Academic
publications
Trade
theory with three productive factors
My research in trade theory has focused on
expanding the horizons of the factor proportions models of production and trade
with competitive pricing and full employment.
Breaks in the chain of comparative
advantage
with
Kwan Choi, International
Review of Economics and Finance, 2009
The chain of comparative advantage that capital abundant
countries would export more capital intensive products may be inconsistent with
full employment.
Stolper-Samuelson (production box)
Chapter 36 in Famous
Figures in Economics, 2009, Peter Lloyd and Marc Blaug
eds, Edward Elgar
The Stolper-Samuelson
production box figure and its place in the history of economic thought are
developed.
Bilateral factor abundance and intensity with many
factors, products, and countries
with Dajun Tuo, The CJU Journal of Business and Economics, 2009
The bilateral definitions of
factor abundance and factor intensity are extended to any number of factors,
products, and countries.
Endogenous trade and factor proportions production
International Journal of Economic Research, 2007, 171-7
Marshall meets Heckscher,
Ohlin, and Samuelson in a comparative static factor proportions model with
neoclassical offer curves, production, utility maximization, and trade.
General equilibrium production with
constant elasticity of substitution
with
Hugo Toledo, Keio Economic Studies,
2007
CES production greatly greatly
simplifies general equilibrium production models. Properties not in the literature are
developed.
Aggregation and applied trade theory
Journal of Economic
Integration, 2005
The level of aggregation of products and factors alters
results in tests of the theory of production and trade. Aggregation alters the level of intraindustry trade, estimates of factor substitution,
factor intensity rankings, factor abundance, price responsiveness, and
more. This paper develops a series of
propositions for applied trade theory.
Duopoly quotas and relative import
quality
with Randy Beard, International
Review of Economics and Finance, 2003, 275-81
A quota on imports
in an international duopoly is generally thought to lead to import quality
upgrading but the opposite occurs with a low volume of high quality
imports. Quotas lower the quality of
domestic products. Import quality may
fall but there is always relative import quality upgrading.
Factor intensity as Euclidean distance
Keio Economic Studies,
#1, 2003, 1-7
Factor intensity is defined when there are either two
factors or two products. This paper
generalizes the definition of factor intensity to the situation of many factors
and many products. Distance factor
intensity is the Euclidean distance from the unit value of a factor to its
intersection with an intensity ray hyperplane. Factor intensity distance is useful in
applied factor proportions theory.
This chapter examines performance of the intensity price
link under various parametric relaxations of assumptions about industrial
structure and factor market behavior.
There is a tendency to discount the intensity price link because of the
restrictive conditions of the competitive model. Parametric relaxations, however, reveal a
robust Stolper-Samuelson intensity price link.
Price taking monopolies in small open
economies
Open Economies Review,
2002, 205-9
A monopoly exporter or importer in a small open economy
is a price taker in the world market searching for the quantity that maximizes
profit. This model describes various
resource industries. The effects of changing
prices and factor endowments on monopoly profit and output depend on factor
intensity and substitution.
Definitions of factor abundance and
the factor content of trade
Open Economies Review,
1999, 385-94
Factor abundance is a simple concept when there are only
two factors or two countries but with more factors and countries defining
factor abundance is a challenge.
Definitions of factor abundance in the literature are weaker than the
original definition.
This paper presents the trade balance in a general
equilibrium model of production & trade.
The working assumption is a free neutral stockpile of the export to fund
a trade deficit or accumulate a trade surplus.
This paper presents an alternative simpler model of
product differentiation that can be integrated into competitive trade
models. The model develops product
differentiation based on production characteristics rather than demand
specification.
Examples and graphs of numerous production frontiers and
relative price curves with Cobb Douglas coefficients solidify neoclassical
models of production and trade. Blackboard production frontiers should be
flatter and contract curves more convex than might be typically drawn. Other properties of theory are revealed with
the simulations.
Some properties associated with nontraded
goods are due to capital specificity and international capital is mobile
between sectors in the long run. The
full range of comparative static results is analyzed for the long run in a
model with international capital.
International differences in
production functions and factor price equalization
Keio Economic Studies,
1997, 43-54
Trade theory assumes identical production functions
across countries but in applied analysis production functions have different
coefficients. Most results of trade
theory hold if production functions are similar enough in a measurable
parametric sense. Euclidean distance
measures this difference extending models of production and trade.
