nep-int New Economics Papers
on International Trade
Issue of 2005‒04‒24
sixteen papers chosen by
Martin Berka
University of British Columbia

  1. Strategic Tariff Protection, Market Conduct, and Government Commitment Levels in Developing Economies By Delia Ionaºcu; Kresimir Zigic
  2. Strategic Intellectual Property Rights Policy and North-South Technology Transfer By Alireza Naghavi
  3. Technology Transfer Through Trade By Mombert Hoppe
  4. From the Theory of the Firm to FDI and Internalisation: A Survey By Valeria Gattai
  5. Multilateral Environmental Agreements and Trade Obligations: A Theoretical Analysis of the Doha Proposal By Alireza Naghavi
  6. Emissions Trading, CDM, JI, and More – The Climate Strategy of the EU By Gernot Klepper; Sonja Peterson
  7. Trade Policy and Illegal Immigration By Subhayu Bandyopadhyay; Ryo Takashima
  8. Issues in Korean Trade 1999: Trends, Disputes and Trade Policy By Junsok Yang; Hong-Youl Kim
  9. Intra-industry Trade and Productivity Structure Application of a Cournot- Ricardian Model Intra-industry Trade and Productivity Structure Application of a Cournot-Ricardian Model By E. Young Song; Chan-Hyun Sohn
  10. Income Distribution, Intra-industry Trade and Foreign Direct Investment in East Asia By Chan-Hyun Sohn; Zhaoyong Zhang
  11. The ASEAN +3 Trading Bloc By Yum K. Kwan; Larry D. Qiu
  12. Towards a U.S.-Indonesia Free Trade Agreement By Hadi Soesastro
  13. FDI and Trade in Portugal: a gravity analysis By Ana Paula Africano; Manuela Magalhaes
  15. Exports and Productivity: A Survey of the Evidence fro Firm Level Data By Joachim Wagner
  16. Exports, Foreign Direct Investment, and Productivity: Evidence from German Firm Level Data By Joachim Wagner

  1. By: Delia Ionaºcu; Kresimir Zigic
    Abstract: We analyze a simple “tariffs cum foreign competition” policy targeted at enhancing thecompetitive position of a domestic, developing country firm that competes with its developed country counterpart on the domestic market and that carries out an innovative (imitative) effort. We evaluate this policy with respect to social welfare, type of oligopoly conduct, information requirement, time consistency, possibility of manipulative behavior and conclude that the most robust policy set-up is that in which the domestic government is unable to precommit to the level of its policy. Finally, we examine this policy, allowing for asymmetric information, and show that the corresponding social welfare may be higher than under perfect
    Keywords: Optimal tariff protection, Government non-commitment regime, Innovative(imitative) effort, Symmetric versus asymmetric information.
    JEL: F13
    Date: 2005–01
  2. By: Alireza Naghavi (University College Dublin and CERAS)
    Abstract: This paper analyzes welfare implications of protecting intellectual property rights (IPR) in the framework of TRIPS for developing countries (South) through its impact on innovation, market structure and technology transfer. In a North-South trade environment, the South sets its IPR policy strategically to manipulate multinationals’ decisions on innovation and location. Firms can protect their technology by exporting or risk spillovers by undertaking FDI to avoid tariffs. A stringent IPR regime is always optimal for the South as it triggers technology transfer by inducing FDI in less R&D-intensive industries and stimulates innovation by pushing multinationals to deter entry in high-technology sectors.
    Keywords: Intellectual property rights, Technology transfer, Multinational firms, Foreign direct investment, North-South trade
    JEL: O34 F23 F13 L13 O32 L11 O38
    Date: 2005–01
  3. By: Mombert Hoppe (DG Development, European Commission)
    Abstract: This paper examines the role that trade plays in economic development through the channel of technology transfer, approximated by total factor productivity. Three strains of factors influence the process of technology transfer; direct effort that is taken to transfer technologies, the capacity to adopt technologies, and differences in the underlying conditions between donor- and receiving countries. In this context, trade in (capital) goods allows technology import and improved input decisions. Second, trade opens export markets, allowing learning-by-doing. Third and most importantly, trade increases the set of accessible technologies, increasing the scope for imitation. The theoretical insights are compared to the empirical literature that deals with trade and technology transfer. Not surprisingly, it turns out that openness and human capital have a positive influence on the transfer of technology. Yet methodological problems with the data weaken the practical significance of the results, especially as the precise and fundamental mechanism of spillovers and the factors that condition the degree of technology transfer are not profoundly illuminated. These underlying processes have to be better understood in order to be able to give valuable policy recommendations that will go beyond the general advice of increasing openness and human capital formation.
