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PRINCETON STUDIES
IN INTERNATIONAL FINANCE
Director
International Finance Section
CONTENTS
1
INTRODUCTION
5
5
8
17
19
LEAMER TRIANGLES
22
EVIDENCE
24
25
26
26
33
36
39
41
REFERENCES
44
FIGURES
1
10
12
12
13
15
15
10
23
11
29
12
30
13
31
14
32
15a Net Exports of Forest Products per Worker, 1965 and 1988
34
15b Net Exports of Forest Products per Worker, 1965 and 1988
(Zoomed View)
34
35
35
17
18
38
40
TABLES
1
24
27
37
INTRODUCTION
According to the Heckscher-Ohlin factor-proportions theory of comparative advantage, international commerce compensates for the uneven
geographic distribution of productive resources.1 This is obvious in
some respects but not so obvious in others. It is not a great theoretical
triumph to identify conditions under which countries rich in petroleum
reserves export crude oil, and it would not be a great surprise to find
supportive evidence. But it is a theoretical triumph to find conditions
under which countries that are richer in labor than land export laborintensive agricultural products and, as a result of trade, have wages that
approach levels prevailing in high-wage labor-scarce countries. And it
would be a great surprise to find supportive data.
The basic insight of the Heckscher-Ohlin (HO) model is that traded
commodities are really bundles of factors (land, labor, and capital). The
exchange of commodities internationally is therefore indirect factor
arbitrage, transferring the services of otherwise immobile factors of
production from locations where these factors are abundant to locations where they are scarce. Under some circumstances, this indirect
arbitrage can completely eliminate factor-price differences. Perhaps the
most important implication of the HO model is that the option to sell
factor services externally (through the exchange of commodities)
transforms a local market for factor services into a global market. As a
result, the derived demand for inputs becomes much more elastic, and
also more similar across countries.
A feature that goes hand in hand with an elastic labor-demand
function is an aggregate gross domestic product (GDP) with a relatively
constant marginal productivity of capital. This is a critical property
because growth induced by capital accumulation is generally limited by
the declining marginal productivity of capital.2 In an HO model of a
Able research assistance for this study was performed by Robert Murdock. Research
support was provided by a National Science Foundation grant.
1
Flam and Flanders offer an account of the models intellectual history in their
introduction to Heckscher and Ohlin (1991).
2
Romer (1986) sparked a boomlet of sustainable-growth models that emphasize
externalities but that depend critically on a constant or increasing long-run marginal
productivity of capital.
authors understand that data analysts may hit the HO model so hard
that it hollers false, and that theorists may pin the model so firmly to
the mat that it squeals impressed, but the authors have not heard,
nor do they imagine ever to hear, the HO model scream useless. In
fact, the HO model is extraordinarily useful pedagogically, politically,
and empirically.
Pedagogically, the model offers a loud wake-up call to the limitations
of partial-equilibrium thinking. Does an increase in the supply of labor
lead to a lower wage rate? Of course, is the partial-equilibrium answer.
Not necessarily, is the HO answer, because trade allows the potential
effect of an increase in the labor supply to be partly, and sometimes
fully, offset by a shift of the product mix in favor of sectors that use
labor intensively. The increased supply of labor-intensive products can
be absorbed externally with little or no effect on product prices.
Politically, the HO model lends intellectual support to the warning
keep your crummy government mitts off international trade. This
contrasts greatly with the appeal inspired by the modern trade theorists, fight the decline of America; support an industrial policy before
its too late. According to the HO model, tariffs and quotas have
redistributive effects but reduce efficiency. When redistribution is the
legitimate goal, there is generally a better way to accomplish it. For
example, Ross Perots social tariff to offset the wage advantage of
Mexico, Latin America, and Asia might help to maintain high wages for
unskilled workers in the United States, but it would be a terribly costly
way to achieve only modest changes in the U.S. income distribution.
The new trade theorists may see the issue differently; they have
bombarded us with models showing that the interest of the United
States lies in protecting certain sectors, thereby encouraging production on a more efficient scale and also giving U.S. firms a strategic
advantage over foreign rivals. These are thought-provoking but very
dangerous ideas. Every trade barrier of which I am aware was really
erected to redistribute income, not to capture unexploited economies
of scale or strategic advantages. Rent-seeking lobbyists already have
plenty of subtle and not-so-subtle ways to coerce Congress into supporting their redistributive agenda. When academics supply models
that lend intellectual support to these schemes, lobbyists skillfully turn
the remote possibilities suggested by the models into seeming certainties, and they thus turn unpalatable income transfers into compelling
industrial policies.
