Factor Content Functions and the Theory of International Trade

Neary, J. Peter; Schweinberger, Albert G.

doi:10.2307/2297637

Cited by 37 publications

(25 citation statements)

References 17 publications

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“…The emissions are 1 The extensive literature on trade policy reform in this framework, stemming from Hatta (1977), has been extended to environmental policies by Copeland (1994), Beghin et al (1997) and Ulph (1997), among others. I draw extensively on these papers in what follows, and use some techniques from my own work (especially Neary and Schweinberger (1986) and Neary (1994) which introduced the trade expenditure function and the potato diagram respectively), to simplify and generalise the analysis. generated in the production sector and can be controlled either by binding standards z or by emission taxes t, while they cause environmental damage only to consumers.…”

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confidence: 99%

International Trade and the Environment: Theoretical and Policy Linkages

Neary

2005

Environ Resource Econ

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I review and extend three approaches to trade and environmental policies: competitive general equilibrium, oligopoly and monopolistic competition. The first two have surprisingly similar implications: deviations from first-best rules are justified only by constraints on policy choice (which motivates what I call a "single dividend" approach to environmental policy), and taxes and emissions standards differ in ways which reflect the Le Chatelier principle. I also show how environmental taxes may lead to a catastrophic relocation of industry in the presence of agglomeration effects, although not necessarily if there is a continuum of industries which differ in pollution intensity. My objective in this paper is to review and extend some points of intersection between international trade theory and environmental economics. These two sub-fields of economics have much in common. At the theoretical level, both are branches of applied microeconomics, focusing on the implications of a set of important real-world phenomena:differential international mobility (of goods, factors or ideas) in the case of trade theory, specific externalities in the case of environmental economics. At the policy level, the interaction of trade and environmental policies is increasingly recognised by both analysts and policy-makers as central to the successful operation of both.Two key areas of policy concern have motivated recent studies of the tradeenvironment nexus. One is the fear that trade liberalisation will increase pollution emissions, which raises the issue of whether environmental policy should be tightened to compensate for changes in trade policy. A second major focus of linkages between the two areas is the debate over environmental regulation and international competitiveness. Ongoing debates about increased environmental regulation in the EU have renewed fears that such measures could reduce on competitiveness, leading to both deindustrialisation and "carbon leakage" as polluting industries relocate to other countries. The net effect would be to shift the costs of environmental degradation but also the benefits of industrial agglomeration towards foreign and away from domestic locations.To explore these issues, I consider three alternative approaches to modelling the interaction between trade and environmental policies. First, I consider the benchmark case of a competitive small open economy and review the familiar but important second-best considerations, which can make lax environmental policies desirable if trade policy is constrained, or tariffs welfare-improving when environmental policy is constrained to be suboptimal.Next, I consider models of technical choice by polluting oligopolists. Once again, it turns out that second-best considerations complicate the ranking of alternative interventions.

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International Trade and the Environment: Theoretical and Policy Linkages

Neary

2005

Environ Resource Econ

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“…Alternatively, and following the logic of Neary and Schweinberger (1986), we can look at the trading equilibrium from a factor endowment perspective. For this we consider the concept of a direct factor trade utility function.…”

Section: Factor Content Functions and The General Heckscher-ohlin Thementioning

confidence: 99%

“…Although Deardorff's formulation does not require factor price equalization or specific preference symmetries, he derives his results using different ways of measuring a country's factor content of trade under the assumption of identical technologies. 4 In an important follow-up work, Neary and Schweinberger (1986) have shown that Deardorff's price formulation of the Heckscher-Ohlin Theorem can be derived without assuming identical technologies. Building on Meade (1952) and Woodland's (1980) concepts of direct and indirect trade utility functions, Neary and Schweinberger (1986) introduce the concept of factor content functions and their duals.…”

Section: Introductionmentioning

confidence: 99%

“…4 In an important follow-up work, Neary and Schweinberger (1986) have shown that Deardorff's price formulation of the Heckscher-Ohlin Theorem can be derived without assuming identical technologies. Building on Meade (1952) and Woodland's (1980) concepts of direct and indirect trade utility functions, Neary and Schweinberger (1986) introduce the concept of factor content functions and their duals. Applying these tools to the Heckscher-Ohlin Theorem, they show that the gains from trade is a sufficient condition for obtaining Deardorff's prediction as long as the factor content of trade is measured using the home economy's technology matrix.…”

Section: Introductionmentioning

confidence: 99%

“…Using a simple graphical framework, we illustrate the inter-relationship between the gains from trade in factor service space and the price formulation of the Heckscher-Ohlin Theorem. Building on Neary and Schweinberger (1986), section 3 uses the concepts of factor trade utility and factor trade expenditure functions to derive the general Heckscher-Ohlin theorem.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Testing the General Validity of the Heckscher-Ohlin Theorem: The Natural Experiment of Japan

Bernhofen

Brown

2011

SSRN Journal

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We exploit Japan's 19 th century opening up to trade to test a general formulation of the Heckscher-Ohlin theorem. This formulation is based on Ohlin's measure of factor scarcity where autarky factor prices impose a refutable prediction on the economy's factor content of trade. Our test combines factor price data in Japan's autarky period with commodity trade data and a technology matrix in Japan's early free trade period. Our technology matrix is derived from a major Japanese survey of agricultural techniques during the early Meiji period, accounts by European visitors and numerous studies by Japanese and western scholars that draw on village records, business accounts and other historical sources. Evaluating Japan's factor content of trade during 1868-1875 at the corresponding autarky factor prices, we fail to reject the HeckscherOhlin prediction in each sample year.

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The Empirics of General Equilibrium Trade Theory

Bernhofen

2013

Palgrave Handbook of International Trade

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Factor Content Functions and the Theory of International Trade

Cited by 37 publications

References 17 publications

International Trade and the Environment: Theoretical and Policy Linkages

International Trade and the Environment: Theoretical and Policy Linkages

Testing the General Validity of the Heckscher-Ohlin Theorem: The Natural Experiment of Japan

The Empirics of General Equilibrium Trade Theory

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