Empirical Studies of Strategic Trade Policy (National Bureau of Economic Research Project Report)

The political economy of strategic trade policy

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Roughly half of the content of the Stern book concerns the political economy of strategic trade policy. Roughly half of the content of the Yamamura-Yasuba book concerns the political economy of strategic industrial policy. Economists and political scientists are represented in both of these books as well as in the three under review. See Cohen , Benjamin J.

The following five books are reviewed by Cohen: Conybeare , John A. International Sources of U. Commercial Strategy, — Ithaca, N. Basic Books , Although I make contributions to two of the three books reviewed in this article, I have endeavored to come as close to objectivity in what follows as human nature will permit.

The wording is chosen carefully. For example, it could impair military alliances. This was the source of conflict within the Bush administration in between the Commerce Department and the Defense Department over technology sharing with Japan to develop a new jet fighter. Commerce was anxious to intervene in the Pentagon's arrangements to avoid any economically undesirable undervaluation of the net technology transfer. The Pentagon opposed such intervention, implicitly justifying any undervaluation by appeal to international security.

Many of the contributors to the Krugman volume draw on background studies carried out during and prior to a large research project on trade policy that was sponsored by the National Bureau of Economic Research and funded experimentally by the National Science Foundation. Brander, and I each of whom contribute chapters to Krugman are also represented in Lipsey and Dobson's synthetic critique. For readers overfamiliar with the U. Geroski's comment on James A. Brander's essay in Shaping Comparative Advantage is fresh, empirical, and European in its vantage point. It serves as a keynote essay to the entire volume and as a commentary on the other two books reviewed here as well.

OECD , , pp. See Kelly , Margaret et al. International Monetary Fund , 12 , pp. Issues that require the framework and language of political science are thus underrepresented, as discussed in a subsequent section of this review article. This is the beginning of the title of Lipsey's technical appendix to the Lipsey-Dobson book, presumably inspired by Cohen and Zysman's Manufacturing Matters.

Lipsey's appendix is useful for identifying an important research agenda in the economics and political economy of strategic trade policy see also Brander's contribution, pp. Cohen and Zysman's response would probably be that the economists are equally guilty of obscuring logic with their passion to persuade but have an added addiction to denying their guilt. They seem to suspect economists deep down of being such propagandists, however much they cloak their ideology in the finery of objective models and dispassionate deduction.

The tendentious edge of accusation that runs right through Manufacturing Matters may elicit a kind of confirmatory return to roots among the economists, who seem appalled at the thought that their scholarship could serve evil protectionist purposes. Krugman comments in his introduction p.

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There are already some signs that this is happening—I know that some of the participants in this volume have been surprised and perhaps worried at the places they find themselves cited. They unlike Cohen and Zysman pass perhaps too quickly over the argument that scholarship ought to be disseminated and that dissemination requires at least persuasive communication and possibly also rhetoric or even pamphleteering.

McCloskey , Donald M. University of Wisconsin Press , Appropriability is the ability to assign clear property rights to economic benefits.

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The traditional counterquestion is whether a government can efficiently identify and value such externalities. National market power is the foundation of the optimal tariff and is the result of a country's firms together possessing a significant share of world market sales, even if no single national firm is large. That is, for purposes of the political economy of strategic trade policy, there are many alternative geographical concentrations of production for scale-intensive goods which each feature the same relative prices, global supplies, and global demands.

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Excess profits are profits above the level that is normally just adequate to compensate entrepreneurs for planning, organization, innovation, and related activities. They accrue to firms with market power resulting from barriers to entry, large size, or uniquely differentiated products, technology, workers, or management. The following is a good summary of Cohen and Zysman's perspective in this case: Those that do not capture the possibilities, or who are slow to do so, will lose. The competitive markets will drive toward adoption.

Those who move first will build up expertise and supporting technologies to push ahead faster through this fundamental transition. Markets will drive the process, but market outcomes tomorrow will be shaped by corporate and government choices today. Both of these features increase the role played by excess profits, as discussed in a subsequent section of this review article. For example, Cohen and Zysman argue pp.

They and many others agree that macroeconomic stability makes microeconomic markets work better and that many sectoral problems of the s and s were due to macroeconomic policy failure. Few say so, but the case for policy in these instances usually rests on market shortcomings caused by myopia and the absence of markets by which future and present generations can trade with each other. See, for example, Cohen and Zysman, pp. Krugman and I are among the contributors who argue that explicitly embracing sectoral policy can create political contagion—an epidemic of special interest lobbying.

Even Cohen and Zysman conclude their case on a surprisingly cautious note p. Once understood in terms of the strategic questions we have just reviewed, they can be answered more often than not, through the factor level and market perfecting policies we discussed previously. Cohen and Zysman, for example pp.

Brander in Shaping Comparative Advantage , pp. But the editors explicitly disagree with him pp. Tyson , in Shaping Comparative Advantage , p. See Levin , Richard C.

Robert W. Staiger | IDEAS/RePEc

Levin gives a brief, accessible summary of some of this literature, as do adjacent papers by Iain Cockburn and Zvi Griliches and by Jeffrey I. Two recent papers by Ricardo J. Caballero and Richard K. Lyons illustrate and find strong evidence of spillovers and externalities: Linkage is Cohen and Zysman's term for the dependence of one economic activity on others.

Robert W. Staiger

Special Issue on Microeconomics , no. The distinction between spillovers and externalities is made most clearly in Manufacturing Matters , pp. Tight linkages seem to be necessarily local intermediate transactions; loose linkages are intermediate transactions that could be either local or international cross-border.

After much tendentious description, it is still not clear why the first but not the second warrants policy intervention. This argument of Cohen and Zysman is discussed in detail in an earlier section of this review article. On the other hand, this line of argument seems more theoretically appealing than practically relevant.

It is contradicted by too many simple, irrefutable observations, most prominently the many barriers to unfriendly cross-border takeovers of one firm by another. Contrary to the doubters' allegation, for example, many things would deter a takeover of a small Japanese automaker by an American retailer; foreign airlines cannot legally own more than 25 percent of the stock of U. The list of examples could go on and on.

A Numerical Assessment Anthony J. Deregulation of Scandinavian Airlines: Norman and Siri P.

The Case of the U. Steel Industry Richard G.

Industrial Organization and Product Quality: For more information, or to order this book, please visit https:

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