Technical Papers ⁽¹⁷⁾

Read paper (Published: JIE 50, 2000, 91-116) This paper addresses two questions: (i) can factor content of trade be used to measure the effect of trade on wage inequality in a given year, with tastes and technology constant; and (ii) can it be used to measure the contribution of trade to the change in wage inequality between two years, with tastes and technology allowed to change? Deardorff and Staiger (1988) had shown that the answer to the first question can be given in the affirmative provided all production functions and the utility function are Cobb-Douglas. I demonstrate, as does Deardorff (2000) independently, that the affirmative answer can be extended to the case when all production functions and the utility function take the CES form with identical elasticity of substitution. I further demonstrate that we can answer the second question in the affirmative under the same conditions as the first. I then examine critically the assumptions underlying these conclusions. They include identical elasticities of substitution across all production functions and the utility function, absence of increasing returns and non-competing imports, homotheticity…

Read paper Bhagwati (1965) first demonstrated that if perfect competition prevails in all markets, a tariff and import quota are equivalent in the sense that an explicit tariff reproduces an import level that, if set alternatively as a quota, produces an implicit tariff equal to the explicit tariff, and vice versa. This equivalence breaks down, for example, if the domestic production is monopolized. In this case, replacing an explicit tariff by an import quota set at the level equal to the imports under the explicit leads to a higher implicit tariff. Many other cases of the breakdown of the equivalence also arise. The ‘tariffs versus quota’ literature was stimulated by the seminal contribution by Bhagwati (1965). Bhagwati defined the two instruments as equivalent if an explicit tariff reproduces an import level that, if set alternatively as a quota, produces an implicit tariff equal to the explicit tariff and vice versa