    Keywords: Technology transfer, Trade, Economic growth, Total factor productivity
    JEL: F10 F43 O40
    Date: 2005–01
  4. By: Valeria Gattai (Università Bocconi, ISESAO)
    Abstract: This paper surveys recent contributions on the Internalisation issue, based on different theories of the firm, to show how the make-or-buy decision, at an international level, has been assessed through the opening up of the “black box” - traditionally explored by the theorists of the firm – and the simultaneous endogenization of the market environment – as in the International Economics tradition. In particular, we consider three Archetypes – Grossman-Hart-Moore treatment of hold-up and contractual incompleteness, Holmstrom-Milgrom view of the firm as an incentive system, Aghion-Tirole conceptualisation of formal and real authority in organisations – and show how they have been embedded in industry and general equilibrium models of FDI to explain the boundaries of global firms.
    Keywords: FDI, Internalisation, International Economics, Incomplete contracts
    JEL: F1 F2 L1 L2
    Date: 2005–04
  5. By: Alireza Naghavi (PSE, Ecole Normale Supèrieure)
    Abstract: The Doha declaration on trade and environment proposed to clarify the relationship between multilateral environmental agreement (MEA) trade obligations and WTO rules by only guaranteeing economic integration upon ratification of certain MEAs. In other words, it pushed to authorize the use of trade measures against non-compliance, denying a non-signatory of its WTO rights to exercise countervailing tariffs. This paper demonstrates that the Doha proposal can be effective when environmental policy and its trade obligations are endogenous. Under plausible circumstances, ratification by a non-signatory to the MEA along with free trade as a reward is the unique equilibrium outcome. Delocation to pollution havens does not occur, as optimal tariffs are positive if standards are not adopted. Tariffs however only work as a credible threat and do not emerge in equilibrium. Results are consistent with broad empirical evidence that opposes the pollution haven hypothesis and suggests capital movements to be non-pollution related.
    Keywords: Environmental policy, WTO, Location of firms, Green tariffs, Multilateral environmental agreements, Doha declaration
    JEL: F13 F18 F23 H23 Q56 R38
    Date: 2005–04
  6. By: Gernot Klepper (Kiel Institute for World Economics); Sonja Peterson (Kiel Institute for World Economics)
    Abstract: The objective of this paper is to assess the likely allocation effects of the current cli-mate protection strategy as it is laid out in the National Allocation Plans (NAPs) for the European Emissions Trading Scheme (ETS). The multi-regional, multi-sectoral CGE-model DART is used to simulate the effects of the current policies in the year 2012 when the Kyoto targets need to be met. Different scenarios are simulated in order to highlight the effects of the grandfathering of permits to energy-intensive installations, the use of the project-based mechanisms (CDM and JI), and the restriction imposed by the supplementarity criterion.
