R&D in Developing Countries: What Should Governments Do?.

I consider the implications of recent research for R&D policy in developing countries. Typical new growth models, which assume free entry and no strategic behaviour by R&D producers, are less appropriate for policy guidance than strategic oligopoly models. But the latter have ambiguous implications for targeted R&D subsidies, and caution against the anticompetitive effects of research joint ventures. A better policy is to raise the economy-wide level of research expertise. This avoids the need for governments to pick winners, is less prone to capture, and dilutes the strategic disincentive to undertake R&D with unappropriable spillovers.

Measuring Competitiveness

This paper reviews alternative approaches to measuring an economy’s cost competitiveness and proposes some new measures inspired by the economic theory of index numbers. The indices provide a theoretical benchmark for estimated real effective exchange rates, but differ from standard measures in that they are based on marginal rather than average sectoral shares in GDP or employment. The use of the new indices is illustrated by some simple calculations which highlight the potential exposure of the Irish economy to fluctuations in the euro-sterling exchange rate.

International Trade and the Environment - Theoretical and Policy Linkages

I review and extend three approaches to trade and environmental policies - competitive general equilibrium, oligopoly and monopolistic competition. The first two have surprisingly similar implications - deviations from first-best rules are justified only by constraints on policy choice (which motivates what I call a "single dividend" approach to environmental policy), and taxes and emissions standards differ in ways which reflect the Le Chatelier principle. I also show how environmental taxes may lead to a catastrophic relocation of industry in the presence of agglomeration effects, although not necessarily if there is a continuum of industries which differ in pollution intensity.Environmental policy; international trade policy; location and economic geography; pollution abatement; strategic trade policy

Foreign Direct Investment and the Single Market

In this paper, I present a simple framework in which some of these issues can be considered. I focus on a single industry (so general equilibrium repercussions are ignored), and on the location decisions of a single potential multinational firm. I begin by paying more attention than usual to the non- strategic bench-mark case where the multinational firm has a monopoly and faces no competition from domestic firms. Subsequently I relax this assumption, but even then I simplify by allowing a limited role for domestic firms.Foreign direct investment; market integration; multinational corporations; single market

Globalisation and Market Structure

This paper reviews some puzzling economic aspects of globalisation and argues that they cannot be satisfactorily addressed in perfectly or monopolistically competitive models. Drawing on recent work, a model of oligopoly in general equilibrium is sketched. The model ensures theoretical consistency by assuming that firms are large in their own markets but small in the economy as a whole, and ensures tractability by assuming quadratic preferences defined over a continuum of goods. Applications considered include the effects of trade liberalisation on industrial structure, on cross-border merger waves, and on the distribution of income between skilled and unskilled workers.Cross-border mergers; GOLE (General Oligopolistic Equilibrium); market integration; trade and wages; trade liberalisation

Europe on the Road to Doha - Towards a New Global Trade Round

This paper reviews progress to date towards a new trade agreement under the Doha Development Agenda. Some of the key issues in contention are examined, including barriers to trade in agriculture and manufacturing, intellectual property rights, and competition policy. A potential sticking point is whether the US will accept a quasi-judicial role for the WTO and constraints on the use of anti-dumping policy. European governments need to decide how badly they want to complete a new trade agreement, and should start preparing their constituents for compromise if an agreement is to be reached.

International Trade - Commercial Policy

Following a brief historical introduction and a discussion of different types of commercial policy, this paper reviews the arguments for and against trade protection. In the bench-mark case of a competitive, small, open economy, free trade maximizes aggregate national welfare, although some individual groups will lose unless compensation is actually paid. Guidelines for policy include the uniform reduction and "concertina" rules for tariff cuts, and the principle of targeting - corrective measures should be applied as close to the source of the "distortion" as possible. Relaxing the bench-mark assumptions allows exceptions to the case for free trade - "optimal" tariffs to manipulate world prices; "strategic" tariffs or export subsidies when home firms engage in oligopolistic competition with foreign rivals; and infant industry protection to allow home firms benefit from learning by doing. Protection can also raise the growth rate, though it is less likely to raise welfare in a growing economy. Overall, with due allowance for some ambiguity, both theoretical arguments and empirical evidence suggest a pragmatic case for free trade. Finally, the paper notes the political pressures for and against protection, and the role of international institutions such as the GATT in underpinning moves towards freer trade.

Monopolistic Competition and International Trade Theory

Almost twenty-five years after the appearance of Dixit and Stiglitz’s paper on monopolistic competition and optimum product diversity, I try to take stock of the progress which has been made in applying their approach to international trade theory. I review the principal applications to trade theory and present a new one - by embedding DS preferences in a specific-factors framework, I sketch a model which shows how multinational corporations can emerge even between countries with similar factor endowments. Finally, I address some limitations of the approach, including its treatment of variety, returns to scale, entry and firms’ strategies.Dixit-Stiglitz model; international trade with increasing returns and product differentiation; monopolistic competition; multinational corporations

Foreign Direct Iinvestment and the Single Market

This paper extends the theory of multinational corporations, identifying three distinct influences of internal trade liberalisation by a group of countries on the level and pattern of inward foreign direct investment (FDI). First, the tariff-jumping motive encourages plant consolidation. Second, the export platform motive favours FDI with only a single union plant relative to exporting, and may induce a firm which has never exported to invest. Finally, reduced internal tariffs increase competition from domestic firms, which dilutes the other motives and may induce a "Fortress Europe" outcome of multinationals leaving union markets even though external tariffs are unchanged.Foreign direct investment; market integration; multinational corporations; Single Market