nep-int New Economics Papers
on International Trade
Issue of 2005‒10‒29
24 papers chosen by
Martin Berka
Massey University

  1. Trade, Location, and Wages in the United States By Thijs Knaap
  3. On the Mechanics of Trade-Induced Structural Transformation By Sylvain Dessy; Flaubert Mbiekop; Stéphane Pallage
  4. Estimation of own- and cross-price elasticities of disaggregated imported and domestic goods in Russia. By Ivanova Nadezhda
  5. Effects of Tariffs and Real Exchange Rates on Job Reallocation:Evidence from Latin America By Haltiwanger, John; Kugler, Adriana; Kugler, Maurice; Micco, Alejandro; Pagés, Carmen
  6. Do Tariffs Matter for the Extensive Margin of International Trade? An Empirical Analysis By Debaere, Peter; Mostashari, Shalah
  7. European Integration, FDI and the Internal Geography of Trade: Evidence from Western European Border Regions By Miren Lafourcade and Elisenda Paluzie
  8. Trade, growth and geography: A synthetic By David-Pascal Dion
  9. International Trade and Product Variety - a firm level study By Andersson, Martin
  10. International Production Relocation and Exports of Services By Nigel Pain
  11. Political Institutions and Trade Protection By Hein Roelfsema
  12. Prospects for Regional Free Trade in Asia By Gary Clyde Hufbauer; Yee Wong
  13. Ukrainian international trade: How far from the potential? By Maryanchyk Ivan
  14. Tariff Escalation and Invasive Species Risk By Tu, Anh; Beghin, John C.; Gozlan, Estelle
  15. CAP Reform and the Doha Development Agenda By Pitou van Dijck; Gerrit Faber
  16. Regional integration and economic development: An empirical approach By David-Pascal Dion
  18. Trade Liberalisation and Employment Effects in Ukraine By Atanas Christev; Olga Kupets; Hartmut Lehmann
  19. Empirical Relevance of the Hillman Condition for Revealed Comparative Advantage: 10 Stylized Facts By Jeroen Hinloopen; Charles van Marrewijk
  20. Regional integration and economic development: A theoretical approach By David-Pascal Dion
  23. The nature of the relationship between international tourism and international trade: The case of German imports of Spanish wine By Christian Fischer; Luis Alberiko Gil-Alana

  1. By: Thijs Knaap (Utrecht School of Economics)
    Abstract: This paper estimates a spatial wage structure for the United States. I employ the market-access and supplier-access method of Redding and Venables (2004), where access is determined using interstate trade data. Economic geography models predict that state-level wages are correlated to this measure, owing to higher levels of demand and better availability of intermediate goods in easily accessible regions. After correcting for omitted-variable bias with exogenous (first nature) regressors and using the appropriate instruments, I find that the explanatory power of access-variables is weak in this dataset.
    Keywords: Spatial wage structure, United States, Economic Geography
    JEL: R30 J30 F12
    Date: 2005–07
  2. By: Jeffrey G. Williamson
    Abstract: Between 1810 and 1940, a large GDP per capita gap appeared between the industrial core and the poor periphery, the latter producing, increasingly, primary products. Over the same period, the terms of trade facing the periphery underwent a secular boom then bust, peaking in the 1870s or 1890s. These terms of trade trends appear to have been exogenous to the periphery. Additionally, the terms of trade facing the periphery exhibited relatively high volatility. Are these correlations spurious, or are they causal? This Figuerola Lecture, to be given at Carlos III University (Madrid) , argues that they are causal, that secular growth and volatility in the terms of trade had asymmetric effects on core and periphery. On the upswing, the secular rise in its terms of trade had powerful de - industrialization effects in the periphery. Over the full cycle 1810-1940, terms of trade volatility suppressed accumulation and growth in the periphery as well.
