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Professor James E. AndersonWilliam B. Neenan S.J. Millennium Professor of EconomicsChairman of the Economics Department |
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ABSTRACTSTHE MERCANTILIST INDEX OF TRADE POLICY* James E. Anderson and J. Peter Neary March 6, 1998 Abstract This paper develops and characterizes an index of trade policy restrictiveness
defined as the uniform tariff equivalent which maintains the same volume of
trade as a given set of tariffs, quotas, and domestic taxes and subsidies.
We relate this volume-equivalent index to the Trade Restrictiveness Index, a
welfare-equivalent measure, and to the trade weighted average tariff Applications
to international cross-section and time-series comparisons of trade policy show
that the new index frequently gives a very different picture than do standard
indexes. JEL: F13 Keywords: International trade policy; tariffs; quotas; Trade Restrictiveness Index; trade liberalisation.
Autarky and Anarchy: Endogneous Predation and Trade James E. Anderson
Douglas Marcouiller, S.J.
This paper offers a general equilibrium model in which a common and analytically "clean" transactions cost --- that which arises from exposure to theft --- is endogenously determined by forward-looking, utility-mazimizing individuals. Insecurity dramatically restricts specialization and trade, affects the welfare of the trading partners asymmetrically, and reflects the state of institutions for risk-sharing and coordination of defense. We show that anarchy presumptively implies autarky. The model provides an excellent framework for understanding the collapse of trade between Spain and its American colonies and may also apply to many contemporary forms of corruption. This paper reflects helpful comments from participants in seminars at the University of Konstanz, Pompeu Fabra University, Ludwig Maximilian University (Munich), the London School of Economics, the University of Notre Dame, the Latin American and Caribbean Economic Association, the Midwest International Economics Group, and the NBER Summer Institute. Anderson acknowledges the hospitality of the NBER and the Institute for International Economic Studies, Stockholm, during work on this paper. JEL: F10 James E. Anderson Oriana Bandiera Journal of Development Economics (2005), 77, 341-66.
efficiency of private enforcement of property rights. We develop a model where properties of different values are subject to predatory attacks and owners must choose between self-defense and purchasing private enforcement services. A distributional conflict of interest arises as private protection purchased by rich owners deflects predators on low value properties. We show that the market structure of private enforcement and the level of development affect the distribution of property income through relative changes in the security of high and low values property. We also show that privately provided enforcement can be higher than its socially optimal level because of the negative externality that enforcers and their rich customers impose on poorer owners. The availability of private enforcement may then constrain the enforcement policy of a welfare maximizing State. Keywords: enforcement, predation, informal sector. JEL Classification: H11, H42, K42.
James E. Anderson Maurizio Zanardi Free University of Brussels Abstract Much economic policy is deliberately shifted away from direct political processes to administrative processes --- political pressure (group) deflection. Pressure deflection poses a puzzle to standard political economy models which suggest that having policies to `sell' is valuable to politicians. The puzzle is solved here by showing that incumbents will favor pressure deflection since it can deter viability of a challenger, essentially like entry deterrence. US trade policy since 1934 provides a prime example, especially antidumping law and its evolution.
Trade and Contract Enforcement
July, 2006
(100 words) JEL Classification: F0, F1, H1, O170. Keywords: Contract enforcement, trade, institutions. Contributions to Economic Analysis &
Policy (2006), Vol 5 (1), Article 30.
James E. Anderson* and Eric van Wincoop** Journal of Economic Literature, (2004), 42, 691-751.
* Economics Department, Boston College and NBER, Chestnut Hill, MA 02467, USA, Tel: 617-552-3691,e-mail: James.Anderson.1@bc.edu ** Department of Economics, University of Virginia, e-mail: vanwincoop@virginia.edu Prepared for the Journal of Economic Literature. #research downloads
Gravity with Gravitas: A Solution to the Border Puzzle* James E. Anderson Abstract The gravity model has been widely used to infer substantial trade flow effects of institutions such as customs unions and exchange rate mechanisms. McCallum [1995] found that the US-Canada border led to trade between provinces that was a factor 22 (2,200%) times trade between states and provinces, a spectacular puzzle in light of the low formal barriers on this border. We show that the gravity model usually estimated does not correspond to the theory behind it. We solve the ``border puzzle'' by applying the theory seriously. We find that national borders reduce trade between the US and Canada by about 40%, while reducing trade among other industrialized countries by about 30%. The spectacular McCallum headline number is the result of a combination of omitted variables bias and the small size of the Canadian economy. Revised version of NBER WP 8079; October, 2001. American Economic Review March 2003. Keywords: Gravity model; border effects; trade liberalization.
