nep-int New Economics Papers
on International Trade
Issue of 2005‒08‒13
forty-four papers chosen by
Martin Berka
Massey University

  1. Doha Merchandise Trade Reform: What’s at Stake for Developing Countries? By Anderson, Kym; Martin, Will; van der Mensbrugghe, Dominique
  2. Preferential Trade Arrangements and the Pattern of Production and Trade when Inputs are Differentiated By Francois, Joseph
  3. Preference Erosion and Multilateral Trade Liberalization By Francois, Joseph; Hoekman, Bernard; Manchin, Miriam
  4. Market Structure in Services and Market Access in Goods By Francois, Joseph; Wooton, Ian
  5. Trade Liberalization in a Joint Spatial Inter-Temporal Trade Model By Hui Huang; John Whalley; Shunming Zhang
  6. Services trade within Canada and the European Union. What do they have in common? By Arjan Lejour; J.W. de Paiva Verheijden
  7. The WTO Promotes Trade, Strongly But Unevenly By Subramanian, Arvind; Wei, Shang-Jin
  8. Trade Cost, Trade Policy and Trade Volume: A Study of Indian Apple Market By Deodhar Satish Y
  9. Trade Costs, Trade Balances and Current Accounts: An Application of Gravity to Multilateral Trade By Fazio, Giorgio; MacDonald, Ronald; Mélitz, Jacques
  10. BRICSAM and the Non-WTO By Agata Antkiewicz; John Whalley
  11. Trade and the Distribution of Human Capital By Spiros Bougheas; Raymond Riezman
  12. Trade and Foreign Exchange Liberalization, Investment Climate and FDI in the MENA By Khalid Sekkat; Marie-Ange Veganzones-Varoudakis
  13. Globalization, Increasing Returns in Component Production, and the Pattern of Trade By Anu Kovarikova Arro
  14. Intra-European Trade of Manufacturing Goods : An extension of the Gravity Model By Marc, VANCAUTEREN; Daniel, WEISERBS
  15. Trade and Development in a Labor Surplus Economy By Edward B. Barbier; Michael Rauscher
  16. Does External Trade Promote Financial Development? By Huang, Yongfu; Temple, Jonathan
  17. A Trade Model with an Optimal Exchange Rate Motivated by Current Discussion of a Chinese Renminbi Float By Hui Huang; Yi Wang; Yiming Wang; John Whalley; Shunming Zhang
  18. Who is against Free Migration? Lobbying, the Non-traded Sector and the Choice between the Customs Union and the Common Market By Cyrille Schwellnus
  19. Costly Revenue-Raising and the Case for Favoring Import-Competing Industries By Xenia Matschke
  20. Understanding the Dynamic Effects of Government Spending on Foreign Trade By Gernot J. Mueller
  21. Globalization and Domestic Conflict By Michelle R. Garfinkel; Stergios Skaperdas; Constantinos Syropoulos
  22. Trade Liberalization, Intermediate Inputs and Productivity: Evidence from Indonesia By Amiti, Mary; Konings, Jozef
  23. Globalization and Domestic Conflict By Michelle R. Garfinkel; Stergios Skaperdas; Constantinos Syropoulos
  24. North, South and Distance in the Gravity Model By Mélitz, Jacques
  25. Promotion of Trade and Investments between China and India: The Case of Southwest China and East and Northeast India By Biswanath Bhattacharyay; Prabir De
  26. Trade rules for uncleared markets By Özgür Kýbrýs; Serkan Küçükþenel
  27. The Gender Pay Gap and Trade Liberalisation: Evidence for India By Barry Reilly; Puja Vasudeva Dutta
  28. Factor Price Equality and the Economies of the United States By Bernard, Andrew; Redding, Stephen; Schott, Peter
  29. Pitfalls in the Use of Ad valorem Equivalent Representations of the Trade Impacts of Domestic Policies By John Whalley
  30. Vertical production and trade independence and welfare By Kevin X.D. Huang; Zheng Liu
  31. Why Parallel Trade may Raise Producers Profits By Horst Raff; Nicolas Schmitt
  32. Potential Welfare Losses from Financial Autarky and Trade Sanctions By Alexis Anagnostopoulos
  33. How Market Imperfections and Trade Barriers Shape Specialisation: South-America vs. OECD By Joaquim Oliveira-Martins; Tristan Price
  34. Globalization, Cross-Border Pollution and Welfare By Panos Hatzipanayotou; Sajal Lahiri; Michael S. Michael
  35. Changes in Infrastructure and Tariff Barriers: Local Vs. Global Impacts By Behrens, Kristian; Lamorgese, Andrea; Ottaviano, Gianmarco I P; Tabuchi, Takatoshi
  36. A Test of Trade Theories when Expenditure is Home Biased By Brülhart, Marius; Trionfetti, Federico
  37. North-South Trades and Growth Miracles By Seung Mo Choi
  38. Immigration and Outsourcing: A General Equilibrium Analysis By Subhayu Bandyopadhyay; Howard J. Wall
  39. Globalization, Factor Endowments,and Scale-Invariant Growth By Elias Dinopoulos; Constantinos Syropoulos
  40. Product Market Competition and Economic Performance in Korea By Yongchun Baek; Randall Jones; Michael Wise
  41. Endowment Versus Finance: A Wooden Barrel Theory of International Trade By Ju, Jiandong; Wei, Shang-Jin
  42. Making Sense of Bolkestein-Bashing: Trade Liberalization Under Segmented Labour Markets By Saint-Paul, Gilles
  43. Tradable Emission Permits in a Federal System By Harrie A. A Verbon; Cees A. Withagen
  44. Imports and Productivity By Halpern, László; Koren, Miklós; Szeidl, Adam

  1. By: Anderson, Kym; Martin, Will; van der Mensbrugghe, Dominique
    Abstract: This paper provides new estimates of the global gains from multilateral trade reform and their distribution among developing countries in the presence of trade preferences. Particular attention is given to agriculture, as farmers constitute the poorest households in developing countries but the most assisted in rich countries. The latest GTAP database (Version 6.05) and the World Bank’s LINKAGE model of the global economy are employed to examine the impact first of current merchandise trade barriers and agricultural subsidies, and then of possible reform outcomes from the WTO’s Doha Development Agenda. The results suggest moving to free global merchandise trade would boost real incomes in Sub-Saharan Africa proportionately more than in other developing countries or high-income countries, despite a terms of trade loss in parts of that region. Net farm incomes would all rise substantially in that and other developing country regions, thereby alleviating rural poverty. A Doha partial liberalization could move the world some way towards those desirable outcomes, but more so the more developing countries themselves cut applied tariffs, particularly on agricultural imports.