    Date: 2005–10
  3. By: Sylvain Dessy; Flaubert Mbiekop; Stéphane Pallage
    Abstract: Gains from trade come from a certain degree of specialisation among trade partners. Specialisation in the case of an agriculture-based developing country might be feared to imply a higher reliance than ever on low skill laobur. Trade might thus be seen as a step away from the much awaited structural transformation of the economy, which can only come with increases in agricultural productivity. In this paper, we suggest that it needs not be the case. We show that trade openness can in fact trigger the structural transformation of such an agrarian society. It can induce a higher reliance on human capital accumulation an produce the necessary productivity gains for an economy to pick up. Our dynamic general equilibrium model provides a clear illustration of the mechanics behind such structural transformation.
    Keywords: Trade openness, skill-supply, agricultural extension services, general equilibrium
    JEL: F16 J21 J22 O11 O24
    Date: 2005
  4. By: Ivanova Nadezhda
    Abstract: The paper employs panel data analysis to estimate price and income elasticities for disaggregated domestic and imported goods using the Budget Survey of Russian households and prices of imported and domestic goods in Russia. The project is implemented using two types of data: the national level data for average households and households differentiated by income, and the data for the average regional households. Three different specifications of the demand equations: the double-logarithmic, the Linear Approximation to the AIDS, and the specification derived from the maximization of the CES utility function, are estimated for eight categories of traded non-food goods. The application of the instrumental-variable estimators to the regional data enables the endogeneity biases of the elasticity coefficients to be substantially corrected. The results of estimations of elasticities of demand for domestic and imported goods obtained for households differentiated by income indicate certain differences between estimated elasticities. This fact may be important for evaluating the impact of implementation of price and tariff policies on consumers with different levels of income.
    Keywords: Russia, imported and import-competing domestic goods, price and income elasticities of demand, Armington elasticities, household expenditures, Russian regions, income deciles.
    JEL: C23 D12 F14 I32 R15
    Date: 2005–10–18
  5. By: Haltiwanger, John; Kugler, Adriana; Kugler, Maurice; Micco, Alejandro; Pagés, Carmen
    Abstract: Openness to international competition can lead to enhanced resource allocation in the long-run. While factor reallocation is essential if net benefits are to be derived from trade liberalization, the process generates costs both for transitioning workers and for employers undergoing personnel turnover. Net welfare gains depend on adjustment costs. Understanding of these issues has been hampered by data limitations. In this paper, we overcome some of these limitations by using new, harmonized measures on job creation and destruction for a number of countries in Latin America. We use these new series to investigate the impact of the removal of protectionism on net employment and gross job reallocation in Latin America. We find a robust pattern showing that reductions in tariffs and exchange rate appreciations increase the pace of job reallocation within sectors. We also find, however, some evidence of declining net employment as trade exposure increases. For example, we find some evidence that in the wake of tariff reductions, there is lower net employment growth.
    Keywords: Tariff reduction, Currency appreciation, Trade exposure, Intra-industry reallocation JEL Classification: F160, F310, O240.
    Date: 2004–08–01
  6. By: Debaere, Peter; Mostashari, Shalah
    Abstract: Explaining the strong growth of world trade with the relatively moderate tariff reductions since WW II is a quantitative challenge. The trade of new goods resulting from tariff reductions, it has been conjectured, might be the missing link. We investigate this hypothesis with very disaggregate trade and tariff data for US bilateral imports between 1989 and 2000. A probit analysis shows that changing tariffs and tariff preferences influence the extensive margin of countries' exports to the US in a statistically significant way. Tariff reductions give way to new goods' being traded, and tariff preferences reduce the extensive margin of trade for the excluded party. However, while we do find evidence of both trade creation and diversion on the extensive margin, our estimates show that country and industry specific factors are far more important than tariffs in explaining why countries start trading new goods and stop trading others.
    Keywords: international trade
    JEL: F1
    Date: 2005–09
  7. By: Miren Lafourcade and Elisenda Paluzie (Universitat de Barcelona)
    Abstract: In this paper we use a gravity model to study the trade performance of French and Spanish border regions relatively to non-border regions, over the past two decades. We find that, controlling for their size, proximity and location characteristics, border regions trade on average between 62% and 193% more with their neighbouring country than other regions, and twice as much if they are endowed with good cross border transport infrastructures. Despite European integration, however, this trade outperformance has fallen for the most peripheral regions within the EU. We show that this trend was linked in part to a shift in the propensity of foreign investors to move their affiliates from the regions near their home market to the regions bordering the EU core.