Last but not least, the HO model is empirically useful because it helps
us to understand important aspects of the patterns of international trade.
3
The rest of this study develops the idea that the HO factor-proportions
model is useful in three ways: As a theory, as a description of reality,
and as the key for understanding the impact of globalization on the
U.S. labor market. The next chapter uses the familiar Lerner-Pearce
diagram to derive some rather remarkable theoretical conclusions. These
should have an indelible effect on your thinking, which of course is one
of the key tests of the usefulness of a theory. Chapter 3 provides an
algebraic treatment of the even model with equal numbers of factors
and goods and with both home bias and neutral technological differences.
Chapter 4 summarizes the recent history of international commerce with
a graphical three-factor, multigood model. Chapter 5 supports these
theoretical ideas with some empirical evidence. Chapter 6 deals with the
hot topic of globalization and wages.
omy, the derived demands for factors are infinitely elastic (within
cones of diversification).
This may seem like an uncomfortable way of summarizing the logic
that leads from product prices and technologies to factor prices, but it
is actually the most accurate way of doing so. The traditional way of
expressing the result is:
The Factor-Price-Equalization* Theorem. Countries producing
the same mix of products with the same technologies and the
same product prices must have the same factor prices.
Regrettably, this theorem is misleadingly labeled, for by using the word
equalization, it suggests a process rather than an outcome. To help
make the correction, I have added the asterisk so that you can search
and replace equalization* with equality. It is the Factor-PriceEquality Theorem, not the Factor-Price-Equalization Theorem. Next
6
In Figure 9, the heavy dotted line represents the new Mexican isocost
line, with a wage rate equal to that in the United States but a return to
capital that is low enough to offset the higher labor costs in the capitalintensive sector. The U.S. multinationals transfer capital into the
Mexican labor-intensive sector and hire labor locally. Just enough
workers are employed by the multinationals to leave Mexican firms
with a capital-to-labor ratio that is perfectly suited to the capitalintensive sector.
Figures 8 and 9 thus depict two very different kinds of partial
integration between an advanced country and a backward one. Capital
may flow out of the backward country into equities in the advanced
country, leaving behind a labor force with a lower wage rate. Alternatively, capital may flow from the advanced country into the backward
one, bringing with it an improved technology and increasing the demand
for labor in the backward country.
16
Factor-Price-Equalization* Theorem
Stolper-Samuelson Theorem
Rybczynski Theorem
Samuelson Duality Theorem
w/v = 0
w/p 0
q/v 0
w/p = (q/v)
With equal numbers of goods and factors, the production side of the
model can be summarized by the system of equations
q = A-1 v ,
(1)
w = A-1 p ,
(2)
A = A(w,t) ,
(3)
the supplies of factors (v) to the demands for factors (Aq). Equation
(2), which translates product prices into factor prices, is the inverted
form of the zero-profit conditions equating product prices (p) to
production costs (Aw). Equation (3) expresses the dependence of
input intensities on factor prices (w) and on the state of technology,
with A(w,t) being the cost-minimizing choice of input intensities using
the technologies available at time t. The assumption of constant returns
to scale implies that A depends on the factor returns (w) but not on
the scale of output (q).
The consumption side of the model is neutralized by the assumption
of identical homothetic tastes. In the absence of barriers to trade, all
individuals face the same commodity prices, and they consume goods
in the same proportions:
c = s cw = s A-1 vw ,
(4)
(5)
The consumption share (s) will depend on the level of output and
also on the size of the trade balance (B = pT), where p is the vector of
prices. Premultiplying (5) by the vector of prices and then rearranging,
we obtain the consumption share:
s = (pA-1 v B)/pA-1 vw = (GNP B)/GNPw .
(6)
Incidentally, this algebraic form requires only identical matrices A for different
countries, not equal numbers of factors and commodities.
18
and
Ti = (1 i)qi i qw = (1 i)(qi qw GNPi /GNPw) + Bi qw /GNPw .
Abstracting now from trade imbalances, so that Bi = 0, this becomes
Ti = (1 i)(A-1 vi i qw pA-1 vi i /GNPw)
= (1 i)i (A-1 vi qw pA-1 vi /GNPw) = (1 i)i vi ,
(7)
(8)
21
LEAMER TRIANGLES
The algebra in the preceding chapter works very well for the even
model with equal numbers of factors and goods, but the graphics
suggested in Leamer (1987) may be clearer for discussing the uneven
model. Now that Jones and Marjit (1991) have done so, it does not
seem too impolite to refer to the triangular arrays used for presenting
the three-factor model as Leamer triangles, though Sarah Simplex1
would probably see it differently.
