Welfare Implications of Regionalism in the GATT: The Presence of Foreign Ownership

This paper examines the welfare implications of an existence of free trade agreements (FTAs) and customs unions (CUs) in the GATT system, in the presence of cross-foreign ownership among countries. In particular, two GATT regimes are analyzed: a pure GATT regime without any regional free trade agreements, and modified GATT regime with either an FTA or a CU. This paper argues that, when foreign ownership exists significantly between the countries, no countries in the GATT have an incentive to form a regional trade agreement before they participate in multilateral tariff negotiations.Most Favored Nation Clause, Free Trade Agreements, Customs Unions, Foreign Ownership

Preferential Tariff Policy, Product Quality and Welfare

optimal tariff, preferential free trade agreement, product quality, product R&D

Welfare Implications of Regionalism in the GATT

This paper investigates the welfare implications of an existence of a free trade agreement (FTA) and a customs union (CU) within the GATT. Two types of GATT regimes are considered in a completely symmetric world: a pure GATT regime without any type of the regional trade agreements (RTAs), and a modified GATT regime with one of them. The main results are for a range of sufficiently high discount rate, first that free trade and global welfare efficiency can be supported under the pure GATT regime but not under the modified regimes, and second that a country's ranking of the both regimes depends on (1) whether it belongs to an RTA or not and (2) which one of the RTAs it belongs to. The insight of these results are that the regionalism in the GATT may restrict free trade and thus fails to achieve the highest global welfare.Most Favored Nation Clause, Free Trade Agreements, Customs Unions

Educational Implications of School Systems at Different Stages of Schooling

In educating students national public school systems use different methods of grouping students by ability across schools. We consider four different school systems of student allocation at different stages of schooling and their educational implications. Our two-period model suggests that both the frequency and sequence of ability grouping play an important role in producing educational implications. As different households prefer different combinations of school systems, the overall performance of a school system is determined by how households are distributed over income and a child's ability and the voting of households.Education, Comprehensive and Selective School Systems

School Systems and Efficiency and Equity of Education

How students should be allocated to schools to achieve educational goals is one of important debates on the construction of school systems. Promoters of comprehensive and selective school systems fail to reach a consensus on implications of each system for efficiency and equity of education. This paper examines impacts of different systems of student allocation on educational goals, using a simple economic model. It argues that how a selective system is designed matters a great deal in a comparison between comprehensive and selective systems: different designs of a selective system can yield widely different educational implications compared with those from a comprehensive system. A judicious use of a selective system can at times achieve educational goals better than a comprehensive system. Given our finding that different households prefer different school systems, we suggest that by offering multiple subsystems, the educational planner can enhance educational attainments of households beyond those achieved by a single national system.Education, Comprehensive and Selective School Systems

Exports Under an Import Substitution Trade Regime: An Alternative View

Along with export promotion (EP), import substitution (IS) is one of the two main trade strategies for developing countries. We show that an IS industry may remain an infant and still be able to export. Therefore, the ability to export is not necessarily evidence of import substitution being effective in the sense of helping a protected domestic industry achieve international competitiveness over time.

Labor-Management Bargaining, Labor Standards and International Rivalry

Using the labor union's bargaining power as an indication of government policy on labor standards issues, we analyze the competition between a domestic (North) firm and a foreign (South) firm, and their relationship with optimal labor standards (LS). First, we show that the optimal level of LS is higher when labor unions are employment-oriented than when they are not. Second, it is higher under free trade than under the optimal tariff system if labor unions are employment-oriented. Third, 'a race to the bottom' of LS occurs in the case of wage-oriented unions. Fourth, the North's imposing a tariff to force the Southern government to raise its LS is effective only if the Southern union is wage-oriented. In order to raise Southern LS, both countries may need some deeper form of economic integration, if the North does not want to abandon its free trade system.Labor Standards, Race to the Bottom, Tariff, Economic Integration, Labor Union

On the Role of Local Content Requirement in Defusing the Threat of Quid-Pro-Quo FDI

We analyze local content requirement (LCR) and tariff in a two-country model of vertical market-structure with endogenous foreign direct investment (FDI). The foreign firm chooses whether to export or to undertake FDI. The host country anticipates the potential for FDI and selects tariff with or without LCR rate accordingly. Without LCR, the FDI imposes a threat on the host country and the threat exerts a tariff-liberalizing pressure. This FDI is often coined as quid-pro-quo FDI in the literature. In contrast, we show that with LCR the host government can defuse the threat of quid-pro-quo FDItariff, local content requirement, export, quid-pro-quo foreign direct investment

Overlapping Free Trade Agreements of Singapore-USA-Japan: A Computational Analysis

The proliferation of overlapping free trade agreements (FTA) in the recent years has led to hub-and-spokes (HAS) throughout the world. Being avid subscribers to FTAs, many countries in the Asia-Pacific region including the USA, Japan, Singapore, South Korea, Thailand and Australia have become trade hubs to their partners who are in turn relegated to spoke status. In this paper, we question whether being a hub is welfare optimal for a small and open economy like Singapore compared to membership in a single bilateral FTA or a multi- member free trade zone. Within this context, we use a computable general equilibrium model to examine the welfare implications of the triangular trade relationship of the USA, Singapore and Japan. This is facilitated by the Japan- Singapore Economic Partnership Agreement, the USA-Singapore Free Trade Agreement, and a hypothetical USA-Japan Economic Partnership Agreement. The analysis is extended to incorporate “super-hub” effects; that is, the spoke countries can be trade hubs in other HAS systems. The experiment reveals that hub status generates positive welfare gain and is the highest Singapore can get from the trade configurations considered. Meanwhile, Japan loses more than the USA when both are relegated to spoke status. These findings prove robust under different market structures and production technologies, deeper economic integration, “super-hub” effects, as well as, uncertainty in the key model parameters and the extent of trade liberalisation shocks.hub and spokes; overlapping agreements; free trade; preference dilution; computable general equilibrium; GTAP; systems; trade configurations

A Note on Free Trade Agreement and Wage Bargaining Structure

Mezzeti and Dinopoulos (1991) show that a free trade agreement (trade liberalization) decreases wage rate. However, Naylor (1998) shows that trade liberalization increases wage rate. Both papers consider tariff as exogenously given. In this paper we show that these conflicting results can be nested into a model of international duopoly with a more general wage bargaining structure. Tariff is endogenously determined in our model. In addition, we also derive crucial implications of the wage bargaining structure on the sustainability of trade liberalizationwage bargaining structure, optimal tariff regime, free trade agreement