International Trade and Investment.

• Position: Bureau News

The NBER's Program on International Trade and Investment met in Cambridge on April 2 and 3. Kala Krishna, NBER and Pennsylvania State University, organized this program:

Abhijit V. Banerjee, MIT, and Andrew F. Newman, University College London, "Inequality, Growth, and Trade Policy"

Andrew B. Bernard, NBER and Dartmouth College; Stephen Redding, London School of Economics; and Peter Schott, NBER and Yale University, "Comparative Advantage and Heterogeneous Firms"

Robert Feenstra, NBER and University of California, Davis, and Hiau Looi Kee, The World Bank, "Export Variety and Country Productivity"

Marc J. Melitz, NBER and Harvard University, and Gianmarco J. P. Ottaviano, University of Bologna, "Market Size, Trade, and Productivity"

Mihir A. Desai, NBER and Harvard University; C. Fritz Foley, University of Michigan; and Kristin J. Forbes, NBER and MIT, "Shelters from the Storm: Multinational and Local Firm Reponses to Currency Crises"

Shubham Chaudhuri, Columbia University; Pinelopi K. Goldberg, NBER and Yale University; and Panle Jia, Yale University, "Estimating the Effects of Global Patent Protection in Pharmaceuticals: A Case Study of Quinolones in India"

Rebecca Hellerstein, Federal Reserve Bank of New York, "Who Bears the Cost of a Change in the Exchange Rate? The Case of Imported Beer"

Richard Baldwin and Daria Taglioni, Graduate Institute of International Studies, Geneva, "Positive OCA Criteria: Microfoundations for the Rose Effect"

Banerjee and Newman analyze a dynamic model of trade and intersectoral reallocation of resources in the presence of credit constraints. Because entrepreneurs can only invest in the sector they are specialized in, and are limited in the amount they can borrow, the intersectoral allocation of resources adjusts gradually when there is a change in trade policy. During this adjustment phase, trade liberalization has the potential to hurt the poor in countries with poor capital markets. Moreover, there may be large changes in the income distribution without much reallocation of resources as a result of trade liberalization. Finally, the model suggests an explanation of why rich countries mostly trade with each other. The authors go on to examine the efficiency implications of various trade policies in this environment: they show that import tariffs can be quite costly in terms of lost growth in this model, but export subsidies actually may improve efficiency.

Bernard, Redding, and Schott present a model that...