The three-factor model illustrated in Figure 10 has one commodity
that uses human capital as an input (chemicals), three commodities
that use only capital and labor (apparel, textiles, and machinery), and
one commodity that uses only labor (handicrafts). This set is designed
to capture essential features of the postwar economic histories of the
United States, Europe, Japan, and the emerging countries of Asia. The
model addresses two questions: What impact did capital accumulation
in Europe and Asia have on the United States and by what economic
signal are the effects communicated? The answers are that changes in
the quantity and composition of output in Europe and Asia induced
worldwide changes in relative product prices. These price changes
affected the U.S. terms of trade and also altered the compensation paid
to U.S. factors of production.
In the initial equilibrium depicted in Figure 10, the United States
finds itself in the high-wage cone suited to the production of a highly
capital-intensive mix of products: textiles, chemicals, and machinery.
Germany and Japan are in the moderate-wage cone producing apparel,
textiles, and chemicals. Asia (other than Japan) is very poorly endowed
in capital and finds itself in the low-wage cone producing mostly
apparel and handicrafts. The United States has a strong comparative
advantage in machinery, but it imports chemicals from Germany,
apparel and textiles from Japan, and apparel from Asia.
The arrows from the factor-supply points depict hypothetical changes
in factor supplies. The United States, although enjoying an initial
advantage from the uniqueness of its endowment, finds itself crowded
over time by Japan on the one side and by Germany on the other side.
In the meantime, capital accumulation takes Asia into the moderate1
22
EFFECTS
OF
TABLE 1
PRICE CHANGES ON U.S. FACTOR EARNINGS
+
0
0
+
the textile point, then the factor and the commodity are friends (in
Ethiers [1984] terminology); an increase in the price of textiles will
raise the return to the factor. The opposite is true for factors with
vertices on the other side of the line. As the figure is drawn, textiles
are a friend of labor in the U.S. cone but an enemy of both human and
physical capital; a rise in the price of textiles increases the wage of raw
labor and lowers the returns to both physical and human capital.
Things are rather different in the Japanese cone. Extend the line
segment connecting the apparel point and the chemicals point to
discover that textiles are an enemy of labor and human capital in the
Japanese cone, and a friend of physical capital.
Conclusions regarding the effect of product-price changes on factor
returns depend substantially and subtly on the input intensities. For
example, if the machinery point is swung to the left, to a capital-tolabor ratio less than that of chemicals, then human capital and textiles
become friends in the capital-abundant countries. A similar phenomenon affects the relative return to human capital in the U.S. cone
compared with the Japanese cone. The Japanese cone in Figure 10 is
relatively abundant in human capital, for there are paths from the U.S.
cone to the Japanese cone directly toward the human-capital vertex.
For that reason, the rate of return to human capital is lower in Japan
than in the United States. This is the case even though the United
States has an abundance of human capital and exports products intensive
in human capital (chemicals). But the opposite ordering of the rates of
return to human capital in Japan and the United States would occur if
textiles had a higher ratio than chemicals of physical capital to labor.
Effects on the United States of Physical-Capital Accumulation in
Japan
The initial accumulation of physical capital in Japan raises Japanese
output of textiles and reduces Japanese output of apparel, but it does
24
25
EVIDENCE
The two preceding chapters were intended to dazzle you with theoretical
insights derived from an HO framework. If they were successful, they
will have changed fundamentally your views about unemployment,
income inequality, direct investment, and global competition, without
offering a single piece of evidence. This chapter will complete the
seduction by demonstrating the empirical accuracy of the HO model.
After that, we can move on to the main point of all this: public policy
toward international trade.
Demonstration of the accuracy of the HO model requires a clear
linkage of trade patterns with factor proportions. The first step is to
select some sensible level of commodity aggregation, because the raw
trade data are hopelessly detailed. Leamer (1984) invests a substantial
amount of energy creating the ten commodity aggregates listed in
Table 2. These aggregates were formed from observed correlations
across countries of net export levels for more finely detailed product
groups. For example, countries that export a large amount of cork and
wood also tend to export pulp and paper. These are accordingly combined into a forest-products aggregate.1
This aggregation scheme has two raw-materials aggregates (petroleum and raw materials), four crops (forest products, animal products,
tropical agriculture products, and cereals), and four manufactures
(labor-intensive manufactures [LAB], capital-intensive manufactures
[CAP], machinery [MACH], and chemicals [CHEM]). In terms of input
intensities, the four manufactured aggregates are ordered by intensities
in physical capital, but chemicals are generally more intensive in
human capital than is machinery. These four manufactured products
form a ladder of development that many countries have climbed,
beginning with exports of apparel (LAB), moving on to textiles and iron
and steel (CAP), and then to machinery (MACH) and chemicals (CHEM).
