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Now showing items 1 - 16 of 80

  • A Theory of Capital Controls as Dynamic Terms-of-Trade Manipulation

    Arnaud Costinot   Guido Lorenzoni   and Iván Werning  

    We develop a theory of capital controls as dynamic terms-of-trade manipulation. We study an infinite-horizon endowment economy with two countries. One country chooses taxes on international capital flows in order to maximize the welfare of its representative agent, while the other country is passive. We show that a country growing faster than the rest of the world has incentives to promote domestic savings by taxing capital inflows or subsidizing capital outflows. Although our theory of capital controls emphasizes interest rate manipulation, the pattern of borrowing and lending, per se, is irrelevant.
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  • Comparative Advantage and Optimal Trade Policy

    Arnaud Costinot   Dave Donaldson   Jonathan Vogel  

    The theory of comparative advantage is at the core of neoclassical trade theory. Yet we know little about its implications for how nations should conduct their trade policy. For example, should import sectors with weaker comparative advantage be protected more? Conversely, should export sectors with stronger comparative advantage be subsidized less? In this paper we explore these issues in the context of a canonical Ricardian model. Our main results imply that optimal import tariffs should be uni- form, whereas optimal export subsidies should be weakly decreasing with respect to comparative advantage, reflecting the fact that countries have more room to manip- ulate prices in their comparative-advantage sectors. Quantitative exercises suggest substantial gains from such policies relative to simpler tax schedules.
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  • Comparative Advantage and Optimal Trade Policy

    Arnaud Costinot   Dave Donaldson   Jonathan Vogel  

    The theory of comparative advantage is at the core of neoclassical trade theory. Yet we know little about its implications for how nations should conduct their trade policy. For example, should import sectors with weaker comparative advantage be protected more? Conversely, should export sectors with stronger comparative advantage be subsidized less? In this paper we explore these issues in the context of a canonical Ricardian model. Our main results imply that optimal import tariffs should be uni- form, whereas optimal export subsidies should be weakly decreasing with respect to comparative advantage, reflecting the fact that countries have more room to manip- ulate prices in their comparative-advantage sectors. Quantitative exercises suggest substantial gains from such policies relative to simpler tax schedules.
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  • BEYOND RICARDO: ASSIGNMENT MODELS IN INTERNATIONAL TRADE

    Arnaud Costinot   Jonathan Vogel  

    International trade has experienced a Ricardian revival. In this article, we offer a user guide to assignment models, which we will refer to as Ricardo-Roy (R-R) models, that have contributed to this revival.
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  • Comparative Advantage and Optimal Trade Policy

    Arnaud Costinot   Dave Donaldson   Jonathan Vogel  

    The theory of comparative advantage is at the core of neoclassical trade theory. Yet we know little about its implications for how nations should conduct their trade policy. For example, should import sectors with weaker comparative advantage be protected more? Conversely, should export sectors with stronger comparative advantage be subsidized less? In this paper we explore these issues in the context of a canonical Ricardian model. Our main results imply that optimal import tariffs should be uni- form, whereas optimal export subsidies should be weakly decreasing with respect to comparative advantage, reflecting the fact that countries have more room to manip- ulate prices in their comparative-advantage sectors. Quantitative exercises suggest substantial gains from such policies relative to simpler tax schedules.
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  • BEYOND RICARDO: ASSIGNMENT MODELS IN INTERNATIONAL TRADE

    Arnaud Costinot   Jonathan Vogel  

    International trade has experienced a Ricardian revival. In this article, we offer a user guide to assignment models, which we will refer to as Ricardo-Roy (R-R) models, that have contributed to this revival.
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  • COMPARATIVE ADVANTAGE AND OPTIMAL TRADE POLICY

    Arnaud Costinot   Dave Donaldson   Jonathan Vogel  

    The theory of comparative advantage is at the core of neoclassical trade theory. Yet we know little about its implications for how nations should conduct their trade policy. For example, should import sectors with weaker comparative advantage be protected more? Conversely, should export sectors with stronger comparative advantage be subsidized less? In this paper we take a first stab at exploring these issues. Our main results imply that in the context of a canonical Ricardian model, optimal import tariffs should be uniform, whereas optimal export subsidies should be weakly decreasing with respect to comparative advantage, reflecting the fact that countries have more room to manipulate prices in their comparative-advantage sectors. Quantitative exercises suggest substantial gains from such policies relative to simpler tax schedules.
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  • Comparative Advantage and Optimal Trade Taxes

    Arnaud Costinot   Dave Donaldson   Jonathan Vogel  

    Intuitively, a country should have more room to manipulate world prices in sectors in which it has a comparative advantage. In this paper we formalize this intuition in the context of a canonical Ricardian model of international trade. We then study the quantitative importance of such considerations for the design of unilaterally optimal trade taxes in two sectors: agriculture and manufacturing.
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  • TRADE THEORY WITH NUMBERS: QUANTIFYING THE CONSEQUENCES OF GLOBALIZATION