    Keywords: computable general equilibrium; developing countries; multilateral negotiations; trade policy reform; WTO
    JEL: C68 D58 F13 F17 Q17
    Date: 2005–07
  2. By: Francois, Joseph
    Abstract: This paper is concerned with rules of origin when intermediate goods are differentiated. An analytical model emphasizes trade patterns and the relative importance of trade in intermediates given trade preferences. Econometric evidence based on intra-OECD trade in motor vehicles and motor vehicle parts points to a systematic impact of trade costs and FTA membership, following from rules of origin and reduction in border measures, on the role of intermediates and their relative importance in production and trade. These results are consistent with a conceptual framework involving rules-base trade costs and two-way trade in differentiated intermediate goods and final goods.
    Keywords: industry location; rules of origin; trade in intermediates; trading costs
    JEL: F13 F15
    Date: 2005–07
  3. By: Francois, Joseph; Hoekman, Bernard; Manchin, Miriam
    Abstract: Because of concern that OECD tariff reductions will translate into worsening export performance for the least developed countries, trade preferences have proven a stumbling block to developing country support for multilateral liberalization. We examine the actual scope for preference erosion, including an econometric assessment of the actual utilization, and also the scope for erosion estimated by modeling full elimination of OECD tariffs and hence full MFN liberalization-based preference erosion. Preferences are underutilized due to administrative burden — estimated to be at least 4% on average — reducing the magnitude of erosion costs significantly. For those products where preferences are used (are of value), the primary negative impact follows from erosion of EU preferences. This suggests the erosion problem is primarily bilateral rather than a WTO-based concern.
    Keywords: development; Doha Round; GSP; preference erosion; trade; WTO
    JEL: F13
    Date: 2005–07
  4. By: Francois, Joseph; Wooton, Ian
    Abstract: We examine interaction between goods trade and market power in domestic trade and distribution sectors. Theory suggests a linkage between service-sector competition and goods trade, one supported by econometrics involving imports of 22 OECD countries vis-à-vis 69 exporters. This points to linkages between market access conditions for goods and the structure of the service sector. Competition in services affects the volume of goods trade. Additionally, because of interaction between tariffs and competition, the market structure of the domestic service sector becomes increasingly important as tariffs are reduced. Also, empirically service competition apparently matters most for exporters in smaller, poorer countries.
    Keywords: GATS; market access; services trade; strategic competition policy; trade and competition; trade liberalization
    JEL: F12 F13 F23
    Date: 2005–07
  5. By: Hui Huang; John Whalley; Shunming Zhang
    Abstract: This paper considers liberalization of trade in both inter-temporal intermediation services and goods in a joint spatial-inter-temporal trade model. Joint multi-commodity spatial intertemporal models are not (to our knowledge) used in the trade literature as general comparative statics results are unavailable and (in the presence of incomplete markets) existence can also be an issue. Here we use numerical simulation methods. We first consider world with service trade autarky in which there is no domestic intermediation service provision, and service trade liberalization involves costless inter-temporal intermediation provided by foreign service providers. This simple treatment allows us to model service trade liberalization as removing period by period budget constraints for domestic consumers. In such a world, if nonzero tariffs apply to spatial trade we present an example showing how service trade liberalization can be welfare worsening. One implication is that negotiations on services in the WTO General Agreement on Trade in Services (GATS) need not be welfare improving if there are also ongoing tariff negotiations. We then expand the model to capture a more complex world where costly intermediation services can be provided by both within-country and foreign providers. We again illustrate how services liberalization can be welfare worsening. We finally discuss whether welfare worsening service trade liberalization is likely in a real-world situation of highly restricted services trade and considerably more open goods trade, and when services trade are around 1/3 of total goods and services trade as is often claimed from available global service trade data.
    JEL: F00 F11
    Date: 2005
  6. By: Arjan Lejour; J.W. de Paiva Verheijden
    Abstract: This paper explains bilateral services trade using a gravity equation and compares the results with trade in goods. We analyse bilateral trade between the provinces of Canada and between the member states of the European Union. We conclude that the gravity equation explains the variability in services trade very well: market size of the exporting and importing regions and distance are the most important explanatory variables. On average, distance is a less hindrance for services trade than for goods trade. Differences in languages and the regulation of product markets hamper services and goods trade in Europe significantly. Trade in services is also hampered by regulation in the importing country, but this is not true for goods. Services trade within Canada is twice as high as within Europe measured as share of GDP. Tentative estimates suggest that intra-EU services trade could be much higher if the internal market would function like the Canadian services market.
