nep-int New Economics Papers
on International Trade
Issue of 2005‒07‒03
thirteen papers chosen by
Martin Berka
University of British Columbia

  1. Real Exchange Rate and Consumption Fluctuations following Trade Liberalization By Jönsson, Kristian
  2. Trade Deficits in the Baltic States: How Long Will the Party Last? By Bems, Rudolfs; Jönsson, Kristian
  3. Production and Gains from Trade By Lisa R. Anderson; Emily Blanchard; Kelly Chaston; Charles Holt; Laura Razzolini; Robert Singleton
  4. Welfare Effects of Tariff Reduction Formulas By Jan Guldager Jorgensen; Philipp J.H. Schröder
  5. Migration, Trade and Wages By Alexander Hijzen; Peter Wright
  6. Trade Liberalisation, Growth and Poverty in Senegal: a Dynamic Microsimulation CGE Model Analysis By Nabil Annabi; Fatou Cisse; John Cockburn; Bernard Decaluwe
  7. Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States By Wolfgang Keller; Stephen R. Yeaple
  8. Learning on the Quick and Cheap: Gains from Trade through Imported Expertise By James R. Markusen; Thomas F. Rutherford
  9. Computable General Equilibrium Micro-Simulation Analysis of the Impact of Trade Policies on Poverty in Zimbabwe By Margaret Chitiga; Tonia Kandiero; Ramos Mabugu
  10. Developing Country Superwomen: Impacts of Trade Liberalisation on Female Market and Domestic Work By Ismaël Fofana; John Cockburn; Bernard Decaluwé
  11. Implications of WTO Agreements and Domestic Trade Policy Reforms for Poverty in Bangladesh: Short vs. Long Run By Nabil Annabi; H. Khondker Bazlul; Selim Raihan; John Cockburn; Bernard Decaluwe
  12. Trading up By Orden, David; Lofgren, Hans; Gabre-Madhin, Eleni Z.
  13. Doha Scenarios, Trade Reforms, and Poverty inthe Philippines: a CGE Analysis By Caesar B. Cororaton; John Cockburn; Erwin Corong

  1. By: Jönsson, Kristian (Research Department, Central Bank of Sweden)
    Abstract: Two-sector models with traded and non-traded goods have problems accounting for the stylized fact that the real exchange rate appreciates and consumption booms for several years following trade liberalization, or exchange-rate-based stabilization programs, in small open economies. The paper studies three potential solutions to this ‘price-consumption puzzle’ and evaluates their quantitative importance in calibrated simulations of Spain’s accession to the European Community in 1986. Extending the standard two-sector framework, the paper investigates the effects of relative productivity growth in the traded sector along the lines of Balassa-Samuelson, of time-to-build, and of habit formation in preferences. In contrast to previous studies, we find that habit formation on its own does not enable the model to account for the observed real exchange rate and consumption dynamics. The analysis shows that a calibrated version of the model augmented with all three mechanisms can account for much of the price-consumption dynamics after trade liberalization, without losing explanatory power for other real variables in the Spanish economy after 1986.
    Keywords: Non-traded goods; Balassa-Samuelsson; Time-to-build; Habit formation; Dynamic general equilibrium
    JEL: C68 F41
    Date: 2005–07–01
  2. By: Bems, Rudolfs (Stockholm School of Economics); Jönsson, Kristian (Research Department, Central Bank of Sweden)
    Abstract: Since their opening up to international capital markets, the economies of Estonia, Latvia and Lithuania have experienced large and persistent capital inflows and trade deficits. This paper investigates whether a calibrated two-sector neoclassical growth model can explain the magnitudes and the timing of the trade flows in the Baltic countries. The model is calibrated for each of the three countries, which we simulate as small closed economies that suddenly open up to international trade and capital flows. The results show that the model can account for the observed magnitudes of the trade deficits in the 1995-2001 period. Introducing a real interest rate risk premium in the model increases its explanatory power. The model indicates that trade balances will turn positive in the Baltic states around 2010.
    Keywords: Baltic states; international factor movements; non-traded goods; adjustment costs; dynamic general equilibrium
    JEL: C68 F41
    Date: 2005–06–01
  3. By: Lisa R. Anderson (Department of Economics, College of William and Mary); Emily Blanchard (Department of Economics, University of Virginia); Kelly Chaston (Department of Economics, Davidson College); Charles Holt (Department of Economics, University of Virginia); Laura Razzolini (Department of Economics, Virginia Commonwealth University); Robert Singleton (Department of Economics, Loyola Marymount University)
    Abstract: This paper describes a classroom game in which students make production and trade decisions. Each student represents a country and decides how much of two goods to produce, how much to exchange with a partner country, and whether to specialize in the production of one of the two goods. In introductory level classes, the game helps students understand the notion of comparative advantage in production and distinguish between gains from pure exchange and gains from specialization and trade. Class discussion focuses on the concepts of production possibility frontier, marginal productivity of inputs, and on the determination of the price ratio at which trade may occur. In advanced classes, the exercise facilitates comparisons among different models of international trade and serves as a platform from which to introduce and discuss key issues in current research and public debate.
