On the Static and Dynamic Costs of Trade Restrictions

We analyze the costs of trade restrictions for a small developing economy. Capital goods are only introduced on the market if it is profitable to do so. The economy evolves to a balanced growth path in which income, welfare, and the share of introduced capital goods increase if trade restrictions fall. The adjustment path is asymmetric: an increase in trade restrictions will slow-down economic growth, while a decrease may give rise to a rapid catch-up process. The static costs of trade restrictions are smaller than the dynamic costs if, and only if, it changes the share of introduced capital goods.Growth, development, static and dynamic costs, trade restrictions, new goods.

Transfers, Non-Traded Goods, and Unemployment: An Analysis of the Keynes – Ohlin Debate

In the famous debate between Keynes and Ohlin on the transfer problem, the interaction between non-traded goods and unemployment complicates the analysis considerably. We analyze these issues using four different models to conclude that Keynes’s concern regarding the large burden imposed on Germany was justified. Simultaneously, we show that Ohlin’s presumption that a transfer does not affect the donor’s terms-of-trade either favourably or unfavourably was also justified. Moreover, Ohlin was also right in asserting that a transfer tends to lower the price of non-traded goods for the donor and raise them for the recipient.

Cross-Border Mergers and Acquisitions: On Revealed Comparative Advantage and Merger Waves

By combining two large data sets (on international trade flows and on mergers and acquisitions – M&As), we are able to test two implications of Neary’s (2003, 2004a) recent theoretical work. Analyzing M&As in a General Oligopolistic Equilibrium (GOLE) model incorporating strategic interaction between firms in a general equilibrium setting, we argue that: (i) M&As follow revealed comparative advantage as measured by the Balassa index, and (ii) M&As come in waves. We find convincing support for both hypotheses, thus showing for the first time that there is an empirical connection between export performance and mergers and acquisitions.comparative advantage, cross border mergers and acquisitions, merger waves, general oligopolistic equilibrium model

Structural Change in OECD Comparative Advantage

In the post-war period, the goods composition of trade in OECD countries has changed considerably. We analyze the evolution of comparative advantage using a detailed trade data set and a new analytical tool: the harmonic (weighted) mass index, which enables us to identify periods of structural change. We then analyze which forces may be responsible for the main structural changes, which primarily took place in many OECD countries in the mid 1980s. We argue that neither the rise of China and India nor the deregulation programs in many OECD countries is likely to have been the main cause. Instead, the interaction between the real and monetary economy (possibly fuelled by nominal rigidities and delays in exchange rate pass through) as measured by the large swing in the real effective exchange rate of the dollar in the 1980s is our primary candidate. In view of similar recent large swings, we argue it is likely that the OECD countries will again go through substantial structural adjustments in the near future.Balassa-index, structural change, comparative advantage

Locational competition and agglomeration: the role of government spending

With the completion of EMU, tax competition and, more in general, locational competition is high on the EU policy agenda. In contrast to the standard neo-classical reasoning, recent advances in the theory of trade and location have shown that tax competition does not necessarily lead to a ‘race to the bottom’. In these recent discussions the relevance of government spending as an instrument for locational competition is unduly neglected. We therefore introduce a more elaborate government sector in a geographical economics model by analyzing government spending and government production. By changing the relative size, direction or efficiency of the production of public goods, our simulation results show that governments can change the equilibrium between agglomerating and spreading forces. In addition, we show analytically that the introduction of public goods fosters agglomeration. Ultimately, our paper shows that by restricting attention to taxes, one ignores that government spending also determines the attractiveness of a country as a location for the mobile factors of production.

Locational Competition and Agglomeration: The Role of Government Spending

With the completion of EMU, tax competition and, more in general, locational competition is high on the EU policy agenda. In contrast to the standard neo-classical reasoning, recent advances in the theory of trade and location have shown that tax competition does not necessarily lead to a ‘race to the bottom’. In these recent discussions the relevance of government spending as an instrument for locational competition is unduly neglected. We therefore introduce a more elaborate government sector in a geographical economics model by analyzing government spending and government production. By changing the relative size, direction or efficiency of the production of public goods, our simulation results show that governments can change the equilibrium between agglomerating and spreading forces. In addition, we show analytically that the introduction of public goods fosters agglomeration. Ultimately, our paper shows that by restricting attention to taxes, one ignores that government spending also determines the attractiveness of a country as a location for the mobile factors of production.

Economic Geography within and between European Nations: The Role of Market Potential and Density across Space and Time

In explaining the uneven spatial distribution of economic activity, urban economics and new economic geography (NEG) dominate recent research in economics. A main difference between these two approaches is that NEG stresses the role of spatial linkages whereas urban economics does not do so. We estimate simple versions of these two views on economic geography and also establish if the relevance of spatial linkages varies across aggregation levels or time. For our sample of 14 European countries and 213 corresponding regions, we find that spatial linkages are more important at the country level and that its relevance varies across time.

Locational competition and agglomeration: the role of government spending

With the completion of EMU, tax competition and, more in general, locational competition is high on the EU policy agenda. In contrast to the standard neo-classical reasoning, recent advances in the theory of trade and location have shown that tax competition does not necessarily lead to a ‘race to the bottom’. In these recent discussions the relevance of government spending as an instrument for locational competition is unduly neglected. We therefore introduce a more elaborate government sector in a geographical economics model by analyzing government spending and government production. By changing the relative size, direction or efficiency of the production of public goods, our simulation results show that governments can change the equilibrium between agglomerating and spreading forces. In addition, we show analytically that the introduction of public goods fosters agglomeration. Ultimately, our paper shows that by restricting attention to taxes, one ignores that government spending also determines the attractiveness of a country as a location for the mobile factors of production.

Cross-Border Mergers & Acquisitions: The Facts as a Guide for International Economics

Using a detailed and large data set on cross-border merger and acquisitions we discuss the relationship between theory and observed empirical characteristics:(i) most FDI is in the form of M&As, (ii) firms engaged in M&As seem to be ‘market-seeking’, (iii) M&As come in waves (the most recent wave is still unfolding), (iv) economic integration (international deregulation) stimulated M&As, (v) the size of and inequality between M&As grows over time.Our contention in this chapter is that these stylized facts drive and should drive recent theoretical contributions in the field of international economics that try to understand cross-border mergers and acquisitions. Although some models (notably Neary, 2003) explain a number of the characteristics, a full-fledged model of cross-border M&As that, at least in principle, can deal with all the characteristics is still lacking.

Market liberalization in the European Natural Gas Market The importance of capacity constraints and efficiency differences

In the European Union, energy markets are increasingly being liberalized. A case in point is the European natural gas industry. The general expectation is that more competition will lead to lower prices and higher volumes, and hence higher welfare. This paper indicates that this might not happen for at least two reasons. First, energy markets, including the market for natural gas, are characterized by imperfect competition and increasing costs to develop new energy sources. As a result, new entrants in the market are less efficient than incumbent firms. Second, energy markets, again including the market for natural gas, are associated with capacity constraints. Prices are determined in residual markets where the least efficient firms are active. This is likely to lead to price increases, rather than decreases.natural gas, capacity constraints, efficiency, market liberalization