    Keywords: trade in services; gravity equations; internal market EU; regulation;
    JEL: F15 F13 L8 L5
    Date: 2004–12
  7. By: Subramanian, Arvind; Wei, Shang-Jin
    Abstract: This paper furnishes robust evidence that the WTO has had a powerful and positive impact on trade, amounting to about 120% of additional world trade (or US$8 trillion in 2003 alone). The impact has, however, been uneven. This, in many ways, is consistent with theoretical models of the GATT/WTO. The theory suggests that the impact of a country’s membership in the GATT/WTO depends on what the country does with its membership, with whom it negotiates, and which products the negotiation covers. Using a properly specified gravity model, we find evidence consistent with these predictions. First, industrial countries that participated more actively than developing countries in reciprocal trade negotiations witnessed a large increase in trade. Second, bilateral trade was greater when both partners undertook liberalization than when only one partner did. Third, sectors that did not witness liberalization did not see an increase in trade.
    Keywords: GATT; special and differential treatment
    JEL: F10
    Date: 2005–07
  8. By: Deodhar Satish Y
    Abstract: Trade Cost form a significant part of moving goods from producer to consumer. These cost are particularly high in developing countries. As a representative country, we look at India’s apple trade. Although tariff on apple imports is high, local distribution cost are much higher. While Tariff reduction will somewhat benefit the consumer, liberalization that promotes lowering of traders’ margins may facilitate high-volume, low-margin trade. Trade cost may come down if uncertainty regarding phytosanitary norms goes down and infrastructure investments in cold chain and retails chains pick up. Ceteris paribus, it is expected that demand for imported apples could reach 70,000 tonnes per year in a decade.
    Date: 2005–08–03
  9. By: Fazio, Giorgio; MacDonald, Ronald; Mélitz, Jacques
    Abstract: In this paper we test the well-known hypothesis of Obstfeld and Rogoff (2000) that trade costs are the key to explaining the so-called Feldstein-Horioka puzzle. Using a gravity framework in an intertemporal context, we provide strong support for the hypothesis and we reconcile our results with the so-called home bias puzzle. Interestingly, this requires fundamental revision of Obstfeld and Rogoff’s argument. A further novelty of our work is in tying bilateral trade behaviour to desired aggregate trade balances and desired intertemporal trade.
    Keywords: current account; Feldstein-Horioka puzzle; gravity model; home bias; puzzle; trade balance; trade costs
    JEL: F10 F32
    Date: 2005–07
  10. By: Agata Antkiewicz; John Whalley
    Abstract: We discuss recent regional trade and economic partnership agreements involving the large population rapidly growing economies (Brazil, Russia, China, India, South Africa, ASEAN, Mexico) who (with the exception of Mexico) are also outside of the OECD. Perhaps 50 out of 300 that exist worldwide now involve BRICSAM countries and most are recently concluded and to be implemented over the next few years. Along with extensive bilateral investment treaties, mutual recognition agreements, and other country (or region) to country arrangement they are part of what we term the non-WTO. We are able to find little literature on these agreements, and our aim is to document and characterize, as much as analyze possible impacts. We note the sharp variation both across countries in the form that agreements take and also across agreements for individual countries. Agreements differ in specificity, coverage and content. In some treaties there are detailed and specific commitments, but these also coexist with seemingly vague commitments and (at times) opaque dispute settlement and enforcement. Whether these represent a partial replacement of WTO process for new negotiated reciprocity-based global trade liberalization over the next decade or so, or largely represent diplomatic protocol alongside significant WTO disciplines is the issue we discuss.
    JEL: F00 F02 F15
    Date: 2005
  11. By: Spiros Bougheas; Raymond Riezman
    Abstract: We develop a two-country, two-sector model of trade where the only difference between the two countries is their distribution of human capital endowments. We show that even if the two countries have identical aggregate human capital endowments the pattern of trade depends on the properties of the two human capital distributions. We also show that the two distributions of endowments also completely determine the effects of trade on income inequality. Then, we prove that there are long-term gains from trade if the marginal utility of income is constant or as long as losers from trade are compensated by winners. Finally, we look at a simple majority voting model. It turns out depending on the distribution of human capital, autarky and free trade with and without compensation may be the outcome of majority voting.
    Keywords: patterns of trade, income distribution, welfare, political economy
    JEL: F10
    Date: 2005
  12. By: Khalid Sekkat (DULBEA, Université libre de Bruxelles, Brussels); Marie-Ange Veganzones-Varoudakis (CERDI and World Bank)
    Abstract: The paper assesses the relative importance of trade and foreign exchange liberalization, infrastructure availability and economic and political stability in increasing Middle East and North African (MENA) countries attractiveness with respect to FDI. The analysis is conducted for total FDI and for FDI in manufacturing. The results show that trade and foreign exchange liberalization, infrastructure availability and sound economic and political conditions increase FDI inflows. Their effects are much higher for FDI in the manufacturing sector than for total FDI. This result is robust to alternative indicators of trade and foreign exchange liberalization, and to change in the specification. The message to MENA’s policy makers is twofold. First, efforts toward trade and foreign exchange liberalization should be initiated or further increased in order to make the region attractive to foreign investors. Second improvements in other aspects of the investment climate are important complements to liberalization and result in additional and sensitive increase of FDI inflows.
    Keywords: Reforms, MENA, FDI.
    JEL: F21 F15 K42
    Date: 2005–02
  13. By: Anu Kovarikova Arro
    Abstract: This paper proposes that globalization, through the enlargement of the market, can influence both specialization and the equilibrium firm size. By re-introducing two factors of production into the muchutilized Dixit-Stiglitz-Ethier framework, I show that gains from specialization depend only on capital, while gains from increasing firm size face a trade-off between labor and capital as the size of the market expands. If the markup that the firms charge is instead endogenously determined, I demonstrate how firms can gain from both internal and external economies as globalization occurs if the number of firms stays under a specified threshold. The paper also shows that opening up to free trade in intermediate inputs and a final consumption good will have relative endowments determining the direction of trade across the stages of production. The model predicts that a relatively capital-abundant country will be the importer of the final good and the net exporter of intermediate components. Compared to autarky, trade will enhance specialization and firm size in the capital-abundant country and diminish both in the laborabundant country. Welfare can either increase or decrease as a result of trade.
