Since my last program report (NBER Reporter, Spring 1987), the focus of attention in international economics has remained on competitiveness and protection; macroeconomic policy coordination; debt and stabilization in developing countries; and international financial markets. There also has been a resurgence of interest in growth and its interaction with trade, and the emergence of the single European market of 1992 has provided a new set of questions for researchers.
This report will discuss the program's research in six main areas: trade and competitiveness; strategic behavior and trade; international macroeconomics; international finance; developing country debt; and stabilization programs in developing countries. The report ends with a discussion of the NBER project on international taxation and the series of international seminars sponsored jointly by the NBER and other organizations.
Trade and Competitiveness
Analyses of U.S. trade and competitiveness, and of adjustment of U.S. trade to changes in the pattern of world trade and competitive pressure from abroad, have long been a central part of our research. Current work includes studies of growth and trade with differentiated products; hysteresis in trade fluctuations; the role of multinational corporations in trade; growth of trade in services; trade and fluctuations in stock prices; competitiveness and differences in the cost of capital; and the effects of trade policy.
Gene M. Grossman and Elhanan Helpman have been studying the effect of the international economic environment, including trade policy, on innovation and growth.(1) One of their results is that trade can make available a wider range of inputs and technologies, and thus can increase the growth rate. Nancy P. Marion also has developed a model in which the growth rate is endogenous, with learning by doing. In her model, open capital markets do not necessarily increase the growth rates; the nation's knowledge-based growth rate actually could fall.(2)
In a related area, Richard E. Baldwin, one of the pioneers in the analysis of hysteresis in U.S. trade, has been working with Richard Lyons.(3) With hysteresis, foreign firms enter the U.S. market as the dollar appreciates but do not exit when the dollar comes back down to the level at which they entered. The exit price is lower than the entry price. This is one explanation of why U.S. imports remained high as the dollar depreciated after 1987.
Robert E. Lipsey, Rachel McCulloch, Irving B. Kravis, and Magnus Blomstrom have continued their work on multinational corporations and international investment. Kravis and Lipsey also are studying the determinants of price level differences across countries. Kravis and Lipsey have found that exports of manufactured goods by U.S. multinationals have retained their share of world exports in the 1980s, while the share of the United States in world exports has declined.(4) Blomstrom finds that multinationals increase competition in the host country.(5) McCulloch is now studying the effects of inward foreign investment in the United States.(6)
Albert Ando, Jorge Braga de Macedo, and I are studying international comparisons of the cost of capital. In a comparative study of saving and investment in the United States and Japan, Ando has estimated their relative costs of capital.(7) In a joint research project with J. David Richardson, de Macedo and I are estimating real effective exchange rates, inclusive of relative costs of capital. Our study of the effects of exchange rate changes across countries will follow the lines of my recent work with James H. Love.(8) Related research on the effects of changes in exchange rates or trade policies on relative stock prices of sectors producing traded goods has been done by Grossman and James A. Levinsohn, and by James A. Brander. These studies find that stock prices do react to trade news. …