The international trading order at the crossroads
As economic theory shows and experience underlines, international trade and the specialization associated herewith is one important source of economic growth, employment creation and technological innovation in participating countries. In awareness of this potential for increasing economic prosperity throughout the world, the architects of the international trading system, which was to emerge from the ashes of World War II, envisaged a framework of rules leading to, and securing, open markets. The General Agreement on Tariffs and Trade (GATT), which came into being in 1948, laid down such trade rules, basically the principles of non-discrimination and multilateralism in world trade. The aim was not to establish free trade, without any government intervention. What was meant is liberal trade, in which governments may interfere, but using price measures which are transparent and do not rule out competition (i.e. non-prohibitive tariffs rather than quantitative restrictions or subsidies). Adherence by the member countries to the principles of multilateralism and non-discrimination was expected to give rise to the production of an international public good: stability and predictability of trade rules.
Alternative Liberalization Strategies
This paper examines various strategies that have been proposed for halting the recent drift toward protectionism and restoring a more liberal trading regime. A number of groups and individuals propose a multilateral approach aimed at immediately reducing all forms of import barriers and export subsidies on a nondiscriminatory basis across all commodities. Others, who doubt that all major countries are prepared at this time to pursue this approach, favor a bilateral and regional strategy in which those countries willing to liberalize conclude agreements that are left open for others to join. They believe that this approach will eventually lead to multilateral liberalization. Some groups believe that neither of these approaches will succeed and that an aggressive strategy of quickly retaliating against the unfair trade practices of other countries is the best way to bring countries to the bargaining table for multilateral negotiations. The merits and problems of these various strategies are considered as well as their prospects for implementation. The importance of other conditions necessary for trade liberalization such as satisfactory domestic and international macroeconomic conditions are also discussed.
On optimal factor proportions in a competitive firm under factor and output price uncertainty
Most observers of economic events have noticed a considerable increase in the general volatility of prices over the last decade. An important byproduct often attributed to this increased price variability is greater uncertainty perceived by individual decisionmakers in the process of formulating intertemporal plans. This paper seeks to clarify and provide some extensions to previous theoretical work on the question of how economic agents adjust to increased price uncertainty in the context of the competitive firm. In particular, the question asked is whether the optimal choice of inputs in a competitive firm is affected by the advent of increased factor and output price uncertainty. The answer given in earlier studies such as those by Baron (1970), Batra and Ullah (1974), Leland (1972) and Sandmo (1971) is quite straightforward: If competitive-firm managers are risk-neutral profit maximizers, the optimal input mix remains unaffected by increased uncertainty, while under risk-averse managers, firms either reduce their scale of operations or adjust their input mix towards relatively greater use of less risky inputs.