nep-int New Economics Papers
on International Trade
Issue of 2005‒05‒14
eleven papers chosen by
Martin Berka
University of British Columbia

  1. The Free Trade Agreement between Colombia and USA: What can happen to Colombia? By Hernando Zuleta; Orlando Gracia
  3. How Trade Barriers Affect Technology Adoption and Productivity By Berthold Herrendorf; Arilton Teixeira
  5. Multinationals, intra-firm trade and FDI: A simple model By Theresa Carpenter
  6. Foreign Direct Investment, Absorptive Capacity and Growth in the Arab World By Signe Krogstrup; Linda Matar
  7. Trade Liberalisation, Growth and Poverty in Senegal: a Dynamic Microsimulation CGE Model Analysis By Nabil Annabi; Fatou Cissé; John Cockburn; Bernard Decaluwé
  8. Trade Reform and Poverty in the Philippines: a Computable General Equilibrium Microsimulation Analysis By Caesar B. Cororaton; John Cockburn
  9. FDI and Trade - Two Way Linkages? By Joshua Aizenman; Ilan Noy
  10. A Note on the Empirical Relationship Between Trade, Growth and the Environment By Jose Mendez; Lewis Gale
  11. The trade-off between agglomeration forces and relative costs: EU versus the “world” Evidence from firm-level location data 1974-1998 By Braunerhjelm, Pontus; Thulin, Per

