ALBERT

Notes: In this paper, the authors adapt the latest version of the Michigan Model of World Production and Trade to incorporate cross-border services trade and foreign direct investment (FDI). Firms are taken to be monopolistically competitive. Each firm produces products differentiated by the original R&D that defines the basic product and by location of production. Each firm faces a fixed cost in the country where production occurs, and sets an optimal mark-up for sales from each location. Firms locate production for export or for local consumption depending on the type of barriers faced. Barriers to trade in services take the form of an additional cost of employing variable capital and labor. The paper reports the impact on welfare, trade, factor prices, sectoral output, economies of scale, and activities of multinationals following the introduction of national treatment of multinational firms in all countries.

Notes: We have used the Michigan Model of World Production and Trade to simulate the economic effects on the United States, Japan, and other major trading countries/regions of the Doha Round of WTO multilateral trade negotiations and a variety of regional/bilateral free trade agreements (FTAs) involving the United States and Japan. We estimate that an assumed reduction of post-Uruguay Round tariffs and other barriers on agricultural and industrial products and services by 33 per cent in the Doha Round would increase world welfare by $686.4 billion, with gains of $164.0 billion for the United States, $132.6 billion for Japan, and significant gains for all other industrialised and developing countries/regions. If there were global free trade with all post-Uruguay Round trade barriers completely removed, world welfare would increase by $2.1 trillion, with gains of $497.0 billion (5.5 per cent of GNP) for the United States and $401.9 billion (6.2 per cent of GNP) for Japan. Regional agreements such as an APEC FTA, an ASEAN Plus 3 FTA, and a Western Hemisphere FTA would increase global and member country welfare but much less so than the Doha multilateral trade round would. Separate bilateral FTAs involving Japan with Singapore, Mexico, Chile and Korea, and the United States with Chile, Singapore and Korea would have positive, though generally small, welfare effects on the partner countries, but potentially disruptive sectoral employment shifts in some countries. There would be trade diversion and detrimental welfare effects on some non-member countries for both the regional and bilateral FTAs analysed. The welfare gains from multilateral trade liberalisation are therefore considerably greater than the gains from preferential trading arrangements and more uniformly positive for all countries.

Notes: This paper reviews the essentials of economic globalization, as well as the major institution that has recently gotten much of the credit and blame for it, the World Trade Organization (WTO). It first defines globalization, which is just the increasing economic integration of the world economy. It then asks who gains and loses from globalization, drawing primarily upon economic theory to identify its benefits and costs, and who within and among the world’s economies get these benefits and costs. That part of the discussion concludes by asking briefly what can and should be done about globalization. The second half of the paper turns to the WTO, which was the focus of so much negative attention at its Seattle meeting in December 1999. The authors try to clarify several misperceptions about what it does, and why. Some groups gain and some lose from the WTO, some simply as a byproduct of its role in facilitating globalization, but others from particular WTO rules and procedures. The paper suggests what might be done to change both the WTO itself and the public’s perceptions of it.

Notes: In this overview of the Symposium papers, we note that the bubble that occurred in Japan's asset markets in the late 1980s came at a time when the conventional indicators of Japan's economic performance were relatively stable. Following the collapse of the bubble, neither the Bank of Japan (BOJ) nor the Ministry of Finance (MOF) took timely and effective measures to deal with the recession that followed. While the evidence suggests that looser fiscal policy would have been ineffective, monetary policy measures might have worked. However, the BOJ followed a relatively tight monetary policy in 1991–93. In the face of the liquidity trap that ensued in the last of the 1990s, the conventional tools of stabilisation policy appeared to be of limited use. To help the Japanese economy to recover from the ‘lost decade,’ we thus discuss a number of unconventional and bold measures that the BOJ and MOF could pursue. It appears, however, that the political will is absent to undertake such measures. So long as this is the case, the effects of the lost decade will continue to act as a drag on the economy.

