nep-int New Economics Papers
on International Trade
Issue of 2005‒12‒01
twenty papers chosen by
Martin Berka
Massey University

  1. Can Comparative Advantage Explain the Growth of US Trade? By Alejandro Cuñat; Marco Maffezzoli
  2. Trade, Production Sharing and the International Transmission of Business Cycles By Linda Tesar; Ariel Burstein; Chris Kurz
  3. Import Protection as Export Destruction By Beverly Lapham; Hiroyuki Kasahara
  4. Factor Price Equality and the Economies of the United States By Andrew B. Bernard; Stephen Redding; Peter K. Schott
  5. Rising Trade Costs? Agglomeration and Trade with Endogenous Transaction Costs By Gilles Duranton; Michael Storper
  6. The Locational Impact of Wal-Mart Entrance: A Panel Study of the Retail Trade Sector in West Virginia By Michael J. Hicks; Kristy Wilburn
  7. Trade integration of Central and Eastern European countries - lessons from a gravity model By Matthieu Bussière; Jarko Fidrmuc; Bernd Schnatz
  8. Heterogeneous Plants and Trade: Lessons from the Canada-US FTA By Michael Rolleigh
  9. Endogenous Borrowing Constraints in the Presence of Shipping Costs By Stephane Guibaud
  10. Business Cycle Synchronization and Regional Integration: A Case Study for Central America By Norbert Fiess
  11. Determinants of Vertical Intra-Industry Trade of Turkey: Panel Data Approach By Pýnar Narin Emirhan
  12. Antidumping: Prospects for Discipline from the Doha Negotiations By J. Michael Finger; Andrei Zlate
  13. Openness Can be Good for Growth: The Role of Policy Complementarities By Roberto Chang; Linda Kaltani; Norman Loayza
  14. An unbalanced growth path for the global economy By Christopher Hajzler; Cristina Echevarria
  15. Foreign and Domestic Firms in Colombia: Exports, Imports and External Debt By Peter Rowland
  16. Expansionary Effects of the Welfare State in a Small Open Economy By Hassan Molana; Catia Montagna
  17. The Log of Gravity By Joao Santos Silva; Silvana Tenreyro
  18. Subsidizing Inventory: A Theory Trade Credit and Prepayment By Arup Daripa; Jeffrey Nilsen
  19. Building and Linking a Microsimulation Model to a CGE Model : the South African Microsimulation Model By Nicolas Hérault
  20. Do domestic firms benefit from the presence of MNEs? The case of the Italian manufacturing sector By Filippo Reganati; Edgardo Sica

  1. By: Alejandro Cuñat; Marco Maffezzoli
    Abstract: We present a dynamic comparative advantage model in which moderate reductions in trade costs cangenerate sizable increases in trade volumes over time. A fall in trade costs has two effects on thevolume of trade. First, for given factor endowments, it raises the degree of specialization of countries,leading to a larger volume of trade in the short run. Second, it raises the factor price of each country'sabundant production factor, leading to diverging paths of relative factor endowments across countriesand a rising degree of specialization. A simulation exercise shows that a fall in trade costs over timeproduces a non-linear increase in the trade share of output as in the data. Even when elasticities ofsubstitution are not particularly high, moderate reductions in trade costs lead to large trade volumesover time. We present further empirical evidence in favour of our approach, documenting the linkbetween trade liberalization and the cross-country divergence of investment shares.
    Keywords: International Trade, Heckscher-Ohlin
    JEL: F1 F4
    Date: 2005–01
  2. By: Linda Tesar; Ariel Burstein (Economics University of Michigan); Chris Kurz
    Keywords: business cycle sychronization, production sharing,
    JEL: F23 F41
    Date: 2005
  3. By: Beverly Lapham; Hiroyuki Kasahara
    Keywords: Trade Liberalization, Structural Estimation
    JEL: F13 E23 C33
    Date: 2005
  4. By: Andrew B. Bernard; Stephen Redding; Peter K. Schott
    Abstract: We develop a methodology for identifying departures from relative factor price equalityacross regions that is valid under general assumptions about production, markets and factors.Application of this methodology to the United States reveals substantial and increasingdeviations in relative skilled wages across labor markets in both 1972 and 1992. Thesedeviations vary systematically with labor markets industry structure both in cross section andover time.