    Arnaud Costinot   Andrés Rodríguez-Clare  

    We review a recent body of theoretical work that aims to put numbers on the consequences of globalization. A unifying theme of our survey is methodological. We rely on gravity models and demonstrate how they can be used for counterfactual analysis. We highlight how various economic considerations—-market structure, firm-level heterogeneity, multiple sectors, intermediate goods, and multiple factors of production—- affect the magnitude of the gains from trade liberalization. We conclude by discussing a number of outstanding issues in the literature as well as alternative approaches for quantifying the consequences of globalization.
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  • GLOBAL SUPPLY CHAINS AND WAGE INEQUALITY

    Arnaud Costinot   Jonathan Vogel   Su Wang  

    A salient feature of globalization in recent decades is the emergence of "global supply chains" in which different countries specialize in different stages of a sequential production process. In Arnaud Costinot, Jonathan Vogel and Su Wang (2011), CVW hereafter, we have developed a simple theory of trade with sequential production to shed light on how global supply chains affect the interdependence of nations. In this paper we develop a multi-factor extension of CVW to explore how the emergence of global supply chains may affect wage inequality within countries. Our main theoretical prediction is that the emergence of global supply chains has opposite effects on wage inequality among workers employed at the bottom and the top of these chains. This suggests that the consequences of globalization on wage inequality may be very different in primary sectors like agriculture or mining than in manufacturing sectors.
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  • RICARDO'S THEORY OF COMPARATIVE ADVANTAGE: OLD IDEA, NEW EVIDENCE

    Arnaud Costinot   Dave Donaldson  

    When asked to name one proposition in the social sciences that is both true and non-trivial, Paul Samuelson famously replied: 'Ricardo's theory of comparative advantage'. Truth, however, in Samuelson's reply refers to the fact that Ricardo's theory of comparative advantage is mathematically correct, not that it is empirically valid. The goal of this paper is to assess the empirical performance of Ricardo's ideas. We use novel agricultural data that describe the productivity in 17 crops of 1.6 million parcels of land in 55 countries around the world. Crucially, this dataset contains information about the productivity of each parcel of land in all crops, not just those that are currently being grown. This direct information about relative productivity differences across economic activities allows us to compute, for the first time, the output predicted by Ricardo's theory of comparative advantage. Despite all of the real-world considerations from which this theory abstracts, we find that Ricardo's theory of comparative advantage has significant explanatory power in the data, at least within the scope of our analysis.
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  • New Trade Models, Same Old Gains?

    Costas Arkolakis   Arnaud Costinot   Andres Rodriguez-Clare  

    Micro-level data have had a profound in uence on research in international trade over the last ten years. In many regards, this research agenda has been very successful. New stylized facts have been uncovered and new trade models have been developed to explain these facts. In this paper we investigate to which extent answers to new micro-level questions have a ected answers to an old and central question in the... eld: How large are the welfare gains from trade A crude summary of our results is: "So far, not much."
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  • An Elementary Theory of Global Supply Chains

    Arnaud Costinot   Jonathan Vogel   Su Wang  

    This paper develops an elementary theory of global supply chains. We consider a world economy with an arbitrary number of countries, one factor of production, a continuum of intermediate goods, and one... nal good. Production of the... nal good is sequential and subject to mistakes. In the unique free trade equilibrium, countries with lower probabilities of making mistakes at all stages specialize in later stages of production. Because of the sequential nature of production, absolute productivity di erences are a source of comparative advantage among nations. Using this simple theoretical framework, we o er a... rst look at how vertical specialization shapes the interdependence of nations.
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  • An Elementary Theory of Global Supply Chains

    Arnaud Costinot   Jonathan Vogel   Su Wang  

    This paper develops an elementary theory of global supply chains. We consider a world economy with an arbitrary number of countries, one factor of production, a continuum of intermediate goods, and one final good. Production of the final good is sequential and subject to mistakes. In the unique free trade equilibrium, countries with lower probabilities of making mistakes at all stages specialize in later stages of production. Because of the sequential nature of production, absolute productivity differences are a source of comparative advantage among nations. Using this simple theoretical framework, we offer a first look at how vertical specialization shapes the interdependence of nations.
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  • An Elementary Theory of Global Supply Chains?

    Arnaud Costinot   Jonathan Vogel   Su Wang  

    This paper develops an elementary theory of global supply chains. We consider a world economy with an arbitrary number of countries, one factor of production, a continuum of intermediate goods, and one... nal good. Production of the... nal good is sequential and subject to mistakes. In the unique free trade equilibrium, countries with lower probabilities of making mistakes at all stages specialize in later stages of production. Because of the sequential nature of production, absolute productivity di erences are a source of comparative advantage among nations. Using this simple theoretical framework, we o er a... rst look at how vertical specialization shapes the interdependence of nations.
    Download Collect
  • An Elementary Theory of Global Supply Chains

    Arnaud Costinot   Jonathan Vogel   Su Wang  

    This paper develops an elementary theory of global supply chains. We consider a world economy with an arbitrary number of countries, one factor of production, a continuum of intermediate goods, and one final good. Production of the final good is sequential and subject to mistakes. In the unique free trade equilibrium, countries with lower probabilities of making mistakes at all stages specialize in later stages of production. Because of the sequential nature of production, absolute productivity differences are a source of comparative advantage among nations. Using this simple theoretical framework, we offer a first look at how vertical specialization shapes the interdependence of nations.
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