    Keywords: Monopolistic competition, external and internal economies of scale, trade across the stages of production.
    JEL: F12 L11
    Date: 2005–06
  14. By: Marc, VANCAUTEREN; Daniel, WEISERBS
    Abstract: In this paper, we propose and test several extensions of the standard gravity model. This yields a specification that allows for (i) a more flexible income response; (ii) a competitiveness effect with a general and a specific component; and (iii) an alternative and consistent measure of remoteness. Those extensions were found to be significant factors to explain intra-EU trade. Next, we analyze the effect of EU harmonization of technical regulations on domestic and intra-EU trade. We find, at different levels of aggregation of the manufacturing sector, that harmonization of regulations has contributed to more intra-EU trade but, apparently, did not affect the so called border effect.
    Date: 2005–05–15
  15. By: Edward B. Barbier; Michael Rauscher
    Abstract: This paper looks at a model in which two countries trade agricultural and manufactured commodities. The manufactured-goods sector produces with increasing returns to scale under conditions of monopolistic competition. It is shown that an increase in land endowment (or an increase in agricultural productivity) can have negative welfare implications for both countries. This outcome can result under three different scenarios: asymmetries across countries, i.e. a North-South model, a neoclassical labor market in the home country's instead of a Lewisian market, and alternative utility functions.
    Keywords: international trade, labor surplus economy, land expansion, monopolistic competition, North-South model
    JEL: F12 J61 O15 O18
    Date: 2005
  16. By: Huang, Yongfu; Temple, Jonathan
    Abstract: Several recent papers have argued that trade and financial development may be linked, either for political economy reasons, or because foreign competition and exposure to shocks lead to changes in the demand for external finance. In this paper we use the cross-country and time-series variation in openness to study the relationship between trade and finance in more detail. Our results suggest that increases in goods market openness are typically followed by sustained increases in financial depth.
    Keywords: financial development; openness; trade
    JEL: F13 O16
    Date: 2005–07
  17. By: Hui Huang; Yi Wang; Yiming Wang; John Whalley; Shunming Zhang
    Abstract: We combine a model of combined inter-spatial and inter-temporal trade between countries recently — used by Huang, Whalley and Zhang (2004) to analyze the merits of trade liberalization in services when goods trade is restricted — with a model of foreign exchange rationing due to Clarete and Whalley (1991) in which there is a fixed exchange rate with a surrender requirement for foreign exchange generated by exports. In this model, when services remain unliberalized there is an optimal trade intervention, even in the small open price-taking economy case. Given monetary policy and an endogenously determined premium value on foreign exchange, an optimal setting of the exchange rate can provide the optimal trade intervention. We suggest this model has relevance to the current situation in China where services remain unliberalized and tariff rates are bound in the WTO. Since there is an optimal exchange rate, a move to a free Renminbi float can be welfare worsening. We use numerical simulation methods to explore the properties of the model, since it has no closed form solution. Our analysis provides an intellectual counter argument to those presently advocating a free Renminbi float for China.
    JEL: F00 F11 F31 F40
    Date: 2005
  18. By: Cyrille Schwellnus
    Abstract: While economists usually resort to redistribution between individuals of different skill levels and majority voting when explaining migration policies, the present political economy model of preferential trade and migration agreements suggests an alternative approach based on the following two observations. Firstly, in the presence of free trade in goods between the member states of the EU, migration between the member states mainly redistributes income between individuals employed in the traded and the non-traded sectors. Secondly, various episodes of restrictive migration legislation suggest that lobbying from vocal interest groups rather than majority voting shapes migration policies in the EU.
    Keywords: Trade Negotiations, International Migration, Lobbying, European Enlargement
    JEL: D72 F15 F22
    Date: 2005
  19. By: Xenia Matschke
    Abstract: A standard finding in the political economy of trade policy literature is that we should expect export-oriented industries to attract more assistance than import-competing industries. In reality, however, trade policy is heavily biased toward supporting import industries. This paper shows within a standard protection for sale framework, how the costliness of raising revenue via taxation may make export subsidies less desirable and import tariffs more desirable. The model is then estimated and its predictions are tested using U.S. tariff data. An empirical estimate of the costliness of revenue-raising is also obtained.
    Keywords: protection for sale, tariffs, trade protection
    JEL: F13 F16
    Date: 2005
  20. By: Gernot J. Mueller
    Abstract: In order to understand the dynamic effects of government spending on foreign trade the present paper proceeds in two steps. First, using U.S. time series data for the post-Bretton-Woods period, the dynamic effects of government spending are investigated within a structural Vector Autoregression framework: the nominal exchange rate is found to depreciate, the terms of trade to appreciate and the trade balance to increase significantly after a temporary increase in government spending. In a second step, a New-Keynesian general equilibrium model is used to rationalize these effects. Two findings emerge: i) a low elasticity of substitution between home and foreign goods is necessary for the trade balance to improve after an increase in public spending. ii) an accommodating monetary policy is found to dampen the effects of government spending on foreign trade.
    Keywords: Government Spending, Exchange Rate, Trade Balance, Terms of Trade, Policy Interaction
    JEL: E62 F41 F42
    Date: 2004
  21. By: Michelle R. Garfinkel (University of California-Irvine); Stergios Skaperdas (University of California-Irvine); Constantinos Syropoulos (Florida International University)
    Abstract: We examine how globalization affects trade patterns and welfare when conflict prevails domestically. We do so in a simple model of trade, in which a natural resource like oil is contested by competing groups using real resources ('guns'). Thus, conflict is viewed as ultimately stemming from imperfect property-rights enforcement. When comparing autarky with free trade in such a setting, the gains from trade have to be weighed against the possibly higher resource costs of conflict. We find that importers of the contested resource gain unambiguously. By contrast, exporters of the contested resource lose under free trade, unless the world price of the resource is sufficiently high. Regardless of what price obtains in the world market, countries tend to over-export the contested resource relative to what we would observe if there were no conflict; for some range of prices,the presence of conflict even reverses the country's comparative advantage. For an even wider range of prices, an increase in the international price of the contested resource reduces welfare, an instance of the 'natural resource curse.'
