Nonuniqueness of solutions in applied general equilibrium models with scale economies and imperfect competition

Applied general equilibrium models with imperfect competition and economies of scale have been extensively used for analyzing international trade and development policy issues. They offer a natural framework for testing the empirical relevance of propositions from the industrial organization and new trade theoretical literature. This paper warns model builders and users that considerable caution is needed in interpreting the results and deriving strong policy conclusions from these models: in this generation of applied general equilibrium models, nonuniqueness of equilibria is not a theoretical curiosum, but a potentially serious problem. Disregarding this may lead to dramatically wrong policy appraisals.Competition ; Economies of scale

On sunk costs and trade liberalization in applied general equilibrium

We argue that the rationalization gains often predicted by static applied general equilibrium models with imperfect competition and scale economies are artificially boosted by an unrealistic treatment of fixed costs. We introduce sunk costs into one such model calibrated with real-world data. We show how this changes the oligopoly game in a way significant enough to affect, both qualitatively and quantitatively, the outcome of a trade liberalization exercise.Free trade

On linking microsimulation and applied GE by exact aggregation of heterogeneous discrete-choice making agents

Our paper contributes to bridge the gap between the microsimulation’s approach and applied GE models, by making use of exact aggregation results from the discrete choice literature: heterogeneous individuals choosing (possibly continuous amounts) within a set of discrete alternatives may be aggregated into a representative agent with CES/CET preferences/technologies. These results therefore provide a natural link between the two policy evaluation approaches. We illustrate the usefulness of these results by evaluating potential effects of population ageing on the dynamics of income distribution and inequalities, using a simple OLG model when individuals have to make leisure/work decisions, and choose a profession among a discrete set of alternatives.Microsimulation; Applied OLG models; Exact aggregation; Discrete choice; Population ageing; Income inequality

On Turkey's European Trade Policy: How Desirable is a Status Quo

International Relations/Trade,

A Simple Model of Offshore Outsourcing,Technology Upgrading and Welfare

We adapt Yeaple's (2005) heterogeneous agents framework to model firms in the North as making explicit offshore outsourcing decisions to cheap-labor economies. Globalization results from a lowering of the set-up costs incurred when engaging in offshore activities. We highlight how firms'technology transformations due to global- ization will induce skill upgrading in the North, increase aggregate productivity, av- erage wages and therefore total welfare at the cost of increased wage inequalities. We analytically derive mild conditions under which all consumers-including lower-skilled workers-will nevertheless gain from the surge of offshore outsourcing. A parameter- ized version of the model roughly calibrated on U.S. data is then numerically explored and confirms our positive welfare predictions.Offshore outsourcing; Globalization; Skill upgrading, Technology upgrading; Firm heterogeneity

Temporal aggregation in a multi-sector economy with endogenous growth

We provide a theoretical treatment of temporal aggregation in models that exhibit long-term endogenously-generated steady growth; hence generalizing our previous analysis (Econometrica 62, 1994, pp. 635-56). We introduce the property of steady-growth invariance - that the long-term growth of the continuous-time economy not be affected by the discretization - which imposes consistency restrictions on the joint formulation of preferences and stock accumulation of the discrete-time approximation. We establish, under mild conditions, these restrictions in the form of necessary and sufficient conditions on the discretization.Economic development

On Barriers to Technology Adoption, Appropriate Technology and Deep Integration (with implications for the European Union)

Based on two strands of research, namely ‘barriers to technology adoption’ and ‘appropriate technology’, we propose a formal reappraisal of ‘deep integration’, a broad concept often used in trade policy discussions. We then evaluate the 2004-7 EU enlargement wave utilizing this operational reappraisal. More specifically, we first estimate, using 2007 data, total labor productivity (TLP) in the 27 EU member states, and show that in all but a few sectors, new member states clearly stand below the lower envelope technology frontier of the older members in their use of skilled and unskilled labor. We interpret this as being the result of past barriers to technology adoption that are likely to be removed by the integration process into the EU, with these new counties’ TLP shifting to the incumbent members’ lower envelope. We then explore the potential effects on all 27 EU member states of this ‘deep integration’ experiment using a calibrated intertemporal multisectoral general equilibrium model. Our main finding is that, for most parameter configurations, workers’ welfare in incumbent member countries is not negatively impacted despite the rather drastic improvement in competitiveness experienced by new members

Intranasal Delivery of Influenza Subunit Vaccine Formulated with GEM Particles as an Adjuvant

Nasal administration of influenza vaccine has the potential to facilitate influenza control and prevention. However, when administered intranasally (i.n.), commercially available inactivated vaccines only generate systemic and mucosal immune responses if strong adjuvants are used, which are often associated with safety problems. We describe the successful use of a safe adjuvant Gram-positive enhancer matrix (GEM) particles derived from the food-grade bacterium Lactococcus lactis for i.n. vaccination with subunit influenza vaccine in mice. It is shown that simple admixing of the vaccine with the GEM particles results in a strongly enhanced immune response. Already after one booster, the i.n. delivered GEM subunit vaccine resulted in hemagglutination inhibition titers in serum at a level equal to the conventional intramuscular (i.m.) route. Moreover, i.n. immunization with GEM subunit vaccine elicited superior mucosal and Th1 skewed immune responses compared to those induced by i.m. and i.n. administered subunit vaccine alone. In conclusion, GEM particles act as a potent adjuvant for i.n. influenza immunization