Archive for September 13, 2014

TRADE REFORM: Trade Policies and Long Run Growth

September 13, 2014

To be consistent with the Stolper Samuelson (SS) theorem, the increased wage inequality observed in Mexico would have to reflect an increase in the relative price of skill-intensive goods. Yet if Mexico has a comparative advantage in producing goods that use unskilled labor, we would have expected trade reform to lead to a decline in the relative price of skill-intensive goods. The puzzle can be resolved by examining both the pattern of protection in Mexico and the role of other factors (such as direct foreign investment) during the 1980s review.

The remainder of the paper is organized as follows. Section I examines the evidence on the relationship between trade policies and long run growth. Section II summarizes the impact of trade reform on wages, employment, and profit margins. Focusing in particular on Mexico and Morocco, we explore several explanations for the small employment and output response to large changes in tariffs and quotas. Finally, Section III discusses the relationship between rising wage inequality and trade reform in Mexico.

TRADE REFORM: Introduction

September 11, 2014

Most policy makers at the World Bank or IMF would argue that opening up to trade is an integral part of economic reform. In fact, many would argue that there are very few remaining puzzles regarding the benefits of trade reform. This attitude is evident from the changing fortunes of the Trade Policy Division at the World Bank, which was first removed from the Policy Research Department and then reinstated there. Although we do not dispute that trade reform is a well-researched area, the goal of this paper is to identify a number of remaining puzzles Here.

The focus of many previous studies has been to establish a link between trade policies and long run performance, measured in terms of either productivity or per capita growth. Although these studies typically show a positive relationship between trade reform and productivity growth, most are plagued by serious econometric and data problems. To illustrate the problems with this literature, we examine a popular measure of openness recently introduced by Sachs and Warner (1995).


September 9, 2014

We present evidence from a major social experiment that heterogeneity in response to treatment is an empirically important phenomenon

An evaluation strategy that properly accounts for individual heterogeneity requires more information than traditional econometric evaluation methods. We demonstrate how information about participant self-selection choices and program participation rules aids in identifying the distributions of outcomes across policies and also provides information on personal valuations of program outcomes.


September 7, 2014

i (9)
To implement many of the criteria used to evaluate the welfare state requires information on the joint distribution of outcomes across policies. Traditional cost-benefit analysis avoids this problem by assuming that a background social welfare function automatically solves all of the distributional problems of the welfare state. In this case, which is assumed in much of the micro-econometric evaluation literature, simple per capita measures of economic efficiency based on the change in aggregate output attributable to a policy suffice to evaluate the welfare state.

However, even in this case we note that estimators widely used in the econometric evaluation literature do not provide the ingredients required for a comprehensive cost-benefit analysis. In an empirical analysis, we demonstrate that when conventional estimators are modified to account for direct costs and the welfare costs of taxation, they produce very different inferences about program impacts than are produced using standard econometric methods. We present conditions under which standard econometric estimators provide reliable answers to well-posed general equilibrium evaluation questions.


September 5, 2014

Summary of the Evidence on Impact Heterogeneity and Its Consequences

Table 14 presents a summary of the main findings of this section. (1) Under a variety of assumptions, we find evidence of heterogeneity in net impacts, Д. (2) The analysis of self-assessments suggests that respondents are reporting different impacts from the “objective” impacts determined from experimental data. This is a further source of heterogeneity and a source of disparity across studies. (3) Departures from high levels of positive dependence between Y° and Y1 produce absurd ranges of impacts on gross outcomes. (The implicit correlations between Y° and Y1 produced under different identifying assumptions are given in the last column of the table). (4) The range of the estimated proportion of people benefiting from the program in the sense of gross outcomes (the “voting criterion”) varies widely under different assumptions about the dependence in outcomes there.

The data from the self-report and attrition studies show a lower proportion benefiting – a phenomenon consistent with the hypothesis that net returns and not gross returns are being reported by participants.

EVALUATING THE WELFARE STATE: Evidence from Program Dropouts 2

September 3, 2014

Another model assumes that the true treatment effect is revealed after random assignment and the net response varies over time. In this case, a person who values only the outcomes from the program will remain in it if
where At is the outcome in the tih period after random assignment and 8 is a discount rate. If the inequality is reversed, or becomes an equality, the person drop out.
The implications of this model depend on the temporal pattern of the Af’s. For example in classroom training, where the trainee forgoes earnings initially in order to invest in human capital, we would expect At> < 0 for f < t, and At> > 0 for t’ > t , where t! < t are periods of human capital accumulation. In the case of a constant A, there would be perfect sorting by discount rate into the dropout and enrollee categories. Persons with low £’s would drop out while those with high <5’s would complete the training.

EVALUATING THE WELFARE STATE: Evidence from Program Dropouts

September 1, 2014

If anticipated discounted net impacts are the same across all persons, then everyone either participates in the program or drops out of it. The substantial dropout rates reported in the first column of Table 12 for all four demographic groups provide evidence that anticipated discounted impacts are heterogenous.