    Keywords: Kyoto targets, EU, EU emissions trading scheme, National allocation plans, CDM and JI, Computable general equilibrium model, DART
    JEL: D58 F18 Q48 Q54
    Date: 2005–04
  7. By: Subhayu Bandyopadhyay (West Virginia University and IZA Bonn); Ryo Takashima (West Virginia University)
    Abstract: We use a version of the Meade model to consider the effects of interdependent import tariffs in the presence illegal immigration. First, we consider the small union case and derive the Nash tariff equilibrium for two potential members of a Preferential Trade Agreement (PTA). We analyze conditions under which a movement from the Nash equilibrium to complete intrabloc tariff elimination (FTA) is likely to be welfare augmenting. The paper also considers how reduction of the external tariff may impact the Nash equilibrium tariffs of the potential bloc members. The analysis is extended to the large union case to consider the conditions under which terms of trade of bloc members improve with respect to the non-member nation(s)
    Keywords: preferential trade agreement, illegal immigration, optimal tariff
    JEL: F11 F22
    Date: 2005–04
  8. By: Junsok Yang (Korea Institute for International Economic Policy); Hong-Youl Kim (Korea Institute for International Economic Policy)
    Abstract: This paper is a survey of some of the important issues in Korean trade during 1999. 1999 was an important year in Korean trade for several reasons. In 1999, Korea began its recovery from the Asian financial crisis, with its GDP growing by more than 10%. Much of the growth, especially in the latter half of the year, was due to a healthy export sector. Korea's exports to all major regions rose greatly. Korea's imports also rose greatly, but imports from some regions, such as Asian and North America, grew more quickly than imports from other regions such as Europe. The growth in exports was driven by such goods as semiconductors and automobiles. On the import side, growth of imports was driven by increases in the imports of capital good due to Korea's recovery from the financial crisis and the recession which followed. Such growth in exports could not help but generate trade disputes between Korea and its trading partners, most notably the United States. While the bilateral trade disputes were not as serious as they had been in the 1980s, there were some notable issues in 1999, particularly with regard to steel, semiconductors, pharmaceuticals and movies. While many of these trade dispute issues were being dealt with bilaterally between Korea and various complainant countries, the world was rapidly moving toward establishing common multilateral rules on trade, and 1999 was an important year in the multilateral trade arena as well. On November 30, 1999, the WTO Ministerial Conference was held in Seattle. The conference was to signal the beginning of a new round of trade negotiations designed to futher liberalize trade, as well as introduce multilateral rules with respect to several "new issues". However, because of disagreements among member countries, the negotiations were suspended and except for certain "built-in agenda" issues, the negotiations will not resume until the members can attain a wider agreement on various issues concerning the new round negotiations. Korea submitted 12 official position papers to the WTO on various topics concerning the new round. These topics include agriculture, services, the anti-dumping agreement, market access for industrial goods, trade and investment, trade and competition policy, and transparency in government procurement.
    Keywords: international trade, governance, WTO, new round negotiations, Korea, trade policy
    Date: 2004–04
  9. By: E. Young Song (Korea Institute for International Economic Policy); Chan-Hyun Sohn (Korea Institute for International Economic Policy)
    Abstract: This paper extends the reciprocal dumping model of trade to a general equilibrium theory. We merge the Cournnotian model of Brander (1981) with the Ricardian model of Dornbusch, Fischer and Samuelson (1977). In this Cournot-Ricardian model, we find that the share of intra-industry trade in total trade increases with a similarity between trading partners, where the similarity is measured in terms of the industrial distribution of labor productivities. Thus our model provides another micro-foundation to the general finding that the share of intra-industry trade is hight when the trading partners are at similar levels of development. We also put this new model to a test. Using the data on trade and productivity, we find that the industrial distribution of labor productivites has significant explanatory power over the variations of intra-industry trade across country-pairs. This new variable seems to perform as well as the more popular variable, such as factor proportion, in explaining the share of the intra-industry trade.
    Keywords: intra-industry trade, Cournot competition, homogenous products, labor productivity, labour productivity
    JEL: F11 F12
    Date: 2003–12
  10. By: Chan-Hyun Sohn (Korea Institute for International Economic Policy); Zhaoyong Zhang (Korea Institute for International Economic Policy)
    Abstract: The purpose of this paper is to empirically investigate how intra-industry trade is linked to cross-country income difference and foreign direct investment. We distinguish intra-industry trade as either horizontally or vertically differentiated, using bilateral exports and imports data for Japan and the rest of the East Asian countries at the 5-digir SITC during 1990 to 2000. Our empirical results show that the income difference has a negative relationship with the share of horizontal IIT, but a significant positive with vertical IIT. This finding answers to the sign changes in the previous empirics, including Hummels and Levinsohn (1995). Our resutls also show that cross-country foreign direct investment has a positive relationship with the share of horizontal intra-industry trade, and a negative relationshiops with the share of vertically differentiated trade. The findings have an important implication for the agglomeration effect of FDI on intra-industry trade.
