This paper develops a two-good, two-country model with national open access renewable resources. We derive an appropriate analog of ‘‘factor proportions’ ’ for the renewable resource case and link it to trade patterns and to the likelihood of diversified production. The resource importer gains from trade. However, a diversified resource exporting country necessarily suffers a decline in steady state utility resulting from trade, and may lose along the entire transition path. Thus the basic ‘‘gains from trade’ ’ presumption is substantially undermined by open access resources. Tariffs imposed by the resource importing country always benefit the resource exporter, and may be pareto-improving. © 1998 Elsevier Science B.V.

We estimate social rates of return to electricity generating capacity and paved roads by looking at their effect on aggregate output and comparing this to their costs of construction. Our results are driven by our finding that both types of infrastructure are highly complementary with physical and human capital, but have rapidly diminishing returns if increased in isolation. This produces an optimal mix of capital inputs and makes it very easy for a country to have too much, or too little, infrastructure. For policy purposes, we compare the rate of return to investing in infrastructure with our estimated rate of return to capital as a whole. The strong complementarity we find between physical and human capital, and lower prices of investment goods in developed countries, means that we calculate that rich countries have rates of return to capital just as high as those in the poorest countries, though the highest rates of return to capital are found in the class of middle income (per capita) countries. We find that the rates of return to both electricity generating capacity and paved roads are on a par with, or lower than, that on other forms of capital in most countries. However, in a limited number of countries we find evidence of very acute shortages of

Australian Centre for International Agricultural Research (under PN9449) and the World Bank for financial assistance. Will Trade Liberalization Harm the Environment? The Case of Indonesia to 2020

The paper examines the gains from North-South trade and their distribution. In a `new growth, new trade' framework, we examine the factors that determine four phases or stages of development in the South as equilibria: specialisation in a traditional good; the South in addition copies Northern innovative manufactured goods; the South begins to innovate in its own right and finally a stage in which the South only innovates, as in the North. The main conclusion is that dynamic gains from trade create new winners, unskilled workers in the North and possibly skilled workers in the South.

The economic impact of extending the Common Agricultural Policy (CAP) to the Central and Eastern European countries has become a major issue in the European enlargement debate. This paper addresses this issue by providing an assessment of the economy-wide effects of European enlargement using a global general equilibrium model where special attention is given to modelling the instruments of the CAP and the European Unions budget. This paper differs from our earlier efforts as the analyses is now based on version 4 of the GTAP database with a more detailed agricultural commodity coverage. Furthermore the representation of the CAP and the Uruguay Round has been improved and the Agenda 2000 proposal is now explicitly dealt with.

The paper is concerned with the investment response to temporary trade shocks when capital in the commodity and import-competing sectors is irreversible once installed. Previous literature has argued in general terms that investment is likely to rise in response to sharp relative price movements because the return to capital in one of the sectors will increase. A rigorous model of investment under uncertainty in the two-sector commodity price shocks context is developed and used to investigate this issue. It is shown that investment booms in response to commodity price shocks are likely but not certain to occur and a boom at the end of the shock may also be expected. The predictions of the theory are shown to be consistent with the evidence from a This paper is concerned with the investment response to temporary commodity price shocks when capital is sector specific and irreversible once installed. It makes use of the insights of the irreversibility and investment literature to develop a rigorous two sector model of the optimal investment response to a temporary price shock. The model is simulated across a range of

Abstract. This paper examines the evolution of foreign trade and investment policies in developing Asian countries vis-à-vis emerging market countries and other developing countries in the rest of the world since the mid-1980s. It reveals that non-Asian emerging market countries have made appreciable progress in closing the “trade policy gap ” with leading East Asian countries. It also reports indications that emerging market countries outside Asia are more liberal today in their policies toward foreign direct investment than many if not most East Asian countries. In the aftermath of the Asian financial crisis and recession, these findings point to the importance of maintaining, if not also deepening, reforms to foreign trade and investment policies in developing Asia. This is important so that the region might continue to attract a commanding share of foreign direct investment flows and enjoy the related trade and other economic benefits of this investment in the increasingly more competitive global economy.

According to the Washington Consensus, developing countries ’ growth would benefit from a reduction in tariffs and other barriers to trade. But a backlash against this view now suggests that trade policies have little or no impact on growth. If “getting policies right ” is wrong or infeasible, this leaves only the more tenuous objective of “getting institutions right ” (Easterly 2005, Rodrik 2006). However, the empirical basis for judging recent trade reforms is weak. Econometrics are mostly ad hoc; results are typically not judged against models; trade policies are poorly measured (or not measured at all, as when trade volumes are spuriously used); and the most influential studies in the literature are based on pre-1990 experience (predating the “Great Liberalization ” in many developing countries which followed the GATT Uruguay Round). We address all of these concerns—by using a model-based analysis which highlights tariffs on capital and intermediate goods; by compiling new disaggregated tariff measures to empirically test the model; and by employing a treatment-and-control empirical analysis of pre- versus post-1990 performance of liberalizing and nonliberalizing countries. We find evidence that a specific treatment, liberalizing tariffs on imported capital and intermediate goods, did lead to faster GDP growth, and by a margin consistent with theory (about 1 percentage point per annum). We control for other policy

2.1 The demand side............................... 9

Finally in Figure 6 we vary the rate of depreciation in the X sector. The key role of this parameter is in affecting the desired capital stock in the X sector following reform since a very low rate of depreciation for example would mean that if the X sector has expanded it will suffer a prolonged period of low returns if reversal occurs since the sectoral capital stock will depreciate (and thereby raise the return to capital) only slowly. Hence a low rate of depreciation will tend to discourage investment in the X sector more for a given probability and size of reversal. This may be seen from the upper charts of Figure 6 though the effect is weak compared with varying the tariff rate and reversal probability above until the depreciation rate is very small. It would be important, however, for developing countries in which the export sector comprises agricultural commodities since both tree crops (the planting of which may be considered investment due to the lags involved) and agricultural investments to facilitate the production of annual crops (land improvement, drainage etc.) have low rates of depreciation. Mining investments also have low depreciation rates though they are also often capital intensive which makes the model above less applicable since the export sector is affected by trade reform through the labour market. 16 3. Endogenising the Probability of Reversal