    Keywords: Factor Price Equality, Regional Wages, Neoclassical Trade Theory, Labor Market Areas
    JEL: F16 J30 R23 C14
    Date: 2005–07
  5. By: Gilles Duranton; Michael Storper
    Abstract: While transport costs have fallen, the empirical evidence also points at rising total trade costs.In a model of industry location with endogenous transaction costs, we show how and underwhich conditions a decline in transport costs can lead to an increase in the total cost of trade.
    Keywords: Transaction costs, trade costs, transport costs, agglomeration, vertically linkedindustries
    JEL: D23 D24 R12
    Date: 2005–04
  6. By: Michael J. Hicks (Air Force Institute of Technology); Kristy Wilburn (Marshall University)
    Abstract: This paper examines the retail trade sector in 14 West Virginia counties from 1989 through 1996. A series of random effects models are tested on these panel data to measure the effect of the entrance of Wal- Mart stores in the county and in adjacent counties, and business cycle effects. This paper differs from earlier research in that it controls for endogeneity in the entrance decision of Wal-Mart in faster growing counties. This research finds a dramatic net increase in employment and wages in the Retail Trade sector (SIC 52) and a mild increase in the number of firms. The study finds a per capita wage increase in this industry, which is surprising but small. The paper concludes with further research recommendations.
    JEL: R
    Date: 2005–11–21
  7. By: Matthieu Bussière (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany); Jarko Fidrmuc (Oesterreichische Nationalbank, University of Munich and Comenius University Bratislava); Bernd Schnatz (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany)
    Abstract: This paper analyses the rapid trade integration of the Central and Eastern European countries (CEECs) with the euro area in the past ten years and draws implications for further integration. We use as benchmark an enhanced gravity model estimated for a large sample of bilateral trade flows across 61 countries since 1980. We show that a careful examination of the model's fixed effects is crucial for the proper interpretation of the results - simply extracting the predicted values of the regression (“in-sample”) – as commonly done in the literature – leads to distorted results as it fails to properly account for the transition process. We therefore propose a two-stage “out-ofsample” approach. The results suggest that trade integration between most of the largest CEECs and the euro area is already relatively well advanced, while some Baltic and South Eastern European countries still have significant scope for trade integration.
    Keywords: Gravity Model, Panel Data, Central and Eastern European Countries, Free Trade Agreement, Transition Economies.
    JEL: C23 F15 F14
    Date: 2005–11
  8. By: Michael Rolleigh (Economics Williams College)
    Date: 2005
  9. By: Stephane Guibaud
    Keywords: Financial and Trade Integration, Enforcement Frictions, Recursive Contracts
    JEL: F34 F36 F15
    Date: 2005
  10. By: Norbert Fiess
    Abstract: In early January 2003, the United States and Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua launched official negotiations for the Central American Free Trade Agreement (CAFTA), a treaty that would expand NAFTA-style trade barrier reductions to Central America. With deeper trade integration between Central America and the US, it is expected that there will be closer links in business cycles among Central America and the US. The aim of this paper is to assess the degree of business cycle synchronization between Central America and the US. This is not only relevant for a better understanding of the influence of important trading partners on the business cycle fluctuations in the domestic economy. It has also an important implication in terms of evaluating the costs and benefits of macroeconomic coordination.
    JEL: F15 F42
  11. By: Pýnar Narin Emirhan (Department of Economics, Faculty of Business, Dokuz Eylül University)
    Abstract: Intra-industry trade (IIT) is the simultaneous export and import of commodities that are classified in the same industry group. The literature on IIT deals with horizontal IIT and vertical IIT, which are concerned with trade of products that are at the same quality and those with different qualities, respectively. Vertical IIT accounts for 80 percent of total IIT of Turkey, therefore this paper focuses on vertical IIT. The aim of this study is to analyze the determinants of vertical IIT between Turkey and 9 major trading partners (namely, Belgium, France, Germany, Greece, Italy, Netherlands, Spain, United Kingdom and United States of America) for the 1989-2002 period by using panel data approach. The findings of this paper will shed a light on the future foreign trade policy of Turkey.
    Keywords: Intra-industry trade, vertical differentiation, panel data
    JEL: F14
  12. By: J. Michael Finger (World Bank); Andrei Zlate (Boston College)
    Abstract: Maintaining an economically sensible trade policy is often a matter of managing pressures for exceptions – for protection for a particular industry. Good policy becomes a matter of managing interventions so as to strengthen the politics of openness and liberalization---of avoiding rather than of imposing such restrictions in the future. In the 1990s, antidumping measures emerged as the instrument of choice to accomplish this, despite the fact that they satisfy neither of these criteria. Its economics is ordinary protection; it considers the impact on the domestic interests that will benefit while excluding the domestic interests that will bear the costs. Its unfair trade rhetoric undercuts rather than supports a policy of openness. As to what would be better, the key issue in a domestic policy decision should be the impact on the domestic economy. Antidumping reform depends less on the good will of WTO delegates toward the "public interest" than on those business interests that are currently treated by trade law as bastards insisting that they be given the same standing as the law now recognizes for protection seekers.