    Keywords: Trade, Gravity, Border Regions, European Integration, Foreign Direct Investment
    JEL: F15 F23 R12 R58
    Date: 2005
  8. By: David-Pascal Dion (Department of Economics, University of Mannheim)
    Abstract: Economic integration affects economic development through two main channels: growth and localization of the economic activities. The theories of endogenous growth and economic geography enable us to understand these mechanisms. We study in this paper their similarities and specificities before suggesting their useful combination within a single model. Indeed, both theories are based on the same Spence-Dixit-Stiglitz monopolistic competition framework. However, they suggest two different approaches to deal with the impact of economic integration. We consider that a third path, by proposing a synthetic approach, better answers the issues raised in terms of economic convergence and divergence by these two sets of models.
    Keywords: regional economic integration, endogenous growth, economic geography
    JEL: F12 F15 F43 O18 O30 O41 R11 R12 R13
    Date: 2004–03
  9. By: Andersson, Martin (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper adds to the knowledge of the relationship between international trade and product variety by analyzing the relationship between variety in export supply and exports at the firm-level. Using highly detailed firm-level export data in 2003, the paper finds clear empirical evidence for gains from variety in export supply at the level of individual firms. By applying a decomposition methodology related to Hummels & Klenow (2004), it is shown that these gains can be attributed to a larger amount of markets served and larger export sales per market, roughly on a 50-50 basis. The paper also examines how the export variety of firms varies with distance and GDP across markets. The variety of a firm’s export flows to a market increases with the market’s GDP but decreases with distance. The paper estimates that 15 % of the larger export sales to a market with larger GDP can be attributed to a larger number of products exported to the market. Moreover, the paper finds empirical support for quality differentiation on the behalf of individual firms among markets with different GDP. About one third of the effect of GDP on the total value of the export flows to a market can be ascribed to higher average prices per kilogram of the export products. Products shipped over longer distances tend also to have higher average prices per kilogram.
    Keywords: exports; product variety; international trade; multi-product firms
    JEL: D21 F12 O40
    Date: 2005–10–18
  10. By: Nigel Pain
    Abstract: This paper explores the relationship between the relocation of international production and exports of services from the United States using a number of different panel data estimators for six different categories of services. A conventional export demand relationship is augmented by three different measures of the extent of international production relocation by US-based parent companies in service and non-service industries. Our results reveal considerable heterogeneity in the relationship between trade and production relocation across different categories of services and across the sector in which production relocation takes place. We find a significant positive relationship between exports and international production relocation in the majority of non-service sectors, but a significant negative relationship with relocation in service sectors. Intra-firm exports of affiliate services is the only category of trade raised by additional outward investment in all sectors.
    Date: 2004–05
  11. By: Hein Roelfsema
    Abstract: A common claim is that nations should cooperate in environmental policy making. However, there is little empirical support that noncooperative decision making results in too low environmental standards and taxes. We develop a theoretical model and show that if the median voter cares sufficiently for the environment, she has an incentive to delegate policy making to a politician that cares more for the environment than she does herself. By doing so, she mitigates the `race to the bottom' in environmental taxes. In contrast, if environmental policies are determined cooperatively with other countries, the median voter has an incentive to delegate policy making to a politician that cares less for the environment than she does herself, so as to free ride on international environmental agreements.
    Keywords: environmental policy, international policy coordination, strategic delegation.