Patterns of Four Countries
Net exports per worker of these ten aggregates in 1958, 1965, 1974,
and 1988 for Sweden, West Germany, the United States, and Japan are
1
The Leamer (1984) study covered 1958 and 1974. Song (1993) extended the study
and data set to 1988.
26
TABLE 2
COMPONENTS OF TEN COMMODITY AGGREGATES
Aggregates
SITC Aggregates
Petroleum (PETRO)
Petroleum and derivatives
33
27
28
32
34
35
68
24
25
63
64
5
6
7
11
23
0
1
2
3
21
29
43
94
SITC
4
8
9
12
22
26
41
42
Labor-intensive (LAB)
Nonmetal minerals
Furniture
Travel goods, handbags
Art apparel
Footwear
Misc. manufactured articles
Postal packaging, not classified
Special transactions, not classified
Coins (nongold)
66
82
83
84
85
89
91
93
96
Capital-intensive (CAP)
Leather
Rubber
Textile yarn, fabric
Iron & steel
Manufactured metal n.e.s.
Sanitary fixtures & fittings
61
62
65
67
69
81
Machinery (MACH)
Power generating
Specialized
Metalworking
General industrial
Office & data-processing
Telecommunications & sound
Electrical
Road vehicles
Other transportation vehicles
Prof. & scientific instruments
Photographic apparatus
Firearms & ammunition
71
72
73
74
75
76
77
78
79
87
88
95
Chemicals (CHEM)
Organic
Inorganic
Dyeing & tanning
Medical, pharmaceutical products
Essences & perfumes
Fertilizers
Explosives & pyrotechnics
Artificial resins & plastics
Chemical materials n.e.s.
51
52
53
54
55
56
57
58
59
illustrated in Figures 11 to 14.2 The scales are the same in 1958 and
1965 but are larger in 1974 and larger still in 1988. These data conform
rather well with the three-factor Heckscher-Ohlin history described in
the previous chapter. In 1958, the United States is not particularly trade
dependent, and it exports the full range of manufactured products,
especially machinery. Germany has already emerged from the war,
exports the full range of manufactured products, and imports all the
crops and raw materials. Japan does not participate significantly in
international trade but has a comparative advantage in manufactures that
are lower on the development ladder (LAB and CAP).
The Swedish trade pattern in 1958 is particularly interesting because
net exports are completely concentrated on forest products. Net exports
of forest products amounting to $200 per worker paid for a mixed bag
of imports including, especially, petroleum, tropical agricultural products, labor-intensive manufactures, and chemicals. To understand the
pattern of Swedish trade, we need to include softwood forest resources
as one of the factors of production. These softwood resources cause a
Dutch disease for Sweden, namely, limited industrialization because
of natural-resource abundance. Incidentally, the United States has an
analogous comparative advantage in cereals.
There was a substantial increase in the amount of trade from 1958 to
1965. Both Germany and the United States climbed the ladder of
development, becoming net importers of labor-intensive manufactures,
and the United States also became a net importer of capital-intensive
manufactures. Japan was emerging as a major global competitor in
manufactures, concentrating low on the ladder of development by
exporting labor-intensive manufactures but not chemicals. Swedish
forest-product exports increased from $200 to $300 per worker, and
the machinery sector was just beginning to emerge.
The emergence of the machinery sector in Swedish net exports is
very pronounced by 1974, and the big increase in the price of petroleum is evident in all four countries, which show greatly increased
petroleum imports. Sweden paid its petroleum bill with greatly increased
exports of forest products and machinery. Indeed, one might suspect
that the higher petroleum bill was the cause of the increase in net
exports of machinerya case of Dutch disease in reverse. Otherwise,
the 1974 picture is very similar to the 1965 picture, although Japan is
starting to give up on labor-intensive manufactures.
2
Be alert that these are sectoral trade numbers divided by economywide labor-supply
numbers.
