Academic Papers by Professor Daniel Trefler

Working Papers

“Improved Access to Foreign Markets Raises Plant-Level Productivity ... for Some Plants.” Working Paper, July, 2007. (With Alla Lileeva)

“Putting the Lid on Lobbying: Tariff Structure and Long-Term Growth When Protection Is For Sale.” NBER Working Paper #12164, April, 2006. (With Nathan Nunn.)

“Policy Responses to the New Offshoring: Think Globally, Invest Locally.” Industry Canada Working Paper.

“Wake Up and Smell the Ginseng: The Rise of Incremental Innovation in Low-Wage Countries,” NBER Working Paper #11571, August, 2005. (With Diego Puga.)

“The Impact of International Trade on Domestic Institutions: How the Italian Communes Survived Medieval ‘Globalization’.” (With Diego Puga.)

“The Structure of Factor Content Predictions.” NBER Working Paper #11221, March 2005. (With Susan Chun Zhu.) “Looking Backward: How Childhood Experiences Impact a Nation’s Wealth.” Manuscript, February, 2004.

“Knowledge Creation and Control in Organizations.” NBER Working Paper #9121, August, 2002. (With Diego Puga.)

“The Gains From Trade with Monopolistic Competition: Specification, Estimation, and Mis-Specification.” NBER Working Paper #9169, September, 2002. (With Huiwen Lai.)

Refereed Articles

· "Sorting it Out: International Trade and Protection with Heterogeneous Workers. " Journal of Political Economy 115 (October 2007): 868-892. (With Franziska Ohnsorge.)

· "Trade and Inequality in Developing Countries: A General Equilibrium Analysis." Journal of International Economics 65 (January 2005): 21-48. (With Susan Chun Zhu.)

· "The Long and Short of the Canada-U.S. Free Trade Agreement." American Economics Review 94 (September 2004): 870-895.

· "Increasing Returns to Scale and All That: A View From Trade." American Economic Review 92 (March 2002): 93-119. (With Werner Antweiler)

· "The Case of the Missing Trade and Other Mysteries: Reply." American Economic Review 92 (March 2002): 405-410.

· "Beyond the Algebra of Explanation: HOV for the Age of Technology." American Economic Review Papers and Proceedings, 90(2) (May 2000): 145-149. (With Susan Zhu)

· "Bargaining With Asymmetric Information in Non-Stationary Markets." Economic Theory, 13 (3, 1999): 577-601.

· "The Labour Market Consequences of the Canada-U.S. Free Trade Agreement." Canadian Journal of Economics 30 (February 1997): 18-41. (With Noel Gaston. Winner of the Harry G. Johnson Prize for best paper of the year.)

· "The Case of the Missing Trade and Other Mysteries." American Economic Review 85 (December 1995): 1029-1046. (Lead article.) Reprinted in Worth Series in Outstanding Contributions: International Economics edited by E. Leamer. New York: Worth Publishers, 2001.

· "Union Wage Sensitivity to Trade and Protection: Theory and Evidence." Journal of International Economics 39 (August 1995): 1-25. (Lead article, with Noel Gaston.) Reprinted in Globalization and Labor Markets, edited by E. Kwan Choi and David Greenway. Oxford, England and Malden, Mass.: Blackwell, 2001.

· "Protection, Trade, and Wages: Evidence from U.S. Manufacturing." Industrial and Labour Relations Review 47 (July 1994): 574-593. (With Noel Gaston.)

· "The Role of International Trade and Trade Policy in the Labour Markets of Canada and the United States." World Economy (January 1994): 45-62. (With Noel Gaston.)

· "International Factor Price Differences: Leontief was Right!" Journal of Political Economy 101 (December 1993): 961-987. (Lead article.) Reprinted in Input-output Analysis, Volume 2, edited by H.D. Kurz, E. Dietzenbacher, and C. Lager. London: Edward Elgar Publishing, 1998. Also reprinted in Wassily Leontief : Critical Assessments of Contemporary Economists, edited by John Cunningham Wood and Michael McLure. New York : Routledge, 2001.

