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.