nep-int New Economics Papers
on International Trade
Issue of 2005‒06‒05
eighteen papers chosen by
Martin Berka
University of British Columbia

  1. Special Interest Politics and Trade Policy – An Empirical Challenge By Belfrage, Carl-Johan
  2. Determining the Level of Transportation Costs in the Core-Periphery Model: a Majority Voting Approach By Gallo, Fredrik
  3. Lobbying Competition Over US Trade Policy By Kishore Gawande; Pravin Krishna
  4. Proximities in Modular Production: an Analysis of the Globalization of the Automotive Fisrt Tier Suppliers (In French) By Vincent FRIGANT (E3i, IFReDE-GRES)
  5. Market Size, Trade, and Productivity By Marc J. Melitz; Gianmarco I.P. Ottaviano
  6. Exchange Rate Uncertainty and Free Trade Agreement between Japan and Korea By Kwanho Shin; Yunjong Wang
  7. Trade Structure and Economic Growth A New Look at the Relationship between Trade and Growth By Chan-Hyun Sohn; Hongshik Lee
  8. Marginal Intra-industry Trade, Trade-induced Adjustment Costs and the Choice of FTA Partners By Chan-Hyun Sohn; Hyun-Hoon Lee
  9. Regional Cooperation in East Asia and FTA Strategies By Peter Drysadale
  10. Free Trade Area: Awakening Regionalism in East Asia By Feng Lu
  11. World Trade as the Adjustment Mechanism of Agriculture to Climate Change By Roxana Julia; Faye Duchin
  12. The Evolution of ASEAN+X Free Trade Agreements: Implications for Canada By Hadi Soesastro
  13. Realizing the East Asian Vision By Hadi Soesastro
  14. Accelerating ASEAN economic integration: Moving beyond AFTA By Hadi Soesastro
  15. The political economy of trade policy in Indonesia By Hadi Soesastro; M. Chatib Basri
  16. Trade Liberalization and Heterogeneous Time Preference Across By Taiji Harashima
  17. Trade types with Developed and Developing Countries What can we learn from Spanish data? By Juliette Milgram; Ana Moro-Egido

  1. By: Belfrage, Carl-Johan (Department of Economics, Lund University)
    Abstract: The model of protectionist support for individual industries as an endogenous outcome of special interest politics pioneered by Grossman and Helpman (1994) is generalized and then empirically examined using data for a number of OECD countries and regions. Cross-sectional regressions are performed on the full sample,as well as on individual countries. The model generally holds up quite well to this empirical challenge. The estimates indicate that equilibrium ratios of special interest to general interest marginal utilities (with respect to protection levels) vary positively with protection levels as the theory has led us to expect. Terms of trade concerns seem important to the larger countries in our sample as implied by the present generalization of the GH model (as well as by the optimum tariff literature), but the influence of downstream interests does not come across in the estimates. The results seem robust also to inclusion of variables reflecting exogenous political concerns (indicated as relevant in other studies), although those bring a substantial addition to predictive power which strengthens the impression that (what is endogenously derived in) the GH model only captures a limited share of the considerations underlying trade policy decisions.
    Keywords: Trade policy; Lobbying; Special interest groups
    JEL: F13
    Date: 2004–06–03
  2. By: Gallo, Fredrik (Department of Economics, Lund University)
    Abstract: We analyse the political determination of transportation costs in an analytically solvable core-periphery model. In a benchmark case with certainty about where agglomeration takes place, we find that a majority of voters prefers low trade costs and the resulting equilibrium is an industrialised core and a de-industrialised periphery. Allowing for uncertainty we show that a high trade cost candidate, that guarantees the initial symmetric equilibrium, may defeat the core-periphery equilibrium candidate. The reason is that a coalition of risk-averse immobile factors of production votes for status quo due to uncertainty about which region that will attract industrial activity.
    Keywords: core-periphery model; majority voting; new economic geography; regional policy
    JEL: F12 F15 R12
    Date: 2005–05–31
  3. By: Kishore Gawande; Pravin Krishna
    Abstract: Competition between opposing lobbies is an important factor in the endogenous determination of trade policy. This paper investigates empirically the consequences of lobbying competition between upstream and downstream producers for US trade policy. The theoretical framework used is the well-known Grossman-Helpman model of trade policy determination suitably modified to account for the cross-sectoral use of inputs in production (the input-output matrix). Our empirical results, using US trade data, validate the predictions of the theoretical model with lobbying competition. Trade protection is found to be higher in industries with organized lobbies but lower when there are organized downstream users of the industry's output. Lobbying competition is additionally interesting as a candidate explanation for an empirical puzzle in the literature concerning the apparently nearly "welfare-maximizing" behavior of the US government in setting trade policy. Our estimates diminish the magnitude of the puzzle somewhat, but do not provide a full quantitative resolution of this question.