· "The Ignorant Monopolist: Optimal Learning With Endogenous Information." International Economic Review 34 (August 1993): 565-581.

· "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy." Journal of Political Economy 101 (February 1993): 138-160.

Academic Chapters in Books and Journals

· "The Boundaries of the Multinational Firm: An Empirical Analysis. " In Globalization and the Organization of Firms and Markets, edited by Elhanan Helpman and Dalia Marin. Cambridge, MA: Harvard University Press, forthcoming.

· "Service Offshoring: Threats and Opportunities. " In Brookings Trade Forum 2005: Offshoring White-Collar Work, edited by Susan M. Collins and Lael Brainard. Washington D.C.: Brookings Institution Press, 2006, pages 35-60.

· "Successful Economies, Failed Economics: What the Canada-U.S. Free Trade Agreement Teaches Us about International Economics." In The Macdonald Commission Report 20 Years On edited by David Laidler and Bill Robson. Toronto: C.D. Howe Institute, 2005, pages 111-120.

· "A Time to Sow, A Time to Reap: The FTA and Its Impact on Productivity and Employment." in Productivity Issues in Canada edited by Someshwar Rao and Andrew Sharpe. Calgary: University of Calgary Press, 2002. Pages 537-569. (With Gary Sawchuk)

· "Macroeconomic Dynamics Interview: Professor Elhanan Helpman." Macroeconomic Dynamics, 3 (December 1999): 571-601.

· "Comments on ‘Long-Term Productivity Issues’ by Rick Harris." In Fiscal Targets and Economic Growth edited by Thomas J. Courchene and Thomas A. Wilson. Kingston: John Deutsch Institute for the Study of Economic Policy, 1998, pages 91-93.

· "Immigrants and Natives in General Equilibrium Trade Models." in The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration Policy Options edited by James P. Smith and Barry Edmonston. Washington D.C.: National Academy Press, 1998, pages 206-238.

ABSTRACT: This paper makes three observations about international trade and immigration. (i) Borjas has argued that immigration may yield a net social benefit even though it hurts those less-skilled workers who directly compete with immigrants. I show that this closed-economy argument unravels when imbedded in the Ricardian or Heckscher-Ohlin models of international trade. (ii) Following Wood and Feenstra-Hanson, I argue that within an industry those goods produced abroad use more unskilled labor than those goods produced in the United States. How much more depends on whether the good is produced in a developed or developing country. After transparently incorporating this into a new factor content study I find that changes in U.S. trade patterns almost certainly battered wages of those at the very bottom of the skill ladder. (iii) Despite globalization pressures, I find little evidence of earnings convergence for a sample of 75 countries over the 1963-92 period. This holds true even after controlling for education and workers' industry of affiliation.

· "No Pain, No Gain: Lessons from the Canada-U.S. Free Trade Agreement." in Incomes and Productivity in North America. Dallas: Bernan Press and the Commission for Labor Cooperation, 1997, pages 25-42.

· "Canada and the Asia Pacific: Views from the Gravity, Monopolistic Competition, and Heckscher-Ohlin Models." in The Asia-Pacific Region in the Global Economic: A Canadian Perspective edited by Richard G Harris. Calgary: University of Calgary, 1996, pages 47-83. (With Walid Hejazi.)

· "Nontariff Barriers to Trade and Workers' Wages." In Studies in Labour Economics, edited by Erkin Bairam. London: Ashgate Publishing Ltd, 1993, pages 72-110. (With Noel Gaston.)

Some of these papers can be downloaded in Adobe's portable document format (PDF). They can be viewed and printed with an Acrobat reader (free from Adobe).

Working Papers – Abstracts and Full Papers

“Improved Foreign Market Access Raises Plant-Level Productivity … For Some Plants.”