    Keywords: globalization, trade openness,property rights, enforcement, insecurity, civil war
    JEL: D30 D70 D72 D74 F10
    Date: 2005–07–28
  22. By: Amiti, Mary; Konings, Jozef
    Abstract: This paper estimates the effects of trade liberalization on plant productivity. In contrast to previous studies, we distinguish between productivity gains arising from lower tariffs on final goods relative to those on intermediate inputs. Lower output tariffs can produce productivity gains by inducing tougher import competition whereas cheaper imported inputs can raise productivity via learning, variety or quality effects. We use Indonesian manufacturing census data from 1991 to 2001, which includes plant level information on imported inputs. The results show that the largest gains arise from reducing input tariffs. A 10 percentage point fall in output tariffs increases productivity by about 1%, whereas an equivalent fall in input tariffs leads to a 3% productivity gain for all firms and an 11% productivity gain for importing firms.
    Keywords: inputs; productivity; tariffs
    JEL: F10 F12 F13 F14
    Date: 2005–06
  23. By: Michelle R. Garfinkel; Stergios Skaperdas; Constantinos Syropoulos
    Abstract: We examine how globalization affects trade patterns and welfare when conflict prevails domestically. We do so in a simple model of trade, in which a natural resource like oil is contested by competing groups using real resources (”guns”). Thus, conflict is viewed as ultimately stemming from imperfect property-rights enforcement. When comparing autarky with free trade in such a setting, the gains from trade have to be weighed against the possibly higher resource costs of conflict. We find that importers of the contested resource gain unambiguously. By contrast, countries exporting the contested resource will lose under free trade, unless the international price of the resource is sufficiently high. Regardless of what price obtains in international markets, countries tend to over-export the contested resource relative to what we would observe if there were no conflict; for some range of prices, the presence of conflict even inverts the country's comparative advantage. We find further that an increase in the international price of the contested resource over an even wider range reduces welfare, an instance of the "natural resource curse".
    Keywords: globalization, trade openness, property rights, enforcement, insecurity, conflict
    JEL: D72 D74 D78 F02 F10 K42
    Date: 2005
  24. By: Mélitz, Jacques
    Abstract: It is generally assumed that distance in the gravity model strictly reflects frictions impeding bilateral trade. However, distances North-South could also reflect differences in factor endowment that provide opportunities for profitable trade. This paper investigates the hypothesis that if we control for distance in the ordinary sense, differences North-South promote international trade. The hypothesis receives ample support. Moreover, the significance of differences North-South survives a battery of robustness tests, concerning period, distinctions between differences in latitude North-North, North-South and South-South, and controls for other measures of differences in factor endowment, such as differences in per capita output and differences in average temperature, rainfall, and seasonal range in temperature. The impact of differences North-South on bilateral trade has also been falling. This decline, in turn, might be partly responsible for the weakening of the influence of distance that has been occurring since World War II. This last hypothesis receives confirmation as well. Finally, the paper studies two country-specific aspects of distance: internal distance and remoteness. It does so by examining the impact of both on the country fixed effects themselves: that is, those that emerged earlier. Internal distance turns out to have a far greater impact than remoteness – by an order of ten.
    Keywords: bilateral trade; comparative advantage; distance; gravity; North-South trade; remoteness
    JEL: F10 F33
    Date: 2005–07
  25. By: Biswanath Bhattacharyay; Prabir De
    Abstract: Open regionalism and integration between the world’s two largest developing countries - the People’s Republic of China (China) and India - in trade, investments and infrastructure development can foster outward-oriented development and economic and social benefits that could result in poverty reduction. In view of the increasing trend toward regional integration, particularly the expanded European Union and North American integration, the opportunity costs of not moving toward greater economic integration between China and India involving common neighbouring countries could be increasing. This paper discusses the above subject in the context of possible areas of China - India economic cooperation and integration in the Eastern and Northeastern region of India and Southwestern provinces of China, including neighbouring countries like Bangladesh, Bhutan, Myanmar, and Nepal.
    Keywords: India, China, economic cooperation and integration, trade, investment and infrastructure development
    JEL: F10 F20 Q10 Q40 R40
    Date: 2005
  26. By: Özgür Kýbrýs (Sabancý University); Serkan Küçükþenel (California Institute of Technology)
    Abstract: We analyze markets in which the price of a traded commodity is such that the supply and the demand are unequal. Under standard assumptions, the agents then have single peaked preferences on their consumption or production choices. For such markets, we propose a class of Uniform Trade rules each of which determines the volume of trade as the median of total demand, total supply, and an exogenous constant. Then these rules allocate this volume 'uniformly' on either side of the market. We evaluate these 'trade rules' on the basis of some standard axioms in the literature. We show that they uniquely satisfy Pareto optimality, strategy proofness, no-envy, and an informational simplicity axiom that we introduce. We also analyze the implications of anonymity, renegotiation proofness, and voluntary trade on this domain.
