nep-int New Economics Papers
on International Trade
Issue of 2005‒09‒29
thirty papers chosen by
Martin Berka
Massey University

  1. Importers, Exporters, and Multinationals: A Portrait of Firms in the U.S. that Trade Goods By Andrew B. Bernard; J. Bradford Jensen; Peter K. Schott
  2. Tradability, Productivity, and Understanding International Economic Integration By Paul R. Bergin; Reuven Glick
  3. The Skill Bias of World Trade By Paolo Epifani; Gino Gancia
  4. Trade Costs, Trade Balances and Current Accounts: An Application of Gravity to Multilateral Trade By Giorgio Fazio; Ronald MacDonald; Jacques Melitz
  5. The US Trade Deficit: A Disaggregated Perspective By Catherine L. Mann; Katharina Plück
  6. Collateral damage: trade disruption and the economic impact of war By Reuven Glick; Alan M. Taylor
  7. Estimating elasticities for U.S. trade in services By Jaime Marquez
  8. A Protectionist Bias in Majoritarian Politics By Grossman, Gene; Helpman, Elhanan
  9. A Global Perspective on External Positions By Philip Lane; Gian Maria Milesi-Ferreti
  10. Globalization, Divergence and Stagnation By Gino Gancia
  11. Globalization and Inflation-Output Tradeoffs By Assaf Razin; Prakash Loungani
  12. Trade composition and total factor productivity: Evidence for Chile By Dierk Herzer
  13. A Global View of Economic Growth By Jaume Ventura
  14. Trade Restrictions and Factor Prices: Slave Prices in Early Nineteenth Century US By Ashley N. Coleman; William K. Hutchinson
  15. Trade Liberalization, Poverty, and Inequality: Evidence from Indian Districts By Petia Topalova
  16. On the Accuracy of Latin American Trade Statistics: a Nonparametric Test for 1925 By M. del Mar Rubio Varas; Mauricio Folchi
  17. A Gravity Model for Exports from Iceland By Helga Kristjánsdóttir
  18. Does Trade Increase Total Factor Productivity: Cointegration Evidence for Chile By Dierk Herzer
  19. Capital goods imports and investments in Latin America in the mid 1920s By Xavier Tafunell; Albert Carreras
  20. Immigration and outsourcing: a general equilibrium analysis By Subhayu Bandyopadhyay; Howard J. Wall
  21. Small Fish - Big Issues The Effect of Trade Policy on the Global Shrimp Market By Debaere, Peter
  22. Trade, Migration and Regional Unemployment By Paolo Epifani; Gino Gancia
  23. Make Trade not War? By Martin, Philippe; Mayer, Thierry; Thoenig, Mathias
  24. Why Did Modern Trade Fairs Appear? By Albert Carreras; Lídia Torra
  25. Geographical effects on the accuracy of textile trade data:an international approach for 1913 By Anna Carreras
  26. Multilateral Trade and Agricultural Policy Reforms in Sugar Markets (Revised) By Elobeid, Amani; Beghin, John C.
  27. How to cure the trade balance? Reducing budget deficits versus devaluations in the presence of J- and W-curves for Brazil By Ziesemer,Thomas
  28. When do Countries Introduce Competition Policy? By Forslid, Rikard; Häckner, Jonas; Muren, Astri
  29. Do Countries Free Ride on MFN? By Ludema, Rodney D; Mayda, Anna Maria
  30. Trade Spillovers of Fiscal Policy in the European Union: A Panel Analysis By Beetsma, Roel; Giuliodori, Massimo; Klaassen, Franc

  1. By: Andrew B. Bernard (Dartmouth College); J. Bradford Jensen (Institute for International Economics); Peter K. Schott (Yale University)
    Abstract: This paper provides an integrated view of globally engaged US firms by exploring a newly developed dataset that links US international trade transactions to longitudinal data on US enterprises. These data permit examination of a number of new dimensions of firm activity, including how many products firms trade, how many countries firms trade with, the characteristics of those countries, the concentration of trade across firms, whether firms transact at arm’s length or with related parties, and whether firms import as well as export. Firms that trade goods play an important role in the United States, employing more than a third of the US workforce. We find that the most globally engaged US firms, i.e. those that both export to and import from related parties, dominate US trade flows and employment at trading firms. We also find that firms that begin trading between 1993 and 2000 experience especially rapid employment growth and are a major force in overall job creation.
