Notable Articles Published During the Oxford Years
As noted above, Corden chose not to publish his customs union manuscript; instead, he published two articles based on it. In Corden (1972b), he departed from previous literature by assuming that the formation of the union would generate internal economies of scale for firms in the participating countries.
The paper assumes that the countries forming the union are “small”, that is, they face given terms of trade. He then shows that, while the standard concepts from customs union theory of trade creation and trade diversion still hold, two new concepts can be added: (1) a cost reduction effect which arises as a result of lower costs of production in the union countries; and (2) a trade suppression effect which occurs when imports from non-union countries are replaced by more expensive imports produced by newly formed firms based in the union.The second paper, Corden (1976), deals with the topic of non-uniform tariffs. It shows how a shift in the pattern of imports post-union may lead to a welfare gain if the pre-union tariff on the importable in one of the union partners is higher than the union's common external tariff. In this case, reducing the former tariff to the level of the latter will raise welfare, while reducing it beyond that level will reduce welfare.
One other article published during Corden's Oxford period deserves special mention even if it deals neither with a trade and protection topic nor with an issue in international macroeconomics. Rather it deals with a development topic, namely the phenomenon of urban unemployment in developing countries, as exemplified by the well-known Harris-Todaro model (see Harris and Todaro 1970). Corden and Findlay (1975) use standard trade-theoretic diagrams to analyse the important phenomenon of urban (so-called wait) unemployment in developing countries where many young people prefer to remain unemployed or work in informal jobs while waiting to secure a permanent job, often in the public sector. The paper also discusses various policy options to tackle the problem. This article has proved to be very popular in the development literature: it is ranked sixth in terms of Corden's citations by Google Scholar.
Corden has often used the Salter model as an expository device in his writings. Jones and Corden (1976) show how the Salter diagram, which uses the small-country assumption to aggregate goods into composites of traded and non-traded goods, can be used to investigate how policies such as a devaluation can impact the relative price of traded to non-traded goods, that is, the real exchange rate. The Salter model has subsequently been used by many international economists to discuss policies aimed at achieving internal and external balance.
4.3