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Orthodox trade theory rests on a number of unrealistic assumptions which include, among others, constant returns to scale in production and perfect competition in product and factor markets. This has led many commentators to express strong skepticism about the policy conclusions flowing from the orthodox framework. In response to these concerns, a rapidly-growing literature has developed over the past decade which incorporates more realistic features of the trading system such as imperfect competition, increasing returns to scale and product differentiation.
This paper presents a review of the empirical research on the "new trade" theories. Section II outlines briefly the theoretical framework for the empirical research. The results from a series of partial and general equilibrium studies are surveyed in Section III. The final section suggests some directions for future work in this area ...
The bivariate relationship between real exchange rates and the real long-term interest rate differential has been investigated in a number of recent studies. By exchange-rate-equation standards, this specification does a relatively good job of tracking the historical movements in the dollar-Deutschemark and the dollar-yen bilateral exchange rates, and the dollar effective exchange rate; but does a poor job for the dollar-sterling rate. This paper extends the analysis to 18 OECD countries, in bilateral as well as effective terms. Results from earlier studies are confirmed, but in general the estimation results are sufficiently mixed to suggest that the absence of any risk premia variables may be an important omission ...