28
36
LARGEST CORRELATIONS
TABLE 3
NET EXPORTS
WORKER IN 1988
BETWEEN
PER
Resource
AND
FACTOR SUPPLIES
Vetted
Correlation Correlation a
Petro
Mat
For
Trop
Anl
Cer
Lab
Oil
Oil
Land 4
Capital
Land 3
Land 3
Capital
0.65
0.54
0.45
0.52
0.27
0.51
0.42
0.65
0.54
0.45
0.52
0.27
0.51
0.45
Cap
Mach
Chem
Capital
Land 3
Labor 1
0.15
0.22
0.14
0.15
0.24
0.14
Resource
Oil
Minerals
Land 4
Capital
Land 3
Land 3
Land 4|
Capital b
Capital
Capital
Capital
Vetted
Correlation Correlation a
0.35
0.59
0.34
0.47
0.29
0.37
0.29
0.37
0.59
0.37
0.52
0.31
0.41
0.44
0.28
0.22
0.47
0.24
0.42
0.60
Although the one-cone HO model does not imply that average wages
in the United States must fall to the Chinese level, it does imply that
U.S. workers who are economically indistinguishable from Chinese
workers will receive the same compensation in an integrated equilibrium.
This portends an alarming increase in income inequality in the United
States as a consequence of the recent liberalizations. This dreary
implication of the one-cone HO model, however, is not replicated by the
multicone model. A multicone HO model allows the capital-abundant
high-wage countries to protect even their lowest-skilled workers from
the pressure for wage equalization if there is enough capital to support
a capital-intensive mix of outputs, a possibility that was discussed above
in Chapter 2.
Yet another more hopeful interpretation of the vast wage differences
in Figure 18 is that they are due to technological differences. Economic
liberalization can raise wages in the low-wage countries through technological transfers without having any impact on wages in the high-wage,
technologically advanced countries.
This linkage of globalization with wage levels is not an idle academic
exercise. The recent large increase in income inequality in the United
States has precipitated an extensive search for the cause. The three big
contenders are an increased supply of unskilled workers (educational
failures and immigration), technological changes that are replacing
humans with robots (computers), and globalization (lower prices for
labor-intensive products, less market power in autos and steel, and
increased international mobility of physical capital and technology).
Measuring the effects of these forces is no easy task, and no one yet
knows the exact contribution of each to the increase in income inequality. Clearly the task of estimating the effect of globalization on wages
requires a theoretical framework, and the HO model is sure to receive
renewed interest as a possible theoretical foundation for the study of
this issue.
Three Mistaken Notions
It is not surprising to find labor economists doing data analyses without
reference to the HO model, but substantial conceptual misunderstandings
also appear in published discussions by prominent trade economists.2
Three mistaken notions are:
2
Estimates of the impact of globalization on U.S. wages are discussed in Freeman
and Katz (1991), Lawrence and Slaughter (1993), Leamer (1993), Krugman and Lawrence (1994), and Wood (1994a, 1994b).
41
Motivated informally by the central idea of the HO model that commodities are just
bundles of factors, labor economists have calculated the factor content of U.S. trade and
find that the net exports of labor services form a fairly small proportion of the U.S. labor
force, only 0.25 percent (Bowen, Leamer, and Sveikauskus, 1987). Labor economists
draw the conclusion that globalization cannot have had an important effect on income
42
43
REFERENCES
Bowen, Harry P., Edward E. Leamer, and Leo Sveikauskus, A Multi-Country
Multi-Factor Test of the Factor Abundance Theory, American Economic
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Carruth, Alan A., and Andrew J. Oswald, The Determination of Union and
Non-Union Wage Rates, European Economic Review, 16 (June 1982), pp.
285-302.
Ethier, Wilfred J., Higher Dimensional Issues in Trade Theory, in Ronald
W. Jones and Peter B. Kenen, eds., Handbook of International Economics,
Vol. 1, Amsterdam and New York, North-Holland, Elsevier 1984, pp. 131184.
Freeman, Richard B., and Lawrence Katz, Industrial Wage and Employment
Determination in an Open Economy, in John M. Abowd and Richard B.
Freeman, eds., Immigration, Trade, and the Labor Market, Chicago,
University of Chicago Press, 1991, pp. 235-260.
Grubel, Herbert G., and Peter J. Lloyd, Intra-Industry Trade: The Theory and
Measurement of International Trade in Differentiated Products, New York,
Macmillan, 1975.
Heckscher, Eli F., and Bertil Ohlin, Heckscher-Ohlin Trade Theory, translated, edited, and introduced by Harry Flam and M. June Flanders, Cambridge, Mass., MIT Press, 1991.
Jones, Ronald W., and Sugata Marjit, The Stolper-Samuelson Theorem, the
Leamer Triangle, and the Produced Mobile Factor Structure, in Akira
Takayama, Michihiro Ohyama, and Hiroshi Ohta, eds., Trade, Policy, and
International Adjustments, New York and San Diego, Academic Press, 1991,
pp. 95-107.
Krueger, Alan B., How Computers Have Changed the Wage Structure:
Evidence from Microdata, 1984-1989, Quarterly Journal of Economics, 108
(February 1993), pp. 33-60.
