nep-int New Economics Papers
on International Trade
Issue of 2005‒04‒30
thirteen papers chosen by
Martin Berka
University of British Columbia

  1. Zooming Out: The Trade Effect of the Euro in Historical Perspective By Helge Berger; Volker Nitsch
  2. Metrics Capturing the Degree to which Individual Economies are Globalized By Raymond Riezman; John Whalley; Shunming Zhang
  3. Inequality and Relative Reliance on Tariffs: Theory and Evidence By Margarita Katsimi; Thomas Moutos
  4. Explanatory note on the CPB world trade series By Wim Suyker
  5. International Investment Patterns By Philip Lane; Gian Maria Milesi-Ferretti
  6. Export-Platform Foreign Direct Investment By Jim Markusen; Caroline Ekholm, Rikard Forslid
  7. A Multi-Country Approach to Factor Proporations Trade and Trade Costs By Jim Markusen; Anthony Venables
  8. Learning on the quick and cheap: Gains from trade through imported expertise By Jim Markusen; Thomas F. Rutherford
  9. Agricultural trade restrictiveness in the European Union and the United States By Jean-Christophe Bureau; Luca Salvatici
  10. Multilateral agricultural trade liberalization: The contrasting fortunes of developing countries in the Doha Round By Jean-Christophe Bureau; Antoine Bouet, Yvan Decreux, Sébastien Jean
  11. The consequences of agricultural trade liberalization for developing countries: distinguishing between genuine benefits and false hopes By Jean-Christophe Bureau; Sébastien Jean, Alan Matthews
  12. Long-term Patterns in Australia's Terms of Trade By Christian Gillitzer; Jonathan Kearns
  13. Optimal Domestic Regulation and the Pattern of Trade By MARTIMORT, David; VERDIER, Thierry

  1. By: Helge Berger; Volker Nitsch
    Abstract: In 1999, eleven European countries formed the Economic and Monetary Union (EMU); they abandoned their national currencies and adopted a new common currency, the euro. Several recent papers argue that the introduction of the euro has led (by itself) to a sizable and statistically significant increase in trade between the member countries of EMU. In this paper, we put the trade effect of the euro in historical perspective. We argue that the creation of the EMU was a continuation (or culmination) of a series of previous policy changes that have led over the last five decades to greater economic integration among the countries that now constitute EMU. Using a data set that includes 22 industrial countries from 1948 to 2003, we find strong evidence of a gradual increase in trade intensity between European countries. Once we control for this trend in trade integration, the euro’s impact on trade disappears. Moreover, a significant part of the trend in European trade integration is explained by measurable policy changes.
    Keywords: monetary union, currency, euro, trade, European integration
    JEL: F02 F15 F33
    Date: 2005
  2. By: Raymond Riezman; John Whalley; Shunming Zhang
    Abstract: We discuss metrics of globalization for individual economies as distance measures between fully integrated and trade restricted equilibria in economies initially operating under less than full integration with the global economy. Such metrics can be used to construct country globalization metrics reflecting the distance of economies from full global integration due to trade barriers, barriers to factor flows, barriers to international financial intermediation, solved technological diffusion and other economy specific features yielding less than full integration into the global economy. Many distance metrics present themselves and none are wholly satisfactory since they each behave differently across various displacements from integration. Distance measures can, for instance, be small in goods space but large in price space. We present alternative measures constructed for eight OECD economies and comment in a concluding section on other measures used elsewhere in the literature such as trade / GDP ratios.
    JEL: F00 F11 F15
    Date: 2005
  3. By: Margarita Katsimi; Thomas Moutos
    Abstract: In this paper we construct a Ricardian model of trade in vertically-differentiated products between a developing country and the (developed) rest of the world. Despite labour being the only factor of production in this model, tariffs (in addition to income taxes) have distributional consequences because the high-quality imported varieties are consumed only by high-income households. The model predicts a U-shaped relationship between income inequality and the median-voter’s preferred reliance on tariffs versus income taxes in order to effect the desired redistribution. Using data from 44 countries we test for the existence of this U-shaped relationship by estimating a cross-sectional regression relating the ratio of the tariff rate over the tax rate to inequality and a set of control variables such as GDP per capita, openness, the degree of democracy and area dummies. We find that the model’s predictions are supported by the data.