    Keywords: exporters, importers, multinationals, related-party trade
    JEL: F23
    Date: 2005–09
  2. By: Paul R. Bergin; Reuven Glick
    Abstract: This paper develops a two-country macro model with endogenous tradability to study features of international economic integration. Recent episodes of integration in Europe and North America suggest some surprising observations: while quantities of trade have increased significantly, especially along the extensive margin, price dispersion has not decreased and may even have increased. We propose a way of reconciling these price and quantity observations in a macroeconomic model where the decision of heterogeneous firms to trade internationally is endogenous. Trade is shaped both by the nature of heterogeneity -- trade costs versus productivity -- and by the nature of trade policies -- cuts in fixed costs versus cuts in per unit costs like tariffs. For example, in contrast to tariff cuts, trade policies that work mainly by lowering various fixed costs of trade may have large effects on entry decisions at the extensive margin without having direct effects on price-setting decisions. Whether this entry raises or lowers overall price dispersion depends on the type of heterogeneity that distinguishes the new entrants from incumbent traders.
    JEL: F4
    Date: 2005–09
  3. By: Paolo Epifani; Gino Gancia
    Abstract: Under plausible assumptions about preferences and technology, the model in this paper suggests that the entire volume of world trade matters for wage inequality. Therefore, trade integration, even among identical countries, is likely to increase the skill premium. Further, we argue that empirical evidence of a falling relative price of skill-intensive goods can be reconciled with the fast growth of world trade and that the intersectoral mobility of capital exacerbates the effect of trade on inequality. We provide new empirical evidence in support of our results and a quantitative assessment of the skill bias of world trade.
    Keywords: Skill Premium, Scale E.ect, Intra-Industry and Inter-Industry Trade
    JEL: F12 F16
    Date: 2004–11
  4. By: Giorgio Fazio; Ronald MacDonald; Jacques Melitz
    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 a fundamental revision of Obstfeld and Rogoff’s argument. A further novelty of our work is in tying bilateral trade behavior to desired aggregate trade balances and desired intertemporal trade.
    Keywords: Feldstein-Horioka puzzle, trade costs, gravity model, home bias puzzle, current account, trade balance
    JEL: F10 F32
    Date: 2005
  5. By: Catherine L. Mann (Institute for International Economics); Katharina Plück (Institute for International Economics)
    Abstract: The paper prepares new estimates for the elasticity of US trade flows using bilateral, commodity-detailed trade data for 31 countries, using measures of expenditure and trade prices matched to commodity groups, and including a commodity-and-country specific proxy for global supply-cum-variety. Using the United Nations Commodity Trade Statistics Database (UN Comtrade) we construct bilateral trade flows for 31 countries in four categories of goods based on the Bureau of Economic Analysis’s “end-use” classification system—autos, industrial supplies and materials–excluding energy, consumer goods, and capital goods. We find that using expenditure matched to commodity category yields more plausible values for the demand elasticities than does using GDP as the measure of demand that drives trade flows. Controlling for country and commodity fixed effects, we find that industrial and developing countries have demand elasticities that are statistically significant and that generally differ between development groups and across product categories. Relative prices for the industrial countries have plausible parameter values, are statistically significant and differ across product groups, but the relative prices for developing countries are poorly estimated. We find that variety is an important variable for the behavior of capital goods trade. Because the commodity composition of trade and of trading partners has changed dramatically, particularly for imports, we find that the demand elasticity for imports is not constant. Comparing the in-sample performance of the disaggregated model against a benchmark that uses aggregated data and GDP as the expenditure variable, our disaggregated model predicts exports better in-sample but does not predict imports as well as the benchmark model.
