International Trade and Local Organization of Production - Two Elementary Propositions

This paper argues that international trade should affect local organization of production in a systematic way. By using the standard Heckscher-Ohlin-Samuelson model we show that the export sector is more likely to demonstrate fragmentation, entrepreneurship and outsourcing compared to the import-competing sector in a typical labor abundant country. Liberal trade regime will promote entrepreneurship in general. This is the first elementary proposition. Local outsourcing also establishes a clear link between trade and productivity. This is the second elementary proposition.Trade, outsourcing, entrepreneurship, productivity

Growth with Time Zone Differences

We propose a two-country growth model of intermediate business-services trade that captures the role of time zone differences. It is shown that a time-saving improvement in intermediate business-services trade involving production in different time zones can have a permanent impact on productivity.Business-Services Trade; Time Zone Differences; Growth; AK model

REGIONAL OPENNESS, INCOME GROWTH AND DISPARITY ACROSS MAJOR INDIAN STATES DURING 1980-2004

As a country progressively engages in international trade, its factors of production will enter increasingly into the export sector, where their return is higher, compared to the import competing sector. At the regional level too those states, which can attune their production structure to international demands, earn higher than other states and grow at a faster rate. Further if the newly-industrial states concentrate more on those sectors, a trend of regional convergence will be discernible. Then, the regional openness index, developed by Marjit, Kar and Maiti (2007), has been reconstructed by using two alternative weighting techniques to combine the export and import intensities, ranks of correlation of state production shares, respectively with national export and import shares of the states. The per capita net state domestic products have grown in all major states in India during 1980-2004 but at different rates resulting to the rise of regional disparity and the regional openness have been detrimental for this. The state, which moved away from importable production to exportable production, grew faster than the rate of others at least by 1-1.5% per annum. Definitely, a few newly-industrial states showed an increasing dependence on exportable production, but not all. Moreover, some of the industrially developed states (in terms of exportable share) it has been observed yet continue with importable production to a large extent.Regional Openness Index, trade, Growth, Disparity, Indian States

Corruption and Trade in General Equilibrium

We use the HOSV model of trade to find out a link between corruption and the pattern of trade, not just its effect on the volume of trade. We prove that greater corruption in labor-abundant countries will restrict the volume of world trade while corrupt capital-abundant countries promote trade. This is caused by intermediaries who are engaged in mitigating the transaction cost of corruption. Relatively corrupt economy will export capital-intensive goods. However, relatively capital-abundant country will be worse off with increasing degree of corruption at home and abroad, whereas the labor-abundant country may gain from further corruption.Corruption, International Trade, Factor-intensity, General equilibrium

Domestic entry, international trade cost reduction and welfare

We show the welfare effects of international trade cost reduction under endogenous domestic market structure. If the domestic labour market is competitive, there is no integer constraint and the trade cost represents transportation cost, a reduction in the transportation cost does not affect (may reduce) domestic welfare if the products are perfect (imperfect) substitutes. If the trade cost represents tariff, domestic welfare is higher under a positive non-prohibitive tariff compared to both free trade and no trade. In the presence of an integer constraint, a lower transportation cost may reduce consumer surplus and increase the profits of the active domestic firms and domestic welfare, even if the products are homogeneous. If there is no integer (integer) constraint and the products are perfect substitutes, transportation cost reduction reduces (may increase) domestic welfare in the presence of a domestic labour union. We also show that entry for the domestic country may be socially excessive or insufficient under a competitive domestic labour market, while it is always socially insufficient in the presence of a domestic labour union.Free entry; Transportation cost; Tariff; Labour union; Welfare

Wages, labour mobility and international trade

This chapter is an extensive review of the existing literature on international migration of labour and its close interactions with international trade in goods and services. In addition, we provide a brief model to show that emigration of labour from a developing country has strong implications for the domestic skilled to unskilled wage movements. In fact, depending on intensity assumptions across sectors and emigration of skilled or unskilled workers, the wage gap may increase or decrease.International migration, wages, trade, complementarity, skill

Conspicuous Consumption, Social Status and Measures of Poverty – An Example

The existing literature on poverty has discussed about the conflict between income-based measure and nutrition-based measure. However, the role of social inequality in influencing individual’s consumption and inducing greater consumption of the so called status good has been relatively undermined. This paper attempts to show that in presence of inequality a status driven utility function reconciles the conflict between income based and nutrition based measures of poverty.Inequality, Utility, Poverty

Firm productivity and foreign direct investment: a non-monotonic relationship

The theoretical prediction of Head and Ries (‘Heterogeneity and the FDI versus export decision of Japanese manufacturers', 2003, Journal of the Japanese and International Economies, 17: 448-67) is that if the foreign plant is not used to serve the home market, the exporters can be more productive than the foreign direct investors only if the host-country wage is lower than the home-country wage. With unionized labor markets, we show that there always exist situations where the exporters are more productive than the foreign investors even if the host-country wage is higher than the home-country wage. Given the cost of FDI, a higher trade cost and higher bargaining powers of the labor unions make this result more likely.

Firm Heterogeneity, Informal Wage and Good Governance

We provide an analysis of enforcement policies applicable to formal sector in dual labor markets. We use a framework with heterogeneous firms, endogenous determination of informal wage and politically dictated enforcement strategies. Firms which operate both in the formal and informal sectors do very little to increase employment when faced with the opportunity of hiring workers in the informal labor market. Thus enforcement of labor laws and other regulations should not have aggregate employment effects, particularly when workers are productively homogeneous. For firms operating exclusively in the informal sector, the outcome is different. Such features determine the stringency of enforcement in a market characterized by firms with varying levels of productivity. For example, in case of firms with relatively high levels of productivity, enforcement has to be stricter than in the case with relatively low productivity firms. Taxing the more productive seems to be the optimal strategy.heterogeneous firms, informal labor, wage, labor regulations, enforcement