Notes: Overview of the Special Issue prepared under the direction of Guest Editor Robert Stern.Robert M. Stern, the Guest Editor of this special issue of the Global Economy Journal, is Professor of Economics and Public Policy (Emeritus) in the Department of Economics and Gerald R. Ford School of Public Policy at the University of Michigan, Ann Arbor. He received his Ph.D. in economics from Columbia University in 1958. He was a Fulbright scholar in the Netherlands in 1958-59, taught at Columbia University for two years, and joined the faculty at the University of Michigan in 1961. He has been an active contributor to international economic research and policy for more than four decades. He has published numerous papers and books on a wide variety of topics, including international commodity problems, the determinants of comparative advantage, price behavior in international trade, balance-of-payments policies, the computer modeling of international trade and trade policies, trade and labor standards, and services liberalization. He has collaborated with Alan Deardorff (University of Michigan) since the early 1970s and with Drusilla Brown (Tufts University) since the mid-1980s in developing the Michigan Model of World Production and Trade. He is currently working with Drusilla Brown and Kozo Kiyota (Yokohama National University) on the computational modeling and analysis of preferential and multilateral trade negotiations, and issues relating to the scope of the WTO and concepts of fairness in the global trading system with Andrew Brown.

Notes: This article focuses especially on the positions that the developing countries should take in their own interests on the issues of manufactures liberalization and administered protection. A series of recommendations are set forth with supporting argument: (1-2) for market access, both developed and developing countries should commit to reducing their most restrictive trade barriers, using a formula approach with limited exceptions; (3) negotiated tariff reductions should be phased in over a period of ten years in equal incremental installments; (4) adjustment assistance should be provided by a system of wage insurance and subsidized by transfers from developed countries; (5) the rules for safeguards, countervailing duties, and anti-dumping should be redrafted to focus their use on cases of legitimate economic justification and to discourage their use as protectionist devices; (6) the U.S. and EU should devise and implement a program of comprehensive but declining import restrictions on imports from China consistent with China's terms of WTO accession and eliminated by 2008; (7) WTO rules governing Preferential Trading Arrangements should be revised to insure that they contribute to the liberalization and simplification of the multilateral trading system; (8) preference granting countries should provide assistance to countries experiencing the erosion of preferences due to multilateral liberalization; (9) the WTO system of dispute resolution should remain in place; and (10) special and differential assistance, if granted, should not exempt countries from the provisions for their own market liberalization. Developing countries should participate actively and constructively in the negotiations to further their own interests. Developing countries may be at a disadvantage in the negotiating process, due to their resource limitations and inexperience in negotiations. Offsetting such disadvantages, however, are their large numbers and the compelling case for meeting their needs. What is needed is leadership and cooperation as for example with the Group of 20 and other coalitions together with a willingness to listen and be flexible on the part of their developed country counterparts.Alan V. Deardorff is John W. Sweetland Professor of International Economics and Professor of Economics and Public Policy at the University of Michigan. He received his Ph.D. in economics from Cornell University in 1971 and, since 1970, has been on the faculty at the University of Michigan where he served as Chair of the Economics Department from 1991 to 1995. He is co-author, with Robert M. Stern, of The Michigan Model of World Production and Trade and Computational Analysis of Global Trading Arrangements and has published numerous articles on aspects of international trade theory and policy. His work on international trade theory has dealt primarily with theories of the patterns and effects of trade. With Professor Stern and with Professor Drusilla K. Brown he has developed a series of computable general equilibrium models of world production, trade, and employment that have been used to analyze the effects of both multilateral and regional initiatives for trade liberalization. Deardorff's current research interests include: the causes and effects of international fragmentation, the economic effects of free trade areas, and the role of trade costs in determining patterns of international specialization and trade. Robert M. Stern is Professor of Economics and Public Policy (Emeritus) in the Department of Economics and Gerald R. Ford School of Public Policy at the University of Michigan, Ann Arbor.