    JEL: D72 D78 F12 F13
    Date: 2005–05
  4. By: Vincent FRIGANT (E3i, IFReDE-GRES)
    Abstract: This paper analyzes the strategies of internationalization of the automotive First Tier Suppliers (FTS). The developments of the modular production in the car industry induce an evolution of the vertical relationships which explain, at the same time, the interest and the forms of the internationalization of the FTS. From this point of view, the paper seeks to explain the patterns of internationalization adopted by the FTS by proposing a grid of reading which try to identify proximity request according to complexity and exclusivity of the interfirms’ interactions. The argumentation is articulated around three parts. The first reconsiders the transformations induced by modularization. The second presents some stylized facts on the internationalization of the FTS. The third part presents the analytic grid and draws the implications on the internationalization of the firms.
    Keywords: Internationalization, Proximity, Vertical Relationships, Modularity, First Tier Suppliers, Automotive
    JEL: L2 F23 R3 L62
    Date: 2005
  5. By: Marc J. Melitz; Gianmarco I.P. Ottaviano
    Abstract: We develop a monopolistically competitive model of trade with firm heterogeneity - in terms of productivity differences - and endogenous differences in the `toughness' of competition across markets - in terms of the number and average productivity of competing firms. We analyze how these features vary across markets of different size that are not perfectly integrated through trade; we then study the effects of different trade liberalization policies. In our model, market size and trade affect the toughness of competition, which then feeds back into the selection of heterogeneous producers and exporters in that market. Aggregate productivity and average markups thus respond to both the size of a market and the extent of its integration through trade (larger, more integrated markets exhibit higher productivity and lower markups). Our model remains highly tractable, even when extended to a general framework with multiple asymmetric countries integrated to different extents through asymmetric trade costs. We believe this provides a useful modeling framework that is particularly well suited to the analysis of trade and regional integration policy scenarios in an environment with heterogeneous firms and endogenous markups.
    JEL: F12 R13
    Date: 2005–06
  6. By: Kwanho Shin (Korea Development Institute); Yunjong Wang (Korea Institute of International Economic Policy)
    Abstract: In this paper, we empirically analyze how increased exchange rate volatility influences the volume of trade between Japan and Korea and between these two countries and the United States. Out results strongly suggest that the increased exchange rate volatility is negatively related to the trade volume between Japan and Korea and the U.S., Japan and Korea. Despite the evidence that exchange rate stability promotes trade, the discussions on the Japan-Korea FTA are proceeding without emphasis on exchange rate coordination. While the EU integration process was fortified initially by exchange rate coordination and later by the introduction of a monetary union, NAFTA presents a contrasting case of pure trade integration without monetary cooperation. The crucial elements in EU that facilitated monetary cooperation were: a large trade share among involved countries and strong political will from member countries. As the Japan-Korea trade integration process, at least in isolation, lacks both elements, it is not likely that any explicit monetary or exchange rate coordination will naturally rise.
    Keywords: Japan-Korea trade integration, Exchange Rate Uncertainty, Free Trade Agreement
    JEL: F15 F31 F36 F41
    Date: 2003–10
  7. By: Chan-Hyun Sohn (Korea Institute for International Economic Policy); Hongshik Lee (Korea Institute for International Economic Policy)
    Abstract: What is the relationship between trade and economic growth? Due to the ambiguity of the relationship between trade and growth, the empirical relationship remains open. This paper introduces "trade structure" variables, borrowing from the structure-conduct-performance (SCP) paradigm of Industrial Organization literature, and applying them to the relationship. A dynamic panel estimation for the data of 66 countries during 1991-2001 is used to verify the validity and robustness of the relationship. Trade structure variables that represent Heckscher-Ohlin model and Product Differentiation model respectively show strong evidence of positive effects on growth. This paper concludes that trade structures, not trade, well explain growth.
    Keywords: Trade Structure, Growth, Dynamic panel, SCP paradigm
    JEL: F14 F43 L16
    Date: 2003–12
  8. By: Chan-Hyun Sohn (Korea Institute for International Economic Policy); Hyun-Hoon Lee (Kangwon National University)
    Abstract: In recent years a new regionalism has begun to emerge in East Asia. Korea is no exception. In side Korea, however, there are many arguments against opening its domestic market for the foreign competition resulting from a free trade agreement (FTA). The main reason behind the FTA would result in costly factor adjustment. It has been argued by many researchers that intra-industry trade generates smaller inter-industry factor adjustment than inter-industry trade, and hence intra-industry trade involves lower adjustment costs than inter-industry trade. The purpose of this paper is to understand the extents and the nature of Korea's intra-industry trade (IIT) and its dynamic version, so-called marginal intra-industry trade (MIIT), and is to help predict the relative degree of adjustment costs when Korea would have an FTS with different trading partners. For this purpose, the paper first calculates the weighted average of the unadjusted Grubel-Lloyd IIT indices for different trading partners, using the data at three-digit SITC for 1991 and 2001, and the weighted average of Brulhart's (1994) A indices between 1991 and 2001. This paper then evaluates the country characteristics that have effects on the extent of IIT and MIIT. Finally, the paper assesses the desirability of an FTA with different trading partners form the perspective of trade-induced adjustment costs.
