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Author:Yi, Kei-Mu 

The growth of world trade

The growth in the trade share of output is one of the most important features of the world economy since World War II. We show that an important propagation mechanism for this growth is vertical specialization. Simply put, vertical specialization occurs when imported inputs are used to produce goods that are then exported. We show that many of the standard trade models - the Ricardian model, the monopolistic competition model, and the international real business cycle models - cannot explain the growth in trade unless very high elasticities of demand and substitution are assumed. We then use ...
Research Paper , Paper 9718

Language, learning, and location

Language is a fundamental tool for communication of ideas between people, and so is an essential input into production and trade. In general, a society will possess more production and consumption opportunities when all its members share a common language. Neighboring societies and communities likewise have a strong incentive to utilize a common language, and indeed there are countless examples of language assimilation, especially in the last one hundred years. Hence, it is puzzling that more assimilation has not occurred. History has recorded numerous examples of communities that coexist ...
Staff Reports , Paper 26

Can vertical specialization explain the growth of world trade?

The growth in the trade share of output is one of the most important features of the world economy since World War II. The growth is generally thought to have been generated by falling tariff barriers worldwide. This thinking, however, does not square with standard static and dynamic international trade models. Because tariff barriers have decreased little since the early 1960s, these models cannot explain the growth of trade without assuming counterfactually large elasticities of substitution between domestic and foreign goods. I show that this growth can be reconciled with the relatively ...
Staff Reports , Paper 96

Can world real interest rates explain business cycles in a small open economy?

While the world real interest rate is potentially an important mechanism for transmitting international shocks to small open economies, much of the recent quantitative research that studies this mechanism concludes that it has little effect on output, investment, and net exports. We reexamine the importance of world real interest rate shocks using an approach that reverses the standard real business cycle methodology. We begin with a small open economy business cycle model. But, rather than specifying the stochastic processes for the shocks, and then solving and simulating the model to ...
Staff Reports , Paper 94

Journal Article
International trade: why we don’t have more of it

Globalization has led to an enormous increase in international trade. Over the past 40 years, world exports as a share of output have doubled to almost 25 percent of world output. However, despite this enormous increase, economic evidence suggests that significant barriers to international trade still exist. In ?International Trade: Why We Don?t Have More of It,? Edith Ostapik and Kei-Mu Yi summarize the latest developments in the measurement of international trade barriers.
Business Review , Issue Q3 , Pages 20-27

Discussion Paper
How Rich Will China Become?

China?s impressive economic growth since the 1980s raises the question of how much richer it will become over future decades. Its growing share of the world economy affects other national economies. Understanding the future course of the Chinese economy is therefore important for both fiscal and monetary policymaking in the United States and elsewhere. Using fundamental growth theory, data from China and from Korea and Japan?s similar ?miracle? growth experiences, we provide a suggestive calculation for China?s future per capita income. Our ballpark estimate is that China?s per capita income ...
Economic Policy Paper , Paper 15-5

Discussion Paper
Real Interest Rates over the Long Run

Long-term interest rates have a crucial influence on virtually all major financial decisions faced by households, businesses and governments. This paper reviews several decades of data on long-term rates internationally, explores several factors that determine them and discusses implications of this evidence. {{p}} The data indicate declining long-term rates since the 1980s, converging internationally at very low levels. This implies that the rate decline is not due to the Great Recession or to the early 2000s downturn. It further suggests a higher likelihood than before of hitting the zero ...
Economic Policy Paper , Paper 16-10

Working Paper
Vertical specialization and the border effect puzzle

A large body of empirical research finds that a pair of regions within a country tends to trade 10 to 20 times as much as an otherwise identical pair of regions across countries. In the context of the standard trade models, the large ?border effect? is problematic, because it is consistent only with high elasticities of substitution between goods and/or high unobserved national border barriers. The author proposes a resolution to this puzzle based on vertical specialization, which occurs when regions or countries specialize only in particular stages of a good?s production sequence. The author ...
Working Papers , Paper 05-24

Working Paper
How much of South Korea's growth miracle can be explained by trade policy?

South Korea's growth miracle has been well documented. A large set of institutional and policy reforms in the early 1960s is thought to have contributed to the country's extraordinary performance. In this paper, the authors assess the importance of one key set of policies, the trade policy reforms in Korea, as well as the concurrent GATT tariff reductions. They develop a model of neoclassical growth and trade that highlights two forces by which lower trade barriers can lead to increased per worker GDP: comparative advantage and specialization, and capital accumulation. The authors calibrate ...
Working Papers , Paper 09-19

Working Paper
Why is manufacturing trade rising even as manufacturing output is falling?

Working Papers , Paper 04-4


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