Search

In the aftermath of the global financial crisis, a fiscal devaluation (hereafter, FD), understood as a shift in taxation from labour to consumption, has been debated as a possible tool for restoring competitiveness, particularly in peripheral countries of the Eurozone. We contribute to this debate. Based on a set of panel and spatial panel models for the EU 27 over the period 1995–2014, we find that FD works, especially where economic activity is heavily subdued and in sectors more exposed on external competition. FD increases value added in exports, improves net exports, accelerates GDP and employment growth, and decelerates growth in labour costs. These effects are nonlinear; they are stronger in the members of the Eurozone and weaker in countries with either more coordinated or more centralised wage bargaining processes or more generous unemployment benefits. The magnitude of these effects is dampened by strict regulatory barriers: they are weaker in countries with higher barriers to entrepreneurship, trade and investment. Most importantly, FD is not a beggar thy neighbour policy, at least in the EU. In our sample, the aggregate demand (‘cooperative’) effect of unilateral FD, which is beneficial for neighbouring countries, outweighs by far the expenditure switching (‘competitive’) effect, which comes at the expense of other countries’ competitiveness. FD implemented in one country can benefit other countries, provided that they are strongly integrated in global value chains. These findings are robust to changes in the estimation methods, the sample composition, the set of explanatory variables and the selection of a spatial weight matrix.

Greater interdependence is often taken to require more global governance, but the logic requires scrutiny. Cross-border spillovers do not always call for international rules. The canonical cases for global governance are based on two sets of circumstances: global commons and “beggar-thy-neighbor” (BTN) policies. The world economy is not a global commons (outside of climate change), and much of our current discussions deal with policies that are not true BTNs. Some of these are beggar-thyself policies; others may produce domestic benefits, addressing real market distortions or legitimate social objectives. The case for global governance in such policies, I will argue, is very weak, and possibly outweighed by the risk that global oversight or regulation would backfire. While these policy domains are certainly rife with failures, such failures arise not from weaknesses of global governance, but from failures of national governance and cannot be fixed through international agreements or multilateral cooperation. I advocate a mode of global governance that I call “democracy-enhancing global governance,” to be distinguished from “globalization-enhancing global governance.”

Stylised representations of recent US and Chinese tax reforms, tariffs against imports and alternative Chinese monetary targeting are examined using a calibrated global macro model that embodies both trade and financial interdependencies. For both countries, unilateral capital tax relief and bilateral tariffs are shown to be ‘beggar thy neighbor’ policies. As large economies, both enjoy ‘optimal tariffs’, even bilaterally, though net outcomes are shown to depend on the allocation of revenues. Bilateral tariffs are most advantageous for the US if the additional revenue finances indirect tax relief. Once US bilateral tariffs are imposed, China is a net loser irrespective of its policy response, though a currency float is shown to cushion the effects on its GDP in the short run. Equilibria in normal form non‐cooperative tariff games have the US imposing tariffs while China liberalises.

The premise of beggar-thy-neighbor policies and currency wars is that currency depreciations lead to export growth. This premise, however, is far from validated as the existing economic literature largely either fails to find significant trade flow effects of currency fluctuations or finds that these effects are only minor. We revisit the question of whether currency fluctuations are systematically associated with trade flows using rich and unique firm level Chinese customs data on China-US trade over the 2000 to 2011 period that allows us to consider firm involvement in processing trade and firm dynamics in both export and import markets. Our firm-level based estimation of trade elasticities suggest that the China-US trade balance strongly responds to changes in the CNY/USD rate. This finding is particularly pronounced when we distinguish between ordinary and processing firms. Our results thus suggest that the influence of exchange rates on trade flows is stronger than previously thought and add insights to the policy debate on beggar-thy-neighbor policies and currency wars by, at least in principle, validating the underlying premise of such policies.

