long-run equilibria, a rich equilibrium and a poor one. All types of foreign aid can increase the proportion of individuals investing in education, which means more people converging to the rich equilibrium and higher aver-age wealth in the economy. In addition, if permanent or temporary grants are sufficient large, it is possible that the whole economy may converge to the rich equilibrium.
This paper investigates how monetary shocks are transmitted internationally. It shows that where ... more This paper investigates how monetary shocks are transmitted internationally. It shows that where a national currency is used as an international medium of exchange, the international money is non-neutral. In particular, an increase in the supply of international money leads to a transfer of real resources to the international money-issuing country from its trading partner. It induces an expansion of the non-tradable sector in the international money-issuing country, and an expansion the tradable sector in its trading partner. The real impact of a monetary shock is greater under a fixed exchange rate system than under a flexible exchange rate system.
This paper develops a theoretical model to study features of the spontaneous growth of private en... more This paper develops a theoretical model to study features of the spontaneous growth of private enterprises in China’s Zhejiang province. The model predicts that in a developing economy where the market environment is immature or unstable, the ownership structure of a typical private enterprise involves a cooperative arrangement between a party with management skills and another party with Guanxi (connections). As the market environment becomes more stable, the ownership share of the party with management skills increases. This result is confirmed by empirical evidence. Observations of the pattern of private sector growth suggest that ownership structures of private enterprises were strongly influenced by the market environment. Empirical analysis based on a survey of 296 firms in Ningbo city of China shows that the perceived importance of both government and family Guanxi declined with perceived improvements in market stability.
Abstract: This paper studies a multinational firm’s transfer price decisions in imperfectly com... more Abstract: This paper studies a multinational firm’s transfer price decisions in imperfectly competitive market settings. It investigates whether the firm’s optimal transfer price coincides with the arm’s length price and examines how the firm might respond if it is compelled to follow the arm’s length principle. The main findings are: (1) in the absence of tax transfer incentives, the firm’s optimal transfer price does not coincide with the arm’s length price. If the firm is compelled to follow the arm’s length principle, it has an incentive to circumvent the arm’s length principle by keeping two sets of books, one for internal management, and another for tax reporting purposes; (2) the arm’s length principle can affect the MNF’s decision on whether or not to foreclose its competitor. Absent profit shifting incentives, the firm will foreclose its downstream competitor. Imposing the arm’s length principle induces the firm to supply its competitor, but the firm c...
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