ABSTRACT: We weigh into the debate about whether rising productivity is ever a consequence rather than a cause of exporting. Exporting and investing to raise productivity are complimentary activities. For lower-productivity firms, incurring the fixed costs of such investments is justifiable only if accompanied by the larger sales volumes that come with exporting. Lower foreign tariffs will induce these firms to simultaneously export and invest in productivity. In contrast, lower foreign tariffs will induce higher-productivity firms to export without investing, as in Melitz (2003). We model this econometrically using a heterogeneous response model. Unique ‘plant-specific’ tariff cuts serve as our instrument for the decision of Canadian plants to start exporting to the United States. We find that those lower-productivity Canadian plants that were induced by the tariff cuts to start exporting (a) increased their labour productivity, (b) engaged in more product innovation, and (c) had high adoption rates of advanced manufacturing technologies. These new exporters also increased their domestic (Canadian) market share at the expense of non-exporters, which suggests that the labour productivity gains reflect underlying gains in TFP. In contrast, we find no effects for higher-productivity plants, just as predicted by our complementarity theory..

Available for download as a PDF file (571 Kb.) Back to Working Papers

“Putting the Lid on Lobbying: Tariff Structure and Long-Term Growth When Protection Is For Sale.”

ABSTRACT: It has long been recognized that a country's tariffs are the endogenous outcome of a rent-seeking game whose equilibrium reflects national institutions. Thus, the structure of tariffs across industries provides insights into how institutions, as reflected in tariff policies, affect long-term growth. We start with the commonplace perception among politicians that protection of skill-intensive industries generates a growth-enhancing externality. Modifying the Grossman-Helpman protection for sale model to allow for this, we make two predictions. First, a country with good institutions will tolerate high average tariffs provided tariffs are biased towards skill-intensive industries. Second, there need not be any relationship between average tariffs and good institutions. Using data for 17 manufacturing industries in 59 countries over approximately 25 years, we find that average tariffs are uncorrelated with output growth and that the skill-bias of tariff structure is positively correlated with output growth. We interpret this to mean that countries grow faster if they are able and willing to put a lid on the rent-seeking behaviour of special interest lobby groups. We show that our results are not compatible with explanations that appeal to (1) externalities per se, (2) initial industrial structure that is skewed towards skill-intensive industries, or (3) the effects of broader institutions such as rule of law and control of corruption.

Available for download as a PDF file (571 Kb.) Back to Working Papers

“Policy Responses to the New Offshoring: Think Globally, Invest Locally.”

ABSTRACT: When asked to provide a framework piece on offshoring, I decided it would be much easier to have the work done by an Indian consulting firm. A quick bit of research turned up a perfect partner in Infiniti Research. Not surprisingly, the company has a London-based front end – it is a fact of the industry that many customers prefer to work through a Western intermediary. From their brochure, Infiniti quotes the job at $63,000, no GST. That’s about ten times less than a Canadian management consulting firm would charge, but still too rich for my academic salary. So you are stuck with me. The experience taught me two things. First, you can outsource just about anything, from which I conclude that all of our jobs are threatened. Second, the big money in outsourcing goes to the business analysts who help OECD customers communicate their needs to business process outsourcers in low-cost countries. I conclude from this that offshoring brings remarkable opportunities to us all. Therein lies the paradox of offshoring: it is both a threat and an opportunity. In considering international offshoring, two trends scream out for our attention.

Available for download as a PDF file (844 Kb.) Back to Working Papers

“Wake Up and Smell the Ginseng: The Rise of Incremental Innovation in Low-Wage Countries”

ABSTRACT: Increasingly, a small number of low-wage countries such as China and India are involved in innovation — not ‘big ideas’ innovation, but the constant incremental innovations needed to stay ahead in business. We provide some evidence of this new phenomenon and develop a model in which there is a transition from old-style Product-cycle trade to trade involving incremental innovation in low-wage countries. We explain why levels of involvement in innovation vary across lowwage countries and even across firms within each low-wage country. We then draw out implications for the location of production, trade, capital flows, earnings and living standards.

Available for download as a PDF file (548 Kb.) Back to Working Papers

“The Impact of International Trade on Domestic Institutions: How the Italian Communes Survived Medieval ‘Globalization’.”