    Keywords: US trade deficit, goods, trade, commodity composition, trade elasticities and sustainability
    JEL: F4 F1
    Date: 2005–09
  6. By: Reuven Glick; Alan M. Taylor
    Abstract: Conventional wisdom in economic history suggests that conflict between countries can be enormously disruptive of economic activity, especially international trade. Yet nothing is known empirically about these effects in large samples. We study the effects of war on bilateral trade for almost all countries with available data extending back to 1870. Using the gravity model, we estimate the contemporaneous and lagged effects of wars on the trade of belligerent nations and neutrals, controlling for other determinants of trade. We find large and persistent impacts of wars on trade, and hence on national and global economic welfare. A rough accounting indicates that such costs might be of the same order of magnitude as the “direct” costs of war, such as lost human capital, as illustrated by case studies of World War I and World War II.
    Keywords: War - Economic aspects ; International trade
    Date: 2005
  7. By: Jaime Marquez
    Abstract: Explanations of the persistent deficit in U.S. net exports of goods rest on macroeconomic developments and an asymmetry in elasticities: the income elasticity for imports being larger than the income elasticity for exports. Such macroeconomic developments are not applicable to the equally persistent surplus in U.S. net exports of services unless the income elasticities for services exhibit the reversed asymmetry. There have been surprisingly few attempts to demonstrate the existence of this reversed asymmetry, a task that I undertake here. Specifically, I estimate income and price elasticities for U.S. trade in services and evaluate the importance of simultaneity and aggregation biases. The analysis reveals two findings. First, the income elasticity for U.S. exports of services is significantly greater than the income elasticity for U.S. imports of services. Second, disaggregation is the most important aspect of econometric design in this area.
    Keywords: International trade - Econometric models ; Elasticity (Economic)
    Date: 2005
  8. By: Grossman, Gene; Helpman, Elhanan
    Abstract: We develop a novel model of campaigns, elections, and policymaking in which the ex ante objectives of national party leaders differ from the ex post objectives of elected legislators. This generates a distinction between "policy rhetoric" and "policy reality" and introduces an important role for "party discipline" in the policymaking process. We identify a protectionist bias in majoritarian politics. When trade policy is chosen by the majority delegation and legislators in the minority have limited means to influence choices, the parties announce trade policies that favor specific factors, and the expected tariff or export subsidy is positive. Positions and expected outcomes monotonically approach free trade as party discipline strengthens.
    Keywords: comparative politics; party discipline; Trade policy; tyranny of the majority
    JEL: D72 F13
    Date: 2005–09
  9. By: Philip Lane; Gian Maria Milesi-Ferreti (Department of Economics,)
    Abstract: The paper highlights the increased dispersion in net external positions in recent years, particularly among industrial countries. It provides a simple accounting framework that disentangles the factors driving the accumulation of external assets and liabilities (such as trade imbalances, investment income flows, and capital gains) for major external creditors and debtors. It also examines the factors driving the foreign asset portfolio of international investors, with a special focus on the weight of U.S. liabilities in the rest of the world’s stock of external assets. Finally, it relates the empirical evidence to the current debate about the roles of portfolio balance effects and exchange rate adjustment in shaping the external adjustment process.
    Date: 2005–08
  10. By: Gino Gancia
    Abstract: In a world where poor countries provide weak protection for intellectual property rights, market integration shifts technical change in favor of rich nations. Through this channel, free trade may amplify international income differences. At the same time, integration with countries where intellectual property rights are weakly protected can slow down the world growth rate. A crucial implication of these results is that protection of intellectual property is most beneficial in open countries. This prediction, which is novel in the literature, finds support in the data on a panel of 53 countries observed in the years 1965-1990.