    Keywords: Trade-induced adjustment costs, marginal intra-industry trade, partial adjustment model, Korea
    JEL: F12 F14
    Date: 2004–12
  9. By: Peter Drysadale (Australia-Japan Resarch Centre)
    Abstract: The need for deeper financial and trade cooperation in East Asia became clear through the experience of the East Asian financial crisis. The imperatives of East Asian cooperation mean that the quest for East Asian influence and leadership on regional and international affairs through ASEAN + 3 will continue. However, the creation of an East Asian Economic Community requires leadership and a model that is consistent with East Asian (not European or American) circumstances. Japan’s changing role in the regional economy prompted policy initiatives such as espousal of bilateral free trade agreements (FTAs) aimed at closer East Asian regional economic and political links. This fundamental shift in Japan’s trade policy diplomacy was effected without public debate in Japan and the reactions to it from partner countries, almost entirely unanticipated by Japanese policymakers, led to some confusion in policy strategy. Discriminatory regional trade arrangements do not reflect the needs and circumstances of the East Asian economy at the beginning of the twenty-first century, and specifically the need to accommodate the growth and opening of the Chinese economy within the regional and global economic systems. The proliferation of FTA arrangements, with increasingly complicated rules of origin, is more likely to distort and derail rather than to encourage broader and deeper economic integration. The objectives of ‘closer economic partnership’ arrangements are better served by nondiscriminatory trade agreements than by distorting and limited bilateral FTAs. Many of the features of the East Asian economy have not fundamentally changed. It continues to be distinguished by its extra-regional trade and economic reach. Large flows of FDI, particularly into China, cement economic interaction with the global economy. Both economic and political considerations have influenced thinking among the Chinese leadership about the change in trade policy strategy. The sensible and rational choice for China is a global choice, the acceptance and entrenchment of global obligations and responsibilities in a multilateral ‘pluralist’ setting.
    Keywords: East Asia, ASEAN, free trade agreements, FTA, FDI, China
    JEL: R12 P45 O19 F14 F15
    Date: 2005–01
  10. By: Feng Lu (China Center for Economic Research)
    Abstract: Recent years witness a strong up-surging Free Trade Area (FTA) movement in East Asia. The events signal a sharp departure from the region's traditional development model of "regionalization with regionalism" and may have important implications for its future growth pattern and regional alignments of the global economy. The paper investigates various aspects of the subject. It examines the background and causes of the new movement, reviews the literature on assessment of FTA's impact and discusses potential agenda and evolving path of the East Asian FTA drive.
    Keywords: East Asia, Free Trade Area, FTA, regionalization
    JEL: F13 F14 F15
    Date: 2003–10
  11. By: Roxana Julia (Department of Economics, Rensselaer Polytechnic Institute,1403 Park Boulevard, Troy, NY, 12180,USA); Faye Duchin (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA)
    Abstract: This paper evaluates the role of trade as mechanism of economic adjustment to the impacts of climate change on agriculture. The study uses a model of the world economy able to reflect changes in comparative advantage; the model is used to test the hypotheses that trade can assure that, first, satisfying global agricultural demand will not be jeopardized, and, second, general access to food will not decrease. The hypotheses are tested for three alternative scenarios of climate change; under each scenario, regions adjust to the climatic assumptions by changing the land areas devoted to agriculture and the mix of agricultural goods produced, two of the major mechanisms of agricultural adaptation. We find that trade makes it possible to satisfy the world demand for agricultural goods under the changed physical conditions. However, access to food decreases in some regions of the world. Other patterns also emerge that indicate areas of concern in relying on trade as a mechanism for the adjustment of agriculture to likely future changes in climate.
    JEL: Q54 Q17 C61
    Date: 2005–05
  12. By: Hadi Soesastro (Centre for Strategic and International Studies, Jakarta, Indonesia)
    Abstract: This essay examines the question of whether Canada should also form an FTA with ASEAN. The first section will provide an update on the status of the various FTA agreements that ASEAN has signed since 2002. This will be followed by an examination of these FTA agreements in relation to the ASEAN Community project and the proposal to form an East Asian Free Trade Area (EAFTA). The concluding section briefly discusses the implications for Canada and other major trading partners as well as for APEC and trans-Pacific relations in general, and suggests ways to improve Canada's diplomatic and commercial relations with ASEAN.