Borders, Trade and Welfare Eric van Wincoop We find that international economic integration has large potential welfare effects, even in a static constant returns competitive world economy. Our method has elements of novelty. The effect of border barriers on trade flows is often inferred from gravity models. But their rather atheoretic structure precludes welfare analysis. Computable general equilibrium models are designed for tight welfare analysis, but lack econometric foundation and are often black boxes. Our method combines these approaches. We show that gravity models based on Anderson's (1979) interpretation are full general equilibrium models of a special simple sort. In Anderson and van Wincoop (NBER WP 8079, 2001) we develop this structure to estimate and calculate the comparative static effects on trade flows of border barriers. In this paper we further deploy the model to explore the comparative statics of welfare with respect to borders, to currency unions and to NAFTA. Our NAFTA exercise does a much better job of replicating the actual trade flow changes than do the main computable general equilibrium models. An interesting implication of gravity models is that terms of trade changes are very important, even for 'small' countries such as Mexico. JEL classification: F0
Trade and Informal Institutions James E. Anderson November, 2001 #research downloads James E. Anderson Oriana Bandiera Journal of International Economics (2006), 70, 197-215.
JEL Classification: F1, K42
An
earlier version was presented to the Peace Science Society meetings, Atlanta,
GA, Jan. 2002, at Brown University and at the LSE. We are indebted to Hong-bin
Cai, Herschel Grossman, Evi Pappa and Steve Redding for helpful comments. Does Trade FosterContract
Enforcement ? James E. Anderson Economic Theory, 41(1), 105-131 Contract enforcement is probabilistic, but the probability depends on rules and processes. A stimulus to trade may induce traders to alter rules or processes to improve enforcement. In the model of this paper, such a positive knock-on effect occurs when the elasticity of supply of traders is sufficiently high. Negative knock-on is possible when the elasticity is low. Enforcement strategies in competing markets are complements (substitutes) if the supply of traders is sufficiently elastic (inelastic). The model provides a useful structure of endogenous enforcement that gives promise of explaining patterns of institutional development. JEL Classification: F10, O17, K42. August 2009 International Economic Review, 50(3), 903-927 Much empirical work requires the aggregation of policies. This paper provides methods of policy aggregation that are consistent with two common objectives of empirical work. One is to preserve real income. The other is to preserve the real volume of activity in one or more parts of the economy. Trade policy aggregation is an acute example of the aggregation problem with thousands of highly dispersed trade barriers to be aggregated. An application to India shows that the standard atheoretic method of aggregation is seriously misleading compared to the consistent method. Commercial Policy in a
Predatory World Predation --- extortion or theft --- imposes significant endogenous costs on trade, with rich implications for trade policy. The model of this paper shows that the response of trade to liberalization depends on the strength of enforcement against predators. Efficient commercial policy may either tax or subsidize trade. The Mercantilist predilection for trade monopoly and for subsidy has a rationale. Insecurity induces an international externality alternative that of the standard terms of trade effect. Tolerance or intolerance of smuggling can be rational depending on the weakness or strength of enforcement, illustrated by the switch from the former to the latter by Britain in regard to its North American colonies. JEL Classification: F13, O17, K42 August 2006 What kind of tariff reform is likely to raise welfare in situations where tariff revenue is important? Lack of information about specification and imprecise parameter estimates of any particular specification both reduce the credibility of simulation estimates. A promising alternative is to develop rules that work well despite the lack of information. We present sufficient conditions for a class of linear rules under which welfare improving tariff reform can be guaranteed. The rules span cones of welfare improving tariff reforms consisting of convex combinations of (i) trade-weighted average preserving dispersion cuts and (ii) uniform tariff cuts that preserve domestic relative prices among tariff-ridden goods. Journal of International Economics (2007), 71, 187-205. We show that the effects of tariff changes on welfare and import volume are fully characterised by their effects on the generalised mean and variance of the tariff distribution, implying two "cones of liberalisation" in commodity price space. Because welfare is negatively but import volume positively related to the generalised variance, the cones do not intersect, which poses a policy dilemma. We present a new radial tariff reform rule, which implies new results for welfare- and market-access-improving tariff changes. Finally, we show that generalised and trade-weighted moments are mutually proportional when the trade expenditure function is CES. JEL classification: F13, F15. Economic Integration and the Civilizing Commerce Hypothesis James E. Anderson World Economy, (2008), 31, 141-57 Economic integration lowers one form of trade costs, tariffs, and stimulates changes in other trade costs. This paper offers a model in which integration may raise or lower the important trade cost associated with insecurity. The model can help to explain the varied experience with integration and it points to the usefulness of combining enforcement policy integration with trade policy integration. Gravity,
