Two Essays in International Economics
Author | : Gi-kuang Chen |
Publisher | : |
Total Pages | : 108 |
Release | : 2006 |
Genre | : |
ISBN | : 9781109851229 |
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This dissertation addresses two issues in International Economics: one in international trade theory and the other in foreign exchange rate estimation. The trade effect on the number of firms in an oligopolistic two-way trade model has been ambiguous ever since this model was introduced by Brander and Krugman (1983). Although the effect has been shown to be negative in various special cases, it remains unknown under the general setting of a non-zero transport cost and a nonlinear demand function. The author of this dissertation successfully resolves this long-standing difficulty and derives an unambiguous negative effect under the general setting. This then enables the delivery of an analysis in the complete evolvement of the economy from autarky to after trade, and from the short run to the long run. In addition, the author also shows that it is possible for welfare to decrease or increase in the short run after trade, depending on relative magnitudes of exogenous variables. With China's increasing presence in the global economy, its foreign exchange rate misalignment has become a heated topic in recent years. Intensive research has been done, but the findings are surprisingly dispersed. Chinese Yuan has been estimated as being from 50% undervalued to 14% overvalued, depending on the methodology employed, explanatory variables chosen, sample period studied, researchers' subjective assumptions made, etc. This dissertation addresses the issue by employing the Behavioral Equilibrium Exchange Rate (BEER) approach with cointegration analysis and vector error correction model (VECM). It is found that the Chinese Yuan has been fluctuating moderately around its long run equilibrium value with undervaluation up to 20% and overvaluation up to 10% at various points in time. This result along with most other studies using the BEER approach suggests that Yuan has not deviated substantially from the equilibrium or has been consistently undervalued as has been widely argued.