    Keywords: ASEAN, Canada, free trade arrangement (FTA)
    JEL: F15
    Date: 2005–02
  13. By: Hadi Soesastro (Centre for Strategic and International Studies, Jakarta, Indonesia)
    Abstract: This paper examines the developments of three separate FTAs between ASEAN and the +3 countries. It is still unclear how these separate FTAs will be amalgamated into an EAFTA, and whether that can happen before 2020. This paper argues that much will depend on the pace of ASEAN's own economic integration. The likely alternative is that China will become the main driver of the process.
    Keywords: East Asia, ASEAN, ASEAN+3, free trade agreement
    JEL: F15
    Date: 2005–02
  14. By: Hadi Soesastro (Centre for Strategic and International Studies, Jakarta, Indonesia)
    Abstract: Progress and realisation of the ASEAN Economic Community (AEC) can only be achieved if there is a clear blueprint, which identifies the end goal, the process to reach the end goal and a framework for proper assessment of the costs and benefits of an ASEAN Economic Community. AEC should not be based on the AFTA in which an agreement was reached first and the details negotiated afterwards earning it the nickname of "Agree First Talk After". A "new ASEAN way" will have to be developed and accepted as the rule of the game before the AEC has any serious chance of fulfilling the role of making ASEAN more competitive and attractive for world business.
    Keywords: ASEAN Economic Community (AEC), regional integration, economic cooperation
    JEL: F15
    Date: 2005–03
  15. By: Hadi Soesastro (Centre for Strategic and International Studies, Jakarta, Indonesia); M. Chatib Basri (Institute for Economic and Social Research, Faculty of Economics-University of Indonesia, Jakarta, Indonesia)
    Abstract: This paper focuses on Indonesia's trade policies after the economic crisis. It examines the trend towards protection and addresses the issues of competitiveness. The concluding part briefly discusses Indonesia's policies on and involvement in free trade agreements (FTAs), which have recently proliferated in the Asia Pacific region.
    Keywords: Indonesia, political economy, trade policy, economic crisis, free trade agreement
    JEL: F13 F14
    Date: 2005–03
  16. By: Taiji Harashima (University of Tsukuba & Cabinet Office of Japan)
    Abstract: Strategies for trade liberalization in developing countries when time preference rates are heterogeneous across countries are examined in an endogenous growth model. The paper concludes that the best strategy for a developing country with the higher rate of time preference is generally the strategy of free trade with yielding market power if the country is large enough to yield market power, because all the optimality conditions are satisfied and markets are not distorted. By this strategy, the country generally accumulates current account surpluses, which implies a possibility that China implicitly have taken this strategy.
    Keywords: Trade Liberalization; The rate of time preference; Heterogeneity; Trade deficits; China
    JEL: F10 F21 F43
    Date: 2005–05–31
  17. By: Juliette Milgram (Department of Economic Theory and Economic History, University of Granada); Ana Moro-Egido (Department of Economic Theory and Economic History, University of Granada)
    Abstract: In this paper, we investigate the nature of Spanish intra-industry trade and find that intra-industry trade with CEEC, Asian and Mediterranean countries has increased considerably since the middle of the Nineties. The second aim of the paper is to study if the comparative advantage argument also explains vertical intra-.industry trade between different income countries. According to OLS estimations, technological differences do increase DVIIT while physical capital differences decreases it. Results obtained applying Heckman method support the idea that differences in physical capital reduce the probability of IIT to occur but the level of vertical and horizontal IIT is better explained by the proximity of partners, the similarity in development level and size of market than by differences in physical capital endowments. The variables considered, mostly country-specific do have the same impact on vertical and horizontal IIT with emergent countries.
    JEL: F13 F17
    Date: 2005–06–01
  18. By: Nguyen Trung Kien (Osaka School of International Public Policy (OSIPP), Osaka University); Yoshizo Hashimoto (Osaka School of International Public Policy (OSIPP), Osaka University)
    Abstract: This paper is an attempt to use the Hausman-Taylor (HT) estimation to examine the determinants of trade flows of Asean Free Trade Area (AFTA). Based on the two-way error component form of the gravity model, we employ the HT technique to estimate export flows by a country panel data of 39 countries for the period 1988-2002. The estimations have shown the following important results. Firstly, export flows among two countries increase more proportionately with GDPs. More interestingly, trade is higher between countries of identical preferences than those of different ones. Secondly, the most crucial result is that AFTA has only produced the trade creation among its members. Finally, this study suggests the importance of trade facilitation policy to support the targets of FTA.
    Keywords: AFTA, gravity models, panel data, trade.
    JEL: F1 F15 C23
    Date: 2005–05

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