The emergence of the gold standard has for a long time been viewed as inevitable. Fluctuations of the gold-silver exchange rate in world markets were accused to lead to brutal and unsustainable switches of bimetallic countries’ money supplies. However, more recent work has shown that the option character of bimetallism provided a stabilizing feedback loop. Using original data, this paper provides support to the new view. Using quotation prices for Indian Government bonds, we analyze agents’ expectations between 1860 and 1890. The intuition is that the spread between gold and silver bonds issued by the same entity (India) and backed by a credible agent (Britain) is a “pure” measure of the silver risk. The analysis shows that up until 1874 markets were expecting bimetallism to last. It is only after this date that markets gradually started requiring a premium to hold silver bonds indicating their belief that gold would eventually become the only metallic standard.
Improved consumption risk sharing is one of the fundamental predicted benefits of increased financial integration, yet the empirical evidence concerning this proposition is mixed. Using the novel empirical technique of wavelet analysis, this paper for the first time in the literature uncovers the heterogeneous evolution of consumption and output correlations over the time and frequency dimensions simultaneously. Periods of strong comovement in consumption growth rates not only occur during times of common (uninsurable) shocks to output, but also to some extent during times of increased financial integration. This evidence adds a new dimension to the consumption output correlation puzzle, which appears to only hold at certain time periods and frequencies.
Scant attention has been paid in the literature concerning 'consumption wealth effects' to asset heterogeneity in terms of foreign and domestic asset holdings. Through extending the approach of Lettau and Ludvigson (2004).and Nitschka (2007), this study uncovers that whilst households tend to view innovations to domestic asset holdings as part of their permanent income, changes in the value of foreign equity holdings are largely characterised as temporary in nature and unrelated to household consumption decisions. This evidence complements existing work concerning 'valuation effects' by highlighting at a disaggregated level an important mechanism by which this phenomenon affects a fundamental macroeconomic aggregate, and also draws implications for trade balance outcomes.
This article analyzes the economics of “badmouthing” in the context of the pre-1914 French capital market. We argue that badmouthing was a means through which racketeering journals sought to secure property rights over issuers’ reputation. We provide a theoretical study of the market setup that emerged to deal with such problems, and we test our predictions using new evidence from contemporary sources.
This paper assesses whether the allocation puzzle - the tendency for capital to flow to countries with relatively low productivity growth - is observed for foreign direct investment (FDI) flows, which should be particularly sensitive to productivity prospects. We look both at aggregate FDI flows and, using a new data set, at FDI flows into the main economic sectors. We make three points. First, we do not find evidence of an allocation puzzle for aggregate FDI flows. Second, we refine the aggregate result and document substantial sectoral heterogeneity. An allocation puzzle is observed in the agriculture, construction, mining/petroleum/utilities and tourism sector. By contrast, we show that countries with faster productivity growth in manufacturing attract more investment in that sector. The link is even stronger for service sectors. Third, we document a role for financial openness: a country with fast productivity growth draws in more FDI into its service sectors only when it is financially open. We conclude with a discussion of some tentative explanations for the results.
This paper investigates whether preferential trade agreements (PTA) promote exports to third nations through the expansion of the extensive margin (i.e. larger number of export goods). The analysis covers 11 South- South and South-North PTAs involving 36 countries that exported to 118 different destinations during the 5 years before and after the PTA. Using a conditional logit model, and trade data at the SITC 5-digit level, we estimate the effect of new within-PTA exports on the subsequent exports to thirdnation markets. The results suggest that PTAs have a positive indirect effect, i.e. spillover-effect, on exports to third countries. Previous export experience in a given product in the preferential area is shown to have a positive effect on the probability that the same product is subsequently exported to a nonmember market. The size of the effect, however, varies across PTAs.
This paper provides an empirical assessment of race-to-the-bottom unilateralism. It suggests that decades of unilateral tariff cutting in Asia‟s emerging economies have been driven by a competition to attract FDI from Japan. Using spatial econometrics, I show that tariffs on parts and components, a crucial locational determinant for Japanese firms, converged across countries following a contagion pattern. Tariffs followed those of competing countries if the latter were lower, if FDI jealousy was high, and when competing countries were at a similar level of development.
