- "Good Jobs, Bad
Jobs, and Trade Liberalization" (with James Harrigan)
-
Abstract: Globalization threatens
“good jobs at good wages”, according to overwhelming public sentiment.
Yet professional discussion often rules out such concerns a priori. We
instead offer a framework to interpret and address these concerns. We
develop a model in which monopolistically competitive firms pay
efficiency wages, and these firms differ in both their technical
capability and their monitoring ability. Heterogeneity in the ability
of firms to monitor effort leads to different wages for identical
workers – good jobs and bad jobs – as well as equilibrium unemployment.
Wage heterogeneity combines with differences in technical capability to
generate an equilibrium size distribution of firms. As in Melitz
(2003), trade liberalization increases aggregate efficiency through a
firm selection effect. This efficiency-enhancing selection effect,
however, puts pressure on many “good jobs”, in the sense that the
high-wage jobs at any level of technical capability are the least
likely to survive trade liberalization. In a central case, trade raises
the average real wage but leads to a loss of many “good jobs” and to a
steady-state increase in unemployment.
- "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.
- "A Search for Multiple Equilibria in Urban
Industrial Structure" (with David E. Weinstein)
-
Forthcoming, Journal of Regional Science. NBER
Working Paper Series, # 10252, Janurary 2004.
Abstract: Theories featuring multiple equilibria are now
widespread across many fields of economics. Yet little empirical work
has asked if such multiple equilibria are salient features of real
economies. We examine this in the context of the Allied bombing of
Japanese cities and industries in WWII. We develop a new empirical test
for multiple equilibria and apply it to data for 114 Japanese cities in
eight manufacturing industries. The data provide no support for the
existence of multiple equilibria. In the aftermath even of immense
shocks, a city typically recovers not only its population and its share
of aggregate manufacturing, but even the specific industries it had
before.
- "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, forthcoming.
- "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.
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.
- "Market Size, Linkages, and
Productivity: A Study of Japanese Regions" (with David E. Weinstein)
-
NBER Working Paper #8518,
October 2001, forthcoming in Kanbur, Ravi and Anthony Venables eds., Spatial
Inequality and Development.
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. Landlocked status does not matter for
productivity of regions in Japan. 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 nearly twenty percent.
- "International
Trade and National Factor Markets" NBER Reporter, Winter
2000-2001 (Research Summary and Profile).
- "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)
-
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"
-
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.
- "Intra-Industry Trade: Issues and Theory,"
(with Jagdish Bhagwati)
-
Trade, Welfare, and
Econometrics: Essays in Honor of John S. Chipman James Melvin,
James Moore, and Ray Riezman, eds., New York: Routledge. Forthcoming.
- "Tariff Phase-Outs: Theory and
Evidence From GATT and NAFTA," (with Carsten Kowalczyk)
-
Regionalization of the World
Economy, Jeffrey Frankel, ed., Chicago: U. Of Chicago Pr. and
National Bureau of Economic Research, 1998.
- "Empirical Tests of the Factor Abundance
Theory: What Do They Tell Us?," (with David E. Weinstein)
-
Published in the Eastern
Economic Journal, Fall 1996.