The Empirics of General Equilibrium Trade Theory: What Have We Learned?

This paper provides a selective survey of over half a century of research linking the neoclassical trade model to the data. Tensions between restrictive formulations of the model and real world complexities have launched a research agenda aimed at refining and reformulating theory to provide more convincing links between theoretical specification and empirical research design. Three lessons stand out. First, competitive and new trade theory models are complementary rather than competing ways to look at many existing empirical regularities. Second, the Ricardian formulation has proved to be a useful framework for structural estimation exercises regarding the pattern of international specialization. Third, empirical confirmations of the core predictions of the model provide scientific support for employing the competitive trade model in structural estimation.neoclassical trade theory, estimation and testing of trade theories.

On the Magic Behind David Ricardo's Four Mystical Numbers

Building on Ruffin's recent interpretation of Ricardo's four numbers as labour embodied in trade rather than domestic labour coefficients, I identify the magic behind these four mystical numbers. I show that the magic lies in Ricardo's underlying logic in predicting the pattern of international trade. Using a single graphical framework, I show that Ricardo's logic provides a device for a unified treatment of the commodity and the factor content predictions of international trade with an arbitrary number of goods, factors and countries.Ricardo’s magic numbers, pattern of trade predictions, higher dimensional issues in trade theory.

Testing the general validity of the Heckscher-Ohlin Theorem: the natural experiment of Japan

We exploit Japan's 19th century opening up to trade to test a general formulation of the Heckscher-Ohlin theorem. This formulation is based on Ohlin's measure of factor scarcity where autarky factor prices impose a refutable prediction on the economy's factor content of trade. Our test combines factor price data in Japan's autarky period with commodity trade data and a technology matrix in Japan's early free trade period. Our technology matrix is derived from a major Japanese survey of agricultural techniques during the early Meiji period, accounts by European visitors and numerous studies by Japanese and western scholars that draw on village records, business accounts and other historical sources. Evaluating Japan's factor content of trade during 1868-1875 at the corresponding autarky factor prices, we fail to reject the Heckscher-Ohlin prediction in each sample year.

Testing the General Validity of the Heckscher-Ohlin Theorem: The Natural Experiment of Japan

We exploit Japan’s 19th century move from autarky to free trade to provide the first test of the general validity of the price formulation of the Heckscher-Ohlin theorem. In this formulation a country’s autarky factor price vector imposes a single refutable prediction on the economy’s factor content of trade. Our test combines factor price data from Japan’s late autarky period with Japan’s factor content of trade calculated with the technologies of the country of origin of traded goods. The direct and indirect input requirements are constructed from many historical sources, including a major Japanese survey of agricultural techniques and a rich set of 19th century comparative cost studies. Evaluating Japan’s factor content of trade during 1865-1876 at autarky factor prices, we fail to reject the Heckscher-Ohlin hypothesis in each sample year.testing the price version of Heckscher-Ohlin, the natural experiment of Japan

Testing the General Validity of the Heckscher-Ohlin Theorem: The Natural Experiment of Japan

We exploit Japan's 19th century opening up to trade to test a general formulation of the Heckscher-Ohlin theorem. This formulation is based on Ohlin's measure of factor scarcity where autarky factor prices impose a refutable prediction on the economy's factor content of trade. Our test combines factor price data in Japan's autarky period with commodity trade data and a technology matrix in Japan's early free trade period. Our technology matrix is derived from a major Japanese survey of agricultural techniques during the early Meiji period, accounts by European visitors and numerous studies by Japanese and western scholars that draw on village records, business accounts and other historical sources. Evaluating Japan's factor content of trade during 1868-1875 at the corresponding autarky factor prices, we fail to reject the Heckscher-Ohlin prediction in each sample year.

A factor augmentation formulation of the value of international trade

We propose a normative assessment of the value of international trade that is rooted in production theory and embeds Ricardo's 1817 formulation of the gains from trade into a multi-factor general equilibrium framework. Without imposing strong assumptions on consumer rationality or data from the economy's autarky equilibrium, our formulation reveals information about both the magnitude and the sources of the gains from trade. A high quality data set on product and task-specific factor employments in 19th-century Japan permits us to apply this approach to answer the following counterfactual: What factor augmentation would have been necessary to compensate the economy for an overnight suspension of trade in its early trade years of 1865-1876? Over the entire period, we find that trade was revealed to be equivalent to a 5.5% increase in Japan's female labour force, a 3.3% increase in its male labour force and a 3.9% increase in its arable land. Efficiency losses associated with a counterfactual suspension of trade averaged between 6.3 and 7.7 percent of the economy's productive capacity

Preferences, rent destruction and multilateral liberalisation: The building block effect of CUSFTA

If a free trade agreement (FTA) is characterized by the exchange of market access with a large and competitive trading partner, the agreement can cause a leakage of protectionist benefits to domestic industry from lobbying against external tariff cuts. This rent destruction effect of an FTA can free policy makers to be more aggressive in multi-lateral tariff cuts. We argue that the Canadian-US free trade agreement (CUSFTA) provides an ideal policy experiment to link this mechanism to the data. Exploring the determinants of Canada's tariff cuts at the 8 digit HS product level, we find that CUSFTA acted as an additional driver of Canadian multilateral tariff reductions during the Uruguay Round

The Impact of Technological Change on New Trade: Evidence from the Container Revolution

This paper exploits exogenous features of the 1960s/70s container revolution to estimate the impact of the introduction of refrigerated containers (or reefers) on new trade of temperature sensitive products. Our identification strategy is justified by a historical narrative which suggests that the containerization of bilateral trading routes was exogenous to the growth of trade in ‘reefer commodities' and stimulated trade in non-traditional (exotic) non-bulk commodities such as pharmaceuticals, photo film and sensitive instruments. Our study combines previously collected data on variations in the container usage on bilateral trade routes with newly collected data on temperature sensitivity and applies them to 5-digit product level trade flows. Our benchmark estimates suggest that the introduction of reefer containers caused an increase in the likelihood of new trade in temperature sensitive products of 9% during 1968 and 1973 and 13% between 1968 and 1978

The impact of trade preferences on multilateral tariff cuts: evidence for Japan

Opposing theoretical predictions about the effects of trade preferences on multilateral tariff cuts point to the need for empirical analysis to determine whether preferential trade agreements promote or hinder multilateral trade liberalization. This paper examines the impact of Japan’s trade preferences on its multi-lateral tariff reductions. Using detailed product level data, we find that Japan’s Generalized System of Preferences (GSP) acted as a stumbling block for the country’s external tariff liberalization during the Uruguay Round of multi-lateral trade negotiations

Estimating the effects of the container revolution on world trade

Many historical accounts have asserted that containerization triggered complementary technological and organizational changes that revolutionized global freight transport. We are the first to suggest an identification strategy for estimating the effects of the container revolution on world trade. Our empirical strategy exploits time and cross-sectional variation in countries’ first adoption of container facilities and combines it with product-level variation in containerizability and container usage. Applying our container variables on a large panel of product level trade flows for the period 1962-1990, our estimates suggest economically large concurrent and cumulative effects of containerization and lend support for the view of containerization being a driver of 20th century economic globalization