I examine the transmission of expansionary U.S. monetary policy in cases where emerging economies—including China—peg their currencies to the dollar. I evaluate the value of the dollar peg as a fraction of consumption that households would be willing to pay for the dollar peg to remain as well off under the dollar peg as they would be under a flexible exchange rate. The value of the dollar peg is typically positive for the dollar bloc because the United States can no longer improve its terms of trade at the dollar bloc's expense. This provides a rationale for fixing the exchange rate. The dollar peg is typically harmful to the United States, providing a rationale for criticism of China's exchange rate policy during the Great Recession.

Neighbourhood effects and the economies of housing consumption are, independently, thoroughly researched topics in the urban economics literature. Little has been said, however, about the effects of housing consumption restrictions on the dispersal of neighbourhood effects to different economic groups. At a time of rising public concern about economic inequality, properly understanding the link between housing market restrictions and neighbourhood effects across the income spectrum is of increasing importance. This paper proposes a model to better assess how labour productivity as influenced by neighbourhood effects changes with restrictions in housing consumption. The results of the model show that except in the case where no labour complementarity exists between the high and low-skilled population segments, housing restrictions excluding the poor from the better-off neighbourhoods will lead to welfare losses for both populations.

International audience; Les économistes analysent toujours les potentiels les variables économiques dans leur évolution et leur potentiel sans suffisamment prendre en compte les facteurs politiques. Il en résulte des décalages importants entre leurs estimations et les comportements réels des gouvernants, chefs d’entreprise, banquiers ou salariés modifient profondément l’opportunité des décisions économiques et les prospectives. Les conflits économiques entre les Etats sont fréquents, nombreux, parfois inattendus, les renversements d’alliance existent. Certaines actions témoignent plutôt de différends provoqués par des conceptions différentes, mais d’autres s’apparentent à une vraie guerre économique en vue de punir un adversaire ou un ennemi.

The recent rise of populism and authoritarian politics has seen a turn from multilateralism and toward international disputes like that between the US and China. This paper uses a calibrated global macro model to assess the potential economic consequences of this conflict under explicit assumptions about monetary and fiscal policy. US unilateral protection emerges as “beggar thy neighbor” policy, the more so if new tariff revenue affords capital tax relief. China’s proportional losses are comparatively large and little mitigated by retaliation, which nonetheless constrains US net gains. Avoiding leakage by protecting against all sources causes substantial losses in third regions trading with China and the US.

International audience; The objective of this paper is to shed light on the twin deficit hypothesis in Southern Europe and the MENA region, taking into account fiscal spillovers from the core during the global crisis. Using Godley and Lavoie (2007)’s baseline model, we first show that fiscal shocks from a core region could aggravate macroeconomic imbalances in the periphery. We then gather data from the period 1977-2016 for ten MENA and peripheral EMU countries, and model the twin deficit hypothesis in the presence of fiscal spillover with a P-VARX methodology. Our results highlight that fiscal balance, current account, and GDP growth rates in the EMU’s periphery are negatively affected by fiscal consolidations in the core. Fiscal discipline in surplus countries is tantamount to a ‘beggar thy neighbor’ effect on the periphery, in times of crisis. We discuss the implications of our results to propose further international coordination of macroeconomic policies.

Abstract. The Vision of the Eco-Bio-Economy is to sustain development of the humankind welfare in all forms, through an economy of future dedicated to human life through the rational use of the environmental resources. The present work attempts to discuss the issues that humanity faces at the beginning of a new global economic paradigm. The minimum point of the financial crisis started in 2008 meets the final years of the decline phase of the long term global economic cycle. The feeling is one of lack of vision on the part of Governments, of improvisation, of passive reaction, such as seeing and doing. One feels that the economic context is worn out , dysfunctional because of deep recovery problems. The perception, not far from the taugh reality, is that of a national competition meant to minimize losses caused by the financial crisis and to use beggar thy neighbor types of policies, similar to finding the way out of the crisis on the expense of others.