Productivity and the Pattern of Production and Trade James E. Anderson In a global economy the incidence of productivity in distribution and production is what matters for welfare and the pattern of production and trade. Incidence is derived from the gravity model. Sectoral and national differences in the incidence of TFP have sharp implications for the equilibrium pattern of production and trade in a specific factors model of production. Productivity shocks induce incidence shocks. Below (above) average incidence sectors produce less and have below (above) average skill premia. In contrast to the generalized Ricardian gravity model of Eaton and Kortum (2002), relative factor endowments play a role and import-competing production and wage premia in exporting are featured. JEL Classification: F10, D24 Globalization and Income Distribution: A Specific Factors Continuum Approach James E. Anderson Does globalization widen inequality or increase income risk? Globalization amplifies the effect of idiosyncratic relative productivity shocks. But wider markets reduce the effect of economy-wide supply shocks on world prices. Both forces are at work in the specific factors continuum model of this paper. Ex post equilibrium exhibits positive (negative) premia for export (import-competing) sector specific factors. Globalization widens inequality in North and South. Globalization increases personal income risk from idiosyncratic productivity shocks, but reduces aggregate shock risk acting on the factoral terms of trade. Both forces have their greatest impact on the poorest and least impact for the richest trading sectors, while the distribution in nontraded sectors is unaffected. JEL Classification: F10 The Changing Incidence of Geography NBER Working Paper No. 14123, October, 2008 American Economic Review, forthcoming Neglected properties of the structural gravity model offer a theoretically consistent method to calculate the incidence of estimated trade costs, disaggregated by commodity and region, and re-aggregated into forms useful for economic geography. For Canada's provinces, 1992-2003, incidence is on average some five times higher for sellers than for buyers. Sellers' incidence falls over time due to specialization, despite constant gravity coefficients. This previously unrecognized globalizing force drives big reductions in `constructed home bias', the disproportionate share of local trade; and large but varying gains in real GDP. Aggregation biases gravity coefficients downward. JEL Classification: F10, D24 James E. Anderson Protection is defined broadly as government action or inaction that discriminates in favor of home producers against foreign producers. Measurement of protection has two aspects: observing or inferring protection at the product level and appropriately aggregating the highly differentiated product level protection to manageable indexes of protection. Better practice in each aspect makes a very significant difference to the measured level of protection across product groups, countries and time. JEL Classification: F13 Terrorism, Trade and
Public Policy James E. Anderson Are bigger markets safer? How should government policy respond to terrorist threats? Trade draws potential terrorists and economic predators into productive activity, but trade also draws terrorist attacks. Larger trade reduces the risk of terrorist attack when the wage elasticity is high, associated with low ratios of predators to prey and high wages; but it may increase the risk of terrorist attack when the wage elasticity is low, associated with high ratios of predators to prey. Anti-terrorist trade policy should always promote trade in simultaneous play. Government first mover advantage and inelastic wage may imply trade restriction. Tolerance of smuggling may improve security. Better enforcement should ordinarily be provided for bigger, inherently safer and higher wage markets. JEL Classification: F13, O17, K42 James E. Anderson The high trade costs inferred from gravity are rarely used in the wide class of trade models. Two related problems explain this omission of a key explanatory variable. First, national seller and buyer responses to trade costs depend on their incidence rather than on the full cost. Second, the high dimensionality of bilateral trade costs requires aggregation for most practical uses in interpretation or standard trade modeling. This paper provides an intuitive description of a resolution to the aggregation and incidence problems. For each product, it is as if each province or country sells to a world market containing all buyers and buys from from that market containing all sellers, the incidence of aggregated bilateral trade costs being divided between sellers and buyers according to their location. Measures of incidence described here give intuitive insight into the consequences of geography, illustrated with results from Anderson and Yotov (2008). The integration of the incidence measures with standard general equilibrium structure opens the way to richer applied general equilibrium models and better empirical work on the origins of comparative advantage. forthcoming in The Gravity Model in International Trade: Advances and Applications, Steven Brakman and Peter Bergeijk, eds., Cambridge University Press, forthcoming. |