    Keywords: Economic Growth, North-South Trade, Intellectual Property Rights, Cross-Country Income Differences
    JEL: F14 F43 O33 O34 O41
    Date: 2003–05
  11. By: Assaf Razin; Prakash Loungani
    Abstract: We demonstrate how capital account and trade account liberalizations help reduce inefficiencies associated with the fluctuations in the output gap, relative to the inefficiencies associated with the fluctuations in inflation. With capital account liberalization the representative household is able to smooth fluctuations in consumption, and thus becomes relatively insensitive to fluctuations in the output gap. With trade liberalization the economy tends to specialize in production but not in consumption. The correlation between fluctuations in the output gap and aggregate consumption is therefore weakened by trade openness; hence a smaller weight on the output gap in the utility-based loss function, compared to the closed economy situations.A key implication of the theory is that globalization forces could induce monetary authorities, to put a greater emphasis on reducing the inflation rate than on narrowing the output gaps. We provide a re- interpretation of the evidence on the effect of openness on the sacrifice ratio which supports the prediction of the theory.
    JEL: E3 F3
    Date: 2005–09
  12. By: Dierk Herzer (Universität Göttingen)
    Abstract: This paper examines the long-run impact of capital goods imports, intermediate goods imports, and exports of manufactured and primary goods on total factor productivity in Chile. Using cointegration techniques, we find productivity-enhancing effects of capital and intermediate goods imports as well as manufactured exports, and productivity-limiting effects of primary exports.
    Keywords: Trade Composition, Productivity, Cointegration
    JEL: O47 F41 C22
    Date: 2005–09–06
  13. By: Jaume Ventura
    Abstract: This paper integrates in a unified and tractable framework some of the key insights of the field of international trade and economic growth. It examines a sequence of theoretical models that share a common description of technology and preferences but differ on their assumptions about trade frictions. By comparing the predictions of these models against each other, it is possible to identify a variety of channels through which trade affects the evolution of world income and its geographical distribution. By comparing the predictions of these models against the data, it is also possible to construct coherent explanations of income differences and long-run trends in economic growth.
    Keywords: Economic growth, international trade, globalization
    JEL: F10 F15 F40 F43 O11 O41
    Date: 2005–03
  14. By: Ashley N. Coleman (Wachovia Bank, Charlotte, NC); William K. Hutchinson (Department of Economics, Vanderbilt University)
    Abstract: Trade restrictions impact factor and commodity prices in very predictable ways according to international trade theory. We use a new data set to explore the direct effect on the price of slaves that resulted from legislation prohibiting the importation of slaves after January 1, 1808. Prohibition of the importation of slaves increases the average price of slaves as one would anticipate. Moreover, we find that the price of a female slave of childbearing age increases more than the price for older female slaves. The price of adolescent female slaves, ages 10 to 14, increased more than the price of an adult male slave as a result of the ban on importation of slaves. We also assess the impact of the embargo of 1807 and the ensuing War of 1812 on the price of slaves as the intensive factor input in the production of cotton, rice and tobacco, goods that were severely impacted by the reduction of exports to Britain and continental Europe during this period.
    Keywords: Factor prices, trade barriers, slavery
    JEL: N71 F16 N31
    Date: 2005–08
  15. By: Petia Topalova
    Abstract: Although it is commonly believed that trade liberalization results in higher GDP, little is known about its effects on poverty and inequality. This paper uses the sharp trade liberalization in India in 1991, spurred to a large extent by external factors, to measure the causal impact of trade liberalization on poverty and inequality in districts in India. Variation in pre-liberalization industrial composition across districts in India and the variation in the degree of liberalization across industries allow for a difference-in-difference approach, establishing whether certain areas benefited more from, or bore a disproportionate share of the burden of liberalization. In rural districts where industries more exposed to liberalization were concentrated, poverty incidence and depth decreased by less as a result of trade liberalization, a setback of about 15 percent of India's progress in poverty reduction over the 1990s. The results are robust to pre-reform trends, convergence and time-varying effects of initial district-specific characteristics. Inequality was unaffected in the sample of all Indian states in both urban and rural areas. The findings are related to the extremely limited mobility of factors across regions and industries in India. The findings, consistent with a specific factors model of trade, suggest that to minimize the social costs of inequality, additional policies may be needed to redistribute some of the gains of liberalization from winners to those who do not benefit as much.