ABSTRACT: International trade places unique demands on local capital markets, demands that can translate into investor protection rights and a richer domestic financial system. It can also lead to rent seeking behaviour on the part of local elites and a crowding out of domestic financial service providers. We explore the conditions under which international trade can be a positive or negative influence on domestic institutions by examining how Venice coped with the spectacular rise of international trade during the period 1100-1350. In particular, we show that early pressures on financial markets led to the rise of important institutional innovations such as the commenda. The commenda allowed Venice to mobilize capital from small investors and small entrepreneurs. This led to both a rapid growth rate and to considerable income mobility. By 1324, the merchant class had sufficient resources to internally finance trade. As a result, the mobilization of capital – along with its positive effects on income mobility – were no longer in the interests of the emerging nobility. The consequence was that the nobility placed severe restrictions on the commenda and other institutions favourable to growth. This led to the long-run entrenchment of a rent-seeking nobility and, ultimately, to the decline of Venice.

Back to Working Papers

“The Structure of Factor Content Predictions.”

ABSTRACT: The last decade witnessed an explosion of research into the impact of international technology differences on the factor content of trade. Yet the literature has failed to confront two pivotal issues. First, with international technology differences and traded intermediate inputs there does not exist a Vanek-consistent definition of the factor content of trade. Restated, we do not know what we are trying to explain! We fill this gap by providing the correct definition. Second, as Helpman and Krugman (1985) showed, many models beyond Heckscher-Ohlin imply the Vanek prediction. So what model is being tested? We completely characterize the class of models being tested by providing a familiar `consumption similarity' condition that is necessary and sufficient for the Vanek prediction. We illustrate with a unique dataset containing input-output tables for 41 rich and poor countries. We find modest support for the strong version of the Vanek prediction and impressive support for weaker versions of the prediction.

Available for download as a PDF file (409 Kb.) Back to Working Papers

“Looking Backward: How Childhood Experiences Impact a Nation’s Wealth.”

ABSTRACT: When the subject of children is introduced in public policy circles – and you can bet the family farm that it is not an economist doing the introductions – it is usually to point out how core Canadian values of community and caring are being sacrificed on the alter of competitiveness. While I worry that children have become the victims of Canada’s vanishing values, I hardly feel threatened by Canada’s new-born culture of competitiveness. I happen to believe that competitiveness is important. Indeed, I believe that Canada should set its sights on being the richest jurisdiction in the world. Unfortunately, this goal is unattainable unless we get serious about investing in our children. Having spent over a decade studying the policies needed to meet the goal of making Canada the number one jurisdiction globally, I now understand that there is no single policy, no magic bullet that will propel us forward. Instead, Canada needs a unique set of complimentary policies that will carve out for us an internationally competitive niche. Remarkably, a large number of these policies involve investing in people. One other thing I now understand: the cost effective way to invest in people is to invest in them while they are young. That is how I come to early childhood research.

Available for download as a PDF file (282 Kb.) Back to Working Papers

Knowledge Creation and Control in Organizations.

ABSTRACT: The incremental innovations that underly much of modern economic growth typically involve changes to one or more components of a complex product. This creates a tension. On the one hand, a principal would like an agent to contribute innovative components. On the other hand, ironing out incompatibilities between interdependent components can be a drain on the principal's energies. The principal can conserve her energies by tightly controlling the innovation process, but this may inadvertently stifle the agent's incentive to innovate. We show precisely how this tension between creating knowledge and controlling knowledge shapes organizational forms. The novel concepts introduced are illustrated with case studies of the flat panel cathode ray tube industry and Boeing's recent location decisions.

Available for download as a PDF file (480 Kb.) Back to Working Papers

The Gains From Trade with Monopolistic Competition: Specification, Estimation, and Mis-Specification.