    Keywords: market disequilibrium, trade rule, efficiency, strategy proofness, anonymity, no-envy, renegotiation proofness, voluntary trade
    JEL: D5 D6 D7
    Date: 2005–08–04
  27. By: Barry Reilly (Poverty Research Unit at Sussex, Department of Economics, University of Sussex); Puja Vasudeva Dutta (National Council of Applied Economic Research, New Delhi)
    Abstract: This paper uses nationally representative employment surveys to examine the magnitude of the gender pay gap in India and its relationship to a set of trade liberalisation measures. Separate wage equations, corrected for selection bias, are estimated for men and women in wage employment. Conventional index number procedures are used to decompose the gender pay gap into ‘endowment’ and ‘treatment’ components. The ‘treatment’ components comprise about one-third of the overall wage gap – a result in comport with the existing evidence for India. There is some evidence that the ‘treatment’ or residual components are declining over time but the point estimates for the differentials in these components between the initial and terminal years of our analysis are found to be imprecisely determined. A methodology suggested by Horrace and Oaxaca (2001) is used to compute industry specific gender pay gaps and their relationship with selected trade-related measures (e.g., tariff rates and trade ratios) is then examined econometrically within a GLS framework. We find little evidence that the trade-related measures are important determinants of the industry-level gender pay gap and appear to have exerted a relatively benign influence on the evolution of the industry gender pay gap in India over the last two decades.
    Keywords: gender pay gap, trade liberalisation, India
    JEL: J71 F16
    Date: 2005–07
  28. By: Bernard, Andrew; Redding, Stephen; Schott, Peter
    Abstract: We develop a methodology for identifying departures from relative factor price equality across regions that is valid under general assumptions about production, markets and factors. Application of this methodology to the United States reveals substantial and increasing deviations in relative skilled wages across labour markets in both 1972 and 1992. These deviations vary systematically with labour markets’ industry structure both in cross section and over time.
    Keywords: factor price equality; labour market areas; neoclassical trade theory; regional wages
    JEL: C14 F16 J30 R23
    Date: 2005–06
  29. By: John Whalley
    Abstract: Numerical simulation exercises to analyze the impacts of potential changes in non-tariff policies commonly use ad valorem equivalent tariff treatment even though estimated impacts using explicit model representation and ad valorem equivalent treatments will differ. The difficulty for modellers is that the detail and subtlety embodied in a wide array of policy interventions means that some simplification is appealing, but no meaningful general propositions exist in the theoretical literature as to the sign or size of the differences in predicted effects. All that can seemingly be done is to investigate the differences case by case, but even here the findings are sensitive both to the particular form of model used as well as the model parameterization employed. As a result, there is relatively little in the literature that provides guidance as to how serious the pitfalls may be, and how misleading ad valorem tariff equivalent treatment is. Here I draw on three examples of numerical modelling where explicit representation of policy interventions are used. The picture that emerges is one of large quantitative and even qualitative differences in predicted impacts. These examples suggest that where interventions differ from a tariff, ad valorem representation should be undertaken in numerical trade modelling only with substantial caveats.
    JEL: F00 F02 F10 F15
    Date: 2005
  30. By: Kevin X.D. Huang; Zheng Liu
    Abstract: The authors study international transmissions and welfare implications of monetary shocks in a two-country world with multiple stages of production and multiple boarder-crossings of intermediate goods. This empirically relevant feature is important, as it has opposite implications for two external spillover effects of a unilateral monetary expansion. If all production and trade are assumed to occur in a single stage, the confict-of-interest terms-of-trade effect tends to dominate the common-interest efficiency-improvement effect for reasonable parameter values, so that the international welfare effects would depend in general on the underlying assumptions about the currencies of price setting. The stretch of production and trade across multiple stages of processing magnifes the effciency-improvement effect and dampens the terms-of-trade effect. Thus, a monetary expansion can be mutually benefcial regardless of its source or the pricing assumptions
    Keywords: Production (Economic theory) ; Trade ; Monopolistic competition ; Welfare
    Date: 2005
  31. By: Horst Raff; Nicolas Schmitt
    Abstract: This paper shows that a manufacturer may benefit from parallel trade. In addition to an intuitive condition about the effect of demand shocks, this occurs when competitive retailers must order inventories before they know the realization of demand and for products whose sale value drops at the end of the demand period. For these types of products, letting retailers trade unsold inventories generally results in larger orders placed with the manufacturer, higher manufacturer profit and higher consumer surplus. The model provides a simple explanation as to why the volume of parallel trade is now very large and accepted by manufacturers for some products such as automobiles, clothes, toys, consumer electronics, musical recordings, cosmetics and perfumes.
    Keywords: parallel trade, distribution
    JEL: F12
    Date: 2005
  32. By: Alexis Anagnostopoulos
    Abstract: This paper investigates frictions in the international financial and goods markets and assesses the welfare implications these frictions have. It is found that the reduction in goods trading, which results from the presence of trade costs, significantly reduces consumer welfare compared to the first best where trade is free and costless. By contrast, a complete prohibition of international financial asset trade has a small effect on welfare. This result has important implications for the policies on debt repayment and sovereign default. It implies that an exclusion from international financial markets might not be a sufficient threat to ensure sovereign debt repayment. Instead, a much more potent instrument of enforcement might be a threat of trade sanctions such as tariffs or even a trade embargo.
    Keywords: welfare, financial autarky, trade sanctions, business cycles
    JEL: F41 F34
    Date: 2004
  33. By: Joaquim Oliveira-Martins; Tristan Price
    Abstract: <P>The paper set out four types of market structure clusters (based on an OECD benchmark) to assess different entry barriers, both endogenous and policy-induced that may affect the ability of enterprises in emerging countries to penetrate international markets. This framework is then applied to analyse the trade specialisation of Argentina, Brazil and Chile (ABC) compared to that of three OECD countries, Ireland, Korea and Mexico ...</P> <P>Comment les imperfections de marché et les barrières commerciales conditionnent la spécialisation: Amérique du Sud vs. OCDE <P>Cette étude propose quatre types de structure de marché (sur la base d'une sélection de pays de l'OCDE) pour évaluer les différentes barrières à l'entrée, à la fois endogènes et crées par des politiques économiques, qui peuvent affecter la capacité des entreprises dans les pays émergents de pénétrer les marchés internationaux. Ce cadre d'analyse est appliqué pour l'étude de la spécialisation de l'Argentine, du Brésil et du Chili (ABC) comparée avec celle de trois pays de l'OCDE, Irlande, Corée et Mexique ...</P>
    Keywords: market structure, structure de marché, specialisation, trade barriers, South America, spécialisation, barrières commerciales, Amérique du Sud
    JEL: F12 F14 L16 O14 O54
    Date: 2004–06–25
  34. By: Panos Hatzipanayotou; Sajal Lahiri; Michael S. Michael
    Abstract: We construct a two-good general equilibrium model of international trade for two small open economies where pollution from production is transmitted across borders. Governments in both countries impose emission taxes non-cooperatively. Within this framework, we examine the effect of trade liberalization and of changes in the perception of cross-border pollution on Nash emission taxes, emission levels, and welfare.