This paper estimates the effect of China's exchange rate changes on exports of developing countries in third markets. The degree of competition between China and its developing country competitors in specific products and destinations plays a key role in the identification strategy. The strategy exploits variation across exporters, importers, products and time—afforded both by disaggregated trade data and bilateral exchange rates—to estimate this “competitor country effect.” There is robust evidence of a statistically and quantitatively significant effect. A 10 percent appreciation of China's real exchange rate boosts a developing country's exports at the product level on average by about 1.5–2.5 percent. (JEL F14, F31, F33, O19, O24, P33)

We consider the fiscal multiplier and spillover in an environment in which two countries are caught simultaneously in a liquidity trap. Using a standard New Open Economy Macroeconomics (NOEM) model, an optimizing two-country sticky price model, we show that the fiscal multiplier and spillover are contrary to those predicted in textbook economics. For the country with government expenditure, the fiscal multiplier exceeds one, the currency depreciates, and the terms of trade worsen. The fiscal spillover is negative if the intertemporal elasticity of substitution in consumption is less than one and positive if the parameter is greater than one. Incomplete stabilization of marginal costs due to the existence of the zero lower bound is a crucial factor in understanding the effects of fiscal policy in open economies.

We study how small open economies can escape from deflation and unemployment in a situation where the world economy is permanently depressed. Building on the framework of Eggertsson et al (2016), we show that the transition to full employment and at-target inflation requires real and nominal depreciation of the exchange rate. However, because of adverse income and valuation effects from real depreciation, the escape can be beggar thy self, raising employment but actually lowering welfare. We show that as long as the economy remains financially open, domestic asset supply policies or reducing the effective lower bound on policy rates may be ineffective or even counterproductive. However, closing domestic capital markets does not necessarily enhance the monetary authorities' ability to rescue the economy from stagnation.

This paper proposes a channel through which increased openness to international trade can increase a country's long-run incentive to create inflation. The theoretical justifcation for this channel is the well known "beggar thy neighbor" incentive, and its dominance relies on a monetary authority's ability to commit to policy as well as the asymmetric effects of the underlying frictions in the model across domestic and foreign households. Comparing data from the 1973-1987 period and the 1988-2002 period, I Find evidence that the effect of openness on inflation is positive among developed countries whose monetary policy can be approximated by commitment and that the inflationary bias of openness is dampened by the degree of imperfect competition and the inelasticity of labor supply within the country.

Since the onset of the global financial crisis in 2007 governments have resorted to beggar-thy-neighbour measures. Conforming to previous historical bouts of protectionism the form of discrimination against cross-border discrimination changed. As well as documenting government attempts to tilt the playing field towards domestic firms, this paper discusses the causes and apparent constraints on contemporary protectionism and concludes with a discussion of steps that can be taken to maintain the wide variety of cross-border commercial flows seen in the twenty-first century. Copyright 2012, Oxford University Press.

This lecture was offered in honor of Professor Robert Mundell; a most fitting coincidence since the speaker was his classmate at MIT in 1955, exactly 55 years ago, and the topic emanated from our joint study with Professors Kindleberger and Samuelson at that time. The essence of the presentation can be summarized in its significant conclusions. The theory of comparative advantage as applied to real-world phenomena—and its practical free-trade recommendations—must be rejected or at least questioned, especially when it comes to trade between the advanced and the developing economies. The more realistic, even if less elegant mathematically, theory of Destructive Trade—explained in the lecture—should be a better guide in defining world trade solutions and leading us in the long run out of the present global crisis.