ABSTRACT: The difficulty of incorporating general equilibrium price effects into econometric estimating equations has deterred most researchers from econometrically estimating the welfare gains from trade liberalization. Using a paired-down CES monopolistic competition example, we show that this difficulty has been greatly exaggerated. Along the way, we estimate indeed precisely estimate large welfare gains from trade liberalization as measured by compensating variation. Unlike calibration methods, econometric methods allow researchers to isolate the violence done by the model to the data. We find that the CES monopolistic competition model horribly mis-specifies behavioural price elasticities and general equilibrium price feedbacks. The model as conceived is therefore of limited value for analysing the effects of trade liberalization. We report a number of specification issues that should point the way to better theoretical modeling.

Available for download as a PDF file (1453 Kb.) Back to Working Papers

Refereed Articles – Abstracts and Full Papers

“Sorting it Out: International Trade and Protection with Heterogeneous Workers.”

ABSTRACT: The two models of international trade with developed factor markets -- Heckscher-Ohlin and Specific Factors -- both suffer significant defects. For example, their predictions about the patterns of domestic production and international trade are for the most part either indeterminate or uselessly complex. The problem with these models is that the supply of factors to an industry is either perfectly elastic or perfectly inelastic. Using a model in which heterogeneous workers sort across industries we eliminate this problem. The result is a multi-good model with sharp predictions about (1) the domestic pattern of production, (2) North-North and North-South trade, (3) the demand for protection, (4) the determinants of domestic income distribution, and (5) the effect of trade on economic development.

NBER Version (discrete number of industries) Available for download as a PDF file (392 Kb.) Back to Refereed Articles

JPE Version (continuum of industries) Available for download as a PDF file (381 Kb.) Back to Refereed Articles

Trade and Inequality in Developing Countries: A General Equilibrium Analysis.

ABSTRACT: Developing and newly industrialized countries that have experienced the sharpest increases in wage inequality are those whose export shares have shifted towards more skill-intensive goods. We argue that this can be explained by technological catch-up. We develop this insight using a model that features both Ricardian and endowments-based comparative advantage. In this model, Southern catch-up causes production of the least skill-intensive Northern goods to migrate South (where they become the most skill-intensive Southern goods). This raises wage inequality in both the South and the North. We provide empirical evidence that strongly supports this causal mechanism: Southern catch-up exacerbates Southern inequality by redirecting Southern export shares towards more skill-intensive goods.

Available for download as a PDF file (518 Kb.) Back to Refereed Articles

The Long and Short of the Canada-U.S. Free Trade Agreement.

ABSTRACT: The Canada-U.S. Free Trade Agreement provides a unique window onto the effects of a reciprocal trade agreement on an industrialized economy (Canada). For industries that experienced the deepest Canadian tariff cuts, the contraction of low-productivity plants reduced employment by 12 percent while raising industry-level labor productivity by 15 percent. For industries that experienced the larges U.S. tariff cuts, plant-level labor productivity soared by 14 percent. These results highlight the conflict between those who bore the short-run adjustment cost (displaced workers and struggling plants) and those who are garnering the long-run gains (consumers and efficient plants).

Available for download as a PDF file (192 Kb.) Back to Refereed Articles

Increasing Returns to Scale and All That: A View From Trade.

ABSTRACT: Do scale economies contribute to our understanding of international trade? Do international trade flows encode information about the extent of scale economies? To answer these questions we examine the large class of general equilibrium theories that imply Helpman-Krugman variants of the Vanek factor content prediction. Using an ambitious database on output, trade flows, and factor endowments, we find that scale economies significantly increase our understanding of the sources of comparative advantage. Further, the Helpman-Krugman framework provides a remarkable lens for viewing the general equilibrium scale elasticities encoded in trade flows. In particular, we find that a third of all goods-producing industries are characterized by scale. (The modal range of scale elasticities for this group is 1.10-1.20 and the economy-wide scale elasticity is 1.05.) Implications are drawn for the trade-and-wages debate (skill-biased scale effects) and endogenous growth.

Available for download as a PDF file (3705 Kb.) Back to Refereed Articles

Beyond the Algebra of Explanation: HOV for the Age of Technology.

Available for download as a PDF file (734 Kb.) Back to Refereed Articles

Bargaining With Asymmetric Information in Non-Stationary Markets.