    Keywords: cross-border pollution, emission taxes, terms of trade, globalization, welfare
    JEL: H23 Q28
    Date: 2005
  35. By: Behrens, Kristian; Lamorgese, Andrea; Ottaviano, Gianmarco I P; Tabuchi, Takatoshi
    Abstract: We develop a multi-country Dixit-Stiglitz model to investigate the impacts of: (i) changes in the international distribution of consumers' expenditure; (ii) decreasing tariffs; and (iii) improvements in transportation infrastructure. We show that, in general, decreasing tariff barriers do not allow for any clear predictions regarding changes in industry location and welfare, whereas this is possible with respect to improvements in transportation infrastructure. In particular, infrastructural improvements have spatially limited impacts when the transportation network is locally described by a tree. Any decrease in transport costs is Pareto welfare enhancing in this case.
    Keywords: home market effect; imperfect competition; international integration; multi-country trade models; transportation networks
    JEL: D58 F12 F17 R12
    Date: 2005–06
  36. By: Brülhart, Marius; Trionfetti, Federico
    Abstract: We develop a criterion to distinguish two dominant paradigms of international trade theory: constant-returns perfectly competitive models, and increasing-returns monopolistically competitive models. Our analysis makes use of the pervasive presence of home-biased expenditure. It predicts that countries’ relative output and their relative home biases are positively correlated in increasing-returns sectors (the ‘home-bias effect’), while no such relationship exists in constant-returns sectors. This discriminating criterion turns out to be robust to a number of generalizations of the baseline model. Our empirical results suggest that the increasing-returns model fits particularly well for the mechanical and electrical engineering industries, which account for close to half of manufacturing output.
    Keywords: border effects; home-market effects; international specialization; new trade theory
    JEL: F10 R30
    Date: 2005–06
  37. By: Seung Mo Choi (University of Chicago)
    Abstract: This paper proposes a two-country 'economic' model (in the sense that it contains utility and profit maximization motives), in which a low-income economy enjoys a high growth rate relative to a high-income economy, thanks to importing technologies (or 'machines') invented in the high- income economy. Following Romer (1990), the growth of an economy is sustained by increasing varieties of inputs; while a high-income economy (and a closed economy) should invest in R&D to invent new inputs (or 'machines'), an open, low-income economy may trade with the high-income economy to import them, which reduces the cost of productivity advances. The model can generate the growth paths of the U.S. and the South Korea.
    Keywords: International Trade, Technological Progress, Growth
    JEL: F19 F41 F43 O30 O40
    Date: 2005–07–26
  38. By: Subhayu Bandyopadhyay (West Virginia University and IZA Bonn); Howard J. Wall (Federal Reserve Bank of St. Louis)
    Abstract: This paper analyzes the issues of immigration and outsourcing in a general-equilibrium model of international factor mobility. In our model, legal immigration is controlled through a quota, while outsourcing is determined both by the firms (in response to market conditions) and through policy-imposed barriers. A loosening of the immigration quota reduces outsourcing, enriches capitalists, leads to losses for native workers, and raises national income. If the nation targets an exogenously determined immigration level, the second-best outsourcing tax can be either positive or negative. If in addition to the immigration target there is a wage target (arising out of income distribution concerns), an outsourcing subsidy is required. The analysis is extended to consider illegal immigration and enforcement policy. A higher legal immigration quota will lead to more illegal immigration if skilled and unskilled labor are complements in production. If the two kinds of labor are complements (substitutes), national income increases (decreases) monotonically with the level of legal immigration.
    Keywords: outsourcing, immigration
    JEL: F1 F2 O1 J1 J3
    Date: 2005–07
  39. By: Elias Dinopoulos (Department of Economics, University of Florida); Constantinos Syropoulos (Department of Economics, Florida International University)
    Abstract: The paper develops a two-country dynamic general-equilibrium model of growth without scale effects to explore the effects of globalization on long-run growth and wages. Higher quality products are endogenously discovered through stochastic and sequential global innovation contests in which challengers devote resources to R&D and technology leaders undertake rent-protection activities (RPAs) to prolong the expected duration of temporary monopoly power by frustrating the R&D effort of challengers. Globalization (i.e., a move from autarky to an integrated trading equilibrium) for two countries with identical relative factor abundance and possible differences in size does not affect the long-run growth rate of either country. However, the country that is abundant in the factor used intensively in the production of R&D services grows faster in autarky. Moreover, factor prices (adjusted for quality) and national long-run growth rates converge and are eventually equalized. Depending on international per-capita differences in factor abundance, the model also generates intra-sectoral trade, vertical and horizontal multinationals, and international outsourcing of services (R&D investment or RPAs). The growth effects of globalization between countries with different relative factor endowments are larger for smaller countries.
