First Quarter 2000
Federal Reserve Bank of Dallas

Economic and Financial Review was published from 1999 until 2001.

Natural Resource Scarcity and Technological Change
Stephen P. A. Brown and Daniel Wolk

Nonrenewable natural resources, such as aluminum and crude oil, exist only in fixed amounts on Earth. Consequently, some observers are concerned that natural resource scarcity will eventually limit future economic growth and human well-being. Others remain optimistic that technological change will overcome geophysical scarcity. Brown and Wolk examine the evidence for natural resource scarcity and find that over the past century reliance on free markets has promoted sufficient technological change to overcome geophysical scarcity for most nonrenewable natural resources. Rather than rising—as would result from increased scarcity—the relevant real prices of most nonrenewable natural resources have fallen. Although declines in real prices have moderated since World War II, the authors find little evidence of increased scarcity in the postwar era. Increased reliance on markets during the closing decades of the twentieth century is cause for optimism that these trends will continue in the twenty-first.

EMU at 1
Mark A. Wynne

Economic and monetary union (EMU) among eleven of the fifteen members of the European Union began on January 1, 1999. The national currencies of the eleven were abolished and replaced with a new single currency, the euro. Responsibility for monetary policy shifted from the national central banks to the European Central Bank. Many commentators in the United States thought EMU would never come about or, if it did, that it would not last long.

In this article Mark Wynne reviews EMU's first year. He looks at how the economy of the euro area has fared under the single monetary policy, examines how successful the ECB has been in fulfilling its mandate for price stability, and considers the prospects for the future. Despite the dramatic decline in the euro against the dollar over the course of 1999, the first year of EMU must be judged a success. While it is still too early to say whether in the long run the euro will be a strong currency like the Deutsche mark, the institutional design of EMU and the performance of those institutions over the first year are promising.

Measuring the Benefits of Unilateral Trade Liberalization Part 2: Dynamic Models
Carlos E. J. M. Zarazaga

This is the second of two articles examining the potential welfare gains or losses from a unilateral move toward free trade. Part 1 concluded that applied static models of international trade fail to produce eye-popping positive welfare effects. In Part 2, Carlos Zarazaga reviews available applied dynamic general equilibrium models. He finds that the promises of larger welfare gains from unilateral trade liberalization do materialize in some dynamic models. However, other models cannot completely dismiss some common objections to the adoption of unilateral free trade policies.

Zarazaga also identifies the controversial theoretical and empirical issues behind those objections that will have to be resolved before unilateral trade liberalization is accepted as the definitive, welfare-improving alternative to costly and prolonged multilateral trade agreements.