nep-int New Economics Papers
on International Trade
Issue of 2005‒06‒27
six papers chosen by
Martin Berka
University of British Columbia

  1. International Outsourcing and Incomplete Contracts By Barbara J. Spencer
  2. Globalization, the volatility of intermediate goods prices and economic growth By Thomas M. Steger; Lucas Bretschger
  3. Sustaining Imperfectly Credible Trade Liberalization: Do the Rate of Tariff Reduction and the Degree of Labor Mobility Matter? By Robert C. Tatum
  4. Determinant Factors of FDI Spillovers – What Do We Really Know? By Nuno Crespo; Maria Paula Fontoura
  5. US, Europe and the developing world: transatlantic challenges for world integration. By Fabrizio Onida
  6. The benefits of liberalising product markets and reducing barriers to international trade and investment: the case of the United States and the European Union By OECD Economics Department

  1. By: Barbara J. Spencer
    Abstract: International outsourcing to lower cost countries such as China and India can best be understood through the enrichment of trade models to include concepts from industrial organization and contract theory that explain the vertical organization of production. The combination of trade with the choice of organizational form represents an important new area for both theoretical and empirical research. This survey paper provides a perspective on this new literature so as to gain insights into the forces driving international outsourcing. The paper focuses on relationship-specific investment, incomplete contracts, and also search and matching, as fundamental concepts that explain outsourcing decisions.
    JEL: F1 L14
    Date: 2005–06
  2. By: Thomas M. Steger (Institute of Economic Research (WIF), Swiss Federal Institute of Technology Zurich (ETH)); Lucas Bretschger (Institute of Economic Research (WIF), Swiss Federal Institute of Technology Zurich (ETH))
    Abstract: We set up a dynamic stochastic model of a stylized economy comprising a final output sector (with traditional and modern firms) and an intermediate goods sector. It is shown that market integration reduces the volatility of the rate of return of capital invested in modern firms. The induced portfolio decision of households then leads to reallocation of capital from traditional to modern firms. Despite the presence of a reverse precautionary saving channel, the growth rate unambiguously increases due to the reallocation of capital. Empirical estimates for OECD countries confirm the theoretical results
    Keywords: globalization, trade in intermediate goods, portfolio decisions, economic growth
    JEL: F1 O4
    Date: 2005–05
  3. By: Robert C. Tatum (University of North Carolina - Asheville)
    Abstract: Imperfectly credible trade liberalization can lead to balance of payment deterioration and a subsequent reversal of the reform. Therefore, this paper examines whether the likelihood of policy reversal depends on the rate of tariff reduction or the degree of labor mobility. The analysis shows that transitory unemployment increases the likelihood of policy reversal. Furthermore, a gradual reduction in the tariff rate is found to extend the life of the liberalization episode, but does not necessarily increase the likelihood of sustained liberalization.
    Keywords: Trade Liberalization; Credibility; Gradual reform; Transitory Unemployment; Balance of Payments
    JEL: F4
    Date: 2005–06–15
  4. By: Nuno Crespo; Maria Paula Fontoura
    Abstract: Empirical evidence about FDI spillovers to domestic firms has provided mixed results. This global evaluation has recently been complemented with the analysis of the factors that determine the existence, dimension and sign of FDI spillovers. We survey the arguments that support these factors and analyze the empirical evidence already produced. FDI spillovers depend on many factors, frequently with an indeterminate effect. Absorptive capacity of domestic firms and regions are a precondition for incorporating the benefits of FDI spillovers. Concerning the remaining factors, the results suggest opposite effects or, in some cases, are still insufficient to legitimate decisive conclusions.
    Keywords: productivity; spillovers; FDI; determinant factors.
    JEL: O12 F23
  5. By: Fabrizio Onida (CESPRI, Università Bocconi, Milano)
    Abstract: For more than a decade Europe has been lagging behind the US in growth of aggregate GDP, per capita GDP, productivity, employment, as well as in demographic selection of new firms and in the design of market-friendly regulations. While an increasing trade agglomeration around large "regional" areas (NAFTA, Asia-Pacific, Europe) has taken place in the last decades, the US has become the primary external market outlet for many partners, including Western Europe. Moreover, trends in stocks and flows of foreign direct investment, while reflecting the increasing share of developing Asia and (to a lesser extent) of Central-Eastern Europe as countries of destination, do reveal a persistent solid Transatlantic interdependence through multinational production. An accelerating world integration of low-wages/highly productive emerging economies raises in US and Europe mounting fears of "excessive competition", massive net job destruction, downward spiral in domestic wages. While most empirical evidence points to positive "trade multiplier effects" from integration of newly industrializing economies in world economic development, national governments and international institutions are under pressure to provide effective "trade adjustment" policy measures, mainly aimed at restructuring declining activities, re-training manpower, improving infrastructures for labour mobility, favouring more technology generation and diffusion. Europe is seriously lagging under this respect. After the failure of Cancùn, both US and Europe share a big responsibility in providing new impetus to the ailing Doha Development Round. Under the pressure of the newly formed G-20, but also of the mounting tensions on the world political scenario (Islamic terrorism, Palestine, Middle East), both sides of the Atlantic seem aware of the great stakes and in search of new negotiating moves.
    Keywords: Europe; Transatlantic; Integration
    JEL: F14 F15 F23
    Date: 2005–05
  6. By: OECD Economics Department
    Abstract: This paper provides an assessment of the impact of a package of structural reforms in the European Union and the United States on long-run trade and output gains accruing to OECD countries. The package includes reforms that reduce competition-restraining regulations, cut tariff barriers and ease restrictions on foreign direct investment to "best practice" levels in the OECD area. The analysis, which is based on earlier OECD studies, indicates that such reforms could lead to gains in GDP per capita in both transatlantic areas of up to 3 to 3 ½ per cent. Moreover, due to trade linkages, the benefits of reforms in the United States and the European Union would spread to other OECD countries, with an estimated increase in GDP per capita of up to 1½ per cent. As the analysis is confined to a relatively narrow set of policies and abstracts from potential dynamic effects from reform-induced increase in innovation, the overall gains from broad reforms could be significantly higher than reported in the paper. <p> Les bénéfices de la libéralisation des marchés de produits et de la réduction des barrières aux échanges et aux investissements internationaux: le cas des Etats-Unis et de l'Union européenne <p> Ce document offre une évaluation des réformes globales structurelles en Europe et aux États-Unis sur les échanges et la croissance de long terme dans les pays de l'OCDE. Ces réformes incluent l'ensemble des mesures politiques visant la réduction de la réglementation anti-compétitive, la baisse des barrières tarifaires et des restrictions sur les investissements directs étrangers vers les "meilleures pratiques" observées au sein des pays de l'OCDE. L'analyse, qui s'appuie sur de précédents travaux de l'OCDE, montre que de telles réformes peuvent conduire à une augmentation du PIB par habitant entre 3 et 3½ pour cent. De plus, en raison d'effets de transmission via les échanges, le bénéfice des réformes en Europe et aux États-Unis devrait se répandre à l'ensemble des autres pays de l'OCDE conduisant à une augmentation du PIB moyen par habitant de plus de 1½ pour cent. Étant donné que l'analyse ne couvre qu'un nombre de mesures spécifiques et exclut les effets dynamiques potentiels de l'innovation, les bénéfices tirés d'un ensemble de réformes beaucoup plus large pourraient bien être plus élevés que ceux reportés dans ce document.
    Keywords: international trade; foreign direct investment; regulation; growth and productivity;United States; European Union
    JEL: F13 F21 K2 O4
    Date: 2005–06–07

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