    JEL: F12 F18 H77 Q2
    Date: 2004–01
  12. By: Gary Clyde Hufbauer (Institute for International Economics); Yee Wong (Massachusetts Institute of Technology)
    Abstract: Frustrated with lackluster momentum in the WTO Doha Round and the Asia Pacific Economic Cooperation (APEC) forum, and mindful of free trade agreement (FTA) networks centered on the United States and Europe, Asian countries have joined the FTA game. By 2005, Asian countries (excluding China) had ratified 14 bilateral and regional FTAs and had negotiated but not implemented another seven. Asian nations are also actively negotiating some 23 bilateral and regional FTAs, many with non-Asian partners, including Australia, Canada, Chile, the European Union, India, and Qatar. China has been particularly active since 2000. It has completed three bilateral FTAs—Thailand in 2003 and Hong Kong and Macao in 2004—and is initiating another 17 bilateral and regional FTAs. However, a regional Asian economic bloc led by China seems distant, even though China accounts for about 30 percent of regional GDP. As in Europe and the Western Hemisphere, many Asian countries are pursuing FTAs with countries outside the region. On present evidence, the FTA process embraced with some enthusiasm in Asia, Europe, and the Western Hemisphere more closely resembles fingers reaching idiosyncratically around the globe rather than politico-economic blocs centered respectively on Beijing, Brussels, and Washington.
    Keywords: Regional free trade agreements, China, trade liberalization, Asia, FTA strategy
    JEL: F13 F14 N75
    Date: 2005–10
  13. By: Maryanchyk Ivan
    Abstract: This paper applies the gravity theory to model Ukrainian trade patterns. I estimate two specifications — Global and Ukrainian. The former is used to forecast the optimal trade volumes and compare with the actual. The latter helps analyzing factors affecting Ukrainian trade. Ukraine explored its trade potential with the EU. On the other hand, having the low potential in 1995, the country achieved even better results in this direction in 2002. Trade with CIS deteriorated despite vast possibilities predicted by the model. Another unexplored opportunity is large economies of G7, Asia, and Americas. Ukraine could benefit liberalizing trade relations with Russia (to gain in trade and reach the potential) and with EU (to safeguard achieved results). Accession to the WTO might help in exploring the potential with G7 and other big economies.
    Keywords: Ukraine, international trade, gravity.
    JEL: F12 F13 F14
    Date: 2005–10–18
  14. By: Tu, Anh; Beghin, John C.; Gozlan, Estelle
    Abstract: We investigate the interface between trade and invasive species (IS) risk, focusing on the existing tariff escalation in agro-forestry product markets and its implication for IS risk. Tariff escalation in processed agro-forestry products exacerbates the risk of IS by biasing trade flows toward increased trade of primary commodity flows and against processed-product trade. We show that reducing tariff escalation by lowering the tariff on processed goods increases allocative efficiency and reduces the IS externality, a win-win situation. We also identify policy menus for trade reforms involving tariffs on both raw input and processed goods, leading to win-win situations.
    Keywords: agro-forestry products, exotic pest, international trade, invasive species, tariff escalation, trade flows.
    Date: 2005–10–18
  15. By: Pitou van Dijck; Gerrit Faber
    Abstract: The CAP reforms that the EU accepted in June 2003 will partially decouple direct income payments to farmers from production and make these payments conditional on cross-compliance. The reforms are driven by enlargement of EU membership, budgetary constraints, mounting pressures from diverse animal welfare, consumer and conservationist non-governmental organisations, and by external pressure for a less distorting agricultural policy. The paper addresses the issue whether these CAP reforms will contribute to an agreement in the Doha Development Round that will liberalize world trade in agricultural products. The paper argues that the 2003 CAP reforms have enabled the EU to participate more constructively in the multilateral trade negotiations compared to the Uruguay Round. However, the reforms do not create room for improved access to EU agricultural markets for third country producers. These countries insist on substantial tariff reductions that, if realized, will force down the relatively high internal EU prices, which would mean a further restructuring of the sector.
    Keywords: Agriculture, Trade Policy, Agricultural Policy, European Union, World Trade Organization.
    JEL: F13 F14 F15 Q18
    Date: 2003–12
  16. By: David-Pascal Dion (Department of Economics, University of Mannheim)
    Abstract: This paper contributes to the empirical literature by providing a quantitative measurement of the influence of regional trade integration on productivity. For this purpose we address the link between trade and productivity thanks to knowledge spillovers in a multi-country model. The interdependence that connects countries in an international web promotes exchanges of goods, services, people, capital and hence ideas, knowledge, innovation, and technology. Economic integration encourages thus both new ideas and their diffusion. We observe that a country's productivity depends on its own R&D efforts as well as the R&D efforts of its trading partners. These R&D spillovers can then spread across countries and sectors. Thanks to the transfer of technology allowed by bilateral trade and investment, regional trade integration has a positive impact on long-term growth.