    JEL: F1
    Date: 2005–09
  16. By: M. del Mar Rubio Varas; Mauricio Folchi
    Abstract: This paper proposes a nonparametric test in order to establish the level of accuracy of the foreign trade statistics of 17 Latin American countries when contrasted with the trade statistics of the main partners in 1925. The Wilcoxon Matched-Pairs Ranks test is used to determine whether the differences between the data registered by exporters and importers are meaningful, and if so, whether the differences are systematic in any direction. The paper tests for the reliability of the data registered for two homogeneous products, petroleum and coal, both in volume and value. The conclusion of the several exercises performed is that we cannot accept the existence of statistically significant differences between the data provided by the exporters and the registered by the importing countries in most cases. The qualitative historiography of Latin American describes its foreign trade statistics as mostly unusable. Our quantitative results contest this view.
    Keywords: Latin America, statistical accuracy, international trade data, nonparametric methods, petroleum trade, coal trade.
    JEL: N73 F14 C14
    Date: 2005–07
  17. By: Helga Kristjánsdóttir (University of Iceland)
    Abstract: This paper applies a gravity model to examine the determinants of Icelandic exports. The model specifications tested allow for sector and trade bloc estimation. Also, a combination of an export ratio and a gravity model is tested, as well as marine product subsamples. The estimates are based on panel data on exports from 4 sectors, to 16 countries, over a period of 11 years. Estimates indicate that the size and wealth of Iceland does not seem to matter much for the volume of exports, not even when correted for the country’s small size. Finally, results indicate that trade bloc and sector effects matter and that marine products vary considerable in their sensitivity to distance and country factors.
    Keywords: export; gravity model
    JEL: F1 F15
    Date: 2005–09
  18. By: Dierk Herzer (Universität Göttingen)
    Abstract: In this study, we examine the long-run impact of capital goods imports, exports of manufactured and primary goods on total factor productivity in Chile. Using the integration and cointegration techniques of Kapetanios (2005), Pesaran, Shin, and Smith (2001), Stock (1987), and Saikkonen (1991) we find a long-run relationship between these variables. All in all, our estimation results provide evidence for the existence of productivity-enhancing effects of capital goods imports and manufactured exports and of productivity-limiting effects of primary exports.
    Keywords: Trade, trade composition, productivity, cointegration
    JEL: O47 F41 C22
    Date: 2005–07–14
  19. By: Xavier Tafunell; Albert Carreras
    Abstract: The assessment of Latin American long term economic performance is in urgent need of mobilizing more data to match the pressing demands of growth analysts. We present a systematic comparison of capital goods imports for 20 Latin American countries in 1925. It relies on both the foreign trade data of the importing countries and of the major exporting countries –the industrialized economies of the time. The quality of foreign trade figures is tested; an homogeneous estimate of capital goods imported is derived, and its per capita ranking is discussed providing new light on Latin American development levels before import substitution.
    Keywords: Latin America, capital goods, imports, investment, foreign trade, economic development
    JEL: N16 N66 N76
    Date: 2005–06
  20. By: Subhayu Bandyopadhyay; Howard J. Wall
    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: Immigrants ; Labor market ; Contracting out
    Date: 2005
  21. By: Debaere, Peter
    Abstract: It is a well-established theoretical result that the trade policy of a large country can directly affect its own and other countries' welfare by affecting international goods prices. However, there exist very few empirical studies that analyze the effect of trade policy on international prices. With detailed data on unit values and tariffs, I show how policy actions in Europe disrupted the global shrimp market in a non-negligible way and set the stage for the current anti-dumping case in the US. The loss of Thailand's preferential trade status in Europe and the international differences in food safety standards during the antibiotics crisis, have shifted esp. Thai, Vietnamese and Chinese shrimp exports away from Europe towards the US in the late 1990s and early 2000s. I document how these shifting markets have decreased US prices for shrimp significantly compared to those in Europe.