    Keywords: intra-industry trade, fdi, horizontal/vertical differentiation, East Asia, Korea
    JEL: F12 F14
  11. By: Yum K. Kwan (City university of Hong Kong); Larry D. Qiu (Hong Kong University of Science and Technology)
    Abstract: The ASEAN +3 proposal has attracted attention in Asia and the world. We argue that a free trade agreement (FTA) for ASEAN +3 is beneficial to all member countries due to three factors (i) existing and expected vertical foreign direct investment linkage between Japan/ Korea and ASEAN member countries, (ii) high expected growth rate of the Chinese economy, and (iii) the economic diversity among members of ASEAN +3 group.
    Keywords: ASEAN, ASEAN +3, trading bloc, free trade agreement, FTA, direct invesment, Japan, Korea, China
    Date: 2003–07
  12. By: Hadi Soesastro (Department of Economics, Centre for Strategic and International Studies)
    Abstract: This paper examines the main issues in designing a FTA between Indonesia and the United States. The first section briefly examines current trade relations and issues between Indonesia and the United States. It also addresses the strategic and economic impact of a possible FTA between Indonesia and the United States for Indonesia. The second section examines elements of a possible Indonesia-United States FTA with a view on similar agreements concluded between Singapore and the United States and between Thailand and Australia. The third and concluding section discusses the kind of preparations needed on the Indonesia side to successfully negotiate a FTA with the United States.
    Keywords: Indonesia, United States, free trade agreement
    Date: 2004–05
  13. By: Ana Paula Africano (CEMPRE, Faculdade de Economia, Universidade do Porto); Manuela Magalhaes (IPCA e Faculdade de Economia, Universidade do Porto)
    Abstract: This study investigates the relation between the stock of foreign direct investment (FDI) and the geographical pattern of trade flows in the Portuguese economy. The gravity model is applied to bilateral trade between Portugal and OECD countries plus Brazil from 1998 to 2000. The stock of inward FDI is positively related to trade suggesting the existence of complementary between the two. This effect is stronger on exports than on imports resulting in a positive impact on trade balance. It is also found that the stock of outward FDI has no significant relation either with Portuguese exports or imports. Finally, FDI helps to explain the above “normal” exports to the EU and the below “normal” imports from Candidate Countries.
    Keywords: International Trade, Foreign Direct Investment, Gravity Model.
    JEL: F1 F4
    Date: 2005–04
  14. By: Jörg MAYER
    Abstract: The impact of ATC-termination on the rise in China’s market share in global textiles and clothing trade is likely to be lower than often suggested by CGE models because the models (i) neglect the industry structure and sourcing strategies of buyers; (ii) take insufficient account of current patterns of tariff protection, preference schemes, and rules-of-origin regulations that allow managing textiles and clothing trade after ATC-termination; (iii) assume smooth and overly rapid responses to changes in the trading environment particularly in quota-imposing developed countries; and (iv) ignore that achieving China’s development objectives requires structural change towards production and exports of manufactures that are more skill-intensive than clothing.
    Date: 2004
  15. By: Joachim Wagner (University of Lueneburg)
    Abstract: While the role of exports in promoting growth in general, and productivity in particular, has been investigated empirically using aggregate data for countries and industries for a long time, only recently have comprehensive longitudinal data at the firm level been used to look at the extent and causes of productivity differentials between exporters and their counterparts which sell on the domestic market only. This papers surveys the empirical strategies applied, and the results produced, in 45 microeconometric studies with data from 33 countries that were published between 1995 and 2004. Details aside, exporters are found to be more productive than non-exporters, and the more productive firms self-select into export markets, while exporting does not necessarily improve productivity.
    Keywords: Exports, Productivity, Firm level data, survey
    JEL: F14 D21
    Date: 2005–04–20
  16. By: Joachim Wagner (University of Lueneburg)
    Abstract: This paper presents the first empirical test with German establishment level data of a hypothesis derived by Helpman, Melitz and Yeaple in a model that explains the decision of heterogeneous firms to serve foreign markets either trough exports or foreign direct investment: only the more productive firms choose to serve the foreign markets, and the most productive among this group will further choose to serve these markets via foreign direct investments. Using a non-parametric test for first order stochastic dominance it is shown that, in line with this hypothesis, the productivity distribution of foreign direct investors dominates that of exporters, which in turn dominates that of national market suppliers.
    Keywords: Exports, Foreign Direct Investment, Productivity, Firm level data, Germany, Heterogeneous firms
    JEL: F14 F23 D21
    Date: 2005–04–20

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