    Keywords: regional economic integration, endogenous growth, economic geography
    JEL: F12 F15 F43 O18 O30 O41 R11 R12 R13
    Date: 2004–03
  17. By: Sarbajit Chaudhuri (Dept. of Economics, Calcutta University, India); Manash Ranjan Gupta (Economic Research Unit, Indian Statistical Institute, Kolkata, India)
    Abstract: The paper analyzes the implications of trade liberalization on the incidence of child labour in a two-sector general equilibrium framework. The supply function of child labour has been derived from the utility maximizing behaviour of the working families. The paper finds that the effect of trade liberalization on the incidence of child labour crucially hinges on the relative factor intensities of the two sectors.
    Keywords: Child labour, general equilibrium, trade liberalization
    JEL: F10 J10 J13 I28
    Date: 2005–10–23
  18. By: Atanas Christev; Olga Kupets; Hartmut Lehmann
    Abstract: This paper addresses a controversial issue in the current literature, namely the effects of trade liberalisation on labour market job flows. It studies the case of Ukraine where we view the sudden openness of the economy to trade as a quasi-natural experiment. We use disaggregated data on manufacturing industries and customs data on trade flows according to the shifting trade patterns after the disintegration of CMEA trade regime. We provide some first evidence that 3-digit NACE sector job flows are driven by idiosyncratic factors within industries. Other things equal, there is increased labour shedding as larger non-state share in industry relates to less job creation and more job destruction. Trade openness does affect job flows in Ukrainian manufacturing disproportionately according to trade orientation. We find that while trade with CIS decreases job destruction, trade with the EU increases excess reallocation mainly through job creation.
    Keywords: Job creation, job destruction, Ukraine, trade flows
    JEL: E24 F14 J63 P23
    Date: 2005
  19. By: Jeroen Hinloopen; Charles van Marrewijk
    Abstract: The theoretically necessary and sufficient condition for the correspondence between `revealed'comparative advantage and pre-trade relative prices derived by Hillman (1980) is analyzed empricially for virtually all countries of the world over an extended period of time. This yields 10 stylized facts, including that (i) violations of the Hillman condition are small as a share of the number of observations, but quite substantial as a share of the value of world exports, (ii) violations occur relatively frequent in the period 1970 ­ 1984 while they hardly ever occur in the period 1985 ­ 1997, and (iii) violations occur foremost in primary product and natural-resource intensive sectors, for sectors in countries in Africa, the Middle East, Latin America, and Eastern Europe. The condition appears also to be useful for identifying erroneous trade flow classifications.
    Keywords: Balassa index, Hillman condition, comparative advantage
    JEL: C81 D43 F11 F20
    Date: 2005–02
  20. By: David-Pascal Dion (Department of Economics, University of Mannheim)
    Abstract: We use a model of combined endogenous growth and economic geography to study the impact of regional economic integration on the member and non-member countries of a regional union. Regional integration affects growth through interregional technology diffusion symbolized by knowledge spillovers generated at home and spreading to the partner countries. Spillovers flow from the leader to the follower. Following integration, the lagging country has access to a bigger stock of knowledge that fosters an increase in its rate of growth and extends the diversity of its products. Trade in goods - or in FDI - and flows of ideas are two faces of the same coin. We show that the progressive decrease in transaction costs through the phasing out of barriers to trade together with product imitation can foster growth and convergence in the member countries. However, in order to avoid eventual trade and investment diversions, the non-member should envisage to join the integrated zone.
