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We thank the Simon Center for Regional Forecasting at the John Cook School of Business at Saint Louis University – especially Jack Strauss, Director of the Simon Center and Ellen Harshman, Dean of the Cook School – for its generosity and hospitality in hosting a conference during the summer of 2006 where many of the chapters appearing in this volume were presented. The conference provided a forum for discussing many important issues relating to forecasting in the presence of structural breaks and model uncertainty, and participants viewed the conference as helping to significantly improve the quality of the research appearing in the chapters of this volume.³ This volume is part of Elsevier's new series, Frontiers of Economics and Globalization, and we also thank Hamid Beladi for his support as an Editor of the series.

A simple two‐sector general equilibrium model is developed to show how the phenomenon of negative value‐added occurs in the protected sector, when the intermediate input is an exportable of the country. Previously, it has been shown in a partial analysis that the production loss of negative value‐added comprises two elements – the foreign exchange loss and the domestic resource loss. These losses are geo‐metrically identified in the general equilibrium model. This analysis departs from earlier ones, however, in that the intermediate input is treated as an exportable good rather than an importable one.

With regard to the effect of growth on the balance of payments of a country, the conclusion of the Keynesian theory of income determination sharply differs from that of the monetary theory. This article suggests an integrated approach towards the derivation of the import function and the balance of payments equation for a money‐using economy from the utility‐maximising behaviour of individuals. Thereby, it shows that the difference between the conclusions of the two theories results from an incorrect specification of the balance of payments equation in the Keynesian theory.

This article analyses the welfare implications of the customs unions in the presence of multinational corporations for a less than fully employed small open economy. The traditional two‐sector model, with a specific factor for the multinational corporation, is employed for this purpose. This article suggests that both trade creations I and II improve the social welfare and employment of the small open economy if the multinational sector is relatively capital‐intensive. However, the welfare and the employment effects of trade diversion I are ambiguous whereas trade diversion II affects employment level negatively. These results are in contrast with the previous studies on the theory of customs unions.

This chapter is intended to investigate the ramifications of foreign trade regime on the technological front in relation with the impact of between trade liberalization on the process of skill formation in dual economy setting and thereby, the wage dynamics facing the skilled and unskilled labor. The ideation toward this end is owed to the seminal literature concerning the connection between free trade and economic dualism, general and the implication of such nexus on skilling process, in particular. Hence, based on the above dispensation, it may be possible to analyze the consequence of free trade on knowledge economy (wherein, the knowledge essentially purports to technical skill, proficiency in various aspects of work and perhaps, to some extent, the case of innovation) and additionally, what it impinges on welfare and economic development for less developed countries. The theoretical underpinning of the baseline model is based basically on the dualistic structure of the economy with regional specifications of the factors. In this framework, it has been examined that under the condition liberal trade policy in a less developed country, featured by reduced tariff, how it makes up for the formation of knowledge capital in the presence of technology-intensive export sector employed skilled and, in such process, if wage inequality gets exacerbated or otherwise. This is further drawn to investigating the implicit change in the propensity of rural–urban migration of unskilled labor, consequent upon the escalation openness to foreign trade; in what holds out significantly as regards the persistence of economic dualism, in general and balanced growth phenomenon between urban and rural sectors, in particular.

This series is aimed at economists and financial economists worldwide and will provide an in-depth look at current global topics. Each volume in the series will focus on specialized topics for greater understanding of the chosen subject and provide a detailed discussion of emerging issues. The target audiences are professional researchers, graduate students, and policy makers. It will offer cutting-edge views on new horizons and deepen the understanding in these emerging topics.

This series is aimed at economists and financial economists worldwide and will provide an in depth look at current global topics. Each volume in the series will focus on specialized topics for greater understanding of the chosen subject and provide a detailed discussion of emerging issues. The target audiences are professional researchers, graduate students, and policy makers. It will offer cutting-edge views on new horizons and deepen the understanding in these emerging topics.

This series is aimed at economist and financial economists worldwide and will provide an in-depth look at current global topics. Each volume in the series will focus on specialized topics for greater understanding of the chosen subject and provide a detailed discussion of emerging issues. The target audiences are professional researchers, graduate students, and policy makers. It will offer cutting-edge views on new horizons and deepen the understanding in these emerging topics.

This series is aimed at economists and financial economists worldwide and will provide an in depth look at current global topics. Each volume in the series will focus on specialized topics for greater understanding of the chosen subject and provide a detailed discussion of emerging issues. The target audiences are professional researchers, graduate students, and policy makers. It will offer cutting-edge views on new horizons and deepen the understanding in these emerging topics.