The theory and evidence point to the usefulness of factor
price equalization despite its frequent dismissal in the literature. In practice, factor price convergence is the
relevant concept. There is mounting
empirical evidence in favor of factor price convergence. The advice for LDCs is free trade and for DCs
income redistribution to maintain a middle class based on labor income.
International micro and macro economics are integrated in
a model of the balance of payments and production with international movement
of productive capital. Balance of
payments theory is connected to production and trade.
A model of aggregate unemployment is included in a general
equilibrium model of production and trade with the unemployment rate a negative
function of aggregate income, Okun’s law.
FTZs avoid protection on imports of intermediate
products. The inverted tariff structure
of FTZs is examined. Price conditions
favoring the formation of FTZs are developed.
This survey extends the 1966-67 Econometrica surveys of John Chipman to uniformly cover 20 years of research in the
theory of production and trade. The
focus is on theory with competitive pricing and full employment.
This comment emphasizes the distinction between real
income and welfare in a model of migration and income redistribution.
This paper reviews the theory of migration and income
redistribution in competitive models, presenting new results when there are
many factors. Migration friendship is
intransitive: if immigration of factor A raises the price of B and immigration
of B raises the price of C, then immigration of A must lower the price of C. This conflict of interest may contribute to
explaining the disagreement on immigration policy.
Trade theory with three productive factors
These papers with 3 factors of production expand the
general equilibrium theory of production and trade beyond the factor
proportions model with 2 factors.
Classical economics is based on production with labor, capital, and
land. These papers integrate
neoclassical trade theory back into the classical background.
International trade with three
factors, goods, or countries, Keio
Economic Studies, 2001, 43-52
Akira Takayama noted that 3 is
a magic number for trade theory since trade theorems are based on models with 2
factors, 2 goods, and 2 countries. This
paper looks at the range of theoretical possibilities with 3 of each
generalizing trade theorems.
An oil tariff may lower wages in a model with capital,
labor, and energy inputs depending on factor intensity and substitution.
With a single domestic factor of production, a tariff
attracts international capital to the import competing industry. This property, however, is not necessary if
there are two domestic factors.
Properties of this model with two domestic factors are completely
developed.
Foreign management is the third input in a model with
labor and capital. Foreign managers are
supplied in an international market and move according to international
demand. Conditions under which
management might accompany capital are examined.
The magnification effect shows that a tariff raises the
real return to at least one factor and lowers it to at least one other. With 2 factors and 2 goods, there is a single
magnification effect based on factor intensity.
Moving to 3 factors, there are 13 magnification effects.
Factor intensity reversals can occur with an industrial
shutdown when there are 3 factors of production, contrary to the result with
only 2 factors. The industry starts with
sector specific capital then suffers a price decline. As it shuts down, it may reverse factor
intensity even under the assumption of homothetic production functions. With CES production, however, factor
intensity reversals are impossible.
The answer is not necessarily when there are three
factors. The intuition that tariffs
protect specific factors is based on the two factor model. The expanding import competing industry can
hire shared inputs but with two inputs the expanding industry must increase
demand for its specific factor.
Workers in labor abundant countries should enjoy higher
wages with free trade. When there are
three factors there might be factor price polarization. Wages in labor cheap countries then fall with
a move to free trade as export of the "labor intensive" product
increases with substitution.
The theoretical impacts of technical complements are
developed for three factors, including factor intensity and the comparative
statics in the 3x2 model.
This paper develops a model with sector specific capital
and perfectly elastic international capital supply.
A long run model of international factor movements and
free trade is examined with internationally mobile capital and two domestic
factors of production. The model lays
the foundation for international factor mobility to equalize factor prices.
These papers simulate various general equilibrium models
of production and trade with data calibration.
Insight is gained into the size of adjustments in factor prices and
outputs to changing prices and factor endowments. The relative importance of factor
substitution and intensity is examined.
Labor skills and factor proportions trade in the Gulf
Cooperation Council
with Hugo Toledo, International Review of Economics and Finance, 2009
Differences
in labor skill intensity and abundance suggest there will be substantial trade
between the modern and traditional GCC economies.
Tariff elimination and the wage gap in an industrial
specific factors model
with John Francis, Review
of International Economics, 2009
A
specific factors model of 458 US manufacturing industries simulates the effects
of eliminating manufacturing tariffs on the wage gap between unskilled and
skilled labor. Tariff elimination slightly lowers both wages and increases the
wage gap. To maintain the present income
distribution, free trade has to be coupled with tax reform.