    Keywords: international trade
    JEL: F1
    Date: 2005–09
  22. By: Paolo Epifani; Gino Gancia
    Abstract: We formulate a dynamic core-periphery model with frictions in the job matching process to study the interplay between trade costs, migration and regional unemploymentin the short- and long-run. We find that the spatial distribution of unemployment mirrors (inversely) the distribution of economic activities. Further, we highlight a contrast between the short-run and the long-run effects of trade-induced migration on regional unemployment. In particular, an inßow of immigrants from the periphery into the core reduces the unemployment gap in the short-run, but exacerbates unemployment disparities in the long-run.
    Keywords: Integration, Agglomeration, Search frictions, Labor mobility, Regional disparities
    JEL: F12 F15 F16
    Date: 2002–03
  23. By: Martin, Philippe; Mayer, Thierry; Thoenig, Mathias
    Abstract: This paper analyses theoretically and empirically the relationship between trade and war. We show that the intuition that trade promotes peace is only partially true even in a model where trade is beneficial to all, war reduces trade and leaders take into account the costs of war. When war can occur because of the presence of asymmetric information, the probability of escalation is indeed lower for countries that trade more bilaterally because of the opportunity cost associated with the loss of trade gains. However, countries more open to global trade have a higher probability of war because multilateral trade openness decreases bilateral dependence to any given country. Using a theoretically-based econometric model, we test our predictions on a large dataset of military conflicts in the period 1948-2001. We find strong evidence for the contrasting effects of bilateral and multilateral trade. Our empirical results also confirm our theoretical prediction that multilateral trade openness increases more the probability of war between proximate countries. This may explain why military conflicts have become more localized and less global over time.
    Keywords: globalization; trade; war
    JEL: F12 F15
    Date: 2005–09
  24. By: Albert Carreras; Lídia Torra
    Abstract: According to our interpretation, modern trade fairs started in Europe during the First World War and in its immediate aftermath. With the closing of trade movements during the war, many cities had to resort to the old medieval tradition of providing especial permits to traders to guarantee them personal protection during their trade meetings. During the tough post war crisis many more cities –typically industrial districts- discovered in the creation of trade fairs a powerful competitive tool to attract market transactions. We compare these developments with the remote origins of fairs, as, in both cases, trade fair development is a reaction to the closing of free markets under the pressure of political violence.
    Keywords: Trade fairs, modern trade fairs, markets, industrial districts, international trade, First World War
    JEL: N44 N74 N84
    Date: 2005–06
  25. By: Anna Carreras
    Abstract: Foreign trade statistics are the main data source to the study of international trade. However its accuracy has been under suspicion since Morgernstern published his famous work in 1963. Federico and Tena (1991) have resumed the question arguing that they can be useful in an adequate level of aggregation. But the geographical assignment problem remains unsolved. This article focuses on the spatial variable through the analysis of the reliability of textile international data for 1913. A geographical bias arises between export and import series, but because of its quantitative importance it can be negligible in an international scale.
    Keywords: Economic geography, Statistical accuracy, Economic textile history
    JEL: B4 N01 N73
    Date: 2005–03
  26. By: Elobeid, Amani; Beghin, John C.
    Abstract: We analyze the impact of trade liberalization, removal of production subsidies, and elimination of consumption distortions in world sugar markets using a partial-equilibrium international sugar model calibrated on 2002 market data and current policies. The removal of trade distortions alone induces a 27% price increase while the removal of all trade and production distortions induces a 48% increase by 2011/12 relative to the baseline. Aggregate trade expands moderately, but location of production and trade patterns change substantially. Protectionist OECD countries (the EU, Japan, the US) experience an import expansion or export reduction and significant contraction in production in unfettered markets. Competitive producers in both OECD countries (Australia) and non-OECD countries (Brazil, Cuba), and even some protected producers (Indonesia, Turkey), expand production when all distortions are removed. Consumption distortions have marginal impacts on world markets and location of production. We discuss the significance of these results in the context of mounting pressures to increase market access in highly protected OECD countries and the impact on non-OECD countries.
    Keywords: agricultural policy, Doha, domestic subsidies, sugar, trade liberalization, WTO.
