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on International Trade |
| By: | Marianne Baxter; Michael Kouparitsas |
| Abstract: | This paper undertakes an exhaustive search for robust determinants of international trade, where "robustness" is tested using three popular empirical methods. The paper is frankly atheoretical: our goal is solely to establish statistically robust relationships. Along the way, however, we relate our results to the empirical results obtained by prior researchers and to the received theory of international trade. We find that robust variables include a measure of the scale of factor endowments; fixed exchange rates; the level of development; and current account restrictions. Variables that are robust under certain methods and sample periods include exchange rate volatility, an index of sectoral similarity, and currency union. However, the estimated coefficient on currency union is much smaller than estimates obtained by prior researchers. |
| Keywords: | Business cycles ; Trade |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-05-11&r=int |
| By: | Robert C. Feenstra; Barbara J. Spencer |
| Abstract: | We explore the relationship between proximity of buyers and sellers and the organizational form of outsourcing. Outsourcing can be "contractual" in which suppliers undertake specific investments or involve "generic" market transactions. Proximity expands the variety of products sourced through contracts abroad rather than at home, but the range of generic imports is unchanged. A higher-quality foreign workforce raises the variety of contractual trade, but at the expense of generics. We confirm these predictions using data for ordinary versus processing exports from Chinese provinces to destination markets and also the predictions of an extended model that allows for multinational production. |
| JEL: | F1 L24 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11885&r=int |
| By: | Marcus Noland (Institute for International Economics) |
| Abstract: | This paper examines the impact of American public attitudes toward foreign countries on the volume of trade. The issue is whether popular attitudes, as elicited in these surveys, convey any information about trust, risk, or transactions costs beyond what can be explained through standard economic models. The results of this paper suggest that they do, with a one standard deviation increase in warmth of feeling associated with a 20 to 31 percent larger trade volume when evaluated at the sample means. These public attitudes are in turn correlated with indices of cultural affinity and political ideology. A one standard deviation increase in the democracy score is associated with a 5 to 7 percent increase in trade. There might be additional secondary effects if democratization was associated with an increased likelihood of the removal of sanctions or the initiation of preferential trade relations. |
| Keywords: | international trade, gravity model, trust, risk |
| JEL: | F1 F2 Z13 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp05-3&r=int |
| By: | Timothy J. Hatton; Jeffrey G. Williamson |
| Abstract: | Today's labor-scarce economies have open trade and closed immigration policies, while a century ago they had just the opposite, open immigration and closed trade policies. Why the inverse policy correlation, and why has it persisted for almost two centuries? This paper seeks answers to this dual policy paradox by exploring the fundamentals which have influenced the evolution of policy: the decline in the costs of migration and its impact on immigrant selectivity, a secular switch in the net fiscal impact of trade relative to immigration, and changes in the median voter. The paper also offers explanations for the between-country variance in voter anti-trade and anti-migration attitude, and links this to the fundamentals pushing policy. |
| JEL: | F22 J1 O1 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11866&r=int |
| By: | Ricardo Hausmann; Jason Hwang; Dani Rodrik |
| Abstract: | When local cost discovery generates knowledge spillovers, specialization patterns become partly indeterminate and the mix of goods that a country produces may have important implications for economic growth. We demonstrate this proposition formally and adduce some empirical support for it. We construct an index of the "income level of a country's exports," document its properties, and show that it predicts subsequent economic growth. |
| JEL: | F1 O4 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11905&r=int |
| By: | Subhayu Bandyopadhyay; Howard J. Wall |