Geographical Indications (GIs) for products (Basmati rice, Champagne sparkling wine, Antigua coffee, etc.) were regulated at the international level in 1995 (WTO TRIPS Agreement, Part II, Section 3). This paper proposes a model on the welfare effects of the socalled “claw-back” of GIs; i.e. the protection in a country (Home) of a GI of another country (Foreign), when the said GI had previously acquired generic status at Home (cf.: protection of Feta in the EU or of Champagne in Chile). The setting includes two countries (Home and Foreign); three varieties (Foreign GI-original goods, Home GI-variety goods and generics) and a continuum of heterogeneous consumers. Two regimes are analyzed: protection / no protection; in two scenarios for Foreign firms: perfect / oligopolistic competition. Only the equilibrium at Home is analyzed. Although a loss in global welfare is always expected when fewer varieties are available in a market, results suggest that industrialized Home countries, with sophisticated consumers and higher relative costs tend to lose less from protecting Foreign GIs than developing Home countries, where the opposite is true. With oligopolistic competition, GI firms become from differentiated from their closest competitor after protection (now generics), further stressing the competitive distortion; consumers with a low willingness to pay for origin and a high degree of valuation for the GI-variety are the biggest losers. Regarding firms, however, contrary to the conventional wisdom, oligopolistic competition by Foreign firms leads to less stringent conditions for Home GI-varieties to compete, and does not affect generics. In effect, if after protection Home GI-varieties can successfully differentiate themselves from Foreign GI-original goods without the (unlawful) use of the GI label (either through the development of their own GI or through proper branding) and stay competitive, the scenario of oligopolistic competition from Foreign firms is more favorable to their development than the scenario of perfect competition.
Geographical Indications (GIs) for products (Basmati rice, Champagne sparkling wine, Antigua coffee, etc.) were regulated at the international level in 1995 (WTO TRIPS Agreement, Part II, Section 3). This paper sets a general framework of analysis for GI-labeled goods, based on the modeling of a GI as a club asset (partial excludability and no rivalry in benefits to the firms that lawfully label their products with the GI). A model of club reputation is developed which includes Shapiro (1982) and Winfree & McCluskey (2005) as special cases. Reputation is assumed to be traceable through the GI label; quality is endogenously determined at the firm level, with reputation as the state variable. In contrast with previous research, it is shown that the TRIPS legal construct around GIs is potentially compatible with an equilibrium involving a self-fulfilling level of quality (and reputation) that is above the minimum, under the condition that the GI club has a reduced membership of firms. However, the establishment of a minimum level of quality is still the first best policy to improve firm profits. It is also shown that under bottom-up firm-driven processes of club formation (maximization of firm profits), firm levels of quality and profits are higher, and levels of club membership are lower, than under top-down State-driven processes (maximization of club profits). When quality is taken as exogenous, the model evolves into a static partial equilibrium framework, where the GI is subject to potential dilution phenomena due to membership crowding and oversupply. GI-related expenses, output, membership, and club finance are all determined simultaneously. It is shown that under partial rivalry in benefits, both output and membership are reduced, in an equilibrium that approaches the cartel equilibrium. State subsidization is shown to lead to potential inefficiencies stemming from price and incentive distortions. The geographical confinement of output is shown to impact factor prices and quantities. Finally, issues concerning potential monopsonistic concerns and the replication of GIs are briefly sketched.
The subject of this paper is Section 301 of the Trade Act of 1974 of the United States, a statute that for the past 35 years has allowed the U.S. to unilaterally handle its trade disputes. More specifically, the paper examines the constraining and supporting effects of the multilateral trading system (GATT and WTO) on the effectiveness of Section 301 in general (127 cases), and of retaliatory threats and sanctions in particular (44 cases). In contrast with previous empirical papers, the emphasis is on the gradual interaction between both instances, with special attention to the escalation of the multilateral dispute and the timing of retaliatory threats and sanctions (if any). The paper shows that contrary to conventional wisdom, Section 301 has been less about ‘aggressive unilateralism’ (Bhagwati and Patrick 1991) than about reinforcing the multilateral trading system and the U.S. agenda in it. Section 301 proceedings and retaliation were often used in contravention of international trade law; but they were also used as tools to enforce multilateral rulings or to advance the multilateral agenda upon non-Members or on new issues. To address the effectiveness question, a qualitative response model is used. Results confirm the hypothesis prevalent in the extant literature that a process of escalation at the GATT/WTO is correlated with a higher success rate of Section 301 investigations in changing the target country’s policy. However, the impact is not linear; a settlement is more likely early in the bargaining stages rather than after a ruling is issued by a GATT/WTO panel. The empirical estimation is based on a comprehensive dataset on all Section 301 cases and on the related GATT/WTO dispute(s); and on 45 case studies outlined in the Appendix which, supplemented by the case studies of Bayard & Elliott (1994), are the basis for the coding of the dependent variable.
