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Abstract:
The paper studies the determinants of income distribution and growth in an overlapping generations economy with heterogeneous households. Our framework has the following main features: (1) heterogeneity of consumers with respect to wealth and parental human capital; (2) intergenerational transfers are accomplished via investment in the education of the younger generation. Heterogeneity in income results from the distribution of human capital across individuals in a nondegenerate way. The human capital production is affected by the "home-education", provided by the parents, as well as the "public-education" which is provided equally to all young individuals of the same generation. Due to investments in human capital our economy is an endogenous growth model. First, we explore the effects of technological improvements in the human capital process, upon the distribution of income at each date along the equilibrium path. Second, we study the impact of such technological progress on growth and relate these results to the income distribution inequality. Third, we provide numerical simulations to quantify the effect of changes in the parameters of the model. Simulation results include exact Gini coefficients and tax rate on labor determined endogenously through majority voting.

Human Capital, Income Distribution, Endogenous Growth

Abstract:
Trade reforms in transition economies are analyzed in a model of trade and vertical product differentiation. We first show that trade liberalization in transition economies reduces the local firm's output and raises the prices of all variants. Second, we find that neither free trade nor the absence of a subsidy are optimal. Third, there exists a rationale for a government commitment to use socially optimal trade and industrial policies to release the domestic firm from low-quality production. Finally, we establish an equivalence result between the effects of exchange rate changes and those of trade policy on price competition (but not on social welfare).

Exchange Rates, Leapfrogging, Optimal Trade Policy, Product Quality, Trade Liberalization

Abstract:
We build a simple theoretical model to understand why developing and transition economies have increasingly applied anti-dumping laws. To that end, we investigate the strategic incentives of oligopolistic exporting firms to undertake dumping in these economies. We show that dumping may be due to cross-country differences in income, to the extent of tariff protection and to the exchange rate depreciations observed recently. Dumping may arise even if consumers exhaust all arbitrage possibilities.

Abstract:
We examine an export game where two firms (home and foreign), located in two different countries, produce vertically differentiated products. The foreign firm is the most efficient in terms of R&D costs of quality development and the foreign country is relatively larger and endowed with a relatively higher income. The unique (risk-dominant) Nash equilibrium involves intra-industry trade where the foreign producer manufactures a good of higher quality than the domestic firm. This equilibrium is characterized by unilateral dumping by the foreign firm into the domestic economy. Two instruments of anti-dumping (AD) policy are examined, namely, a price undertaking (PU) and an anti-dumping duty. We show that, when firms' cost asymmetries are low and countries differ substantially in size, a PU leads to a quality reversal in the international market, which gives a rationale for the domestic government to enact AD law. We also establish an equivalence result between the effects of an AD duty and a PU.

Anti-dumping duty, intra-industry trade, price undertaking, product quality, quality reversals

Abstract:
The paper studies the effects of cross-country differences in the production process of human capital on income distribution and growth. Our overlapping generations economy has the following features: (1)consumers are heterogenous with respect to parental education and wealth; (2)intergenerational transfers take place via parental education and, public investments in education financed by taxes(possibly,with a level determined by majority voting); (3)due to investment in human capital, which is a factor of production, we have endogenous growth. We explore several types of cross-country variations in the production of human capital, some attributed to 'home-education' and others related to 'public-education', and their effect upon intragenerational income inequality and growth along the equilibrium path. We also indicate how the level of public education affects human capital formation and the conditions leading to poverty traps.

Human Capital,Income Inequality, Endogenous Growth

Abstract:
This paper considers the nature and the distribution of trade and FDI effects of a potential enlargement of the European Monetary Union (EMU) to the ten countries that obtained EU membership in 2004. One-way and two-way error component gravity models are estimated using a dataset of unbalanced panel data that combines bilateral trade flows among 29 countries and the distribution of outward FDI stocks among these countries. The results reveal a complementarity between trade and investment and a relationship between trade and exchange rate volatility that depends on the sign of bilateral trade balances. Using a simulation-based technique, we find that estimates of FDI effects of EMU range between 18.5 percent for Poland and 30 percent for Hungary.

EMU, exchange rate volatility, foreign investment, trade diversion, vertical integration

Abstract:
The paper considers a two-country model of overlapping generations economies with intergenerational transfers carried out in the form of bequest and investment in human capital. We examine in competitive equilibrium the optimal provision of education with and without capital markets integration. First, we explore how regimes of education provision - public, private or mixed - arise and how they affect the dynamics of autarkic economies. Second, we study the transitory and long-run effects of capital markets integration, in equilibrium, on the optimal provision of education and growth. Third, we examine a competition game where countries compete in the provision of public education.