The proliferation of R&D tax incentives among U.S. states in recent decades raises two questions: (i) Are these tax incentives effective in increasing in-state R&D? (ii) How much of any increase is due to R&D being drawn away from other states? This paper answers (i) "yes" and (ii) "nearly all." The paper estimates an augmented R&D factor demand model using state panel data from 1981 to 2004. I estimate that the long-run elasticity of in-state R&D with respect to the in-state user cost is about -2.5, while its elasticity with respect to out-of-state user costs is about +2.5, suggesting a zero-sum game among states. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Tax competition raises the question to which extent taxpayers respond to differences in income tax rates by migrating to low-tax areas. This paper analyzes a large, two-step tax reform in the canton of Obwalden in central Switzerland in 2006 and 2008. The canton first introduced a regressive income tax scheme with the explicit purpose of attracting affluent taxpayers, followed by a change to a flat rate tax, thereby lowering taxes for all taxpayers. Using individual tax data from the cantonal tax administration, I apply a 2SLS approach to estimate how responsive migration was to the tax reduction. I estimate an elasticity of the stock of rich taxpayers in the canton with respect to the average net-of-tax rate of 2.4 in the first two years after the reform, increasing to 3.5 over the five post-reform years. The corresponding elsticities of the inflow of rich taxpayers are even larger. These estimates are larger than what the few studies on tax induced mobility elasticity have found so far. I can further rule out that these results are due to an exogenous positive income shock to top incomes. DiD estimations comparing the share of rich taxpayers and net income per taxpayer in Obwalden to two neighboring cantons confirm that the reform was successful in increasing the canton's tax base. The large elasticities can be explained by two aspects. First, by the sizable pool of intentionally treated and the prevailing residence-based taxation, as opposed to source-based taxation. Through relocating to Obwalden, any Swiss and European citizen could take advantage of this tax scheme. Second, by the initially low share of rich taxpayers in Obwalden and the small size of the canton.

Owners of vacation homes pay local property taxes, yet cannot vote on local referenda. From the standpoint of full-time residents, signifi cant numbers of vacation homes reduce the real costs of public spending, since vacation home owners pay property taxes but consume very few public services. A one-time change in Minnesota tax assessments of vacation property in 1996 affords the opportunity to identify the effect of vacation property on local spending. The results suggest that a one-percent increase in the concentration of vacation homes in local tax base is associated with a 1.5-percent increase in per-capita spending.

In recent policy debates some have argued that expansionary monetary policy in Japan can increase real output in Japan and in Japan's neighbors, while others have warned that it is a beggar-thy-neighbor policy. In this paper we estimate structural vector autoregressions to assess the effects of Japanese monetary policy shocks. We find that the effects of Japanese monetary policy shocks on macroeconomic variation in East Asia have been modest and difficult to reconcile with the beggar-thy-neighbor view. We estimate that the Asian crisis was preceded by expansionary monetary policy shocks in Japan, but we fail to find support for the view that these shocks contributed to the crisis.

A vertical chain of production and trade along this chain have been found to be a characteristic feature of globalized markets. This paper examines how a multistage production process that involves more than one country affects the transmission of monetary policy changes. We assume that imported and domestic inputs are required to produce final consumption goods. Monetary policy may have adverse beggar-thyself effects if the mutual dependence between countries is considerably high. The foreign country benefits from a home monetary expansion unless the competitiveness of markets is too low.

This paper analyzes the macroeconomic effect of production relocation by using an open economy macroeconomic model. Our analysis shows, paradoxically, that acceleration in production relocation might have an expansive effect on the home economy. We also show that monetary expansion has welfare-enhancing effects even in an economy where production relocation exists. However, advancing production relocation amplifies the effect of monetary policy on the exchange rate. On the other hand, it reduces the effect on the relative home income by advancing production relocation.

International spillovers and exchange rate dynamics are examined in a two-country dynamic optimizing model that allows for home-product bias in consumption patterns: at given relative prices the ratio of home goods consumed to foreign goods consumed is higher in the home country. The setup nests Obstfeld and Rogoff (1995), who assume identical tastes. With home bias, results are different in three ways. When preferences are biased, the wealth transfers associated with current account imbalances induce movements in the real exchange rate and produce large short-run and small long-run deviations from consumption-based purchasing power parity. With home bias, interest rates, both real and nominal, can differ across countries; relatedly, home bias is a necessary but not sufficient condition for Dornbusch (1976) type exchange rate overshooting. Finally, in this model the welfare effects of expansionary monetary policy depend not only on world demand but also on the expenditure-switching effect of an exchange rate depreciation; monetary policy is 'beggar-thy-neighbor' if individuals have strong preferences for domestic products, but can be 'beggar-thyself' if, instead, imported goods are preferred.