    Keywords: regional economic integration, endogenous growth, economic geography
    JEL: F12 F15 F43 O18 O30 O41 R11 R12 R13
    Date: 2004–03
  21. By: Sarbajit Chaudhuri (Dept. of Economics, Calcutta University, India)
    Abstract: In a production structure reasonable for a developing economy this note shows that there may arise a conflict between the worldwide liberalized trade policies in agriculture, which raise the price of the economy’s primary exportable commodity, and the inflow of foreign capital into the economy. However, if the economy strictly adheres to the different facets of the agricultural trade liberalization policies, e.g. the removal of the indirect farm subsidies, the paper argues that the possible conflict may be avoided. The paper provides a theoretical basis for the removal of the farm subsidies if the economy wants to develop its technologically more advanced sectors with an adequate supply of foreign capital.
    Keywords: Liberalized trade policy in agriculture; foreign capital inflow; rate of return on foreign capital; fertilizer subsidy
    JEL: F10 F13 O19
    Date: 2005–10–23
  22. By: Sarbajit Chaudhuri (Dept. of Economics, Calcutta University, India); Ujjaini Mukhopadhyay (Dept. of Economics, Calcutta University, India)
    Abstract: The paper purports to examine the implications of a free education policy and trade liberalization on the child and adult labour markets in the set-up of a Harris-Todaro type general equilibrium model. It has been found that a hike in the education subsidy or inflow of foreign capital may produce counterproductive results on the supply of child labour in the urban area. Moreover, these policies mar raise the level of urban unemployment of adult labour even when two types of labour are not substitutes to each other. The average income of the urban poor families may also decrease as a consequence.
    Keywords: Child labour, urban unemployment of adult labour, general equilibrium, education subsidy, trade liberalization
    JEL: F10 J10 J13 I28
    Date: 2005–10–23
  23. By: Christian Fischer; Luis Alberiko Gil-Alana (School of Economics and Business Administration, University of Navarra)
    Abstract: This paper deals with the relationship between international trade and tourism. In particular, we focus on the effect that German tourism to Spain has on German imports of Spanish wine. Due to the different stochastic properties of the series under analysis, which display different orders of integration, we use a methodology based on long memory regression models, where tourism is supposed to be exogenous. The results show that at the aggregate level, tourism has an effect on wine imports that lasts between two and nine months. Disaggregating the imports across the different types of wine it is observed that only for red wines from Navarra, Penedús and Valdepeñas, and to a certain extent for sparkling wine, tourism produces an effect on its future demand. From a policy-making perspective our results imply that the impact of tourism on the host economy is not only direct and short-term but also oblique and delayed, thus reinforcing the case for tourism as a means for economic development.
    JEL: F14 C22 Q13 L83
    Date: 2005–10
  24. By: Sarbajit Chaudhuri (Dept. of Economics, Calcutta University, India); Asis Kumar Banerjee (Dept. of Economics, Calcutta University, India)
    Abstract: This paper builds a model of fragmented duopsony in backward agriculture following Basu and Bell (1991) in which the purchasers (traders) have captive markets each but compete in a contested market. We focus on the formation of captive markets through trader-farmer interlinkage in the form of interlinked credit-product contracts (ICPCs). ICPC (or the formation of captive markets) is not an entry-preventive strategy in the model. Its motive is to push the farmers to their reservation income level. However, the captive and the contested markets are linked by the requirement that the reservation income of a captive farmer has to equal the income of a farmer in the contested market. In general, in our model strategic considerations determine the extent of use of ICPCs rather than explaining their existence. In this set-up we examine the effects of trade liberalization in agriculture on the village economy. We show that a reduction in the credit subsidy will raise the size of the captive market, leads to deterioration in the welfare of the farmers and may lower the agricultural productivity of the economy. On the contrary, an increase in the international price of the crop unambiguously improves the welfare of the farmers but the effect on the agricultural productivity is ambiguous. The paper argues that unless the developed countries liberalize trade in their agricultural sector, it would be premature for the developing countries to go in for agricultural trade liberalization and remove all farm subsidies, as this policy may in fact be counterproductive.
    Keywords: Trader, Farmer, Captive segment, Contested segment, Interlinkage, Nash equilibrium, Trade liberalization in agriculture
    JEL: Q13 D43 C70
    Date: 2005–10–23

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