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Are the antiglobalists right? Gains-from-trade without a Walrasian auctioneer

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  • Hector Calvo-Pardo

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Abstract

We examine whether the "fear" of globalisation can be rationalised by economic theory. To do so, we depart from the standard AD/AS (partial) equilibrium model where the coordinational role of the Auctioneer is substituted by an implementation device based on learning (Guesnerie, 1992). By endowing producers with a learning ability to forecast market prices, individual profit-maximizing production decisions become interdependent in a strategic sense (strategic substitutes). Performing basic comparative statics exercises, we show that "competitiveness" matters in a precise sense: as foreign producers gain access to the home market, home producers' ability to forecast market prices is undermined, so being their ability to forecast the profit consequences of their production decisions. When performing a standard open economy exercise in such a framework, we show that the existence of standard efficiency gains - due to the increase in competition (or spatial price stabilization) - is traded-off against coordination upon the welfare enhancing free-trade equilibrium (stabilizing price expectations). Therefore, we identify a new rationale for an exogenous price intervention in open economy targeting coordination, to allow trading countries to fully reap the benefits from trade. We illustrate this point showing that classical measures evaluating ex-ante the desirability of economic integration (net welfare gains) do not always advice integration between two expectationally stable economies.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 38 (2009)
Issue (Month): 3 (March)
Pages: 561-592

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Handle: RePEc:spr:joecth:v:38:y:2009:i:3:p:561-592

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Related research

Keywords: Globalisation; Rational expectations; Coordination; Common knowledge; E32; D84; C62; F15;

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References

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  16. Beth Allen & Jayasri Dutta & Haraklis M. Polemarchakis, 1994. "Equilibrium selections," Discussion Paper / Institute for Empirical Macroeconomics 90, Federal Reserve Bank of Minneapolis.
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  18. Bourguignon, Francois & Coyle, Diane & Fernàndez, Raquel & Giavazzi, Francesco & Marin, Dalia & O’Rourke, Kevin & Portes, Richard & Seabright, Paul & Venables, Anthony & Verdier, Thierry & Winters,, . "Making Sense of Globalization: A Guide to the Economic Issues," Monographs in Economics, University of Munich, Department of Economics, number 20240, September.
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Cited by:
  1. Facundo Albornoz & Hector F. Calvo Pardo & Gregory Corcos & Emanuel Ornelas, 2010. "Sequential Exporting," Discussion Papers 10-08, Department of Economics, University of Birmingham.
  2. Féménia, Fabienne & Gohin, Alexandre, 2013. "On the optimal implementation of agricultural policy reforms," Journal of Policy Modeling, Elsevier, vol. 35(1), pages 61-74.
  3. Giovanni Facchini & Thierry Verdier, 2009. "Symposium on organization, heterogeneity and trade," Economic Theory, Springer, vol. 38(3), pages 433-436, March.

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