A specific factor model of FTAA and North Carolina
textile and apparel industry
with Mostafa Malki
and Osei Yeboah, International Economic Journal, 2009
Textile
and apparel industries will face increasing import competition in the Free
Trade Area of the Americas. A specific
factors model of production and trade predicts the potential impact in North
Carolina. Returns to specific capital
and output fall considerably with gains thinly spread across other
industries. Wages rise across six labor
skill groups except for agriculture and production labor.
The impact of a BSE outbreak in a specific factors model
with Osei-Agyeman Yeboah and Victor Ofori-Boadu, International
Journal of Applied Economics, 2009
A collapse in the price of beef and associated price
changes lead to general equilibrium adjustments in outputs, wages, and capital
returns. Beef output and capital return
closely mirror the collapsed price while pork and poultry industries
expand. Wages and energy prices fall
slightly and capital returns across the rest of the economy rise negligibly.
Free Trade with Cuba: The Effects of a
Lifted Embargo in Alabama
with Curtis
Jolly, Southern Economics and Business
Journal, 2008, 83-92
with Josip Funda and Mia Mikic, International
Economics and Finance Journal, 2006, 157-69
The specific factors model provides a gauge of the
pending adjustments in Croatia as it enters the EU. The applied production model has labor
specific to each of 23 industries in agriculture, manufacturing, and services. For a range of reasonable industrial price
changes, the effects on industry wages and outputs are large.
The quantitative impacts of
changing prices and capital endowments on income distribution are compared in
simulated factor proportions and specific factors models. The models include various production
functions, skilled labor aggregates, and countries.
When prices change due to trade, factor intensity has a much stronger influence
on income redistribution than factor substitution. Foreign capital has a much
weaker influence on income redistribution.
FTAA and Colombia: Income distribution
across labor groups
with
Hugo Toledo, International Review of Economics & Finance, 2005, 203-12
The impact of free trade in the Americas on income
distribution in Colombia is examined in a small scale simulated model of
production and trade. The projected
income redistribution is large, helping unskilled labor.
The effects in Bolivia on industrial production and
income distribution due to South American free trade are examined in a
competitive model of production and trade. Outputs of manufacturing, gas,
agriculture, services, and mining adjust with the entry of Bolivia into Mercosur.
Redistribution of income between labor and capital is projected, and the
adjustments to output and income distribution are large.
This simulation of the general equilibrium competitive
model of production and trade has eight skill types of labor and capital
input. Effects of tariffs on factor
prices follow "factor intensity" loosely interpreted.
In this simulated competitive model of production with
three factors, free trade is projected to lower the unskilled wage but raise
the skilled wage and the return to capital in the US. The implication is that increased income
redistribution will be required to maintain the prior personal income distribution.
A simulation of the specific factors model predicts how
much various industries and labor groups in Alabama will be affected by
NAFTA. Imports of labor intensive
products will rise under NAFTA.
Projected industrial losers are apparel, textiles, and other labor
intensive manufacturing and the projected adjustments are large. Unskilled labor lose
relative to skilled labor.
This paper uses the general equilibrium competitive model
and finds that labor, opposed to skilled labor and capital, gain with free
trade in a number of LDCs. This presents
reason for LDCs to move to free trade, even unilaterally. Capital owners, however, will lobby for
protection along with skilled labor.
This is a comparison of the strengths of the two most
important concepts in the theory of production and trade, factor intensity and
factor substitution. Simulations show
factor intensity has more impact than factor substitution in comparative static
analysis. The implication is that a
simple examination of factor intensity anticipates the effects of prices
changes.
A detailed data set is used in an application of the
specific factors model to examine the Japanese economy. The comparative static model is based on
production data for industries at the two digit level with separate skilled and
unskilled labor.
This is a direct application of the competitive model of
production and trade with three inputs to migration and income
distribution. Foreign investment and
emigration help unskilled labor. There
are different adjustments across the LDCs.
This detailed examination of the comparative static
properties of the competitive model of production and trade includes capital
and eight types of labor in the manufacturing, agriculture, and services.
This paper applies the competitive model of production
and trade to examine the effects of factor movements on factor prices in
Canada. Two factors are friends if an
increase in the supply of one raises the price of the other, and immigration
friends and enemies are discussed.
Immigration of unskilled labor raises both skilled wages
and the capital return in this application of the competitive model of
production and trade. The various sign
patterns of changes in factor prices are derived. Strengths of factor intensity and factor
substitution are compared in the simulations.