The premise of beggar-thy-neighbor policies and currency wars is that currency depreciations lead to export growth. This premise, however, is far from validated as the existing economic literature largely either fails to find significant trade flow effects of currency fluctuations or finds that these effects are only minor. We revisit the question of whether currency fluctuations are systematically associated with trade flows using rich and unique firm level Chinese customs data on China-US trade over the 2000 to 2011 period that allows us to consider firm involvement in processing trade and firm dynamics in both export and import markets. Our firm-level based estimation of trade elasticities suggest that the China-US trade balance strongly responds to changes in the CNY/USD rate. This finding is particularly pronounced when we distinguish between ordinary and processing firms. Our results thus suggest that the influence of exchange rates on trade flows is stronger than previously thought and add insights to the policy debate on beggar-thy-neighbor policies and currency wars by, at least in principle, validating the underlying premise of such policies.

An important public policy question that remains unresolved iswhether devolution will enhance sensible policy making byexploiting informational asymmetries or, instead, trigger a``beggar thy neighbor'' response and stimulate free ridingamongst localities. We analyze this question within theframework of U.S. environmental policymaking by scrutinizing aunique panel data set on state-level endangered speciesexpenditure patterns. Our empirical estimates are consistentwith the notion that states free ride, which may lead to anexpenditure equilibrium that is not Pareto efficient.

When prices spike in international grain markets, national governments often reduce the extent to which that spike affects their domestic food markets. Those actions exacerbate the price spike and international welfare transfer associated with the terms of trade change. Several recent analyses have assessed the extent to which those policies contributed to the 2006-08 international price rise, but only by focusing on one commodity or using a back-of-the-envelope method. This paper provides a more comprehensive analysis that uses a global economywide model that is able to take account of the interactions between markets for farm products that are closely related in production or consumption. The model is able to estimate the impacts of those insulating policies on grain prices and on the grain trade and economic welfare of various countries. The results support the conclusion from earlier studies that there is a need for stronger World Trade Organization disciplines on export restrictions.

Profits from generic advertising by a producer group often come partly at the expense of producers of closely related commodities. The resulting tendency toward excessive advertising is exacerbated by check-off funding. To analyze this beggar-thy-neighbor behavior we compare a scenario where different producer groups cooperate and choose their advertising expenditures jointly to maximize the sum of profits across the groups, and a scenario where they optimize independently. In an illustrative example using 1998 data for U.S. beef and pork, the noncooperatively chosen expenditure on beef and pork advertising is more than three times the cooperative optimum. Copyright 2001, Oxford University Press.

I examine the transmission of expansionary U.S. monetary policy in case where developing countries -- including China -- peg their currencies to the dollar. I evaluate the value of the dollar peg as a fraction of consumption that households would be willing to pay for the dollar peg to remain as well off under the dollar peg as under a flexible exchange rate. The value of the dollar peg is positive for the dollar bloc because the U.S. can no longer improve its terms of trade at the dollar bloc's expense. This provides a rationale for fixing the exchange rate. If the expenditure switching effect is weak, the peg is harmful to the U.S., providing a rationale for criticism of China's exchange rate policy.