    Keywords: Classroom Experiment, International Trade, Comparative Advantage, Production Possibility Frontier, Price Ratio
    JEL: F10 A22
    Date: 2005–05–11
  4. By: Jan Guldager Jorgensen (University of Southern Denmark); Philipp J.H. Schröder (Aarhus School of Business)
    Abstract: WTO negotiations rely on tariff reduction formulas. It has been argued that formula approaches are of increasing importance in trade talks, because of the large number of countries involved, the wider dispersion in initial tariffs (e.g. tariff peaks) and gaps between bound and applied tariff rates. This paper resents a two country intra-industry trade model with heterogeneous firms subject to high and low tariffs. We examine the welfare effects of applying three different tariff reduction formulas proposed in the literature i) a proportional cut, ii) the Swiss formula and iii) a compression formula. No single formula dominates for all conditions. The ranking of the three tools depends on the degree of product differentiation in the industry, and the achieved reduction in the average tariff.
    Keywords: Welfare, monopolistic competition, intra-industry trade, wto trade liberalization, formula approaches
    JEL: F12 F13 F15
    Date: 2005–06–30
  5. By: Alexander Hijzen; Peter Wright
    Abstract: This study adopts a GNP function approach in order to examine the impact of migrant labour on domestic factors of production in the United Kingdom during the period 1975-1996. We also examine the relationship between imports and migrants, which are two different facets of globalisation. We find that an increase in the number of unskilled migrants reduces the wages of unskilled domestic workers. However the quantitative impact of this increase is small. No discernible impact of migration is found for skilled native workers. The results also suggest that unskilled migrant workers and imports are substitutes in production, whilst skilled migrant workers and imports are complements.
    Keywords: Immigration; international trade; wage inequality; globalization; factor markets; labor market
    JEL: C31 D33 F11 F16 F22
    Date: 2005–05
  6. By: Nabil Annabi; Fatou Cisse; John Cockburn; Bernard Decaluwe
    Abstract: An integrated sequential dynamic computable general equilibrium model is used to study the potential poverty and inequality effects of a complete tariff removal in Senegal. The model is calibrated with a 1996 social accounting matrix and a 1995 survey of 3278 households. The outcomes indicate small short run negative impacts in terms of welfare and poverty. In the long run, growth effects captured by the model bring an expansion of the industrial and services sectors and substantial poverty decreases. However, the decomposition of the results shows that the contribution of the redistribution component to poverty alleviation is negative.
    Keywords: Dynamic CGE model; trade liberalisation; poverty; inequality; Senegal; market access; CGEM
    JEL: D33 D58 E27 F17 I32 O15 O55
    Date: 2005–05
  7. By: Wolfgang Keller; Stephen R. Yeaple
    Abstract: We estimate international technology spillovers to U.S. manufacturing firms via imports and foreign direct investment (FDI) between the years of 1987 and 1996. In contrast to earlier work, our results suggest that FDI leads to substantial productivity gains for domestic firms. The size of FDI spillovers is economically important, accounting for about 11% of productivity growth in U.S. firms between 1987 and 1996. In addition, there is some evidence for imports-related spillovers, but it is weaker than for FDI. The paper also gives a detailed account of why our study leads to results different from those found in previous work. This analysis indicates that our results are likely to generalize to other countries and periods.
    Date: 2005–05
  8. By: James R. 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.
    Keywords: learning, transmission mechanism, multinationals, imported experetise
    JEL: F13 F23
    Date: 2005–05
  9. By: Margaret Chitiga; Tonia Kandiero; Ramos Mabugu
    Abstract: The paper uses a micro-simulation computable general equilibrium (CGE) model to study the impact on poverty of trade liberalisation in Zimbabwe. The model incorporates 14006 households derived from the 1995 Poverty Assessment Study Survey (PASS). The novelty of this paper is that it is one among a small group of papers that incorporates individual households in the CGE model as opposed to having representative households, allowing for a comprehensive analysis of poverty. The complete removal of tariffs favours export-oriented sectors and all imports increase. Poverty falls in the economy while inequality hardly changes. The results differ between rural and urban areas.
    Keywords: Computable General Equilibrium, Trade Liberalisation, Micro-simulation, Poverty, Inequality
    JEL: C68 D31 D58 I32
    Date: 2005
  10. By: Ismaël Fofana; John Cockburn; Bernard Decaluwé
    Abstract: This study analyses the effects of trade liberalisation on male and female work in Nepal. Our contribution is principally based upon the leisure activities modeling on one hand, and the effects of male participation in domestic work with trade policy analysis on the other hand. While previous studies explicitly incorporate leisure activities that required data about which little is known, we use a microeconomic model and alternative calibration procedures to avoid arbitrariness. The experiment conducted in this study shows that the complete elimination of tariffs on imported goods in Nepal benefits women more than men in terms of earnings as their wage increases relatively to men. Generally, female market work expands in rural households and contracts in urban households. It appears that the entrance into market production has not been met with an equivalent reduction in the time they spend in domestic work. Consequently the leisure time of women declines as they enter the labor market. Furthermore, the study indicates that leisure time consumed by men, which is already greater than that consumed by women, increases with trade reform. The extend of male participation in domestic work significantly conditions the impacts on male and female wage rates and household labor supply decisions. When male participation in domestic work activities is low, women generally devote less time to market labor. However, their contribution to household income strill increases following trade reform as their wage rates rise relative to male market wage rates. Women are more responsive to the market when there is greatest scope to substitute between female domestic and market work, as occurs when men are more involved in domestic work. However, even in these cases their domestic work does not necessarily decrease in the same proportion.