Wages in a Factor Proportions Time Series Model of the US
Journal of International Trade and Economic Development, 2009
Effects of changes in prices and factor endowments on
wages in general equilibrium models are well known. The present paper is the first to estimate
these wage effects in the context of the theory. Data cover the US wage, labor force, fixed
capital assets, energy input, and prices of manufactures and services from 1949
to 2006.
Productivity, imports, and the
softwood lumber dispute
with Venkatarao Nagubadi
and Daowei Zhang, The
International Trade Journal, 2009
The various phases of the softwood lumber
dispute between Canada and the US affect productivity and trade between the two
countries. Protection lowers relative
productivity in the US.
Lost Protection and Wages: Some Time
Series Evidence for the US,
with
Cassandra Copeland, International Review
of Economics and Finance, 2007
Time series analysis shows that the falling US tariffs
starting in the mid 1960s had only a very minor effect on US manufacturing
wage. Using parameter estimates, an
average tariff of 18% would be required to raise the wage 1%, certainly
lowering the real wage.
Factor abundance is a bilateral concept that is
undefined when there are many countries and various factors of production. The present paper evaluates a general
definition, the Euclidean distance to the intersection of abundance rays with
unit hyperplanes.
This distance measure of factor abundance performs well relative to
other measures in a well known data set from the literature.
An empirical measure of factor
intensity when there are many factors and many products
The International Trade
Journal, 2007
Viability of the mean weighted measure of factor
intensity is examined for high dimensional models of production and trade.
Exchange rates and commodity markets:
Global trade in corn, cotton, poultry, and soybeans
with
Abdul Almarwani and Curtis Jolly, Agricultural Economics Review, 2007
This paper analyzes an integrated model of global trade in
basic commodities finding inconsistent effects of bilateral exchange rates and
no risk effects.
Free trade and a case of local tomato
production
with
Abdul Almarwani and Curtis Jolly, Agricultural Economics Review, 2007
Time series projections indicate that Alabama lost $17
million in tomato production over the first eight years of NAFTA due to import
competition from Mexico.
Measuring factor abundance across many
factors and many countries
with Farhad Rassekh, Open Economies Review, 2002, 237-49
Tests of the factor content theory of trade
depend critically on the measure of factor abundance when there is data with
many factors of production and many products.
This paper evaluates measures of factor abundance in the literature and
introduces a mean weighted abundance measure.
It performs better empirically in predicting the factor content of trade
in a well known data set.
This application of the Stolper-Samuelson
theorem uncovers results consistent with factor proportions theory. The empirical model and estimation technique
control for the assumptions of full employment, labor mobility across sectors,
and balanced trade. The data covers OECD
countries during 1970-85. Results are more favorable for the specific factors
model.
Economic
growth, open economy macroeconomics
The switch to the euro and euro appreciation may be
thought to have lowered tourism revenue in Greece. The opposite is found in an error correction
model of optimal tourist spending with data from 1974 to 2006 controlling for
foreign income and air travel cost.
Economic Growth and Foreign Capital
Review of Development
Economics, 2008, 694-701
Foreign capital is separated from domestic capital and a
steady state occurs where both capital/labor ratios are constant. Incomplete convergence characterizes the model
with steady state flows of foreign investment and trade imbalances. Some countries are perpetual investment
sources, and others hosts.
Foreign investment and transition in Central/Eastern
Europe along the phase curve
with Valentina Hartarska, Applied
Econometrics and International Development, 2008, 67-78
Foreign investment is added to
domestic investment to estimate transition along the phase curve, a departure
from the assumption of estimating growth models assuming the data is in the
steady state. Foreign investment
incrementally contributes to growth across the 27 countries during the
transition, 1997 to 2003.
An analysis of the impact of freedoms
on economic growth
with
John Kagochi and Nii Tacki, Journal of
African Development, Spring 2007, 13-29
Time series analysis of Nigeria (1970-2000) finds that
political freedom and investment have stimulated economic growth, while economic
freedom and the price of oil have not.
Third country news in the monetary
model of the exchange rate
with John
Jackson and Juliet Zheng, Applied Financial Economics, 2005, 757-64
US news affects other exchange rates in the monetary
model of the exchange rate. Exchange
rate models disregarding third country effects are mis-specified,
suggesting unexplained exchange rate variance may not be a speculative bubble.
Exchange rates, exchange risk, and
Asian export revenue
with WenShwo Fang and YiHao Lai, International Review of Economics and
Finance, 2005
Depreciation may raise export revenue but associated exchange
risk could offset any positive effect.
