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Globalization
Our society has developed a literature on
inframarginal analysis of globalisation, which is regarded by referees
as an "emerging and rapidly growing literature."
Inframarginal analysis is total cost-benefit analysis of networking
decisions and network pattern in addition to marginal analysis of
resource allocation for a given network pattern of trade connections.
This new analytical approach significantly enhances explaining power
of economics and is particularly relevant to new economy which is
characterised by globalisation and networking decisions.
We believe the new analytical approach to
inframarginal analysis is original, novel, and realistic, so that
many interesting policy issues and business problems could be addressed
convincingly in this literature. The following examples illustrate
application of inframarginal analysis to policy issues and business
problems associated with the WTO and globalization.
- Globalization and policy implications: In a model of endogenous
network pattern of trade, we have shown that as transportation efficiency
is improved, individuals are more willing to conduct transactions
in the core area of the economy in order to utilize transaction
efficiency advantage which generated by concentrating many transactions
in the core area. Hence, the difference in land price between the
core and periphery increases. Free migration between the core and
periphery will equalize per capita real income between the core
and periphery despite an increase in difference of per capita commercialised
income. As the degree of market integration increases due to free
trade, the absence of free migration between the USA and Europe
may increase difference in per capita real income between the core
(the USA) and new periphery (Europe), as transaction efficiency
advantage at the core increases relatively to the periphery. This
creates rent that the core can exploit at the cost of the periphery
if free migration is not allowed. Hence, this implies the efficient
balance between benefit of border control (which allows an institutional
experiment within a country to be isolated from institutional experiments
in other countries) and cost of tight border control shifts. Anti
globalisation campaign may be a response to the tension between
old balance of the trade-off institutionalized by the old system
and new situation. New game rules for the new balance of free trade
and free migration may be needed to achieve a really fair and efficient
world order.
- Free trade area, preferential trade area,
and dual structure in the transitional period of globalization:
in a transitional stage from autarky to a great degree of globalisation,
a dual structure between the core and periphery might emerge. In
this structure, most gains from trade go to the developed country
in the absence of tariff. The less developed country has an incentive
to alter distribution of gains from trade through protection tariff.
As transportation efficiency is improved, more countries are involved
in trade and each country is more deeply involved in trade. All
countries will have incentives to participate in tariff negotiation,
which leads to multilateral free trade.
- Globalization and aggregate risk: we have
developed several models with endogenous transaction risk and endogenous
network size of trade connections. We predict an increase in aggregate
risk of coordination failure of a larger network size of trade connections
generated by globalization. As transaction risk for each trade connection
is reduced by new communication technology and new transportation
vehicles, positive network effects of division of labour on aggregate
productivity are more likely to outweigh increasing aggregate risk.
As a result, aggregate productivity, network size of trade connections,
and aggregate risk of coordination failure of the network increase
side by side. Our models also predict an increase in income share
of transaction cost and communication cost as a result of a decrease
in transaction and communication cost of each trade connection.
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Articles:
- Globalization
and Economic Analysis --- On Prof. James Buchanan's Visit to Monash
University.
- Wen Li Cheng, Jeffrey Sachs & Xiaokai Yang, A
General Equilibrium Re-appraisal of the Stolper-Samuelson Theorem.
(trade Theory, general equilibrium HO model, Stolper-Samuelson theorem)
- Xiaokai Yang, China's
Entry to the WTO. (Globalization Issue)
- Jeffrey Sachs & Xiaokai Yang, Market
Led Industrialization and Globalization. (Globalization Issue)
- Wenli Cheng, Jeffrey Sachs & Xiaokai Yang, An
Inframarginal Analysis of the Ricardian Model. (Trade Theory)
- Jeffrey Sachs, Xiaokai Yang & Dingsheng Zhang, Pattern
of Trade and Economic Development in the Model of Monopolistic Competition.
(Income distribution, division of labor, dual structure, economic
development, trade pattern, monopolistic competition, economies
of scale, inframarginal analysis)
- Xiaokai Yang & Dingsheng Zhang, Economic
Development, International Trade, and Income Distribution. (Income
distribution, division of labor, dual structure, economic development)
- Wenli Cheng, Jeffrey Sachs & Xiaokai Yang, An
Inframarginal Analysis of the Heckscher-Ohlin Model with Transaction
Costs and Technological Comparative Advantage. (H-O theorem,
factor equalization theorem, Stolper-Samuelson theorem, Rybczynski
theorem)
- Xiaokai Yang, Incomplete
Contingent Labor Contract, Asymmetric Residual Rights and Authority,
and the Theory of the Firm. (Application Thoery)
- Jeffrey Sachs, Xiaokai Yang, Dingsheng Zhang, Globalization,
Dual Economy, and Economic Development.
- Xiaokai Yang, The
Crisis of Success and Feedback Quality in Managing Economic Crisis
(Application Theory)
- Monchi Lio, Effects
of Insurance and Moral Hazard on the Division of Labor and Productivity.
(the division of labor, insurance, moral hazard, endogenous transaction
costs)
- Wenli Cheng, Meng-chun Liu & Xiaokai Yang, "A
Ricardian Model with Endogenous Comparative Advantage and Endogenous
Trade Policy Regimes".
Inframarginal
Economics Society
www.inframarginal.com
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