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Trade theory and trade facts
This paper quantitatively tests the ?new trade theory? based on product differentiation, increasing returns, and imperfect competition. We employ a standard model, which allows both changes in the distribution of income among industrialized countries, emphasized by Helpman and Krugman (1985), and nonhomothetic preferences, emphasized by Markusen (1986), to effect trade directions and volumes. In addition, we generalize the model to allow changes in relative prices to have large effects. We test the model by calibrating it to 1990 data and then ?backcasting? to 1961 to see what changes in ...
A decade lost and found: Mexico and Chile in the 1980s
Chile and Mexico experienced severe economic crises in the early 1980s. This paper analyzes four possible explanations for why Chile recovered much faster than did Mexico. Comparing data from the two countries allows us to rule out a monetarist explanation, an explanation based on falls in real wages and real exchange rates, and a debt overhang explanation. Using growth accounting, a calibrated growth model, and economic theory, we conclude that the crucial difference between the two countries was the earlier policy reforms in Chile that generated faster productivity growth. The most crucial ...
Decades lost and found: Mexico and Chile since 1980
Both Chile and Mexico experienced severe economic crises in the early 1980s, yet Chile recovered much faster than Mexico. This study analyzes four possible explanations for this difference and rules out three, explanations based on money supply expansion, real wage and real exchange rate declines, and foreign debt overhangs. The fourth explanation is based on government policy reforms in the two countries. Using growth accounting and a calibrated growth model, the study determines that the only policy reforms promising as explanations are those that primarily affect total factor productivity, ...