An Asian Currency Unit (ACU) index is constructed using an alternative procedure which minimizes a basket or portfolio of assets expressed in terms of national currencies. Using this estimated ACU index and an ACU Deviation Indicator, the main finding of this study based on the current trajectory of East Asian currencies relative to this regional ACU average or benchmark is that there is a formation of two contrasting groups of countries in the region—one a group of strong currencies and the other a group of weak currencies. We emphasize that the implication of this contrasting trajectory in East Asian intra-regional exchange rates is to disturb the competitive trading relationships in the region which may result in wasteful beggar-thyneighbor policies in the region. As emphasized by other recent studies, e.g., Kawai and Takagi (2012), the region needs a kind of framework for exchange rate policy coordination that will promote intra-regional exchange rate stability. We suggest several ways in which the region can capitalize on using this ACU index in the immediate term for surveillance purposes, particularly, for purposes of assessing “over- and undervaluation†of the individual currencies from the regional ACU average and for flagging emerging vulnerabilities in individual economies in the region.

Economic policy transmission between trade partners has been analyzed over different contexts in the literature. Depending on real or nominal frictions, the results indicate possible beggar-thy-neighbor effects for policies, given international trade, and need for coordinating policies. The baseline model is Corsetti and Pesenti (2001) of macroeconomic interdependence. The theoretical proposition suggests that a no anticipated economic policy of exchange rate depreciation creates a beggar-thyself effect. Yet, many economies have engaged in this policy to enhance exports and improve welfare. Here, fiscal policy transmissions over Brazilian economic aggregates are investigated, considering Brazil as home and US as foreign country. The problem is specified in a Structural VAR (Vector Autoregression) model, taking Granger causality tests and Impulse Response analysis as econometric applications. The results indicate that expansionary fiscal policy in US has a beggar-thy-neighbor effect for the Brazilian economy in the long-run. The policy transmission mechanism relies on the terms of trade. In addition, real money balances are affected by foreign fiscal policy, affecting the efficiency of domestic monetary policy. Os efeitos de longo prazo da política fiscal sobre os agregados da economia brasileira são analisados dentro do contexto das inter-relações macroeconômicas de países parceiros comerciais, Brasil e EUA. A investigação empírica utiliza a análise Impulso Resposta, Causalidade de Granger com modelos de Vetores Auto-regressivos Estruturais (SVAR). Assim, desenvolvemos uma aplicação do modelo de Corsetti & Pesenti (2001) de interdependência macroeconômica. Os resultados indicam que a política fiscal expansionista permanente nos EUA causa efeitos de empobrecimento da vizinhança no Brasil no longo prazo. O canal de transmissão da política é confirmado como os termos de troca. Além disso, os encaixes reais são também afetados de forma negativa pela política estrangeira, interferindo na eficiência da política monetária nacional.

This paper examines empirically one of the most pop ular views in international economics, yet barely t ested: undervaluation of the currency is a “beggar-thy-nei ghbor” policy. It assesses simultaneously the two c losely related implications of the beggar-thy-neighbor vie w: (i) undervaluation of the domestic currency impr oves the domestic trade balance; and most importantly, (ii) undervaluation of the domestic currency negatively impacts the other countries ’ trade balances. Starting from the traditional imp erfect substitutes model, we propose an empirical framework allowing the estimation of both the internal and external impacts of currency undervaluation. This framework is then applied to a panel of 63 advanced and emerging markets over the period 1990-2007. The results give strong support to the b eggar-thy-neighbor hypothesis. We find that currenc y undervaluation is robustly and significantly associ ated with an improvement of the domestic trade bala nce. We also find that such an expansion in domestic trade tends to occur at the expense of other countries’ t rade: a 10% increase in undervaluation worsens partners’ trade balances on average by 0.2% to 0.5%. Finally, our e stimates suggest that the external effect of China’s renminb i, which has been the focus of the profession thus far, might be “the tip of the iceberg”: the latter two results ca rry over when China’s trade data are excluded from the analysis.

This study shows that the learning by doing (LBD) effect has substantial, both quantitative and qualitative, consequences for the international transmission of monetary policy. LDB implies that a country can increase its productivity-increasing skill level, at the expense of the neighbor, by competitive devaluation engineered through low interest rates. If measured by the cumulative change in output after 12 quarters, LBD increases the harmful effect of competitive devaluation on foreign output by 85–125%, when compared to the case without it. If LBD is sufficiently strong and the cross-country substitutability is high (low), it reverses the effect of monetary policy on foreign (domestic) welfare into negative (positive). Moreover, a combination of a high cross-country substitutability and a sufficiently strong LDB effect implies that competitive devaluation increases both domestic output and welfare, at the expense of foreign output and welfare.