    Keywords: Doha round; antidumping; countervailing measures; safeguards; non-tariff barriers to trade; WTO/GATT
    JEL: F13 K33 N70 O24
    Date: 2005–11–17
  13. By: Roberto Chang; Linda Kaltani; Norman Loayza
    Abstract: This paper studies how the effect of trade openness on economic growth depends on complementary reforms that help a country take advantage of international competition. This issue is illustrated with a simple Harris-Todaro model where output gains after trade liberalization depend on the degree of labor market flexibility. In that model, trade protection may ameliorate the problem of underemployment (and underproduction) in sectors affected by labor market distortions; hence trade liberalization unambiguously increases per capita income only when labor markets are sufficiently flexible. We then present some panel evidence on how the growth effect of openness depends on a variety of structural characteristics. For this purpose, we use a non-linear growth regression specification that interacts a proxy of trade openness with proxies of educational investment, financial depth, inflation stabilization, public infrastructure, governance, labor-market flexibility, ease of firm entry, and ease of firm exit. We find that the growth effects of openness are positive and economically significant if certain complementary reforms are undertaken.
    JEL: E61 F13 F43 O40
    Date: 2005–11
  14. By: Christopher Hajzler; Cristina Echevarria (Department of Economics University of Saskatchewan)
    Keywords: Trade, sectoral composition, TFP, comparative advantage
    JEL: F43 O14 O41
    Date: 2005
  15. By: Peter Rowland
    Abstract: This is the third of three papers investigating the differences between foreign and domestic firms in Colombia. The study uses a dataset containing the 2003 balance sheets and income statements for some 7,001 firms obtained from the Superintendencia de Sociedades. This dataset is crossed with a database of the Banco de la República, containing data on exports, imports and external debt. Foreign firms are shown to both export and import more than their domestic counterparts. Foreign firms are also shown to hold much more external debt than their domestic counterparts. The paper also studies different business sectors, and it is shown that there are large variations between different sectors in terms of exports, imports and external debt.
    Date: 2005–10–31
  16. By: Hassan Molana; Catia Montagna
    Abstract: We examine the relationship between welfare state policies and economic performance in a small open economy with (i) free trade in final goods and international capital mobility, and (ii) aggregate increasing returns to scale. Contrary to the conventional wisdom, we find that a retrenchment of welfare programmes is not an inevitable consequence of economic integration. Instead, by improving the exploitation of aggregate scale economies, social expenditure policies and international openness complement each other in facilitating an improvement in economic performance that can sustain a more generous welfare protection.
    Keywords: Welfare state; circular causation; international trade; capital mobility.
    JEL: E6 F1 F4 H3 J5
    Date: 2005–10
  17. By: Joao Santos Silva; Silvana Tenreyro
    Abstract: Although economists have long been aware of Jensen's inequality, many econometric applicationshave neglected an important implication of it: the standard practice of interpreting the parameters oflog-linearized models estimated by ordinary least squares as elasticities can be highly misleading inthe presence of heteroskedasticity. This paper explains why this problem arises and proposes anappropriate estimator. Our criticism to conventional practices and the solution we propose extends toa broad range of economic applications where the equation under study is log-linearized. We developthe argument using one particular illustration, the gravity equation for trade, and apply the proposedtechnique to provide new estimates of this equation. We find significant differences betweenestimates obtained with the proposed estimator and those obtained with the traditional method. Thesediscrepancies persist even when the gravity equation takes into account multilateral resistance termsor fixed effects
    Keywords: Elasticities, Gravity equation, Heteroskedasticity, Jensens inequality, Poisson regression,Preferential-trade agreements
    JEL: C13 C21 F10 F11 F12 F15
    Date: 2005–07
  18. By: Arup Daripa (School of Economics, Mathematics & Statistics, Birkbeck College); Jeffrey Nilsen
    Abstract: We propose a simple theory of trade credit and prepayment. A downstream firm trades off inventory holding costs against lost sales. Lost final sales impose a negative externality on the upstream firm. We show that allowing the downstream firm to pay with a delay, an arrangement known as “trade credit,” is precisely the solution to the problem. Solving a reverse externality accounts for the use of prepayment for inputs, even in the absence of any risk of default by the downstream firm. We clarify previously unexplained facts including the universal presence of a zerointerest component in trade credit terms, and the non-responsiveness of interest charges to fluctuations in the bank rate as well as market demand. We explain why trade credit is short term credit and why the level of provision is negatively related to sales and profit and inventory, but positively related to the profit margin. Finally, we show that under trade credit, inventory investment is invariant to the real interest rate for a wide range of parameters, explaining the puzzle posed by Blinder and Maccini (1991). This implies that standard empirical inventory models would gain explanatory power by including the subsidy effect of accounts payable.
