Factor Scarcity, Factor Abundance and Attitudes Towards Protection: The 323 Model
Journal of International Economic Integration 7(1), Spring 1992, 1-19
by Ronald W. Jones
Abstract: Not Available

Domestic Resource Cost
Journal of International Economic Integration 7(1), Spring 1992, 20-44
by Edward Tower
Abstract: This paper resolves several points about proper use of the domestic resource cost (DRC) concept. It explores its relationship to the effective rate of protection, resolves the conflict between differing views of the DRC, generalizes it, and argues that the DRC depends on the assumptions made about the hypothetical policy intervention and adjustment mechanisms, so these should always be specified along with any DRC calculation. Finally, DRCs are argued to be only some of many potentially useful cost/benefit ratios that a general equilibrium model will generate, and a plea is made for more frequent use of such models in cost/benefit analysis.

Intertemporal Optimization under Threat of VER
Journal of International Economic Integration 7(1), Spring 1992, 45-57
by Govind Hariharan, and Howard J. Wall
Abstract: The imposition of a commercial policy does not generally come as a complete surprise to the affected parties. Exporting firms have some information about the political climate in their export markets, and thus, can assess the probability of a trade restraint being imposed. In the case of a quantity restriction, it is likely that the volume of trade allowed after the restraint is positively related to the volume of trade before the restraint. Thus, firms have an incentive to increase current production so that the losses they would incur in the event of a restriction are decreased. Such an incentive is referred to in the literature as the 'Yano effect'. This paper uses an imperfectly competitive model to develop a different and more direct channel for the Yano effect and to determine its impact on intertemporal welfare.

The Terms of Trade, Investment, and the Current Account
Journal of International Economic Integration 7(1), Spring 1992, 58-79
by Robert G. Murphy
Abstract: This paper develops an optimizing model of a small open economy to study the adjustment of investment, saving, and the current account to a deterioration in the terms of trade. The analysis highlights the role of the real exchange rate as a channel through which changes in the terms of trade are transmitted to the rest of the economy. The results indicate that the response of investment and the current account to a permanent change in the terms of trade depends importantly on the relative strengths of income and substitution effects in determining household demand for non-traded goods. Furthermore, the paper finds that a temporary deterioration in the terms of trade is always associated with a current account deficit and capital accumulation in the long run, although the current account and investment may rise or fall in the short run.

Monetary Growth Volatility and Asset Prices in a Two-Country Cash-in-Advance Model
Journal of International Economic Integration 7(1), Spring 1992, 80-101
by Marcelo Bianconi
Abstract: This paper contributes to the existing literature in the cash-in-advance asset-pricing general equilibrium model for open economies by showing that if one allows for a variable velocity of circulation in the domestic and/or foreign economy, the responses of assets, currencies, and relative prices to changes in the conditional variance of the domestic and/or foreign monetary growth process are critically different from the case where the velocities of circulation are constant.

Provisional PARFTA (Pacific Rim Free Trade Agreement) and Its Economic Effect
Journal of International Economic Integration 7(1), Spring 1992, 102-112
by Myung-gun Choo
Abstract: The U.S. economy, which has experienced huge trade deficits in 1980s, on the one hand, has launched the NAFTA against the European Community and Japan and, on the other hand, has forced the Asian countries to open their domestic market. However, in order to maintain a mutually beneficial world economic order and to maximize the effect of integration, it is necessary for the U.S. to expand the scope of NAFTA and to form PARFTA (Pacific Rim Free Trade Area). It is because PARFTA can attain remarkable level of intra-regional trade dependency, market size and negotiating power in comparison with NAFTA. In fact, market opening of Korea and Taiwan has not been as beneficial to the U.S. as it had hoped, while it further expanded Japanese surplus. A plausible way for the U.S. to ease the trade deficit is to use Korea and Taiwan as export bases to the Japanese market. This could be effective strategy to integrate world markets, while increasing negotiating power with Japan.

Vol. 7 No. 2 Autumn 1992

The Trading Potential of Eastern Europe
Journal of Economic Integration 7(2), Autumn 1992, 113-136
by Z. K. Wang, and L. Alan Winters
Abstract: Not Available

The Dynamic Rybczynski Theorem and Its Dual
Journal of Economic Integration 7(2), Autumn 1992, 137-150
by Ngo Van Long
Abstract: In the context of capital accumulation, it is shown that there exists a dynamic version of the Rybczynski Theorem, and of the Stolper-Samuelson Theorem. If, in addition, the investment good is labour intensive, then a dynamic reciprocity relation is also obtained. In the case where the investment good is capital intensive, only a weak form of duality between the two theorems can be established. The paper makes use of the dynamic envelope results of Caputo, and of Lafrance and Barney.

Optimal Monetary and Exchange-Rate Policy with Wage Indexation
Journal of Economic Integration 7(2), Autumn 1992, 151-173
by Arthur Benavie, and Richard Froyen
Abstract: This paper investigates the setting and coordination of monetary policy and foreign exchange market intervention. This is done within a framework that invokes neither purchasing power parity nor uncovered interest parity and which allows for wage indexation. Optimal policies are designed in the presence of domestic IS, LM and productivity shocks, as well as international asset demand shocks and foreign income, price and interest rate shocks. One feature of these policies is that for the monetary policy parameter a Poole (1970)-type ranking emerges, with a fixed interest rate optimal for all financial shocks and a vertical LM curve optimal for domestic IS and foreign income shocks. Also of interest is the fact that for both these sets of shocks a fixed exchange rate is part of the optimal policy. Only for foreign price shocks is an exchange rate adjustment part of the optimal response.

Public Inputs and the Pattern of Trade between Underemployed Economies
Journal of Economic Integration 7(2), Autumn 1992, 174-180
by Sajid Anwar
Abstract: This paper investigates the relationship between the supply of a pure public input and the pattern of trade between underemployed economies.

Parallel Trade in Pharmaceuticals: The Impact on Welfare and Innovation
Journal of Economic Integration 7(2), Autumn 1992, 181-203
by Richard P. Rozek, and Richard T. Rapp
Abstract: Differences among nations in political, social, economic, legal and regulatory regimes cause differences in prices across countries, which, in turn, create opportunities for arbitrage or 'parallel trade.' As with any form of arbitrage, one effect of parallel trade is to diminish the price differentials that gave rise to the arbitrage opportunity. At least four market situations exist in which parallel trade may reduce welfare and weaken the intellectual property rights of innovators. In these settings, a policy that restricts either parallel trade or incentives for parallel trade yields net economic benefit to society. This paper summarizes these situations.

Wage Differential, the Price of Services and Welfare
Journal of Economic Integration 7(2), Autumn 1992, 204-216
by Chi-Chur Chao, and Eden S. H. Yu
Abstract: A three-goods general equilibrium model is developed to examine the effect of economic growth on the price of services and welfare for poor and rich countries. The presence of intersectoral wage differentials provides an alternative explanation for the lower price of services in poor countries. The price of services is shown to play a central role in determining the welfare effect of economic growth.