    Keywords: inequality, tariffs, median-voter, trade, vertical differentiation
    JEL: F13 H23
    Date: 2005
  4. By: Wim Suyker
    Abstract: This note provides detailed information on the CPB world trade series and gives a comparison of these series with those of international organisations.
    Keywords: world trade; statistics
    JEL: F17 F47
    Date: 2005–04
  5. By: Philip Lane; Gian Maria Milesi-Ferretti
    Abstract: We provide a systematic analysis of bilateral, source and host factors driving portfolio equity investment across countries, using newly-released data on international equity holdings at the end of 2001. We develop a model that links bilateral equity holdings to bilateral trade in goods and services and find that the data strongly support such a correlation. Larger bilateral positions are also associated with proxies for informational proximity. We further document that the scale of aggregate foreign equity asset and liability holdings is larger for richer countries and countries with more developed stock markets.
    Keywords: International portfolio equity investment, international trade; gravity.
    Date: 2005–01–28
  6. By: Jim Markusen; Caroline Ekholm, Rikard Forslid
    Abstract: An interesting empirical phenomenon is export-platform foreign-direct investment, particularly affiliate production for sale in third countries rather than in the parent or host countries. This is rather poorly understood because our theoretical understanding of multinationals is largely derived from two-country models. Our model shows how affiliate production solely for third countries can occur when a firm in each of two large, high-income countries has a domestic plant to serve its own market, and uses a plant in a small, low-cost country to serve the other highincome country. Third-country export-platform FDI can also occur when the host and third countries are inside a free-trade area and the parent is outside. Our empirical section shows that US affiliates located inside a free-trade area concentrate their exports to other free-trade member countries, consistent with parameterizations of our model in which the outside firm is the chief beneficiary of the free-trade area. Affiliates located outside of free-trade areas such as those in Southeast Asia show a balance between exports to the parent and exports to third countries, consistent with parameterizations that generate “global export-platform” production. Classification-
    Keywords: Multinational firms, export platform, foreign direct investment, affiliate exports, free-trade area
    Date: 2005–04–20
  7. By: Jim Markusen; Anthony Venables
    Abstract: Classic trade questions are reconsidered by generalizing a factor-proportions model to multiple countries, multi-stage production, and country-specific trade costs. We derive patterns of production specialization and trade for a matrix of countries that differ in relative endowments (columns) and trade costs (rows). We demonstrate how the ability to fragment production and/or a proportional change in all countries’ trade costs alters these patterns. Production specialization and the volume of trade are higher with fragmentation for most countries but interestingly, for a large block of countries, these variables fall following fragmentation. Countries with moderate trade costs engage in market-oriented assembly, while those with lower trade costs engage in export-platform production. These two cases correspond to the concepts of horizontal and vertical affiliate production in the literature on multinational enterprises. Increases in specialization and the volume of trade accelerate as trade costs go to zero with and without fragmentation. Classification-
    Date: 2005–04–20
  8. By: Jim Markusen; Thomas F. Rutherford
    Abstract: Gains from productivity and knowledge transmission arising from the presence of foreign firms has received a good deal of empirical attention, but micro-foundations for this mechanism are weak . Here we focus on production by foreign experts who may train domestic unskilled workers who work with them. Gains from training can in turn be decomposed into two types: (a) obtaining knowledge and skills at a lower cost than if they are self-taught at home, (b) producing domestic skilled workers earlier in time than if they the domestic economy had to rediscover the relevant knowledge through “reinventing the wheel”. We develop a three-period model in which the economy initially has no skilled workers. Workers can withdraw from the labor force for two periods of self study and then produce as skilled workers in the third period. Alternatively, foreign experts can be hired in period 1 and domestic unskilled labor working with the experts become skilled in the second period. We analyze how production, training, and welfare depend on two important parameters: the cost of foreign experts and the learning (or “absorptive”) capacity of the domestic economy. Classification-
    Date: 2005–04–20
  9. By: Jean-Christophe Bureau; Luca Salvatici
