- "Market Size, Linkages, and
Productivity: A Study of Japanese Regions" (with David E.
Weinstein)
-
In Spatial Inequality and Develeopment, Ravi
Kanbur and Anthony J. Venables, eds., Oxford: Oxford U. Pr.,
2005.
-
Abstract: One account of spatial
concentration focuses on productivity advantages arising from
market size. We investigate this for forty regions of Japan.
Our results identify important effects of a region's own size,
as well as cost linkages between producers and suppliers of
inputs. Productivity links to a more general form of market
potential or Marshall-Arrow-Romer externalities do not appear
to be robust in our data. The effects we identify are
economically quite important, accounting for a substantial
portion of cross-regional productivity differences. A simple
counterfactual shows that if economic activity were spread
evenly over the forty regions of Japan, aggregate output would
fall by 5 percent.
- "Stolper-Samuelson is Dead: And Other Crimes of
Both Theory and Data" (with Prachi Mishra)
-
In Ann Harrison,
ed., Globalization and Poverty, Chicago: U. of Chicago Pr., 2007.
- "Technological Superiority and the
Losses From Migration" (with David E. Weinstein)
-
NBER Working Paper
Series, # 8971, June 2002.
-
The Economist "Economics Focus" column of May 30,
2002 discusses this paper.
Abstract: Two facts motivate this study. (1) The United
States is the world's most productive economy. (2) The US is
the destination for a broad range of net factor inflows:
unskilled labor, skilled labor, and capital. Indeed, these two
facts may be strongly related: All factors seek to enter the
US because of the US technological superiority. The literature
on international factor flows rarely links these two
phenomena, instead considering one-at-a-time analyses that
stress issues of relative factor abundance. This is
unfortunate, since the welfare calculations differ markedly.
In a simple Ricardian framework, a country that experiences
immigration of factors motivated by technological differences
always loses from this migration relative to a free trade
baseline, while the other country gains. We provide simple
calculations suggesting that the magnitude of the losses for
US natives may be quite large -- $72 billion dollars per year
or 0.8 percent of GDP.
- "Bones, Bombs, and Break Points: The
Geography of Economic Activity" (with David E.
Weinstein)
-
American Economic
Review, 92:5, December 2002 (Lead Article)
; NBER
Working Paper #8517
, October 2001.
Paul
Krugman's column referring to this paper is available at
the NYT, October 3, 2001 [NYT registration required].
Abstract: We consider the distribution of economic
activity within a country in light of three leading theories
-- increasing returns, random growth, and locational
fundamentals. To do so, we examine the distribution of
regional population in Japan from the Stone Age to the modern
era. We also consider the Allied bombing of Japanese cities in
WWII as a shock to relative city sizes. Our results support a
hybrid theory in which locational fundamentals establish the
spatial pattern of relative regional densities, but increasing
returns may help to determine the degree of spatial
differentiation. One implication of our results is that
even large temporary shocks to urban areas have no long-run
impact on city size.
- "Market Access, Economic
Geography, and Comparative Advantage: An Empirical Assessment"
(with David E. Weinstein)
-
Journal of International
Economics, 59:1, January 2003 (Lead Article).
Abstract: The increasing returns revolution in trade is
incomplete in an important respect - there exists no
compelling empirical demonstration of the role of increasing
returns in determining production and trade structure. One
reason is that trade patterns of the canonical increasing
returns models are a consequence simply of specialization,
which all theories permit. Krugman (1980) shows that
increasing returns models with costs of trade - economic
geography - do allow a simple test: home market effects of
demand on production. Davis and Weinstein (1996) reject the
simple Krugman (1980) model on OECD data. Here we pair the
model with a richer geography structure and find evidence of
the importance of increasing returns, in combination with
comparative advantage, in affecting OECD manufacturing
production structure. The results underscore the importance of
market access in implementing models of economic geography.
- "The Mystery of the Excess
Trade (Balances)" (with David E. Weinstein)
-
American Economic
Review Papers and Proceedings, Forthcoming May 2002.
- "What Role for Empirics in
International Trade?" (with David Weinstein)
-
In Ronald Findlay, Lars
Jonung, Mats Lundahl, eds., Bertil Ohlin: A Centennial
Celebration, 1899-1999, Cambridge: MIT Press, 2002.
- "Why Countries Trade: Insights from
Firm-Level Data," (with David Weinstein),
-
The Journal of the
Japanese and International Economies, 2003.
- "An Account of Global Factor Trade"
(with David E. Weinstein)
-
American Economic Review,
December 2001.
Abstract: A half-century of empirical work attempting
to predict the factor content of trade in goods has failed to
bring theory and data into congruence. Our study shows how the
Heckscher-Ohlin-Vanek theory, when modified to permit
technical differences, a breakdown in factor price
equalization, the existence of non-traded goods, and costs of
trade, is consistent with data from ten OECD countries and a
rest-of-world aggregate.
