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Research Program on International Policies

Program Director: James Tybout.
Members: Edward Green, Barry Ickes, Kala Krishna, and Mark Roberts.

Reductions in transport costs, commercial policy reforms, improvements in international communication, and rapid industrialization in Asia have changed the nature of the marketplace for many producers. The research program on international policies documents and analyzes these changes from the perspective of firms and policy makers throughout the world. Topics recently addressed by faculty in this program include the effects of openness on industrial evolution patterns (pricing, investment and entry/exit), the effects of openness on productivity, the exporting behavior of firms in different environments, the interplay between rules of origin and market structure, and the effects of globalization on economic conditions in transition economies.

These studies have yielded a variety of findings. For example, they show that the effects of import competition on industrial evolution patterns are likely to evolve over time, with short-run pricing adjustments eventually dampened by the exit of some domestic firms, and by changes in the innovative efforts of those that remain. Similarly, sectors that produce exportable goods are likely to respond differently over different time horizons, as firms adjust their expectations concerning the returns to retooling for foreign markets.

A related set of studies describes the relation between exporting, innovation and the absorption of foreign technologies. They find that in some Latin American countries, the greater efficiency of exporters is due to the simple fact that high efficiency firms stand to gain more from breaking into foreign markets that is, efficient firms have self-selected into exporting. But in other regions, especially East Asia, firms appear to have improved their efficiency as a consequence of interacting with knowledgeable foreign buyers and facing off against relatively advanced firms in global markets.

Other studies have focused more directly on trade policy, particularly rules of origin and licensing requirements. Concerning the former, program faculty have shown that the effects of rules of origin are surprisingly sensitive to the context in which they are applied. Concerning the latter, program faculty have shown how changes in the rules governing quota license auctions in New Zealand and Australia impacted the resale market for quota licenses and affected its efficiency.

Finally, program faculty have researched the determinants of economic performance in Russia and Eastern Europe. These studies have analyzed the role of external factors (climate, geography, and the socialist legacy) and internal factors (institutional underdevelopment, privatization policy, and federalism) in shaping the transition process. In particular, they have linked the high cost of investment in former Soviet economies to these factors. They have also argued that the organization of the oil and gas sector in Russia could threaten future energy production.

In pursuing their research, the faculty involved in this program have worked in Asia, Latin America, Australia, Africa, Russia, and Eastern Europe. In addition to grants from the National Science Foundation, their work has been funded by The World Bank, The International Monetary Fund, The Board of Governors of the Federal Reserve, The Organization for Economic Cooperation and Development, and the Mexican government.