When Margot Finn called her 2003 book The Character of Credit, the title was a play on words. It was about personal debt as the debts that were incurred and paid (or not) by individuals, and also a...

A truly global recession has not been manifest since the Great Depression of the 1930s. As a result, the multilateral institutions put in place at the end of the Second World War to ensure that a major depression never happened again have not been tested. One of the lessons of the Great Depression was that governments had a major role to play in managing the economy. The use of subsidies to affect economic outcomes was one manifestation of this expanded role. In a recession, sector specific subsidies will likely be requested by firms. Subsidies can distort trade, leading to the potential for beggar thy neighbour subsidy wars. Subsidies will be difficult to discipline in a global recession.

This paper examines whether monetary expansion is a beggar- thyself or beggar- thy-neighbour policy. Obstfeld and Rogo¤ (1995) show that monetary expansion under producer currency pricing in- creases domestic and foreign overall welfare, in cases where the cross- country substitutability is high. If the cross-country substitutability is low, then monetary expansion is a beggar- thyself policy that re- duces domestic welfare and increases foreign welfare (Corsetti & Pe- senti 2001; Tille 2001). In this paper, we will show that regardless of whether the cross-country substitutability is high or low, monetary expansion is always a beggar-thyself policy in the short run.

This paper examines the domestic and international impacts of the U.S. Export Enhancement Program (EEP) for wheat. EEP uses targeted in-kind subsidies to expand U.S. exports and was designed specifically to compete with subsidized exports from the European Community (EC). We argue EEP cannot be welfare-improving for the U.S., even considering strategic trade theory. We then model EEP as an in-kind, constrained, targeted export subsidy and determine its price, quantity, and budgetary effects. Empirical results show that no exporting country gains from EEP and that the intended loser, the EC, is only slightly harmed. We find the export subsidies generate only a small increase in U.S. wheat exports. EEP is an expensive program; based on our estimates for 1988, government cost of additional wheat exports under EEP reached $469 per metric ton.

In this paper, I exploit the cross-sectional and time-series variation in RD the estimated elasticity is negative, above unity (in absolute value), and statistically significant - a finding quite similar to that found by previous studies based on alternative data. Unlike previous studies, however, I then add the external R&D user cost to the regressions. I find the external-cost elasticity is positive and significant, raising concerns about whether having state-level R&D tax credits on top of federal credits is socially desirable. More importantly, I find the aggregate R&D price elasticity - the difference between the internal- and external-cost elasticities - is far smaller than previously estimated. In fact, the preferred specification yields a zero aggregate elasticity, suggesting a zero-sum game among states and raising questions about the efficacy of R&D tax credits more broadly.

Mandated generic commodity promotion programs funded by commodity taxes, called check-offs, are important and controversial. Previous studies of benefits, and legislated requirements for evaluation, have focused on the own-producer effects of promotion. They have disregarded the costs or benefits experienced by producers of commodities not covered by the program but affected by it either directly or because of induced price changes. In this paper, theoretical models are developed for a case where two producer groups each promote their own commodity, and the two commodities are closely related in consumption. In the likely case, promotion of each commodity has a positive own-commodity producer welfare effect and a negative cross-commodity producer welfare effect, and each producer group will spend less on promotion if they take effects on other producers into account than if they consider only the within-group welfare effects; accordingly, from a broader social perspective, commodity programs are likely to overspend on promotion. An application uses 1994 data on prices, consumption, and advertising expenditures on U.S. beef and pork to illustrate the effects of generic advertising of beef and pork, taking account of cross-commodity effects of advertising and price changes. We quantify the beggar-thy-neighbour non-cooperative outcome and the joint optimum, and discuss the policy implications of the comparison.