- "The Factor Content of Trade"
(with David E. Weinstein)
-
Handbook of
International Trade, E. Kwan Choi and James Harrigan, eds.,
New York: Blackwell, 2002.
- "Do Factor Endowments Matter
for North-North Trade?" (with David E. Weinstein)
-
NBER Working Paper #8516,
October 2001, and Contemporary and Emerging Issues in Trade Theory
and Policy, Sugata
Marjit and Eden Yu, editors, Elsevier, 2008.
.
Abstract: The dominant paradigm of world trade patterns
posits two principal features. Trade between North and South
arises due to traditional comparative advantage, largely
determined by differences in endowment patterns. Trade within
the North, much of it intra-industry trade, is based on
economies of scale and product differentiation. The paradigm
specifically denies an important role for endowment
differences in determining North-North trade. This paper
provides the first sound empirical examination of this
question. We demonstrate that trade in factor services among
countries of the North is systematically related to endowment
differences and large in economic magnitude. Intra-industry
trade, rather than being a puzzle for a factor endowments
theory, is instead the conduit for a great deal of this factor
service trade.
- Book Review: The Spatial Economy,
by M. Fujita, P. Krugman, and A. Venables, Journal
of International Economics, 57(1), 2002.
- "International Trade
as an 'Integrated Equilibrium': New Perspectives"
(with David E. Weinstein)
-
American Economic Review,
May 2000.
Abstract: The concept of the 'Integrated Equilibrium'
has played an important role in the development of the theory
of international trade. In spite of the fact that all
observers understand that it is not literally a description of
the world that we live in, approaches based on this concept
have been very influential in discussion of real world
policies. In this paper, we discuss some of the key empirical
limitations of this concept and suggest directions that future
empirical and theoretical work needs to go once we recognize
the limits of integrated equilibrium thinking.
- "Understanding International Trade
Patterns: Advances of the 1990s,"
-
Integration and Trade,
Vol. 4, No. 10, 2000.
- "Economic Geography and
Regional Production Structure: An Empirical Investigation"
(with David E. Weinstein).
-
European Economic Review,
February 1999.
Abstract: There are two principal theories of why
countries or regions trade: comparative advantage and
increasing returns to scale. Yet there is virtually no
empirical work that assesses the relative importance of these
two theories in accounting for production structure and trade.
We use a framework that nests an increasing returns model of
economic geography featuring "home market effects" with that
of Heckscher-Ohlin. We employ these trade models to account
for the structure of regional production in Japan. We find
support for the existence of economic geography effects in
eight of nineteen manufacturing sectors, including such
important ones as transportation equipment, iron and steel,
electrical machinery, and chemicals. Moreover, we find that
these effects are economically very significant. The latter
contrasts with the results of Davis and Weinstein (1996),
which found scant economic significance of economic geography
for the structure of OECD production. We conclude that while
economic geography may explain little about the international
structure of production, it is very important for
understanding the regional structure of production.
- "Does European Unemployment Prop Up
American Wages? National Labor Markets and Global Trade"
-
American Economic Review,
June 1998. Reprinted in Worth Series in Outstanding
Contributions: International Economics, Edward Leamer,
ed. (2001), Worth: NY.
Abstract: I consider trade between a flexible wage
America and a rigid wage Europe. In a benchmark case, a move
from autarky to free trade doubles European unemployment.
American wages rise to the European level. Entry of the
unskilled "South" to world markets raises European
unemployment. Europe's commitment to the high wage wholly
insulates America from the shock. Immigration to America
raises American income, but lowers European income
dollar-for-dollar, while European unemployment rises. Absent
South-North migration of the unskilled from 1970-90, Europe
could have maintained the same wage with from one-eighth to
one-fourth less unemployment.
- "The Home Market, Trade, and Industrial
Structure"
-
American Economic Review,
December 1998.
Abstract: Does national market size matter for
industrial structure? This has been suggested by theoretical
work on "home market" effects, as in Krugman (1980, 1995). In
this paper, I show that what previously was regarded as an
assumption of convenience -- transport costs only for the
differentiated goods -- matters a great deal. In a focal case
in which differentiated and homogeneous goods have identical
transport costs, the home market effect disappears. The paper
discusses available evidence on the relative trade costs for
differentiated and homogeneous goods. No compelling argument
is found that market size will matter for industrial
structure.
- "Using International and Japanese
Regional Data to Determine When the Factor Abundance Theory of
Trade Works" (with David E.Weinstein, Scott
Bradford, and Kazushige Shimpo)
-
American Economic Review,
June 1997.
