Trade Costs, International Competition and Selection: The Effects of Unionisation on Market Size

Within a two-country model of international trade in which heterogeneous firms face firm-specific unions, we study the effects of different forms of trade liberalisation on market structure and competitive selection in the presence of inter-country asymmetries in size and labour market institutions. For given levels of trade openness, an increase in a country’s relative unions’ strength reduces the average productivity of its domestic producers but increases that of its exporters. Whilst an unfavourable union power differential, by increasing wages, weakens a country’s firms’ competitive position, the higher wages reinforce standard market access mechanisms to give rise to aggregate income effects. When the initial levels of trade openness are sufficiently low, this ‘expansionary’ aggregate effect can attract industry in the country with stronger unions and also result in an increase in the extensive margin of exports. For sufficiently large inter-country differences in the bargaining power of unions, trade liberalization can then result in a pro-variety effect, with an increase in the total availability of varieties to consumers in both countries, regardless of there being inter-country differences in size.

On the causes of the African Slave Trade

This paper offers an integrated analysis of the forces shaping the emergence of the African slave trade over the early modern period. We focus our attention on two questions. First, why most of the increase in the demand for slaves during this period came exclusively from western Europeans. Second, and of most relevance for present-day development outcomes, why was the overwhelming majority of slaves of African origin. Technological differences in manufacturing technology, the specificities of sugar (and other crops’) production, and the cultural fragmentation of the African continent all play a role in the analysis. Supporting evidence for each of our claims is provided from a broad corpus of relevant literature.

Relationship between trade openness and economic growth of India: A time series analysis

The paper aims to examine the empirical relationship between trade openness and economic growth of India for the time period 1970-2010. Trade openness is a multi-dimensional concept and hence measures of both trade barriers and trade volumes have been used as proxies for openness. The estimation results from Vector Autoregressive method suggest that growth in trade volumes accelerate economic growth in case of India. We do not find any evidence from our analysis that trade barriers lower growth.

Factor Proportions and the Growth of World Trade

Most of the expansion of global trade during the last three decades has been of the North-South kind - between capital-abundant developed and labour-abundant developing countries. Based on this observation, I argue that the recent growth of world trade is best understood from a factor-proportions perspective. I present novel evidence documenting that differences in capital-labour ratios across countries have increased in the wake of two shocks to the global economy: i) the opening up of China and ii) financial globalisation and the resulting upstream capital flows towards capital-abundant regions. I analyse their impact on specialisation and the volume of trade in a dynamic model which combines factor-proportions trade in goods with international trade in financial assets. Calibrating this model, I find that it can account for 60% of world trade growth between 1980 and 2007. It is also capable of predicting international investment patterns which are consistent with the data

FDI, Trade Costs and Regional Asymmetries

We set up a trade model where three countries compete for an exogenous number of firms. Our innovation lies in the geography of the model. Of the three countries, one is the hub through which all trade takes place. First, we establish the natural geography of the region, which is given by the equilibrium distribution of industrial activity in the absence of taxes or subsidies. We then examine the implications for corporate taxes when the countries compete with each other to attract firms. We find that, even when all countries are the same size, the centrality of the hub gives it an advantage in tax setting, such that its equilibrium tax can be larger than that of the spokes and yet it still attracts a disproportionate share of industry. Thus geographic advantage in tax competition has a second dimension, centrality in addition to size.

Bilateral oligopoly and quantity competition

Bilateral oligopoly is a strategic market game with two commodities, allowing strategic behavior on both sides of the market. When the number of buyers is large, such a game approximates a game of quantity competition played by sellers. We present examples which show that this is not typically a Cournot game. Rather, we introduce an alternative game of quantity competition (the market share game) and, appealing to results in the literature on contests, show that this yields the same equilibria as the many-buyer limit of bilateral oligopoly, under standard assumptions on costs and preferences. We also show that the market share and Cournot games have the same equilibria if and only if the price elasticity of the latter is one. These results lead to necessary and sufficient conditions for the Cournot game to be a good approximation to bilateral oligopoly with many buyers and to an ordering of total output when they are not satisfied.