Asia-Pacific Journal of Accounting & Economics
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Volume 13, Issue No. 2, December 2006

Special Issue for the 2006 APJAE Symposium on International Trade in Honor of Professor Ronald W. Jones

Guest Editor for the Special Issue: Sugata Marjit, City University of Hong Kong

  • Editorial Note

  • Introduction

  • Eric W. Bond and Robert A. Driskill, Distortions in Two Sector Dynamic Models with Incomplete Specialization

  • Yunfang Hu, Kazuo Nishimura and Koji Shimomura, Dynamic Three-Factor Models of International Trade

  • Minako Fujio and M. Ali Khan, Ronald W. Jones and Two-sector Growth: Ramsey Optimality in the RSS and Leontief Cases

  • Didier Laussel and Raymond Riezman, Transport Costs and North-South Trade

  • Morihiro Yomogida, International Capital Movements: Who Gains and Who Loses?

  • Sugata Marjit, Protection, Skill Formation and Income Distribution

  • Chi-Chur Chao, Jean-Pierre Laffargue and Eden S.H. Yu, Public Inputs, Urban Development, and Welfare in a Developing Economy

  • Wilfred J. Ethier, Selling "Protection for Sale"

  • Mokoto Yano, Rika Takahashi and Jin Kenzaki, Competition Policy or Tariff Policy: Which is More Effective?

  • Carsten Kowalczyk, Liberalizing Trade Between Large and Small: The Welfare from Three Different Strategies


Distortions in Two Sector Dynamic Models with Incomplete Specialization

Eric W. Bonda and Robert A. Driskilla
aVanderbilt University


We extend the Jones (1971) analysis of the effects of distortions in static 2x2 trade models to the case of a two sector dynamic general equilibrium model of a small open economy with capital accumulation. In contrast to the short run results, the direction of impact of factor market distortions on steady state values do not depend on the value and physical intensity ranking of the sectors. However, the value and physical intensity rankings play an important role in the dynamics in the neighborhood of the steady state. Differences between value and physical intensity rankings of the sectors, which gave rise to paradoxes in the static model, are shown to lead to local indeterminacy or instability in the dynamic model.

JEL Classification: F10, F11

Keywords: dynamics, trade, factor market distortions


Dynamic Three-Factor Models of International Trade

Yunfang Hua, Kazuo Nishimura b and Koji Shimomurac
a Graduate School of Economics, Kobe University
b Institute of Economic Research, Kyoto University
c Research Institute for Economics and Business Administration, Kobe University


Based on the Jones (1971) model, we construct two dynamic models of international trade in which the rate of time preference is either constant or time-varying. The main purpose is to study whether and under what conditions the results derived from the Jones model still hold in the dynamic framework. It is shown that the results of dynamic models may be similar or different to those obtained in the static model. For example, it is possible that, in both static and dynamic models, an increase in a commodity price raises this commodity's output and the rate of return to the specific factor in this sector. However, the effect on the wage rate may be different due to the factor accumulation impact in the dynamic framework.

JEL Classification: D90, F11
Keywords: dynamics, international trade, specific-factor model


Ronald W. Jones and Two-Sector Growth: Ramsey Optimality in the RSS and Leontief Cases

Minako Fujioa and M. Ali Khanb
aOtaru University of Commerce, Hokkaido, Japan
bJohns Hopkins University, Baltimore, MD 21218, USA


In this essay, we interpret the value-loss line, familiar in models of undiscounted optimal growth, as delineating the cone of diversification, familiar in models of international trade. This interpretation allows an embedding of the 2-sector Robinson-Solow-Srinivasan (RSS) model in the 2-sector Leontief model, and clarifies situations when the Leontief case offers additional insights into transition dynamics. The geometry underlying this embedding extends an earlier construction due to Khan-Mitra, and it has independent interest.

JEL Classification: D90, C62, O21

Keywords: factor intensities, cone of diversification, Brock prices, cyclicity


Transport Costs and North-South Trade

Didier Laussela and Raymond Riezmanb
aGREQAM, University of Aix-Marseille II
bDepartment of Economics, University of Iowa


We develop a simple two country model of international trade that assumes that there is a fixed cost associated with transporting goods across national boundaries. We show that this leads to multiple equilibria that can be Pareto-ranked. One of these equilibria is autarky. We argue that the existence of fixed costs in transport can help explain the low volume of North-South trade.