    Abstract: The paper provides a summary measure of the Uruguay Round tariff reduction commitments in the European Union and the United States, using the Mercantilistic Trade Restrictiveness Index (MTRI) as the tariff aggregator. We compute the index for agricultural commodity aggregates assuming a specific (Constant Elasticity of Substitution) functional form for import demand. The levels of the MTRI under the actual commitments of the Uruguay Round are computed and compared with two hypothetical cases, the Swiss Formula leading to a 36 percent average decrease in tariffs and a uniform 36 percent reduction of each tariff. This makes it possible to infer how reducing tariff dispersion would help improve market access in future trade agreements. Classification-
    Keywords: international agricultural trade; protection, tariffs and tariff factors
    Date: 2005–04–20
  10. By: Jean-Christophe Bureau; Antoine Bouet, Yvan Decreux, Sébastien Jean
    Abstract: An applied general equilibrium model is used to assess the impact of multilateral trade liberalization in agriculture, with particular emphasis on developing countries. We use original data, and the model includes some specific features such as a dual labor market. Applied tariffs, including those under preferential regimes and regional agreements, are taken into account at the detailed product level, together with the corresponding bound tariffs on which countries negotiate. The various types of farm support are detailed, and several groups of developing countries are distinguished. Simulations give a contrasted picture of the benefits developing countries would draw from the Doha development round. The results suggest that previous studies that have neglected preferential agreements and the binding overhang (in tariffs as well as domestic support), and have treated developed countries with a high level of aggregation have been excessively optimistic about the actual benefits of multilateral trade liberalization. Regions like sub-Saharan Africa are more likely to suffer from the erosion of existing preferences. The main gainers of the Doha round are likely to be developed countries and Cairns group members. Classification-
    Keywords: CGE model, Doha Round, agriculture, tariff preferences, domestic support.
    Date: 2005–04–20
  11. By: Jean-Christophe Bureau; Sébastien Jean, Alan Matthews
    Abstract: Recent analyses suggest that the impact of agricultural trade liberalization on developing countries will be very uneven. Some simulations suggest that the effects of agricultural trade liberalization will be small, overall, and are likely to be negative for a significant number of developing countries. The Doha Round focuses on tariff issues, but these countries currently have practically duty-free access to European and North American markets under preferential regimes. Multilateral liberalization will erode the benefits of these preferences, which are presently rather well utilized in the agricultural sector. The main obstacles to the exports of sub-Saharan African and least developed countries appear to be in the non-tariff area (sanitary, phytosanitary standards) which increasingly originate from the private sector and are not dealt with under the Doha framework (traceability requirements, etc.). An agreement in Doha is unlikely to solve these problems and open large markets for the poorest countries. It might even increase their handicap relative to developing countries that are more advanced from a technical and commercial standpoint. While this is not an argument to give up multilateral liberalization, a more specific and differentiated treatment should be considered in WTO rules, and corrective measures should be implemented.
    Keywords: Agricultural Trade, Liberalization, WTO
    Date: 2005–04–20
  12. By: Christian Gillitzer (Reserve Bank of Australia); Jonathan Kearns (Reserve Bank of Australia)
    Abstract: We examine two important aspects of Australia’s terms of trade using 135 years of annual data up to 2003/04. Since Australia predominantly exports commodities and imports manufactures, the Prebisch-Singer hypothesis suggests that there should be a negative trend in the terms of trade. But the trend is no more than -0.1 per cent per annum, less than the trend decline in world commodity prices relative to manufactured goods prices. The weaker trend appears to be the result of Australia exporting, and importantly diversifying toward, commodities with faster price growth. Extending the sample using projections for the terms of trade for the two years to 2005/06 based on commodity price movements to date, the apparent downward trend disappears. Indeed, based on these projections, the terms of trade will have increased by around 50 per cent over the period 1987–2006, unwinding the decline over the preceding 30 years. We also investigate the volatility of the terms of trade and demonstrate that it was significantly higher between 1923 and 1952. This is attributable to substantially higher volatility in the export prices of a few key commodity exports. Volatility declined after 1952 due to smaller shocks to the prices of these goods. The diversification in Australia’s export base since then means that the terms of trade are less susceptible to shocks to prices of individual commodity exports.
    Keywords: terms of trade; commodity prices; Prebisch-Singer
    JEL: E30 F10
    Date: 2005–04
  13. By: MARTIMORT, David; VERDIER, Thierry
    Date: 2004–06

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