Krueger, Anne O., Factor Endowments and Per Capita Income Differences
among Countries, Economic Journal, 78 (September 1968), pp. 641-659.
Krugman, Paul, and Robert Z. Lawrence, Trade, Jobs and Wages, Scientific
American, 270 (April 1994), pp. 44-49.
Lawrence, Robert Z., and Matthew J. Slaughter, Trade and US Wages: Great
Sucking Sound or Small Hiccup? Brookings Papers on Economic Activity,
No. 2 (1993), pp. 161-226.
Leamer, Edward E., The Leontief Paradox, Reconsidered, Journal of Political Economy, 88 (June 1980), pp. 495-503.
, Sources of International Comparative Advantage: Theory and Evidence,
Cambridge, Mass., MIT Press, 1984.
44
, Paths of Development in the Three-Factor N-Good General Equilibrium Model, Journal of Political Economy, 95 (October 1987), pp. 961999.
, Wage Effects of a U.S.-Mexican Free Trade Agreement, in Peter M.
Garber, ed., The Mexico-U.S. Free Trade Agreement, Cambridge, Mass.,
MIT Press, 1993, pp. 57-125.
, Sturdy Econometrics: Selected Essays of Edward E. Leamer, Economists of the Twentieth Century, Aldershot, Hants, and Brookfield, Vt.,
Edward Elgar, 1994.
Leontief, Wassily W., Domestic Production and Foreign Trade: The American Capital Position Re-examined, Proceedings of the American Philosophical Society, 97 (September 1953), pp. 332-349.
Romer, Paul, Increasing Returns and Long-Run Growth, Journal of Political
Economy, 94 (October 1986), pp. 1002-1037.
Song, Ligang, Sources of International Comparative Advantage: Further
Evidence, Ph.D. diss., Australian National University, 1993.
Trefler, Daniel, The Case of the Missing Trade and Other HOV Mysteries,
University of Toronto, August 1993, processed.
Vanek, Jaroslav, The Factor Proportions Theory: The N-Factor Case, Kyklos,
21 (October 1968), pp. 749-754.
Wood, Adrian, Give Heckscher and Ohlin a Chance! Weltwirtschaftliches
Archiv, 130 (No. 1, 1994a), pp. 20-49.
, North-South Trade, Employment and Inequality: Changing Fortunes in
a Skill-Driven World, Oxford, Clarendon, 1994b.
45
FRANK D. GRAHAM
MEMORIAL LECTURERS
19501951
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19801981
19811982
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19841985
19861987
19871988
19881989
19881989
19891990
1990-1991
1991-1992
1992-1993
1993-1994
Milton Friedman
James E. Meade
Sir Dennis Robertson
Paul A. Samuelson
Gottfried Haberler
Ragnar Nurkse
Albert O. Hirschman
Robert Triffin
Jacob Viner
Don Patinkin
Friedrich A. Lutz (Essay 41)
Tibor Scitovsky (Essay 49)
Sir John Hicks
Robert A. Mundell
Jagdish N. Bhagwati (Special Paper 8)
Arnold C. Harberger
Harry G. Johnson
Richard N. Cooper (Essay 86)
W. Max Corden (Essay 93)
Richard E. Caves (Special Paper 10)
Paul A. Volcker
J. Marcus Fleming (Essay 107)
Anne O. Krueger (Study 40)
Ronald W. Jones (Special Paper 12)
Ronald I. McKinnon (Essay 125)
Charles P. Kindleberger (Essay 129)
Bertil Ohlin (Essay 134)
Bela Balassa (Essay 141)
Marina von Neumann Whitman (Essay 143)
Robert E. Baldwin (Essay 150)
Stephen Marris (Essay 155)
Rudiger Dornbusch (Essay 165)
Jacob A. Frenkel (Study 63)
Ronald Findlay (Essay 177)
Michael Bruno (Essay 183)
Elhanan Helpman (Special Paper 16)
Michael L. Mussa (Essay 179)
Toyoo Gyohten
Stanley Fischer
Paul Krugman (Essay 190)
Edward E. Leamer (Study 77)
46
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Notice to Contributors
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ESSAYS are meant to disseminate new views about international financial matters
and should be accessible to well-informed nonspecialists as well as to professional
economists. Technical terms, tables, and charts should be used sparingly; mathematics should be avoided.
STUDIES are devoted to new research on international finance, with preference
given to empirical work. They should be comparable in originality and technical
proficiency to papers published in leading economic journals. They should be of
medium length, longer than a journal article but shorter than a book.