| Abstract: | With outsourcing comes a perceived tension between the competitive pressures faced by domestic firms and the effect that outsourcing has on domestic workers. To address this tension, we present a general-equilibrium model with an oligopolistic export sector and a competitive import-competing sector. When there is a minimum wage, an outsourcing tax might be desirable and the usual profit-shifting objectives of an export subsidy are mitigated, perhaps completely, because it might lead to higher unemployment. Also, increased international competition has no affect on the level of outsourcing, but the direction of its effect on unemployment and national income depends on the relative factor intensities of the two sectors. Under wage flexibility, an outsourcing tax cannot be justified and the profit-shifting motive is the same as in a model without outsourcing. Further, if export subsidies are not possible due to WTO regulations, it is optimal to subsidize rather than to tax outsourcing. Finally, the effect of increased foreign competition on welfare depends on the relative factor intensities of the two sectors. |
| Keywords: | Contracting out ; Labor market |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2005-074&r=int |
| By: | Jürgen Essletzbichler |
| Abstract: | This paper summarizes the theoretical arguments from evolutionary theory and ecological economics to put the trade-off between regional economic diversity and regional economic growth on stronger theoretical foundations. Hypotheses are tested using an empirical model that links regional economic diversity to stability and growth using data on 177 BEA areas of the continental United States during the period (1975-2002). |
| Keywords: | evolutionary economics, ecological economies, diversity, stbility, regional growth |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:egu:wpaper:0513&r=int |
| By: | Asarkaya, Yakup; Brenton, Paul; Diop, Ndiame |
| Abstract: | For Rwanda, one of the poorest countries in the world, trade offers the most effective route for substantial poverty reduction. But the poor in Rwanda, most of whom are subsistence farmers in rural areas, are currently disconnected from markets and commercial activities by extremely high transport costs and by severe constraints on their ability to shift out of subsistence farming. The constraints include lack of access to credit and lack of access to information on the skills and techniques required to produce commercial crops. The paper is based on informatio n from the household survey and a recent diagnostic study of constraints to trade in Rwanda. It provides a number of indicative simulations that show the potential for substantial reductions in poverty from initiatives that reduce trade costs, enhance the quality of exportable goods, and facilitate movement out of subsistence into commercial activities. |
| Keywords: | Crops & Crop Management Systems,Rural Poverty Reduction,Rural Development Knowledge & Information Systems,Economic Theory & Research,Poverty Monitoring & Analysis |
| Date: | 2005–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3784&r=int |
| By: | Matthieu Bussière (European Central Bank); Jarko Fidrmuc (Ludwig-Maximilians-Universität München); Bernd Schnatz (European Central Bank) |
| Abstract: | The aim of the paper is to analyse the factors behind the rapid trade integration of the Central and Eastern European countries with the euro area in the past ten years and to gauge the potential for further integration. We use as benchmark an enhanced gravity model estimated with a large sample of bilateral trade flows across 61 countries since 1980. We show that a careful examination of the fixed effects of the model 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 take the transition process properly into account. As an alternative, we propose a two-stage “out-of-sample” approach. The results suggest that trade integration between most of the largest Central and Eastern European countries and the euro area is already relatively advanced, while the Baltic countries as well as the South Eastern European countries still have significant scope for integration. |
| Date: | 2005–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:onb:oenbwp:105&r=int |
| By: | Subhayu Bandyopadhyay (West Virginia University and IZA Bonn); Howard J. Wall (Federal Reserve Bank of St. Louis) |
| Abstract: | With outsourcing comes a perceived tension between the competitive pressures faced by domestic firms and the effect that outsourcing has on domestic workers. To address this tension, we present a general-equilibrium model with an oligopolistic export sector and a competitive import-competing sector. When there is a minimum wage, an outsourcing tax might be desirable and the usual profit-shifting objectives of an export subsidy are mitigated, perhaps completely, because it might lead to higher unemployment. Also, increased international competition has no affect on the level of outsourcing, but the direction of its effect on unemployment and national income depends on the relative factor intensities of the two sectors. Under wage flexibility, an outsourcing tax cannot be justified and the profitshifting motive is the same as in a model without outsourcing. Further, if export subsidies are not possible due to WTO regulations, it is optimal to subsidize rather than to tax outsourcing. Finally, the effect of increased foreign competition on welfare depends on the relative factor intensities of the two sectors. |
