Narrow Results

We employ a bilateral R&D spillover model to analyze how a domestic government coordinates its intellectual property rights (IPR) and trade policies and hence affects a foreign firm’s choice between export (EX) and foreign direct investment (FDI). We find that both firms’ profits increase with IPR protection if the IPR protection level in the domestic country is loose. The domestic country can coordinate trade and IPR policies and reach a high welfare level by affecting foreign firm’s entry decisions. The profitability and desirability may decrease with the strength of IPR protection and correspond to a welfare-reducing R&D.

In the context of the current Presidential administration’s policy to reduce imports to the US and its restrictive attitudes toward immigration, it is relevant to investigate how imports and immigration are related. Existing studies have typically analyzed the effects of immigration on imports. But we wondered if the reverse causality could be worthy of examination. Thus, this study explores the impacts of trade policy on immigration. The first part discusses whether trade policies impact immigration, and the second part delves deeper into the heterogeneous effects of trade policies on high-skilled and low-skilled immigration. A large country’s restrictive import policies increase labor demand stemming from the increased demand for import substitution. Thus, workers in the exporting countries see a strong incentive to move to importing countries. Such restrictions also affect the propensity to immigrate of high- and low-skilled workers differently. Net capital inflows increase because trade restrictions appear to decrease capital outflows to exporting countries in part by losing investors’ confidence. This increases the demand for high-skilled workers as capital complements them. Therefore, high-skilled workers are more migratory than those of low-skilled. Using a panel of 20 OECD countries for the period of 1980–2010 and an instrumental variable method, the results show that restricted trade policies increase immigration and that such policies have a stronger impact on the high-skilled immigration than those of low-skilled. A clearer understanding of the channels through which trade will be a determinant of skilled migration may assist policymakers to craft an appropriate policy environment that enhances import substitution of skill-intensive goods that would serve to discourage skilled emigration.

This paper examines the impact of unilateral tariff increases on the world growth rate using a two-country endogenous growth model when firms are internationally mobile, technical knowledge in research and development is an international public good, and iceberg transport costs are not subject to tariffs. In this paper, we find that a unilateral tariff increase in one country raises or lowers the world growth rate, depending on the degree of elasticity of substitution between any two differentiated goods and the share of firms owned by the country that raised tariffs.

The E3ME-FTT model is applied to assess the impacts of alternative climate club structures. We consider two kinds of climate club memberships: the World Climate Club (WCC), where every country in the world joins the club, and the Core Climate Club (CCC), with seven likely club members: EU$+$5, Japan, South Korea, Canada, Brazil, Mexico, and Australia. First, we find that both the WCC and domestic revenue-neutral recycling matter a lot. The global CO₂ emissions in 2050 could be reduced by 50% from BAU under the WCC. With domestic revenue-neutral recycling, there will be large positive impacts on GDP under both the WCC and the CCC. Secondly, the negative effects of trade sanctions on cumulative global GDP and global CO₂ emissions make it unwelcome to be used as part of the club design. Lastly, the introduction of international transfers will result in a win–win solution that will not only increase the cumulative global GDP and reduce global CO₂ emissions but also enhance the equality among club members and induce more likely participation in the climate club.

Because free-riding behavior is an inherent characteristic of climate change, how to protect the economic benefits of the emission reduction regions and prompt the noncooperative region to join the emission reduction coalition is particularly important. In this study, we use a global multi-region multi-sector CGE model to compare the impacts of border carbon adjustment (BCA) and two unified tariff mechanisms based on different implementation principles on USA. The results show that the BCA is more effective in reducing carbon leakage in USA than the uniform tariff mechanisms. However, for GDP and welfare losses, the scenario Tariff-carbon-reduction results in greater GDP and welfare losses in USA, which is more conducive to prompting USA to implement carbon reduction policies than the BCA measures. Finally, the sensitivity analysis of carbon price levels and key substitution elasticity further confirmed the results.

The E3ME-FTT model is applied to assess the impacts of alternative climate club structures. We consider two kinds of climate club memberships: the World Climate Club (WCC), where every country in the world joins the club, and the Core Climate Club (CCC), with seven likely club members: EU+5, Japan, South Korea, Canada, Brazil, Mexico, and Australia. First, we find that both the WCC and domestic revenue-neutral recycling matter a lot. The global CO₂ emissions in 2050 could be reduced by 50% from BAU under the WCC. With domestic revenue-neutral recycling, there will be large positive impacts on GDP under both the WCC and the CCC. Secondly, the negative effects of trade sanctions on cumulative global GDP and global CO₂ emissions make it unwelcome to be used as part of the club design. Lastly, the introduction of international transfers will result in a win—win solution that will not only increase the cumulative global GDP and reduce global CO₂ emissions but also enhance the equality among club members and induce more likely participation in the climate club.

The expansion of the U.S. corn seed trade is not well understood. This article econometrically investigates world demand for U.S. corn seeds, focusing on trade costs impeding exports, including transportation, tariffs, and sanitary and phytosanitary (SPS) regulations. The analysis estimates a derived demand for seed by foreign corn producers using data from 48 countries for the years 1989 to 2004. An SPS count variable captures shifts in the cost of seeds faced by foreign users. A sample selection framework accounts for the large presence of zero trade flows. All trade costs have a significantly negative impact on U.S. com seed exports.

Why do governments employ inefficient policies when more efficient ones are available for the same purpose? We address this puzzle in the context of redistribution toward special interest groups (SIGs) by focusing on a set of important policies: tariffs and non-tariff barriers (NTBs). In our policy choice model a government can gain by committing to constrain tariffs through international agreements even if this leads to the use of less efficient NTBs; commitment has political value because it improves the bargaining position of a government that is weak relative to domestic SIGs. Using detailed data we find support for several of the model's predictions including: (i) tariff commitments in trade agreements increase the likelihood and restrictiveness of NTBs but not enough to offset the original tariff reductions; (ii) tariff commitments are more likely to be adopted and more stringent when the government is weaker relative to a SIG. Thus, the results can explain the use of inefficient policies for redistribution and suggest that the bargaining motive is an important source of the political value of commitment in international agreements.

Using Bernheim and Whinston (1986) common agency game, we endogenize trade policy in a duopoly composed of a domestic firm and a foreign firm, where both firms influence the domestic government’s trade policy via their contributions. The foreign firm can jump over trade restrictions by undertaking foreign direct investment (FDI) in the domestic market. The government prefers a voluntary export restraint (VER) to a tariff for two reasons. First, a VER leads to higher contributions from the foreign firm than a tariff. Second, a VER provides a higher level of protection to the domestic firm without generating FDI by the foreign firm.

This paper shows how unilateral liberalization in one country can increase the voting support for reciprocal reduction in trade barriers in a partner country. When trade policies are determined simultaneously in the two countries, we show the possibility of multiple political equilibria — one in which the countries are both protectionist and another in which they trade freely with each other. Starting with trade protection in both countries, a unilateral reform in one country is shown to bring about a free trade equilibrium that obtains majority support in both countries.