SPECIAL PAPERS are surveys of research on particular topics and should be
suitable for use in undergraduate courses. They may be concerned with international
trade as well as international finance. They should also be of medium length.
Manuscripts should be submitted in triplicate, typed single sided and double
spaced throughout on 8 by 11 white bond paper. Publication can be expedited if
manuscripts are computer keyboarded in WordPerfect 5.1 or a compatible program.
Additional instructions and a style guide are available from the Section.
How to Obtain Publications
The Sections publications are distributed free of charge to college, university, and
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Individuals and institutions not qualifying for free distribution may receive all
publications for the calendar year for a subscription fee of $40.00. Late subscribers
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should notify the Section promptly of any change in address, giving the old address
as well as the new.
Publications may be ordered individually, with payment made in advance. ESSAYS
and REPRINTS cost $8.00 each; STUDIES and SPECIAL PAPERS cost $11.00. An
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All payments must be made in U.S. dollars. Subscription fees and charges for
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Please address all correspondence, submissions, and orders to:
International Finance Section
Department of Economics, Fisher Hall
Princeton University
Princeton, New Jersey 08544-1021
47
160. Stanley W. Black, Learning from Adversity: Policy Responses to Two Oil
Shocks. (December 1985)
161. Alexis Rieffel, The Role of the Paris Club in Managing Debt Problems.
(December 1985)
162. Stephen E. Haynes, Michael M. Hutchison, and Raymond F. Mikesell,
Japanese Financial Policies and the U.S. Trade Deficit. (April 1986)
163. Arminio Fraga, German Reparations and Brazilian Debt: A Comparative
Study. (July 1986)
164. Jack M. Guttentag and Richard J. Herring, Disaster Myopia in International
Banking. (September 1986)
165. Rudiger Dornbusch, Inflation, Exchange Rates, and Stabilization. (October
1986)
166. John Spraos, IMF Conditionality: Ineffectual, Inefficient, Mistargeted. (December 1986)
167. Rainer Stefano Masera, An Increasing Role for the ECU: A Character in
Search of a Script. (June 1987)
168. Paul Mosley, Conditionality as Bargaining Process: Structural-Adjustment
Lending, 1980-86. (October 1987)
169. Paul A. Volcker, Ralph C. Bryant, Leonhard Gleske, Gottfried Haberler,
Alexandre Lamfalussy, Shijuro Ogata, Jess Silva-Herzog, Ross M. Starr,
James Tobin, and Robert Triffin, International Monetary Cooperation: Essays
in Honor of Henry C. Wallich. (December 1987)
170. Shafiqul Islam, The Dollar and the Policy-Performance-Confidence Mix. (July
1988)
171. James M. Boughton, The Monetary Approach to Exchange Rates: What Now
Remains? (October 1988)
172. Jack M. Guttentag and Richard M. Herring, Accounting for Losses On
Sovereign Debt: Implications for New Lending. (May 1989)
173. Benjamin J. Cohen, Developing-Country Debt: A Middle Way. (May 1989)
174. Jeffrey D. Sachs, New Approaches to the Latin American Debt Crisis. (July 1989)
175. C. David Finch, The IMF: The Record and the Prospect. (September 1989)
176. Graham Bird, Loan-Loss Provisions and Third-World Debt. (November 1989)
177. Ronald Findlay, The Triangular Trade and the Atlantic Economy of the
Eighteenth Century: A Simple General-Equilibrium Model. (March 1990)
178. Alberto Giovannini, The Transition to European Monetary Union. (November
1990)
179. Michael L. Mussa, Exchange Rates in Theory and in Reality. (December 1990)
180. Warren L. Coats, Jr., Reinhard W. Furstenberg, and Peter Isard, The SDR
System and the Issue of Resource Transfers. (December 1990)
48
181. George S. Tavlas, On the International Use of Currencies: The Case of the
Deutsche Mark. (March 1991)
182. Tommaso Padoa-Schioppa, ed., with Michael Emerson, Kumiharu Shigehara,
and Richard Portes, Europe After 1992: Three Essays. (May 1991)