JEL classification: F1, F11

Keywords: North-South Trade, Transport Cost


International Capital Movements: Who Gains and Who Loses?

Morihiro Yomogida
Sophia University


In this paper, I explore the impacts of international capital flows on income distribution within countries. Using a simple Ricardian setting with sector-specific capital, I examine whether the owners of capital and workers gain or lose from capital movements relative to a free trade baseline. I show that the structure of commodity demand plays a crucial role in determining the distributional effect of international capital movements.

JEL classification: F11, F21

Keywords: the Ricardian model of trade, capital movements, income distribution


Protection, Skill Formation and Income Distribution

Sugata Marjit
City University of Hong Kong


This short paper looks at the process of skill-formation and income inequality for a small developing economy where credit market for financing education or human capital formation is absent. This assumption is more or less consistent with the literature on human capital accumulation under credit market imperfection. We show that protection discourages skill formation and may aggravate inequality. Free-trade puts a check on the problem of acute credit market imperfection by reducing the cost of skill acquisition. We provide an example where freer trade leads to better income distribution for the poor.

JEL Classification: F13, F16, I22

Keywords: credit market, skill formation, protection


Public Inputs, Urban Development, and Welfare in a Developing Economy

Chi-Chur Chaoa, Jean-Pierre Laffargueb and Eden S. H. Yuc
aChinese University of Hong Kong
bPSE, CEPREMAP and University of Paris I
cCity University of Hong Kong


This paper examines the impact of urban development through the government provision of public inputs in a developing economy. When a financing constraint is taken into account, an increase in public inputs may worsen urban unemployment and hence reduce welfare of the economy. Further, the optimal level of public input provision is larger (smaller) than that under full employment, if there exits a positive (negative) employment effect.

JEL Classification: F11, O18

Keywords: Public inputs, urban unemployment, welfare


Selling "Protection For Sale"

Wilfred J. Ethier
Department of Economics, University of Pennsylvania



The Received Theory of trade policy, based solely on terms-of-trade externalities between national governments, has become the conventional wisdom among international trade theorists. But it displays two puzzles that render that theory inconsistent with reality. Significant empirical work, however, supports aspects of the Grossman-Helpman Protection-For-Sale model, a subset of the Received Theory. This paper shows that a simple formulation of the political economy of protection, that dispenses with terms-of-trade externalities, predicts the properties that the empirical work has confirmed, and is free of the counterfactual implications of the Received Theory. The implication is that, despite its claims to the contrary, the empirical literature offers no real support for the Protection-For-Sale model or, therefore, for the Received Theory.

JEL Classification: F02, F13

Keywords: The Protection-For-Sale model, the Received Theory, the Terms-of-Trade Puzzle, the Export-Subsidy-Transfer Puzzle


Competition Policy or Tariff Policy: Which is More Effective?

Makoto Yanoa, Rika Takahashib and Jin Kenzakic
a Faculty of Economics, Keio University
b School of Economics, Tokyo International University
c Economic & Market Analysis, Nikko Citigroup Limited



In the recent literature, it has been demonstrated that competition policy can serve as a substitute for tariff policy in creating a beggar-thy-neighbor effect. Common wisdom, however, tells that competition policy is at best the second best in creating such an effect; obviously the first best is tariff policy. The present study demonstrates that this common wisdom no longer holds if a country can impose a tariff on only a part of the entire spectrum of imports. In that case, tariff policy may not be as effective a beggar-thy-neighbor policy as competition policy.

JEL Classification: F11, F13, L13, L42
Keywords: Trade, competition policy, tariff, welfare effects


Liberalizing Trade between Large and Small: The Welfare from Three Different Strategies

Carsten Kowalczyk
The Fletcher School, Tufts University



Much trade liberalization involves large and small countries. This paper presents a formal comparison of the economic welfare effects for the small and large country from unilateral free trade by the small country, from a free trade agreement, and from preferential access to the large country's market. I show that it matters for the welfare effects of these strategies whether the small country has an effect on the domestic price in its partner's domestic market or not. For example, if the small country is so small that it does not, then, paradoxically, a reduction of the small country's tariff reduces the large partner's welfare.

JEL Classification: F00, F02, F10, F11, F13, F14, F15
Keywords: small and large countries, free trade areas, unilateral liberalization, preferential market access