    Keywords: Economic growth, scale effects, R&D, rent-protecting activities, innovation, wages
    JEL: F1
    Date: 2004–05
  40. By: Yongchun Baek; Randall Jones; Michael Wise
    Abstract: <P>Maintaining rapid economic growth depends increasingly on productivity gains, particularly in the service sector. Competition has an important role to play in achieving such gains. However, Korea’s development strategy has tended to weaken competition and has left a legacy of government intervention. Strengthening competition requires upgrading competition policy, increasing openness to international trade and foreign direct investment and improving the regulatory framework in network industries. In particular, the power of the Korea Fair Trade Commission should be expanded, while raising the level of sanctions and scaling back special treatment for certain sectors. Barriers to imports remain above the OECD average, particularly in agriculture, while the stock of inward direct investment is among the lowest in the OECD area. Restructuring plans in the network industries, notably electricity and gas, have lagged behind schedule. Price distortions and the absence of independent ...</P> <P>Concurrence sur les marchés de produits et performances économiques en Corée <P>Le maintien d'une croissance économique rapide est de plus en plus tributaire des gains de productivité, en particulier dans le secteur des services. La concurrence a un rôle important à jouer dans la réalisation de ces gains. Néanmoins, la stratégie de développement de la Corée a eu tendance à affaiblir la concurrence et se traduit par une politique interventionniste héritée du passé. Le renforcement de la concurrence passe par une rénovation de la politique de la concurrence, une ouverture accrue aux échanges internationaux ainsi qu'à l'investissement direct étranger (IDE), et une amélioration du cadre réglementaire dans les industries de réseau. Il conviendrait de renforcer les prérogatives de la Commission coréenne de la concurrence, tout en alourdissant les sanctions prévues par la loi et en revoyant à la baisse les dispositions spéciales prévues pour certains secteurs. Les obstacles aux importations demeurent supérieurs à la moyenne de l'OCDE, notamment dans l'agriculture ...</P>
    Keywords: telecommunications, télécommunications, regulatory reform, network industries, réforme de la réglementation, industries de réseau, commerce de détail, Trade policy, politique commerciale, Korea, Corée, foreign direct investment, investissement direct étranger, anti-trust law, competition law, cartel, retail sector, droit de la concurrence, entente, législation antitrust, South Korean economy, electricity, gas, tariffs, chaebol, économie sud-coréenne, électricité, gaz, tarifs douaniers, chaebol
    JEL: F13 F21 K21 L11 L40 L43 L81 L94 L95 L96 O53 O57 Q17
    Date: 2004–08–09
  41. By: Ju, Jiandong; Wei, Shang-Jin
    Abstract: This paper develops a theory of international trade in which financial development and factor endowment jointly determine comparative advantage. We apply the financial contract model of Holmstrom and Tirole to the Heckscher-Ohlin-Samuelson (HOS) framework. A key result is what we call the law of a wooden barrel: if the external finance constraint is binding, then augmenting capital stock would have no effect on output and returns. On the other hand, if the external finance constraint is not binding, the standard HOS predictions are resuscitated.
    Keywords: factor endowment; financial development; HOS model; wooden barrel
    JEL: F11 G20
    Date: 2005–06
  42. By: Saint-Paul, Gilles
    Abstract: Trade liberalization is often met with sharp opposition. Recent examples include the so-called ‘Bolkestein’ directive, which allows service providers from a given EU member to temporarily work in another member country. One way to view such a reform is that it simply widens the range of goods that are tradable. This kind of reform is analysed in a two-country Dornbusch-Fischer-Samuelson style model, where labour cannot relocate to another sector upon a non-expected increase in the range of goods that can be traded. The effect of liberalization on the terms of trade tend to favour the poorer country (the ‘East’), if (as assumed) the most sophisticated goods are tradable before reform. Second, under ex-post liberalization, there exists a class of workers in the West who are harmed because they face competition from Eastern workers and cannot relocate to other activities. But if the East’s economy is relatively small, their wage losses are not very large. Things are different, however, if there exist asymmetries in labour market institutions, such that upon reform, labour can relocate in the East but not in the West. Some workers in the West can then experience very large wage losses. Thus, rigid labour markets in the West magnify opposition to reform there.
    Keywords: bolkestein directive; comparative advantage; european integration; labour market institutions; labour mobility; terms of trade; trade liberalization
    JEL: F11 F13 F16
    Date: 2005–06
  43. By: Harrie A. A Verbon; Cees A. Withagen
    Abstract: A system of tradable permits in the standard setting is effective in attaining the policy objective with regard to pollution reduction at the least cost. This outcome is challenged in case of a tradable permit system in a federal state with individual states having discretionary power regarding environmental policy and where pollution is transboundary across states. This paper explores the opportunities of the central authority to influence the effectiveness of the system, under different institutional arrangements, through the initial allocation of permits.
    Keywords: tradable permits, trade bans, fiscal federalism
    JEL: H21 H23 Q00
    Date: 2005
  44. By: Halpern, László; Koren, Miklós; Szeidl, Adam
    Abstract: What is the effect of imports on productivity? To answer this question, we estimate a structural model of producers using product-level import data for a panel of Hungarian manufacturing firms from 1992 to 2001. In our model with heterogenous firms, producers choose to import or purchase domestically varieties of intermediate inputs. Imports affect firm productivity through expanding variety as well as improved input quality. The model leads to a production function where the total factor productivity of a firm depends on the share of inputs imported. To estimate this import-augmented production function, we extend the Olley and Pakes (1996) procedure for a setting with an additional state variable, the number of input varieties imported. Our results suggest that the role of imports is both statistically and economically significant. Imports are responsible for 30% of the growth in aggregate total factor productivity in Hungary during the 1990s. About 50% of this effect is through imports advancing firm level productivity, while the remaining 50% comes from the reallocation of capital and labour to importers.
    Keywords: imports; intermediate inputs; productivity
    JEL: F12 F14 L25
    Date: 2005–07

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