ABSTRACT: Summary. The Rubinstein and Wolinsky bargaining-in-markets framework is modifed by the introduction of asymmetric information and non-stationarity. Non-stationarity is introduced in the form of an arbitrary stochastic Markov process which captures the dynamics of market entry and pairwise matching. A new technique is used for establishing existence and characterizing the unique outcome of a non-stationary market equilibrium. The impact of market supply and demand on bilateral bargaining outcomes and matching probabilities is explored. The results are useful for examining such questions as why coordination failures and macroeconomic output fluctuations are correlated with real and monetary shocks.

Available for download as a PDF file (230 Kb.) Back to Refereed Articles

The Case of the Missing Trade and Other Mysteries: Reply.

Available for download as a PDF file (133 Kb.) Back to Refereed Articles

Immigrants and Natives in General Equilibrium Trade Models.

ABSTRACT: This paper makes three observations about international trade and immigration. (i) Borjas has argued that immigration may yield a net social benefit even though it hurts those less-skilled workers who directly compete with immigrants. I show that this closed-economy argument unravels when imbedded in the Ricardian or Heckscher-Ohlin models of international trade. (ii) Following Wood and Feenstra-Hanson, I argue that within an industry those goods produced abroad use more unskilled labor than those goods produced in the United States. How much more depends on whether the good is produced in a developed or developing country. After transparently incorporating this into a new factor content study I find that changes in U.S. trade patterns almost certainly battered wages of those at the very bottom of the skill ladder. (iii) Despite globalization pressures, I find little evidence of earnings convergence for a sample of 75 countries over the 1963-92 period. This holds true even after controlling for education and workers' industry of affiliation.

Available for download as a PDF file (2758 Kb.) Back to Refereed Articles

The Labour Market Consequences of the Canada-U.S. Free Trade Agreement.

ABSTRACT: The Canada-U.S. Free Trade Agreement (FTA) was expected to reallocate workers from high-cost firms to low-cost firms, thus promoting specialization and trade creation. Instead, employment contracted across all industries during 1989-93 and real exports and imports contracted over most of the period. This trade destruction provides some evidence that the massive 1989-93 Canadian job losses were not primarily caused by the FTA. We further show that FTA tariff cuts account for no more than 15 per cent of the Canadian job losses. Restated, other factors (including the fight against inflation) explain more than 85 per cent of the job losses.

Available for download as a PDF file (2466 Kb.) Back to Refereed Articles

The Case of the Missing Trade and Other Mysteries.

ABSTRACT: The Heckscher-Ohlin-Vanek (HOV) theorem, which predicts that countries will export products that are made from factors in great supply, performs poorly. However, deviations from HOV follow pronounced patterns. Trade is missing relative to its HOV prediction. Also, rich countries appear scarce in most factors and poor countries appear abundant in all factors, a fact that squares poorly with the HOV prediction that abundant factors are exported. As suggested by the patterns, HOV is rejected empirically in favor of a modification that allows for home bias in consumption and international technology differences.

Available for download as a PDF file (2127 Kb.) Back to Refereed Articles

Union Wage Sensitivity to Trade and Protection: Theory and Evidence.

ABSTRACT: We develop a model featuring union-firm bargaining, strategic rivalry between the unionized domestic firm and its foreign competitor, and endogenous protection. The model frames a micro-level empirical study of the role of trade and trade policy in union wage determination. The results indicate that (1) trade flows and trade policy influence wages as much as the domestic factors usually considered, (2) imports and tariffs are negatively correlated with wages, and (3) there is little evidence of the trade flows endogeneity suggested by strategic trade theory or the tariff endogeneity that could explain the negative tariff coefficient.

Available for download as a PDF file (1365 Kb.) Back to Refereed Articles

Protection, Trade, and Wages: Evidence from U.S. Manufacturing.