Asian export markets react differently to exchange rates and associated
risk.
Exports have had only a weak influence on income in
Taiwan, weakening the case for export subsidies.
Exchange rate effects are difficult to isolate in
aggregate industrial data but this paper uncovers strong local effects in
Alabama's main export industries since the 1970s. Depreciation (appreciation)
raises (lowers) production of exported products, and the effects are large.
Devaluations have had little impact on the trade balance
in India.
Oil depletion and terms of trade, Keio Economic Studies, 2007, 19-25
A model of the international oil
market model with optimal depletion and offer curves suggests importers face a
backward bending offer curve. An oil tariff
would raise oil imports and lower the price of oil including the tariff. Simulations of price and extraction paths for
the coming century provide insight into the future of oil prices and depletion.
The applied theory of energy
substitution in production
Energy
Economics, 2006, 410-25
This careful review of the applied
theory of energy cross price partial elasticities of substitution aims to
encourage increased empirical research on the potential of energy
substitution.
The first step in restructuring the US
electric industry
with
Andy Barnett & Keith Reutter, Energy
Economics, 2005, 225-35
This first step was taken in the early 1900s as the
competitive locally franchised electric industry successfully lobbied for state
regulated monopoly power. As a result of
monopoly power, the price of electricity rose and the number of firms dropped.
Clean air stranded costs: How big?
with
Andy Barnett and Justin Isaacs, The
Electricity Journal, 2002
Electric utilities have the legal right to
pass off their losses to taxpayers due to capital that proves uncompetitive
with deregulation. The Clean Air Act
promises to strand more costs than competition.
Retail competition and interstate
electricity trade in the Southeast
with
Andy Barnett and Justin Isaacs, The Electricity Journal, 2002
Retail competition and consumer choice across
states in the Southeast leads to consumer gains in high price states but losses
in low price states. The opposite is
true for producers. The potential gains
and losses are substantial.
Short circuits in energy markets:
California and competition
The Electricity Journal, 2001
Vertical integration of refineries into pipelines and oil
fields raises the stock ratings of oil companies, suggesting economies of
vertical integration.
Prices definitely rise with a tax on energy input and
real wages would fall if nominal wages were constant. Wages depend on how firms adjust to higher
energy prices.
Electricity is a weak substitute for capital and labor in
Alabama manufacturing. Regional
deregulation would result in higher electricity prices as Alabama becomes a low
cost exporter. The higher price of
electricity in Alabama would raise the demand for capital and labor inputs in
manufacturing.
Moderate substitution is found between electricity and
other inputs over 20 years in Greece.
The present policy to reduce energy input should increase demand for
capital and labor.
Bottom feeding as opposed to the cream skimming is
possible for regulated monopolies.
News and volatility of food prices
with Yuqing Zheng
and Henry Kinnucan, Applied Economics, 2007, 1-7.
Unexpected changes and volatility are shown
to have an impact on commodity prices.
Industrial Subsidies in Alabama:
Economic Impact across Counties
with
Anthony Gadzey and Osei Yeboah, Southern
Economics and Business Journal, 2005
The rate of return on industrial relocation subsidies in
Alabama across 30 counties for 20 years has been 1%. The subsidies would be better spent giving
tax breaks to all industry.
State economic incentives: Stimulus or reallocation?
with
Pete Cacalgno, Public
Finance Review, 2004, 651-65
The empirical answer is reallocation. Tax competition only redistributes income and
does not stimulate investment across US states.
US export industries are doing well, but labor intensive industries
are struggling in the face of import competition. Capital intensive manufacturing is expanding
for export production. This is exactly
the prediction of factor proportions theory with expanding trade with Mexico.
This descriptive study carefully distinguishes between
income distribution within a country and income distribution across
countries. Any change in policy will
cause income redistribution within a country.
If a country wants to maintain its pattern of income distribution in a
move to free trade, the redistribution tax structure will have to adjust.
This paper discusses the potential of increased
efficiency with privatization of nationalized industry, examining the steps
from nationalized industry to regulated industry to deregulated industry.
Countries around the world are at various stages of privatization, the tendency
in the electricity industry.
This is a collection of memories from colleagues of an
inspiring economist and wonderful person with a lust for life.
International Economics: Global
Markets and Competition, World Scientific, 2006
Economics of International Trade and the Environment by Batabyal and Beladi, American
Journal of Ag Economics, 2004