    Date: 2005–09–26
  27. By: Ziesemer,Thomas (MERIT)
    Abstract: We analyze empirically for Brazil a hypothesis by Stiglitz (2002) saying that devaluations may be more effective in reducing trade deficits than cuts in budget deficits. We find that the Ricardian equivalence does not hold. Devaluations have a stronger impact on the trade deficit than budget deficits when doing the analysis with yearly or monthly data even when the effect from a risk variable obtained from a TARCH estimate is subtracted. Devaluations have an effect that lasts 25 months. A J-or W-curve can be obtained from a polynomial distributed lag estimate. Devaluations can explain almost 19% of consumer price inflation. However, if inflation control is a task assigned to monetary policy rather than exchange rate policy, devaluations are available as an instrument to stabilize the trade balance under shocks rather than keeping exchange rates fixed through sales of reserves. This may avoid overvaluations, speculative attacks and currency crises. The results for the trade balance hold for several updates except for the last one, where budget deficits and exchange rate changes change signs. This suggests a role for imported investments and elasticity pessimism and casts doubts on the role of cutting budget deficits and devaluations in regard to the trade balance. Stability tests suggest that structural change seems to play a role. The change in signs of our estimates may have been caused by a change of exchange rate policies leading to appreciations since June 2004 and by an extraordinarily strong industrial recession in 2003 in some countries. If Ricardian equivalence for the trade balance is imposed by assumption we find a weakly significant N-curve for exchange rate risk jointly with a J-curve for devaluations.
    Keywords: economic development and growth ;
    Date: 2005
  28. By: Forslid, Rikard; Häckner, Jonas; Muren, Astri
    Abstract: This paper first presents stylized evidence showing how the date of the introduction of competition policy is correlated with country size. Smaller countries tend to adopt competition policy later. We thereafter present a simple theoretical model with countries of different size and firms competing à la Cournot. The predictions of the model are consistent with the empirical regularity presented. An implication of our model is that globalization may give very different incentives regarding competition policy for small and large developing countries.
    Keywords: anti-trust; competition policy; trade costs
    JEL: F12 F15 F21 R12
    Date: 2005–08
  29. By: Ludema, Rodney D; Mayda, Anna Maria
    Abstract: The Most-Favored Nation (MFN) clause has long been suspected of creating a free rider problem in multilateral trade negotiations. To address this issue, we model multilateral negotiations as a mechanism design problem with voluntary participation. We show that an optimal mechanism induces only the largest exporters to participate in negotiations over any product, thus providing a rationalization for the Principal supplier rule. We also show that, through this channel, equilibrium tariffs vary according to the Herfindahl index of export shares: higher concentration in a sector reduces free riding and thus causes a lower tariff. Estimation of our model using sector-level tariff data for the US provides strong support for this relationship.
    Keywords: free riding; Most-Favoured Nation (MFN) clause; principal supplier rule
    JEL: D70 F13
    Date: 2005–08
  30. By: Beetsma, Roel; Giuliodori, Massimo; Klaassen, Franc
    Abstract: We explore the international spillovers from fiscal policy shocks via trade in Europe. A fiscal expansion stimulates domestic activity, which leads to more foreign exports and, hence, higher foreign output. To quantify this, we combine a panel VAR model in government spending, net taxes and GDP with a panel trade model. On average, a public spending increase equal to 1% of GDP implies 2.3% more foreign exports over the first two years. The corresponding figure for an equal-size net tax reduction is 0.6%. Both estimates are statistically significant. As far as the effect on foreign activity is concerned, a 1% of GDP spending increase (net tax reduction) in Germany on average raises GDP of trading partners by 0.23% (0.06%) over the first two years. These figures are likely to form lower bounds for the actual effects and suggest that it may be worthwhile to further investigate the benefits from coordinated fiscal expansions (contractions) in response to European-wide cyclical downturns (upswings)
    Keywords: coordination; European Union; Fiscal shocks; impulse responses; trade spillovers
    JEL: E62 F41 F42
    Date: 2005–09

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