Saturday, December 18, 2010

NBER picks this week: Arrow et al and Baldwin

Sustainability and the Measurement of Wealth
by Kenneth J. Arrow, Partha Dasgupta, Lawrence H. Goulder, Kevin J. Mumford, Kirsten Oleson  -  #16599 (EEE EFG)


We develop a consistent and comprehensive theoretical framework for assessing whether economic growth is compatible with sustaining well-being over time.  The framework focuses on whether a comprehensive measure of wealth - one that accounts for natural
capital and human capital as well as reproducible capital - is maintained through time.  Our framework also integrates population
growth, technological change, and changes in health.  We apply the framework to five countries that differ significantly in stages of
development and resource bases:  the United States, China, Brazil, India, and Venezuela.  With the exception of Venezuela, significant
increases in human capital enable comprehensive wealth to be maintained (and sustainability to be achieved) despite significant
reductions in the natural resource base.  We find that the value of "health capital" is very large relative to other forms of capital.
As a result, its growth rate critically influences the growth rate of per-capita comprehensive wealth.

Unilateral Tariff Liberalisation
by Richard Baldwin  -  #16600 (ITI)


Unilateral tariff liberalisation by developing nations is pervasive but our understanding of it is shallow.  This paper strives to partly
redress this lacuna on the theory side by introducing three novel political economy mechanisms with particular emphasis is on the role
of production unbundling.  One mechanism studies how lowering frictional barriers to imported parts can destroy the correlation of
interests between parts producers and their downstream customers.  A second mechanism studies how Kojima's pro-trade FDI raises the political economy cost of maintaining high upstream barriers.  The third works via a general equilibrium channel whereby developing
country's participation in the supply chains of advanced-nation industries undermines their own competitiveness in final goods, thus
making final good protection more politically costly.  In essence, developing nations' pursuit of the export-processing industrialisation undermines their infant-industry industrialisation strategies.

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