Altruism, education, growth, human capital, capital markets integration

Abstract:
We study the procompetitive effects of trade policies against a foreign oligopoly in a model of vertical product differentiation. We show that a uniform tariff policy like the Most Favored Nation (MFN) clause is always welfare superior to free trade because of a pure rent-extraction effect. However, a nonuniform tariff policy is, in addition, procompetitive and thus yields a higher level of social welfare. The first best policy typically consists of giving a subsidy to the country producing low quality and levying a tariff on the country producing high quality. Regional Trade Agreements (RTAs) are examples of nonuniform tariff policies. We show that these arrangements yield higher welfare than free trade and, moreover, that a RTA with a low-quality producing country yields larger gains than a RTA with a high-quality producing country.

Endogenous Quality, Most Favored Nation (MFN) Clause, Procompetitive Policies, Regional Trade Agreements

Abstract:
This paper considers the distribution of output and productive factors among members of a fully integrated economy (FIE). We demonstrate that each member's shares of total output and of total factors will be equal. This implies that growth in shares is random. If output and factor shares evolve as reflective geometric Brownian motion, then limiting distribution of these shares will exhibit Zipf's law. Our empirics support Zipf's law for U.S. states and for E.U. countries. These findings imply that models characterizing growth of members within an FIE should embody a key assumption: growth process of shares is random and homogeneous.

growth, economic integration, factor price equalization, Zipf's law

Abstract:
Anti-dumping actions are now the trade policy of choice of developing and transition economies. To understand why these economies have increasingly applied anti-dumping laws, we build a simple theoretical model of vertical intra-industry trade and investigate the strategic incentives of exporting firms to undertake dumping. We show that the definition of dumping matters. Based on a comparison of low-quality and high-quality prices, only unilateral dumping by the low-quality firm obtains. By contrast, the standard WTO definition leads to either reciprocal or unilateral dumping by the high-quality firm, depending on cross-country differences in incomes, the height of tariff protection and on exchange rate changes.

Abstract:
The paper offers a unified way to examine several puzzles on inequality dynamics. It focuses on differences in the education technology and their effects on income distributions. Our overlapping generations economy has the following features: (1) consumers are heterogenous with respect to ability and parental human capital; and (2) intergenerational transfers take place via parental direct investment in education and, public education financed by taxes (possibly, with a level determined by majority voting). We explore several variations in the production of human capital, some attributed to ‘home-education’ and others related to ‘public-education’, and indicate how various changes in education technologies affect the intragenerational income inequality along the equilibrium path.

Abstract:
A lexicographic preference ordering of policy objectives is used to define the policymaker's choice among alternatives. It is shown how the constrained multiple goal problem can be placed in a one-to-one relationship with multidimensional utility analysis. The method is applied to a model of the Dutch economy and it is shown that is has good potential as a policy optimization method, its strengths being its ease of use and the quality of its results.

policy optimization, lexicographic ordering

Abstract:
Trade policy and quality leadership in transition economies are analyzed in a duopoly model of trade and vertical product differentiation. We first show that the incidence of trade liberalization is sensitive to whether firms in transition economies are producers of low or high quality. Second, we find that neither free trade nor the absence of a domestic subsidy are optimal: Both a tariff and a subsidy increase price competition and while the former extracts foreign rents the latter results in quality upgrading. Third, there exists a rationale for a government to commit to a socially optimal policy to induce quality leadership by the domestic firm when cost asymmetries are low. Finally, we establish an equivalence result between the effects of long-run exchange rate changes and those of trade policy on price competition (but not on social welfare).

Exchange rate, quality reversal, optimal trade policy, product quality, trade liberalization

Abstract:
We study the optimal trade policy against a foreign oligopoly with endogenous quality. We show that, under the Most Favoured Nation (MFN) clause, a uniform tariff policy is always welfare improving over the free trade equilibrium. However, a nonuniform tariff policy is always desirable on welfare grounds. First best policy typically consists of setting a subsidy on the low-quality product and a tax on high-quality one. Another example of such a nonuniform tariff policy is a Regional Trade Agreement (RTA). We show that, if a welfare improvement is possible through a RTA, it is always with the low- quality producing country that it has to be achieved.

International Trade, Economic Integration, Quality

Abstract:
The paper analyzes international trade in a Ricardian world where consumer preferences exhibit country bias. In particular, consumers differentiate between identical physical goods by country of manufacture. Unlike the classical Ricardian model, the pattern of international specialization in production depends on the preference structure. Possible equilibrium configurations include ones where both countries specialize incompletely and trade in both commodities, as well as situations where the pattern of specialization and trade is exactly the reverse of that in the classical Ricardian world. Both inter-industry and intra-industry trade can occur simultaneously though there are no market imperfections or scale economies.