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We develop a methodology to construct nonparametric counterfactual predictions, free of functional form restrictions on preferences and technology, in neoclassical models of international trade. First, we establish the equivalence between such models and reduced exchange models in which countries directly exchange factor services. This equivalence implies that, for an arbitrary change in trade costs, counterfactual changes in the factor content of trade, factor prices, and welfare only depend on the shape of a reduced factor demand system. Second, we provide sufficient conditions under which estimates of this system can be recovered nonparametrically. Together, these results offer a strict generalization of the parametric approach used in socalled gravity models. Finally, we use China's recent integration into the world economy to illustrate the feasibility and potential benefits of our approach.

We propose a theory of the global production process that focuses on tradeable tasks, and use it to study how falling costs of offshoring affect factor prices in the source country. We identify a productivity effect of task trade that benefits the factor whose tasks are more easily moved offshore. In the light of this effect, reductions in the cost of trading tasks can generate shared gains for all domestic factors, in contrast to the distributional conflict that typically results from reductions in the cost of trading goods.

Effective endowments and virtual endowments are insightful ideas to incorporate different technologies with the Heckscher-Ohlin-Vanek framework. This study shows that trade patterns are localized when countries have different technologies, while factor prices are non-equalized (or localized). The Leontief paradox is a localized trade phenomenon or pattern conceptually. It demonstrates that both effective endowments and virtual endowments can explain and present the trade pattern observed in the Leontief test. The core idea of the effective endowment (and the virtual endowment) is that a country exports its effective-abundant factor referred to by its productivity. This paper illustrates that the Leontief paradox arises naturally if a country’s actual factor abundance is inconsistent with its effective factor abundance. The study presents the price-trade equilibrium with non-equalized factor prices to help view trade patterns as trade consequences. The study shows that the Leontief paradox phenomenon may occur even in the absence of factor intensity reversal. The study proposes the factor price definition of trade patterns that mirrors trade patterns defined by factor abundances.

A half century of empirical work attempting to predict the factor content of trade in goods has failed to bring theory and data into congruence. Our study shows how the Heckscher-Ohlin-Vanek theory, when modified to permit technical differences, a breakdown in factor price equalization, the existence of nontraded goods, and costs of trade, is consistent with data from ten OECD countries and a rest-of-world aggregate.

Sugarcane plays an important role in the government of Tanzania's aim of becoming sugar-sufficient; however, sugar production remains low in the country despite numerous interventions undertaken by successive governments. The study adopted the vector error correction model (VECM) to examine the acreage supply response of sugarcane out-growers to changes in price and non-price factors using time-series data spanning 30 years. Results from the study showed that a percentage increase in the price of sugarcane leads to a 0.870% and 2.887% increase in the acreage of sugarcane in the short-run and long-run, respectively. A percentage increase in the price of rice on the other hand reduced acreage allotment by 0.383% and 1.875% in the short-run and long-run, respectively. A percentage increase in other factors such as rainfall and technological innovations leads to a 5.241% and 0.030% increase in the area under sugarcane in the long-run. The price of sugarcane is an essential determining factor of sugar production in Tanzania due to its implications for the area under sugarcane production. The study recommends the deregulation of sugarcane prices by the sugar estates to ensure that sugarcane out-growers can benefit from improved prices given that sugarcane prices significantly influenced farmers' acreage supply response.

We study the world trading equilibrium in a Ricardian model, where factors of production are produced and traded. Even in the absence of technology transfer, international investment, research and development, and aggregate scale effects, trade affects economic growth through comparative advantage. Trade may raise the growth rate or leave it unchanged, depending on the patterns of comparative and absolute advantage. Trade in factors of production can effectively equalize technology even when technology transfer does not occur. Factor price equalization may hold, but the Stolper–Samuelson and Rybczynski theorems do not. The transition dynamics can be monotonic or oscillatory.

The factor price equalization hypothesis is widely at odds with the large variation in factor prices across countries. Similarly, the Heckscher-Ohlin-Vanek (HOV) theorem constitutes an incomplete description of trade in factor services: its predictions are always rejected empirically. These two issues are examined using a modification of the HOV model that allows for factor-augmenting international productivity differences. The empirical results are stark: this simple modification of the HOV theorem explains much of the factor content of trade and the cross-country variation in factor prices.

While most standard economic models of international trade assume full employment, Carl Davidson and Steven Matusz have argued over the past two decades that this reliance on full-employment modeling is misleading and ill-equipped to tackle many important trade-related questions. This book brings together the authors' pioneering work in creating models that more accurately reflect the real-world connections between international trade and labor markets. The material collected here presents the theoretical and empirical foundations of equilibrium unemployment modeling, which the authors and their collaborators developed to give researchers and policymakers a more realistic picture of how international trade affects labor markets, and of how transnational differences in labor markets affect international trade. They address the shortcomings of standard models, describe the empirics that underlie equilibrium unemployment models, and illustrate how these new models can yield vital insights into the relationship between international trade and employment. This volume also includes an indispensable general introduction as well as concise section introductions that put the authors' work in context and reveal the thinking behind their ideas. Economists are only now realizing just how important these ideas are, making this book essential reading for researchers and students.

Nowhere has the divide between advocates and critics of globalization been more striking than in debates over free trade and the environment. And yet the literature on the subject is high on rhetoric and low on results. This book is the first to systematically investigate the subject using both economic theory and empirical analysis. Brian Copeland and Scott Taylor establish a powerful theoretical framework for examining the impact of international trade on local pollution levels, and use it to offer a uniquely integrated treatment of the links between economic growth, liberalized trade, and the environment. The results will surprise many. The authors set out the two leading theories linking international trade to environmental outcomes, develop the empirical implications, and examine their validity using data on measured sulfur dioxide concentrations from over 100 cities worldwide during the period from 1971 to 1986. The empirical results are provocative. For an average country in the sample, free trade is good for the environment. There is little evidence that developing countries will specialize in pollution-intensive products with further trade. In fact, the results suggest just the opposite: free trade will shift pollution-intensive goods production from poor countries with lax regulation to rich countries with tight regulation, thereby lowering world pollution. The results also suggest that pollution declines amid economic growth fueled by economy-wide technological progress but rises when growth is fueled by capital accumulation alone. Lucidly argued and authoritatively written, this book will provide students and researchers of international trade and environmental economics a more reliable way of thinking about this contentious issue, and the methodological tools with which to do so.