ABSTRACT: This paper investigates the effects of international trade policy on wages in U.S. manufacturing industries in 1983. The data set combines micro labor market data with comprehensive data on tariffs and nontariff trade barriers such as quotas and antidumping duties. The authors find that workers in unprotected, export-oriented industries had higher wages than workers with similar observable characteristics in protected, import-competing industries; more specifically, exports had a positive wage effect and imports had a smaller negative wage effect. Other findings are that nontariff barriers had no significant effect on wages, and tariffs appear to have had a large negative wage effect, even after the authors control for the trade protection received by low-wage industries.

Available for download as a PDF file (2397 Kb.) Back to Refereed Articles

The Role of International Trade and Trade Policy in the Labour Markets of Canada and the United States.

Available for download as a PDF file (651 Kb.) Back to Refereed Articles

International Factor Price Differences: Leontief was Right!

ABSTRACT: The factor price equalization hypothesis is widely at odds with the large variation in factor prices across countries. Similarly, the Heckscher-Ohlin-Vanek (HOV) theorem constitutes an incomplete description of trade in factor services: its predictions are always rejected empirically. These two issues are examined using a modification of the HOV model that allows for factor-augmenting international productivity differences. The empirical results are stark: this simple modification of the HOV theorem explains much of the factor content of trade and the cross-country variation in factor prices.

Available for download as a PDF file (2266 Kb.) Back to Refereed Articles

The Ignorant Monopolist: Optimal Learning With Endogenous Information.

ABSTRACT: Economics lacks a good theory of the pricing and output decisions of a monopolist which does not know its demand-we inevitably assume that the monopolist knows much more about demand conditions than is reasonable. I present a model in which demand information is generated endogenously. When information is endogenous the monopolist has an incentive to experiment with price and quantity. I derive the direction of experimentation, characterize an important value function arising from dynamic programming problems with learning, and relate the results to Blackwell's comparison of experiments.

Available for download as a PDF file (1478 Kb.) Back to Refereed Articles

Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy.

ABSTRACT: Trade theorists continue to puzzle over their surprisingly small estimates of the impact of trade liberalization on imports. All explanations of the puzzle treat trade liberalization as a given. But the level of trade protection is not exogenous. The theory of endogenous protection predicts that higher levels of import penetration will lead to greater protection. This paper finds that when trade protection is modeled endogenously, its restrictive impact on imports is large, 10 times the size obtained from treating protection exogenously.

Available for download as a PDF file (2112 Kb.) Back to Refereed Articles

Knowledge Creation and Control in Organizations.

ABSTRACT: The incremental innovations that underly much of modern economic growth typically involve changes to one or more components of a complex product. This creates a tension. On the one hand, a principal would like an agent to contribute innovative components. On the other hand, ironing out incompatibilities between interdependent components can be a drain on the principal's energies. The principal can conserve her energies by tightly controlling the innovation process, but this may inadvertently stifle the agent's incentive to innovate. We show precisely how this tension between creating knowledge and controlling knowledge shapes organizational forms. The novel concepts introduced are illustrated with case studies of the flat panel cathode ray tube industry and Boeing's recent location decisions.

Available for download as a PDF file (480 Kb.) Back to Refereed Articles

The Gains From Trade with Monopolistic Competition: Specification, Estimation, and Mis-Specification.

ABSTRACT: The difficulty of incorporating general equilibrium price effects into econometric estimating equations has deterred most researchers from econometrically estimating the welfare gains from trade liberalization. Using a paired-down CES monopolistic competition example, we show that this difficulty has been greatly exaggerated. Along the way, we estimate indeed precisely estimate large welfare gains from trade liberalization as measured by compensating variation. Unlike calibration methods, econometric methods allow researchers to isolate the violence done by the model to the data. We find that the CES monopolistic competition model horribly mis-specifies behavioural price elasticities and general equilibrium price feedbacks. The model as conceived is therefore of limited value for analysing the effects of trade liberalization. We report a number of specification issues that should point the way to better theoretical modeling.

Available for download as a PDF file (1453 Kb.) Back to Refereed Articles

Chapters in Books – Abstracts and Full Papers

A Time to Sow, A Time to Reap: The FTA and Its Impact on Productivity and Employment.