183. Michael Bruno, High Inflation and the Nominal Anchors of an Open Economy.
(June 1991)
184. Jacques J. Polak, The Changing Nature of IMF Conditionality. (September 1991)
185. Ethan B. Kapstein, Supervising International Banks: Origins and Implications
of the Basle Accord. (December 1991)
186. Alessandro Giustiniani, Francesco Papadia, and Daniela Porciani, Growth and
Catch-Up in Central and Eastern Europe: Macroeconomic Effects on Western
Countries. (April 1992)
187. Michele Fratianni, Jrgen von Hagen, and Christopher Waller, The Maastricht
Way to EMU. (June 1992)
188. Pierre-Richard Agnor, Parallel Currency Markets in Developing Countries:
Theory, Evidence, and Policy Implications. (November 1992)
189. Beatriz Armendariz de Aghion and John Williamson, The G-7s Joint-and-Several
Blunder. (April 1993)
190. Paul Krugman, What Do We Need to Know About the International Monetary
System? (July 1993)
191. Peter M. Garber and Michael G. Spencer, The Dissolution of the AustroHungarian Empire: Lessons for Currency Reform. (February 1994)
192. Raymond F. Mikesell, The Bretton Woods Debates: A Memoir. (March 1994)
193. Graham Bird, Economic Assistance to Low-Income Countries: Should the Link
be Resurrected? (July 1994)
194. Lorenzo Bini-Smaghi, Tommaso Padoa-Schioppa, and Francesco Papadia, The
Transition to EMU in the Maastricht Treaty. (November 1994)
195. Ariel Buira, Reflections on the International Monetary System. (January 1995)
PRINCETON STUDIES IN INTERNATIONAL FINANCE
57. Stephen S. Golub, The Current-Account Balance and the Dollar: 1977-78 and
1983-84. (October 1986)
58. John T. Cuddington, Capital Flight: Estimates, Issues, and Explanations. (December 1986)
59. Vincent P. Crawford, International Lending, Long-Term Credit Relationships,
and Dynamic Contract Theory. (March 1987)
60. Thorvaldur Gylfason, Credit Policy and Economic Activity in Developing
Countries with IMF Stabilization Programs. (August 1987)
61. Stephen A. Schuker, American Reparations to Germany, 1919-33: Implications
for the Third-World Debt Crisis. (July 1988)
62. Steven B. Kamin, Devaluation, External Balance, and Macroeconomic Performance: A Look at the Numbers. (August 1988)
63. Jacob A. Frenkel and Assaf Razin, Spending, Taxes, and Deficits: InternationalIntertemporal Approach. (December 1988)
64. Jeffrey A. Frankel, Obstacles to International Macroeconomic Policy Coordination. (December 1988)
49
65. Peter Hooper and Catherine L. Mann, The Emergence and Persistence of the
U.S. External Imbalance, 1980-87. (October 1989)
66. Helmut Reisen, Public Debt, External Competitiveness, and Fiscal Discipline
in Developing Countries. (November 1989)
67. Victor Argy, Warwick McKibbin, and Eric Siegloff, Exchange-Rate Regimes for
a Small Economy in a Multi-Country World. (December 1989)
68. Mark Gersovitz and Christina H. Paxson, The Economies of Africa and the Prices
of Their Exports. (October 1990)
69. Felipe Larran and Andrs Velasco, Can Swaps Solve the Debt Crisis? Lessons
from the Chilean Experience. (November 1990)
70. Kaushik Basu, The International Debt Problem, Credit Rationing and Loan
Pushing: Theory and Experience. (October 1991)
71. Daniel Gros and Alfred Steinherr, Economic Reform in the Soviet Union: Pas
de Deux between Disintegration and Macroeconomic Destabilization. (November
1991)
72. George M. von Furstenberg and Joseph P. Daniels, Economic Summit Declarations, 1975-1989: Examining the Written Record of International Cooperation. (February 1992)
73. Ishac Diwan and Dani Rodrik, External Debt, Adjustment, and Burden Sharing:
A Unified Framework. (November 1992)
74. Barry Eichengreen, Should the Maastricht Treaty Be Saved? (December 1992)
75. Adam Klug, The German Buybacks, 1932-1939: A Cure for Overhang?
(November 1993)
76. Tamim Bayoumi and Barry Eichengreen, One Money or Many? Analyzing the
Prospects for Monetary Unification in Various Parts of the World. (September
1994)
77. Edward E. Leamer, The Heckscher-Ohlin Model in Theory and Practice.
(February 1995)
SPECIAL PAPERS IN INTERNATIONAL ECONOMICS
26. Peter B. Kenen, The Use of IMF Credit; reprinted from Pulling Together: The
International Monetary Fund in a Multipolar World, 1989. (December 1989)
27. Peter B. Kenen, Transitional Arrangements for Trade and Payments Among the
CMEA Countries; reprinted from International Monetary Fund Staff Papers 38
(2), 1991. (July 1991)
28. Peter B. Kenen, Ways to Reform Exchange-Rate Arrangements; reprinted from
Bretton Woods: Looking to the Future, 1994. (November 1994)
50
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