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Are the Anti-globalists 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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Paper provided by PSE (Ecole normale supérieure) in its series PSE Working Papers with number 2005-35.

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Date of creation: 2005
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Handle: RePEc:pse:psecon:2005-35

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  1. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development 105, Boston University, Institute for Economic Development. [Downloadable!]
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  2. Tan, Tommy Chin-Chiu & da Costa Werlang, Sergio Ribeiro, 1988. "The Bayesian foundations of solution concepts of games," Journal of Economic Theory, Elsevier, vol. 45(2), pages 370-391, August. [Downloadable!] (restricted)
  3. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November. [Downloadable!] (restricted)
  4. Novshek, William, 1980. "Cournot Equilibrium with Free Entry," Review of Economic Studies, Blackwell Publishing, vol. 47(3), pages 473-86, April. [Downloadable!] (restricted)
  5. Evans, George W. & Honkapohja, Seppo, 2000. "Expectations and the stability problem for optimal monetary policies," Discussion Paper Series 1: Economic Studies 2000,10, Deutsche Bundesbank, Research Centre. [Downloadable!]
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  6. Hommes, C.H. & Wagener, F.O.O., 2003. "Does eductive stability imply evolutionary stability?," CeNDEF Working Papers 03-04, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance. [Downloadable!]
  7. R. Guesnerie, 2002. "Anchoring Economic Predictions in Common Knowledge," Econometrica, Econometric Society, vol. 70(2), pages 439-480, March. [Downloadable!] (restricted)
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  8. Roger Guesnerie, 2001. "Short-Run Expectational Coordination: Fixed Versus Flexible Wages," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 1115-1147, August. [Downloadable!] (restricted)
  9. Evans, George, 1985. "Expectational Stability and the Multiple Equilibria Problem in Linear Rational Expectations Models," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1217-33, November. [Downloadable!] (restricted)
  10. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November. [Downloadable!] (restricted)
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  11. Beth Allen & Jayasri Dutta & Haraklis M. Polemarchakis, 1994. "Equilibrium selections," Discussion Paper / Institute for Empirical Macroeconomics 90, Federal Reserve Bank of Minneapolis. [Downloadable!]
  12. Guesnerie, Roger, 1992. "An Exploration of the Eductive Justifications of the Rational-Expectations Hypothesis," American Economic Review, American Economic Association, vol. 82(5), pages 1254-78, December. [Downloadable!] (restricted)
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  13. Roger Guesnerie & Hector Calvo Pardo, 2004. "Eductive stability in sequential exchange economies: an introduction," DELTA Working Papers 2004-24, DELTA (Ecole normale supérieure). [Downloadable!]
  14. repec:rus:hseeco:122439 is not listed on IDEAS
  15. Guesnerie, R., 2000. "The Government and Market Expectations," DELTA Working Papers 2000-15, DELTA (Ecole normale supérieure).
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  16. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September. [Downloadable!] (restricted)
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