Available for download as a PDF file (518 Kb.) Back to Refereed Articles

The Long and Short of the Canada-U.S. Free Trade Agreement.

Available for download as a PDF file (192 Kb.) Back to Refereed Articles

Available for download as a PDF file (3705 Kb.) Back to Refereed Articles

Beyond the Algebra of Explanation: HOV for the Age of Technology.

Available for download as a PDF file (734 Kb.) Back to Refereed Articles

Available for download as a PDF file (230 Kb.) Back to Refereed Articles

The Case of the Missing Trade and Other Mysteries: Reply.

Available for download as a PDF file (133 Kb.) Back to Refereed Articles

Available for download as a PDF file (2758 Kb.) Back to Refereed Articles

The Labour Market Consequences of the Canada-U.S. Free Trade Agreement.

ABSTRACT: The Canada-U.S. Free Trade Agreement (FTA) was expected to reallocate workers from high-cost firms to low-cost firms, thus promoting specialization and trade creation. Instead, employment contracted across all industries during 1989-93 and real exports and imports contracted over most of the period. This trade destruction provides some evidence that the massive 1989-93 Canadian job losses were not primarily caused by the FTA. We further show that FTA tariff cuts account for no more than 15 per cent of the Canadian job losses. Restated, other factors (including the fight against inflation) explain more than 85 per cent of the job losses.

Available for download as a PDF file (2466 Kb.) Back to Refereed Articles

Available for download as a PDF file (2127 Kb.) Back to Refereed Articles

Available for download as a PDF file (1365 Kb.) Back to Refereed Articles

Protection, Trade, and Wages: Evidence from U.S. Manufacturing.

ABSTRACT: This paper investigates the effects of international trade policy on wages in U.S. manufacturing industries in 1983. The data set combines micro labor market data with comprehensive data on tariffs and nontariff trade barriers such as quotas and antidumping duties. The authors find that workers in unprotected, export-oriented industries had higher wages than workers with similar observable characteristics in protected, import-competing industries; more specifically, exports had a positive wage effect and imports had a smaller negative wage effect. Other findings are that nontariff barriers had no significant effect on wages, and tariffs appear to have had a large negative wage effect, even after the authors control for the trade protection received by low-wage industries.

Available for download as a PDF file (2397 Kb.) Back to Refereed Articles

The Role of International Trade and Trade Policy in the Labour Markets of Canada and the United States.

Available for download as a PDF file (651 Kb.) Back to Refereed Articles

Available for download as a PDF file (2266 Kb.) Back to Refereed Articles

Available for download as a PDF file (1478 Kb.) Back to Refereed Articles

Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy.

ABSTRACT: Trade theorists continue to puzzle over their surprisingly small estimates of the impact of trade liberalization on imports. All explanations of the puzzle treat trade liberalization as a given. But the level of trade protection is not exogenous. The theory of endogenous protection predicts that higher levels of import penetration will lead to greater protection. This paper finds that when trade protection is modeled endogenously, its restrictive impact on imports is large, 10 times the size obtained from treating protection exogenously.

Available for download as a PDF file (2112 Kb.) Back to Refereed Articles

Available for download as a PDF file (480 Kb.)

The Gains From Trade with Monopolistic Competition: Specification, Estimation, and Mis-Specification.

ABSTRACT: The difficulty of incorporating general equilibrium price effects into econometric estimating equations has deterred most researchers from econometrically estimating the welfare gains from trade liberalization. Using a paired-down CES monopolistic competition example, we show that this difficulty has been greatly exaggerated. Along the way, we estimate indeed precisely estimate large welfare gains from trade liberalization as measured by compensating variation. Unlike calibration methods, econometric methods allow researchers to isolate the violence done by the model to the data. We find that the CES monopolistic competition model horribly mis-specifies behavioural price elasticities and general equilibrium price feedbacks. The model as conceived is therefore of limited value for analysing the effects of trade liberalization. We report a number of specification issues that should point the way to better theoretical modeling.

Available for download as a PDF file (1453 Kb.)

Daniel Trefler