Abstract: The Heckscher-Ohlin-Vanek (HOV) model of
factor service trade is a mainstay of international economics.
Empirically, though, it is a flop. This warrants a new
approach. We test the HOV model with international and
Japanese regional data. The strict HOV model performs poorly
because it cannot explain the international location of
production. Restricting the sample to Japanese regions
provides no help, inter alia giving rise to what Trefler
(1995) calls the "mystery of the missing trade." However, when
we relax the assumption of universal factor price
equalization, results improve dramatically. In sum the HOV
model performs remarkably well.
- "Critical Evidence on Comparative
Advantage? North-North Trade in a Multilateral World"
-
Journal of Political Economy,
October 1997.
Abstract: There are two principal theories of why
countries trade: comparative advantage and increasing returns
to scale. Which is most important in practice? The large
volume of intra-OECD trade is frequently cited as critical
evidence on this question. It is argued that comparative
advantage, unlike scale economies, is incapable of accounting
for the large volume of trade between seemingly similar
economies. This is a theoretical claim. In this paper, I show
that it is possible to give an account of this trade based on
comparative advantage. The elements that may give rise to a
large volume of North-North trade are traced to identifiable
features of technology and endowments.
- "Technology, Unemployment, and Relative
Wages in a Global Economy"
-
European Economic Review,
November 1998.
Abstract: Arguably the most important development in
recent decades in US factor markets is the decline in the
relative wage of the unskilled. By contrast, in Europe it is
undoubtedly the rise and persistence of unemployment.
Technology has been identified as a key reason for the rising
US wage inequality, while labor market rigidities are often
cited as a key reason for European unemployment. This paper
seeks to provide a unified account of these major factor
market developments. It models the impact of technical change
on relative wages and unemployment in a world in which one
country has flexible and the other rigid labor market
institutions. The results depart significantly but sensibly
from what one would expect in a fully flexible wage world.
Stylized facts help to narrow the field to a few candidates to
account for these factor market developments.
- "Does Economic Geography Matter for
International Specialization?" (with David E. Weinstein).
-
Abstract: This paper
develops a first test of the new economic geography. It nests
a simple version of the Krugman (1980) model with a
multi-factor version of Heckscher-Ohlin. Economic geography is
identified by the presence or absence of home market effects
of demand on production. Application of this model to OECD
manufacturing production data finds little support for
economic geography in a pooled specification. Individual
industry runs provide some evidence of economic geography
effects. However their economic significance appears quite
limited.
- "Intra-Industry Trade: A
Heckscher-Ohlin-Ricardo Approach"
-
Journal of International
Economics, November 1995.
Abstract: The large volume of intra-industry trade is
often cited as a critical element favoring trade theories
based on increasing returns and imperfect competition over
those with constant returns and perfect competition. The
former provide an elegant account of intra-industry trade,
while the latter, it is often argued, cannot. This paper
provides an account of intra-industry trade based squarely on
comparative advantage. The key is to introduce elements of
Ricardian trade theory within the Heckscher-Ohlin framework.
This is appropriate, as essential characteristics of
intra-industry trade imply that technical differences matter.
Increasing returns, in short, are not necessary for
intra-industry trade.
- "Human Capital, Unemployment, and
Relative Wages in a Global Economy" (with Trevor A. Reeve)
-
D. Greenaway, R. Upward, and K.
Wakelin, eds., Trade,
Investment, Migration and Labour Market Adjustment,
Palgrave Macmillan, 2003.
-
Abstract: This paper
develops a simple framework for examining human capital
accumulation, unemployment, and relative wages in a global
economy. It builds on the models of Davis (1997a,b) of trade
between a flexible wage America and a rigid wage Europe. To
this it adds a model of human capital accumulation based on
Findlay and Kierzkowski (1983). A variety of comparative
statics are examined, including changes in educational capital
and population, entry of new countries to the trading world,
technical change, and a productivity slowdown. We derive the
consequences for the skilled-to-unskilled wage gap,
unemployment, and skill composition.
- "Trade Liberalization and Income
Distribution"
NBER Working Paper 5693, 1996.
Abstract: Empirical work
relating trade liberalization and income distribution has
identified an important anomaly. The Stolper-Samuelson theorem
suggests that trade liberalization will shift income toward a
country's abundant factor. For developing countries, this
suggests liberalization will principally benefit the abundant
unskilled labor. Yet extensive empirical studies have identified
many cases with a contrary result. This paper develops a simple
theoretical hypothesis to account for this anomaly. It shows
that countries which are labor abundant in a global sense may
see wages decline with liberalization if they are capital
abundant in a local sense. The current absence of empirical work
that would allow us to identify the relevant local abundance
implies that virtually all assertions regarding anticipated
distributional consequences of trade liberalization are without
foundation.