  1. By: Hernando Zuleta; Orlando Gracia
    Abstract: In order to assess the impact of a Free Trade Agreement (FTA) between Colombia and the United States of America, we describe the characteristics of the Colombian economy emphasizing its trade patterns and perspectives and identifying the sectors and regions that are likely to be the most sensitive to a FTA. We argue that the effects of a bilateral trade agreement between the USA and Colombia would be similar to those of past trade reforms. We first analyze the effect of past reforms over a diverse sample of countries such as Chile, Colombia and Mexico and then, using an applied general equilibrium model, simulate the effects over the Colombian economy of a bilateral agreement with USA. The simulations show that, although small, there is an increase in welfare and production of the Colombian consumers and firms.
    Date: 2004–12–31
  2. By: Jorge Tovar
    Abstract: In this paper I examine the effects of trade liberalization on firms’ performance and consumers’ welfare. Using product level data, I study firms’ performance in the Colombian automobile industry. Given my disaggregated data I can estimate pre and post-reform price-cost margins, as well as calculate the results by origin of production. Before the reforms were implemented, imported cars had prohibitively high tariffs, on average 200%, and were essentially unavailable. After the reforms such tariffs were reduced to 38% on average. I find that as the industry restructured prior to the liberalization process, price-cost margins dropped from 33% to 24%. After the reforms, margins increased because of the associated lower costs, but then again started to fall, reaching a low 23% for domestic cars. The behavior of price-cost margins is explained by increasing domestic competition prior to the reforms, the associated decrease in costs after the reforms and the relatively unchanged market structure. On the consumer side, the approach I follow allows me to estimate the monetary gains due to the liberalization process. I find the post-reform gains in consumers’ welfare to be, as a consequence of declining prices and increased variety, over three thousand dollars per purchaser. A counterfactual simulation, where it is assumed that no foreign cars were available after the reforms, suggests that the gains achieved by consumers are due, for the most part, to increased variety rather than to price competition.
    Keywords: Trade Liberalization
    JEL: D43
    Date: 2004–08–01
  3. By: Berthold Herrendorf (W. P. Carey School of Business Department of Economics); Arilton Teixeira (No affiliation)
    Abstract: We ask how trade policy affects technology adoption, total factor productivity (TFP henceforth), and per–capita income. To answer this question, we construct a dynamic general equilibrium model of a small open economy in which a coalition of skilled workers decides whether or not to adopt newly available and more productive technologies. We obtain three results. First, under free trade and under a tariff the best technology is used and TFP and per–capita income are as large as is possible. Second, under a quota the best technology may or may not be used; in both cases per–capita income and TFP are smaller than under free trade and a tariff. Third, average growth rates are the same across the three trade policy regimes but abandoning a quota leads to a short–term increase in growth rates.
    Abstract: Este artículo presenta un análisis empírico de la integración comercial de Colombia y Asia del Este utilizando un modelo de equilibrio general computable, en el cual se evalúan los efectos de varios escenarios de liberalización comercial sobre los flujos de comercio y el bienestar. Los resultados muestran que existe un potencial importante para el desarrollo de las exportaciones colombianas de productos químicos, confecciones, textiles y otras cosechas como flores, semillas de frutas, café, entre otros. Este resultado no se deriva de la firma de un tratado de libre comercio, sino de la eliminación unilateral de aranceles en ambas regiones
    JEL: C68
    Date: 2004–12–31
  5. By: Theresa Carpenter (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: This paper models trade and FDI in a world consisting of two symmetric countries. Using a monopolistic competition model of international trade which includes positive trade costs and endogenous multinational firms, we introduce an intermediate good and allow firms to fragment production internationally. The result is that under certain conditions, identical countries engage in both intra-industry FDI and intra-industry, intra-firm trade. This result provides a theoretical explanation for a well-observed but little explained phenomenon in the overlap between the theory of international trade and the theory of multinational enterprises. Examination of welfare demonstrates that firms make location choices that happen to maximise consumer welfare.
    Keywords: Multinationals; FDI; Intra-firm trade
  6. By: Signe Krogstrup (IUHEI, The Graduate Institute of International Studies, Geneva); Linda Matar (UN-ESCWA, Beirut)
    Abstract: Arab countries have been performing very poorly in attracting FDI inflows relative to other developing countries since the early 1990s. Arab countries might hence be missing out on growth and development, if FDI is associated with positive externalities. The recent empirical literature on FDI and growth shows, however, that the latter is not always the case, and that FDI is more likely to have positive externalities in countries with a certain level of absorptive capacity for FDI. This paper looks at FDI and growth through absorptive capacity in the Arab world, given the available data on four different aspects of absorptive capacity: the technology gap, the level of workforce education, financial development and institutional quality. The results turn out to be highly sensitive to the specific measure of absorptive capacity used, but one conclusion is unambiguous. It is unlikely that the average Arab country currently stands to gain from FDI. As a consequence, costly financial incentives to attract more FDI might hence be wasteful, if not welfare reducing in Arab countries.
    Keywords: Foreign Direct Investment; Growth; Regional Integration; Middle East; Arab Countries
    Date: 2005–05
  7. By: Nabil Annabi; Fatou Cissé; John Cockburn; Bernard Decaluwé
    Abstract: Much current debate focuses on the role of growth in alleviating poverty. However, the majority of computable general equilibrium (CGE) models used in poverty and inequality analysis are static in nature. The inability of this kind of model to account for growth (accumulation) effects makes them inadequate for long run analysis of the poverty and inequality impacts of economic policies. They exclude accumulation effects and do not allow the study of the transition path of the economy where short run policy impacts are likely to be different from those of the long run. To overcome this limitation we use a sequential dynamic CGE microsimulation model that takes into account accumulation effects and makes it possible to study poverty and inequality through time. Changes in poverty are then decomposed into growth and distribution components in order to examine whether de-protection and factor accumulation are pro-poor or not. The model is applied to Senegalese data using a 1996 social accounting matrix and a 1995 survey of 3278 households. The main findings of this study are that trade liberalisation induces small increases in poverty and inequality in the short run as well as contractions in the initially protected agriculture and industrial sectors. In the long run, it enhances capital accumulation, particularly in the service and industrial sectors, and brings substantial decreases in poverty. However, a decomposition of poverty changes shows that income distribution worsens, with greater gains among urban dwellers and the non-poor.
    Keywords: Dynamic CGE model, trade liberalisation, poverty, inequality, Senegal
    JEL: D33 D58 E27 F17 I32 O15 O55
    Date: 2005
  8. By: Caesar B. Cororaton; John Cockburn
    Abstract: The paper employs an integrated CGE-microsimulation approach to analyze the poverty effects of tariff reduction. The results indicate that the tariff cuts implemented between 1994 and 2000 were generally poverty-reducing, primarily through the substantial reduction in consumer prices they engendered. However, the reduction is much greater in the National Capital Region (NCR), where poverty incidence is already lowest, than in other areas, especially rural, where poverty incidence is highest. Tariff cuts lower the cost of local production and bring about real exchange rate depreciation. Since the non-food manufacturing sector dominates exports in terms of export share and export intensity, the general equilibrium effects of tariff reduction is an expansion of this sector and a contraction in the agricultural sector. This, in turn, leads to an increase in the relative returns to factors, such as capital, used intensively in the non-food manufacturing sector and a fall in returns to unskilled labor. As rural households depend more on unskilled labor income, income inequality worsens as a result.
    Keywords: Dynamic CGE model, trade liberalisation, poverty, inequality, Senegal
    JEL: D33 D58 E27 F13 F14 I32 O15 O53
    Date: 2005
  9. By: Joshua Aizenman (Economics, University of California, Santa Cruz); Ilan Noy (Economics, University of Hawaii-Manoa)
    Abstract: The purpose of this paper is to investigate the intertemporal linkages between FDI and disaggregated measures of international trade. We outline a model exemplifying some of these linkages, describe several methods for investigating two-way feedbacks between various categories of trade, and apply them to the recent experience of developing countries. After controlling for other macroeconomic and institutional effects, we find that the strongest feedback between the sub-accounts is between FDI and manufacturing trade. More precisely, applying Geweke (1982)'s decomposition method, we find that most of the linear feedback between trade and FDI (81%) can be accounted for by Granger-causality from FDI gross flows to trade openness (50%) and from trade to FDI (31%). The rest of the total linear feedback is attributable to simultaneous correlation between the two annual series.
    JEL: F15 F21 F36 H21
    Date: 2005–04
  10. By: Jose Mendez (W. P. Carey School of Business Department of Economics); Lewis Gale (University of Southern Louisiana)
    Abstract: This note reestimates Grossman and Krueger’s (1993) SO2 emissions regression including regressors to capture the effects of scale, trade and trade policy. Several new results are obtained. Increases in economic activity have a negative effect on the environment separate from changes in per capita income, whose relation to the environment is now positive and linear not inverted-U shaped. The trade policy measure is not significant, but its effect is ambiguous a priori. Finally, in line with specialization patterns based on traditional sources of comparative advantage, pollution rises with the capital abundance of a country (since this favors capital-intensive and generally dirtier industries) and falls with increases in labor and land abundance.
    JEL: Q2 O1 F1
  11. By: Braunerhjelm, Pontus (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Thulin, Per (The Center for Business and Policy Studies, Stockholm, and Linköping University)
    Abstract: The theoretical prediction of a trade-off between production costs and agglomeration economies advanced in recent “new economic” geography models has – despite its important policy implications – not been exposed to empirical testing. Based on a standard model where labor mobility is assumed to differ between two regions - the “European Union” (EU) and the “world” - the empirical analysis shows that a ten percent increase in relative wages decreases entry by MNCs by approximately nine percent in EU, but only by three percent in the “world.” Or, put differently, a ten percent increase in relative wages in EU requires an increase by 26 percent in agglomeration to keep production levels unaltered. To our knowledge, this is the first attempt to empirically estimate this trade-off.
    Keywords: FDI; agglomeration; relative costs
    JEL: F15 F20 F23
    Date: 2005–05–09

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