This paper analyzes the impact of exchange rate fluctuations when they are only partially passed through to consumer prices. We show that an exchange rate depreciation does not necessarily have a beggar-thy-neighbor effect and may in fact have an opposite, or beggar-thyself, effect. The direction of the welfare effect depends on who owns the firms importing goods from producers and selling them to consumers, an issue that has not been explored in the earlier literature.

We develop a baseline model of monetary and fiscal transmission in interdependent economies. The welfare effects of expansionary policies are related to monopolistic supply in production and monopoly power of a country in trade. An unanticipated exchange rate depreciation can be beggar-thyself rather than beggar-thy-neighbor, as gains in domestic output are offset by deteriorating terms of trade. Smaller and more open economies are more prone to suffer from inflationary shocks. Larger economies benefit from moderate demand-led expansions, but may be worse off if policy-makers attempt to close the output gap. Fiscal shocks are generally beggar-thy-neighbor in the long run; in the short run they raise domestic demand at given terms of trade, thus reducing the welfare benefits from monetary expansions. Analytical tractability makes our model uniquely suitable as a starting point to approach the recent “new open-economy macroeconomic” literature.

In recent years, the growth of protectionist sentiments has led to serious doubts as to the future viability of the post-war liberal trading system. Rising protectionist sentiment appears ready to unravel the code of conduct that, in the past, allowed for a steady growth in world trade. Concern for the future is grounded on the belief that if protectionism was left unchecked, not only would international trade suffer but competing blocs would, as in the 1930s, generate hostility and conflict with disastrous consequences. The present crisis and the potentially grim prospect for the future calls for an analysis on how the trading system might be restructured to ensure its continued stability. In particular, this paper will focus on the Japanese role in maintaining system stability, considering that Japan was a principal benefi ciary of the liberal trading order. To do so, however, requires an understanding of the essentials of system stability and below, a brief outline of the main argu ments is presented before proceeding with the substantive analysis of the Japanese role within the system. Within the disciplines of international politics, the notion of system stability has been looked at from two different perspectives. For many political realists, the protectionist crisis was essentially a crisis of leadership. Borrowing on Charles Kindleberger's analysis of the Great Depression of the 1930s, they argued that the viability of a liberal trading system depended on effective leadership provided by a political and military hegemon. In the absence of leadership, it was considered not unlikely that the system would gravitate towards overtly protectionist, "beggar thy neighbour", trade policies. Kindleberger, accordingly, attributed the Great Depression to the unwillingness of the hegemon, the United States, to assume leadership in the inter-war years of British decline. The result was that, while all states promised to eschew protectionism, they, inevitably, became locked into a cycle of spiralling trade barriers. Kindleberger's analysis suggested that, had the United States displayed more "economic responsibility", the outcome of world events might have been less cruel. Leadership, however, is not an altruistic principle but, rather, based on self interest. Since the hegemon possessed the strongest economy it stood to reason that it would be the main beneficiary of a trading regime that allowed it to com pete effectively in export markets. This could be expected in the ideal world of free trade but, given the reality of states at different levels of economic development, 253

In this paper, I examine the international welfare effects of monetary policy. I develop a New Keynesian two-country model, where central banks in both countries follow the Taylor rule. I show that a decrease in the domestic interest rate, under producer currency pricing, is a beggar-thyself policy that reduces domestic welfare and increases foreign welfare in the short term, regardless of whether the cross-country substitutability is high or low. In the medium term, it is a beggar-thy-neighbour (beggar-thyself) policy, if the Marshall-Lerner condition is satisfied (violated). Under local currency pricing, a decrease in the domestic interest rate is a beggar-thy-neighbour policy in the short term, but a beggar-thyself policy in the medium term. Both under producer and local currency pricing, a monetary expansion increases world welfare in the short term, but reduces it in the medium term.