Regionalism, Multilateralism,
and Globalization
Jeffrey Bergstrand
University of Notre Dame
April 30, 2005
The Survey of Workers
• Question 1 (Questions 1-16):
In general, do you strongly favor,
weakly favor, weakly oppose, strongly
oppose policies aimed at increasing trade
with Canada?
…… with France?
…… with China?
The Survey of Workers
• Question 2 (Questions 17-32):
In general, do you strongly favor,
weakly favor, weakly oppose, strongly
oppose policies aimed at increasing
investment with Canada?
…… with France?
…… with China?
The Survey of Workers
• Question 3 (Questions 33-48):
In general, do you strongly favor,
weakly favor, weakly oppose, strongly
oppose policies aimed at increasing
immigration with Canada?
…… with France?
…… with China?
The Survey of Firms
• Question 1 (Questions 1-16):
In general, do you strongly favor,
weakly favor, weakly oppose, strongly
oppose policies aimed at increasing trade
with Canada?
…… with France?
…… with China?
The Survey of Firms
• Question 2 (Questions 17-32):
In general, do you strongly favor,
weakly favor, weakly oppose, strongly
oppose policies aimed at increasing
investment with Canada?
…… with France?
…… with China?
The Survey of Firms
• Question 3 (Questions 33-48):
In general, do you strongly favor,
weakly favor, weakly oppose, strongly
oppose policies aimed at increasing
immigration with Canada?
…… with France?
…… with China?
I. What is Globalization?
• Create a Survey Instrument that is
“Based on Theory.”
• Create a Survey Instrument that is
“Based on Theory.”
• However, such a theory should reflect how
consumers and firm leaders think.
• Create a Survey Instrument that is
Theory.”
“Based on
• However, such a theory should reflect how
consumers and firm leaders think.
• GE:
1. Market Access
2. Relative Costs
3. Trade and Investment Costs
Theoretical Model Outline
Goods
• Differentiated final good
• Homogeneous final good
• Differentiated intermediates
Firm Structure
• 3-plant and 2-plant HMNEs
• 1-plant VMNEs
• 1-plant NEs
Cost Structure
• Plant vs. headquarters set-up costs (capital vs. skilled L)
• Transaction costs (investment and trade)
Key Differences
• Three Factors: Add Physical Capital
• Three “Goods”: Add Intermediates (or
Outsourcing)
• Three Countries: Add ROW (in order to
understand Bilateral Flows in a
Multilateral World)
Key Implications
The implications from a three-dimension
theory can be vastly different than that
from a two-dimension theory.
Bilateral information provides much more
heterogeneity of information than
multilateral information.
II. Goods and Services,
Regionalism, and Multilateralism
Robert Lawrence (1996, p. 5):
The postwar experience with both multilateralism and
regionalism has been mixed. On the one hand, the
multilateral trading system has enjoyed spectacular
success in lowering trade barriers on industrial products
. . . . As the focus has shifted away from the relatively
easy task of reducing barriers protecting industrial
products, achieving agreement has become more
difficult . . . . In many important areas, such as services
and agriculture, liberalization has remained fairly limited.
The Dilemma
• “Multilateralism” has effectively been a “secondbest” policy. It has achieved wide breadth of
country coverage, but more limited sectoral
breadth (e.g., industrial goods).
• “Regionalism,” of course, is also a second-best
policy. Major regional trade accords (e.g., EU)
have much less breadth of country coverage, but
in many cases have achieved greater sectoral
breadth (e.g., goods and services.)
Why Regionalism?
• Ed Mansfield (2005, p. 2):
“More generally, greater attention needs to be
focused on why state leaders have displayed a
particular preference for entering preferential
trade arrangements. One possibility is that they
do so to liberalize trade when faced with
domestic obstacles to reducing trade barriers on
a unilateral or multilateral basis.”
Goods vs. Services
• Services, historically, are more costly to
trade than goods.
• Services, historically, have been protected
by governments from international
competition more than goods.
• See Figure 3 (last page of my memo).
Key Implications
• Economic Geography is not just critical to
trade flows, investment flows, and
migration flows. It is critical to the benefits
and costs of trade policies.
III. Panel Data
• Labor micro-econometrics has generated
many insights into refining estimation of
average treatment effects of policies on
outcomes. The same problems likely exist
for trade policies and consumer/firms’
trade attitudes. In the absence of a
budget constraint, a panel approach could
yield econometric estimates less
obfuscated by omitted variables and
selection bias issues.
IV. Various and Sundry Issues
1. Quantity vs. Quality
(Bemoaning politicians’ arguments that trade
creates “more jobs.”)
2. Trade Liberalization vs. Technological
Change
3. Short-Run Adjustment Costs vs. Long-Run
Benefits of Trade