| Keywords: | outsourcing, oligopoly, minimum wage |
| JEL: | F1 F2 J3 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1892&r=int |
| By: | Jakob Roland Munch (Department of Economics, University of Copenhagen); Jan Rose Skaksen (Copenhagen Business School) |
| Abstract: | This paper studies the impact of outsourcing on individual wages. In contrast to the standard approach in the literature, we focus on domestic outsourcing as well as foreign outsourcing. By using a simple theoretical model, we argue that, if outsourcing is associated with specialization gains arising from an increase in the division of labor, domestic outsourcing tends to increase wages for both unskilled and skilled labor. We use a panel data set of workers in Danish manufacturing industries to show that domestic and foreign outsurcing affect wages as predicted by the theory. |
| Keywords: | outsourcing; comparative advantage; specialization; wages |
| JEL: | F16 J31 C23 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:0528&r=int |
| By: | Kristian Behrens (CORE, Université Catholique de Louvain); Andrea R. Lamorgese (Research Department, Bank of Italy); Gianmarco I.P. Ottaviano (Università di Bologna, FEEM and CEPR); Takatoshi Tabuchi (Faculty of Economics, University of Tokyo) |
| Abstract: | We propose a theory-based approach to testing the presence of the 'home market effect' in a multi-country world. Our framework extends Krugman's (1980, Am. Econ. Rev. 70(5), 950-959) model, in which the appeal of a country as a production site depends on both the relative size of its domestic market ('attraction') and its relative proximity to foreign markets ('accessibility'). We show that the extended model predicts a home market effect only after the actual production and trade data have been corrected for the impact of countries' differential access to world markets. This can be achieved through a simple theory-based linear filter. We propose a series of non-parametric sign- and rank-tests that are closely related to those used in factor proportions theory. When applied to a cross-section of OECD and non-OECD countries, the filtered data performs better than the raw one and our results strongly support the presence of home market effects. |
| Keywords: | home market effect; new trade theory; multi-country models; market potential; economic geography |
| JEL: | D58 F12 F17 R12 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_561_05&r=int |
| By: | James E. Rauch; Vitor Trindade |
| Abstract: | Some cultural goods, like clothes and films, are consumed socially and are thus characterized by the same consumption network externalities as languages. At the same time, producers of new cultural goods in any one country draw on the stock of ideas generated by previous cultural production in all countries. For such goods, costless trade and communication tend to lead to the dominance of one cultural style, increasing utility in the short run but reducing quality and generating cultural stagnation in the long run. Increasing trade costs while keeping communication costs low may reduce welfare by stimulating production of cultural goods that are "compatible" with the dominant style, thereby capturing consumption network externalities, but that add little to the stock of usable ideas. A reform of cultural policy suggested by our two-country analysis could be to remove import restrictions in the smaller country and replace them with subsidies to the fixed costs of production of new cultural goods in its traditional style. |
| JEL: | F12 F13 F15 Z10 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11890&r=int |
| By: | Ugur Ciplak; Eray M. Yucel |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0401&r=int |
| By: | Paolo Epifani; Gino Gancia |
