Trade reform, policy uncertainty and the current account: A non-expected utility approach

Current Account;Free Trade;Non Expected Utility Theory

Location Choice

Much of the excitement around the North American Free Trade Agreement (NAFTA) has been generated by anticipations of a strongly foreign investment response. Nevertheless, the plethora of applied papers about the NAFTA have all either ignored DFI or kept it exogenous. In this paper we provide support, with empirical underpinning, for the anticipation of a strong DFI response; however this support is qualified by the demonstration that no such DFI response will be forthcoming unless the NAFTA is used to drastically reform the agriculture and services sectors in Mexico.

Lockdowns as Options

The irreversibility of dying coupled with gradual information acquisition over time on the likely arrival and eventual effectiveness of vaccines confers a real option value to lockdown strategies that delay the incidence of pandemics given a stochastic vaccine arrival/effectiveness process