We study the optimal trade policy against a foreign oligopoly withendogenous quality. We show that, under the Most Favoured Nation(MFN) clause, a uniform tariff policy is always welfare improvingover the free trade equilibrium. However, a nonuniform tariff policyis always desirable on welfare...

Empirical evidence suggests that sectoral export growth decreases exporters' survival probability, whereas this is not true for non-exporters. Models with firm heterogeneity in total factor productivity (TFP) predict the opposite. To solve this puzzle, we develop a two{factor framework where...

We show that in a fully integrated economy, in which there is free mobility of goods and factors, each member’s share of total output will equal its shares of total stocks of productive factors (i.e., physical and human capital). We label this result the equal-share relationship. This...

We first demonstrate that, within a fully integrated economy (FIE) in which there is free mobility of goods and factors, each FIE member's share of total FIE output will equal its shares of the total FIE stock of each productive factor. This equal-share property implies that, if economic...

This discussion paper led to a forthcoming publication in </I>Journal of Regional Science</I> entitled 'Are EU Countries less Integrated than US States? Theory and Evidence'.<P>European economic integration is commonly believed to be incomplete, and that further reforms are needed. In this context, the...</p>

With the advent of globalization, economic and financial interactions among countries have become widespread. Given technological advancements, the factors of production can no longer be considered to be just labor and capital. In the pursuit of economic growth, every country has sensibly...

To serve foreign markets, firms can either export or set up a local subsidiary through horizontal Foreign Direct Investment (FDI). The conventional proximity-concentration theory suggests that FDI substitutes for trade if distance between countries is large, while exports become more important...

We empirically examine the heterogeneity in the effects of multiple dimensions of distance on trade across detailed product groups. Using finite mixture modeling on bilateral trade data at the 3-digit SITC level, we endogenously group product categories into an, a priori unknown, number of...

Ineffective institutions increase transaction costs and reduce trade. This paper shows that differences in the effectiveness of institutions offer an explanation for the tendency of OECD countries to trade disproportionately with each other, and with non-OECD countries.

The gravity model is the workhorse model to describe and explain variation in bilateral trade patterns. Consistent with both Heckscher-Ohlin models and models of imperfect competition and trade, this versatile model has proven to be very successful, explaining a large part of the variance in...