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Nemmers Prize Lecture

"Income Distribution and Foreign Trade and Investment"

Elhanan Helpman
Thursday, April 28, 2011
3:30pm
Free and Open to the Public
McCormick Auditorium, James L. Allen Center

International trade flows reveal systematic patterns of specialization in product quality. This is known as "vertical specialization." For example, when rich and poor countries export goods in the same product category, the richer countries tend to sell higher quality goods. In addition, when a country can import goods from several different sources, the higher-quality versions of the good are imported disproportionately from higher-income countries. Since wealthier households typically consume goods of higher quality, patterns of vertical specialization have important implications for the income distributional consequences of world trade.

The lecture will present a new analytic framework for studying trade that captures patterns of vertical specialization. This work that Professor Helpman has developed jointly with Pablo Fajgelbaum and Gene Grossman allows trade patterns to depend on the distribution of income in trading partners and implies that the welfare consequences of trade can vary across income groups within a country. The model predicts, for example, that in many circumstances trade liberalization benefits the poorer households in wealthy countries and the richer households in poor countries. This framework can also be used to study foreign direct investment. One of its main predictions is that two-way foreign direct investment will occur between countries at similar levels of development. This prediction is consistent with the evidence, as most of foreign direct investment takes place among high-income countries.

Elhanan Helpman is the Galen L. Stone Professor of International Trade at Harvard University. His research is concerned with the understanding of international trade and investment, economic growth, and political economy. He has written on how the interaction of lobbying groups and politics shape trade policy and on the relationship between international trade and the organizations of firms. He is one of the founders of new trade theory and endogenous growth theory, which both emphasize economies of scale and imperfect competition. Prior to coming to Harvard in 1997, Professor Helpman spent his career in Israel where he was a professor at Tel Aviv University and was active in national policy debates.

There will be a reception immediately following the lecture.