Modelling International Economic Linkages :
Trade , Investment , and Exchange Rates

by

Peter PAULY


Abstract

Multi-country econometric models have made great advances in capturing a wide range of international linkages. Traditional linkages through trade and trade prices have long been supplemented with elaborate exchange-rate and capital flow models. Recently, much of the emphasis has shifted to supply side mechanisms operating through direct investment, technology transfer, and production ousourcing in joint ventures. The paper reviews modelling techniques achieved during the last decade, and attempts to evaluate the empirical success of recent advances in the theory of international economic interdependence. Finally, some tentative policy conclusions are derived from a new assessment of the strength of cross-country multipliers.