BOOK REVIEWS

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BOOK REVIEWS International Trade in East Asia. Edited by Takatoshi Ito and Andrew K. Rose. Chicago and London: University of Chicago Press, 2005. 419 pp. $80.00. ISBN 0-22637896-9. Sanjay Paul Elizabethtown College This book stems from the fourteenth annual NBER-East Asia Seminar on Economics, held September 2003 in Taipei. The Seminar dealt with international trade in East Asia, particularly its empirical aspects. The book contains an introduction by the editors followed by twelve chapters. Each chapter contains a paper and accompanying comments. Keiko Ito and Kyoji Fukao note that over the past three decades, Japan has experienced diminishing rates of return to physical and human capital. This has occurred despite increased trade which should have resulted in specialization based on comparative advantage and thus offset the forces of diminishing returns. Chin Hee Hahn looks at the relationship between exports and productivity in the Korean manufacturing sector. He considers two questions. Do exports raise firm productivity, perhaps due to the rigors of competing in a world market? And do productive plants tend to export, perhaps due to the need to recover the sunk costs involved in entering foreign markets? The author finds evidence to answer both questions affirmatively. Meng-chun Liu and Shin-Horng Chen study factors affecting the deepening of foreign R&D in host countries that are relatively less-developed. Multinational corporations increasingly conduct R&D abroad. Developing countries, which have in the past attracted manufacturing with low wages, now also present opportunities for R&D with their (relatively) low wages for skilled personnel. In Taiwan, the authors argue, foreign affiliates that are more R&D intensive also tend to be more export-oriented. Tain-Jy Chen and Ying-Hua Ku use firm-level data from Taiwan's manufacturing sector to explore the relationship between FDI and domestic employment. The effect of FDI outflow on the source country's employment is of perennial interest; the evidence, however, is mixed. Some find that FDI lowers costs, permitting the parent company to increase its output at home; while others conclude that overseas production serves as a substitute for exports, and thus lowers employment in the source country. Chen and Ku show that FDI has had a net positive effect on domestic employment in Taiwan. Three chapters discuss regional trade agreements and the WTO. Philippa Dee and Jyothi Gali look at trade creation and trade diversion, and conclude that regional integration may yield the more undesirable of the two outcomes (trade diversion). Shujiro Urata and Kozo Kiyota employ a computational general equilibrium model to show that regional trade agreements in East Asia confer net benefits to members, but reduce welfare for outsiders. And Dukgeun Ahn studies the use of the dispute resolution mechanism in the WTO (a faster way to resolve trade disputes than GATT) by countries in East Asia, and finds that Korea and (especially) Thailand aggressively rely on the facility. Mitsuyo Ando and Fukunari Kimura note that distinctive international production and distribution networks can help explain the rapid economic growth in East Asia. These networks can be quite extensive. They involve several countries at various levels of development, they range from intra-firm to interfirm relationships, they include multinational corporations and indigenous firms, and they are found in industries ranging from machinery to transport equipment to textiles. These arrangements play a major role in explaining trade patterns, and highlight the need to focus on trade policies that go beyond simple removal of tariffs. Zihui Ma and Leonard K. Cheng assert that all financial crises are either banking crises or currency crises, and they identify the channels through which each kind of crisis affects exports and imports. They then use a gravity model and data from 128 currency crises and 53 banking crises (between 1980 and 1998) to test their theoretical predictions about short-run and long-run effects. Thomas J. Prusa highlights the insidious rise of protectionism through antidumping policy. He finds that an increasing number of countries are starting to engage in this practice, especially those that have experienced large macroeconomic shocks. The pressure brought to bear by industries losing their comparative advantage also explains this trend.

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The Multifiber Agreement has long provided protection to domestic apparel producers in developed countries. Carolyn L. Evans and James Harrigan consider apparel imports into the U.S. They show that East Asian producers are increasingly losing comparative advantage to producers in Mexico and the Caribbean who are closer to the U.S. market and can therefore adjust production patterns more quickly in response to changing fashions. In a somewhat unusual paper, Edgar Cudmore and John Whalley argue that tariff reduction can increase queuing costs. In developing countries, clearing goods through customs may take inordinate amounts of time. The problem is often exacerbated by corruption, and so lower tariffs will result in increased customs traffic and longer queues. Employing a partial equilibrium model, the authors show that bribes can improve welfare (by reducing queuing times) and then use Russian data to estimate the costs and benefits. The range of topics included in the volume is striking-- regional trade agreements, productivity and R&D, employment effects, apparel exports and border delays. Such an eclectic collection is not, as the editors readily acknowledge, amenable to convenient groupings; however, their objective of exploring the relationship between productivity and trade in East Asia appears to have been largely met.

Ricardo’s Macroeconomics: Money, Trade Cycles, and Growth. By Timothy Davis. Cambridge: Cambridge University Press; 2005. pp. 316. $75.00. ISBN 0-521-84474-6. Scott Carter The University of Tulsa This book pursues a formidable task. It seeks to establish that the foundations of modern macroeconomics lie in Ricardo. Three key ideas need be found in Ricardo to argue that he developed the foundations of modern macroeconomic theory: (i) a monetary theory, (ii) the law of markets, and (iii) a theory of economic growth. Concerning monetary theory, Davis argues that, contrary to much of the secondary literature, Ricardo was not an “extreme” bullionist, did not assume the neutrality of money, and was not an advocate of the “strict” version of the quantity theory of money. Concerning the law of markets, Davis argues, again somewhat at odds with the secondary literature, that Ricardo adopted the weaker version (dubbed “Say’s equality”) as opposed to the stronger version (dubbed “Say’s identity”), and that he advocated certain forms of discretionary monetary and fiscal policy. Concerning growth theory, Davis supports the “new view” of Ricardian growth theory, initially developed by Hicks and Hollander (1977), lauding the “predictive power” of this model of growth. An underlying theme linking these three issues is that Ricardo was no abstract theorist, but rather an empirical economist who based his theoretical endeavors on actual policy questions and concerns of his day. Interestingly, given his “new view” sympathies, Davis goes against some more accepted interpretations that Ricardo was “too abstract” (e.g. Schumpeter 1954; Blaug 1958) and is more in agreement with Sraffian interpreters of Ricardo (Dobb, 1973, p. 22; Sraffa, 1927-31). In terms of structure, the book consists of eight chapters. Chapter 1 provides a comprehensive review of the relevant literature. It lays out the historical context of Ricardo’s inquiries and the competing arguments in the secondary literature regarding the three macro issues. Chapters 2, 3 and 4 make extensive use of primary sources, much of which can be found in the various Appendices. This reviewer found the inclusion of such economic data (exchange rates, commodity prices, tax revenues as proxies for national income) quite illuminating. Chapters 2 and 3 present evidence on the economic conditions in England from 1815 to 1825, with the former chapter devoted to the business cycle of 1815-1818 and the latter to the business cycle of 1819-1825. Davis claims that neither cycle was a general depression; each resulted from a series of exogenous shocks precipitated by the abundant harvest of 1813. The two major shocks of 1815-1818 were the collapse of Britain’s foreign markets and the transition to a peace-time economy; those of 1819-1835 were the continued setbacks in foreign markets and the problems associated with the Bank of England’s mishandling of the resumption of cash payments upon the return to the gold standard. This “exogenous shock” explanation of the post-war crises is somewhat at odds with the secondary literature and gives Davis a way to tie specific policy prescriptions into the theoretical work of Ricardo. Chapter 4 is devoted to Ricardo as an empirical economist. It is here that Davis makes the case that Ricardo was guided by the events of his day. He argues that Ricardo used tax receipts as a proxy for