    Keywords: Trade credit, prepayment, externality, subsidy, the Burkart-Ellingsen critique, inventory investment
    JEL: D2 E5
    Date: 2005–11
  19. By: Nicolas Hérault (CED, IFReDE/GRES, Université Montesquieu-Bordeaux IV)
    Abstract: This paper describes the project of building a micro-macro model for South Africa. The aim is to deal with the links between globalisation and poverty or inequality, explaining the effects of trade liberalisation on poverty and inequality. The main issue of interest is the effect of international trade on households (especially their income); some changes may contribute to reduce poverty while other changes could work against the poor. The approach presented in this paper relies on combining a macro-oriented CGE model and a microsimulation model. Combining these two models the microeconomic effects (on poverty and inequality) of a macroeconomic policy (trade liberalisation) can be analysed. The paper gives details about the microsimulation model and the "top-down" approach used to link the microsimulation model and the CGE model. In addition, the methodology discussed is applied to South African data and a selection of preliminary results using this approach are presented and discussed. The main concern regarding poor households is whether the decrease in real (or nominal) earnings for formal low-skilled and skilled workers is offset by the upward trend in formal employment levels. This appears to be the case implying a decrease in poverty due to trade liberalisation. Although whites emerge as the main winners, the increase in inter-group inequality is more than compensated by the decrease in intra-group inequality. Ce papier décrit le projet d’élaboration d’un modèle micro-macro pour l'Afrique du Sud. L’objectif est d’examiner les liens entre la mondialisation et la pauvreté ou l'inégalité, en expliquant les effets de la libéralisation commerciale sur ces deux indicateurs de progrès social. La préoccupation principale concerne l'effet du commerce international sur les ménages (particulièrement, leur revenu), certains changements pouvant contribuer à réduire la pauvreté, tandis que d'autres étant susceptibles d’aggraver les privations. L'approche présentée dans cet article est fondée sue la combinaison d’un modèle CGE orienté-macro et d’un modèle de micro-simulation. En combinant ces deux modèles, les effets micro-économiques (sur la pauvreté et l'inégalité) d'une politique macro-économique (libéralisation commerciale) peuvent être analysés. L’étude spécifie le modèle de micro-simulation et l'approche « top-down », employés pour relier les modèles de micro-simulation et CGE.En outre, la méthodologie discutée est appliquée aux données sud-africaines, et des résultats préliminaires, fondés sur cette approche, sont présentés et discutés. Un élément central de l’analyse concernant les ménages pauvres est d’examiner si la diminution des revenus réels (ou nominaux) des ouvriers qualifiés ou faiblement qualifiés du secteur formel est compensée par la tendance à la hausse de l’emploi formel. L’étude montre que cela semble être le cas, ce qui implique une diminution de la pauvreté due à la libéralisation commerciale. Bien que les bénéficiaires principaux soient les « blancs », l'augmentation de l'inégalité inter-groupes est plus que compensée par la diminution de l'inégalité intra-groupes. (Full text in english)
    JEL: C68 E17 O55
    Date: 2005–09
  20. By: Filippo Reganati; Edgardo Sica
    Abstract: According to the main economic literature, foreign direct investment (FDI) from Multinational Enterprises (MNEs) can generate positive externalities to host countries, increasing the domestic firms’ productivity. Recently, the attention of researchers has moved from the analysis of ''horizontal'' spillovers – i.e. those benefits to local enterprises at an intraindustrial level - towards the investigation of ''vertical'' spillovers phenomenon – i.e. the diffusion of positive effects on domestic economies at an inter-industry level. In this paper we investigate the presence of both these two kinds of spillovers using a firm-level panel data of domestic and foreign firms in the Italian manufacturing sector. The results show the lack of ''horizontal'' spillovers and, at the same time, the presence of ''vertical'' ones.
    Keywords: FDI; MNEs; Spillovers; Italian manufacturing sector
    Date: 2005–11

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