    Keywords: Nepal, trade, gender, leisure, home production, and computable general equilibrium
    JEL: C68 F14 F17 J16
    Date: 2005
  11. By: Nabil Annabi; H. Khondker Bazlul; Selim Raihan; John Cockburn; Bernard Decaluwe
    Abstract: We examine the impacts of WTO agreements and domestic trade policy reforms on production, welfare and poverty in Bangladesh. A sequential dynamic computable general equilibrium (CGE) model, which takes into account accumulation effects, is used allowing for long run analysis. The study is based on 2000 SAM of Bangladesh including fifteen production sectors, four factors of production (skilled and unskilled labour, agricultural and non-agricultural capital) and mine household groups (five in rural areas and four in urban areas) based on the year 2000 household survey. To examine the link between the macro effects and micro effects in terms of poverty we use the representative household approach with actual intra-group income distributions. The study presents five simulations for which the major findings are: (1) the Doha scenario has negative implications for the overall macro economy, household welfare and poverty in Bangladesh. Terms of trade deteriorate and consumer prices, particularly food prices, increase more than nominal incomes, especially among poor households; (2) Free world trade has similar, but larger, impacts; (3) Domestic trade liberalisation induces an expansion of agricultural and light manufacturing sectors, favourable changes in the domestic terms of trade. Although the short run welfare and poverty impacts are negative, these turn positive in the long run when capital has adjusted through new investments. Rising unskilled wage rates make the poorest household the biggest winners in terms of welfare and poverty reduction; (4) Domestic liberalisation effects far outweigh those of free world trade when these scenarios are combined; (5) Remittances constitute a powerful poverty-reducing tool given their greater importance in the income of the poor.
    Keywords: Dynamic CGE model, International trade, Poverty, Bangladesh
    JEL: D33 D58 E27 F17 I32 O15 O53
    Date: 2005
  12. By: Orden, David; Lofgren, Hans; Gabre-Madhin, Eleni Z.
    Abstract: "Wealthy countries' agricultural subsidies have also created unfair competition. African farmers not only have limited access to rich-country agricultural markets, but they also face unfair competition in their own domestic markets from subsidized imports of food staples. New challenges come from dramatically changed marketing chains that require African farmers to compete in markets that are more demanding in terms of product quality and food safety. What can be done to enhance market opportunities so that agriculture can become a more powerful engine of growth for the continent? Which markets and which products offer the greatest potential for raising incomes and food consumption? This brief addresses these questions and suggests policies that could help enlarge markets for African farmers." from Text
    Date: 2004
  13. By: Caesar B. Cororaton; John Cockburn; Erwin Corong
    Abstract: Since the early 1980s, the Philippines have undertaken substantial trade reform. The current Doha round of WTO negotiations is now likely to bring further reform and shocks to world import and export prices and world export demand. The impact of all these developments on the poor is not very clear and is the subject of very intense debate. A detailed economy-wide CGE model is used to run a series of policy experiments. Poverty is found to increase slightly with the implementation of the Doha scenario. These effects are focused primarily among rural households in the wake of falling world prices and demand for Philippines agricultural exports. The impacts of full liberalization involving free world trade and complete domestic liberalization are found to depend strongly on the mechanism the government adopts to offset forgone tariff revenue. If an indirect tax is used, the incidence of poverty falls marginally, but the depth (poverty gap) and severity (squared poverty gap) increase substantially. If, instead, an income tax is used, all measures of poverty increase. In both cases, full liberalization favors urban households, as exports, which are primarily non-agricultural, expand. In separate simulations, we discover that free world trade is poverty reducing and favors rural households, whereas domestic liberalization is poverty-increasing and favors urban households. Under free world trade, rural households benefit from increasing world agricultural export prices and demand. The anti-rural bias of domestic liberalization stems from the fact that import prices fall more for agricultural goods than for industrial goods, as initial import-weighted average tariffs rates are higher for the former. In conclusion, the current Doha agreement appears likely to slightly increase poverty, especially in rural areas and among the unemployed, self-employed and rural low-educated. The Philippines is found to have an interest in pushing for more ambitious world trade liberalization, as free world trade holds out promise for reducing poverty.
    Keywords: Computable General Equilibrium, Microsimulation, Poverty, International Trade, Philippines
    JEL: D33 D58 E27 F13 F14 I32 O15 O53
    Date: 2005

This nep-int issue is ©2005 by Martin Berka. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.