| Abstract: | This paper investigates the relationship between trade openness and the size of government, both theoretically and empirically. We show that openness can increase the size of governments through two channels: (1) a terms of trade externality, whereby trade lowers the domestic cost of taxation and (2) the demand for insurance, whereby trade raises risk and public transfers. We provide a unified framework for studying and testing these two mechanisms. First, we show how their relative strength depends on a key parameter, the elasticity of substitution between domestic and foreign goods. Second, while the terms of trade externality leads to inefficiently large governments, the increase in public spending due to the demand for insurance is optimal. We show that large volumes of trade may result in welfare losses if the terms of trade externality is strong enough while small volumes of trade are always beneficial. Third, we provide new evidence on the positive association between openness and the size of government and test whether it is consistent with the terms of trade externality or the demand for insurance. Our findings suggest that the positive relationship is remarkably robust and that the terms of trade externality may be the driving force behind it, thus raising warnings that globalization may have led to inefficiently large governments. |
| Keywords: | Openness, government size, terms of trade externality, elasticity of substitution between imports and exports |
| JEL: | F1 H1 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:915&r=int |
| By: | Alka Chadha (Department of Economics, National University of Singapore) |
| Abstract: | This paper sheds light on the product cycle and neotechnology theories of trade in the context of generic pharmaceuticals. The paper studies the export performance of 177 Indian pharmaceutical firms for the post- liberalization period 1991-2004. The results indicate that technology proxied by foreign patent rights has a positive impact on exports. This suggests that developing countries with innovation skills for process innovations are capable of penetrating international markets in the later stages of the product cycle by using patents, which were the barriers to trade in the early stages of the product cycle. Thus, Indian pharmaceutical firms adept at reverse-engineering of brandname drugs have an opportunity to enter the global generic market for off-patent drugs. |
| Keywords: | Product cycle, Exports, Foreign patents, Pharmaceuticals |
| JEL: | L65 O34 F1 |
| URL: | http://d.repec.org/n?u=RePEc:nus:nusewp:wp0511&r=int |
| By: | Fabiosa, Jacinto F.; Beghin, John C.; Dong, Fengxia; Elobeid, Amani; Fuller, Frank H.; Hart, Chad E.; Matthey, Holger; Tokgoz, Simla; Yu, Tun-Hsiang; FAPRI, U Missouri Columbia; Wailes, Eric |
| Abstract: | Senator Chambliss, chair of the U.S. Senate Committee on Agriculture, Nutrition, and Forestry, asked the Food and Agricultural Policy Research Institute (FAPRI) to analyze the latest U.S. proposal to the Doha round of WTO negotiations (see Appendix 1, U.S. Proposal for WTO Agriculture Negotiations, USTR, October 10, 2005). While the U.S. proposal provides many concrete steps to reduce farm support and trade distortions, it does not provide all necessary information for quantitative analysis of the proposal. FAPRI, through consultations with economists and staffers of the U.S. Senate Committee on Agriculture, Nutrition and Forestry, Office of the United States Trade Representative, and U.S. Department of Agriculture, elaborated a complementary set of policy assumptions to carry the quantitative analysis. The analysis is conducted in deviation from the baseline of the FAPRI 2005 U.S. and World Agricultural Outlook. New policies put in place since the 2005 baseline was established have been accommodated to separate the impact of the policy scenario from the full set of policy assumptions. |
| Keywords: | WTO, Doha, trade reform, domestic support, market access |
| JEL: | F1 |
| Date: | 2005–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12488&r=int |
| By: | Andrea Zaghini (Banca d'Italia) |
| Abstract: | The paper analyses the most recent evolution of the trade specialisation pattern in the 10 new EU Member States. Relying on the empirical approach of the Markov transition matrices it analyses both the changes in the external shape of the distribution of comparative advantages and the intra-distribution dynamics. The new Members show an indeed dynamic trade pattern; they were able to gain comparative advantages relatively fast in sectors in which they were lagging behind at the beginning of the transition process, notably in some “high tech” products. In addition, many specialisation improvements occurred in those items for which the world demand expands at the fastest rate, hinting to the possibility of an increase in their trade shares on world markets. Both findings can be explained by the initial need to rebuild and modernise the entire capital stock, the significant skilled-labour force endowment, and the large FDI inflows that allowed them to skip intermediate states of technological development. |
| Keywords: | Revealed comparative advantages, international specialization model, distribution dynamics |
| JEL: | F14 F15 E23 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_568_05&r=int |
| By: | Badri Narayanan G (Indira Gandhi Institute of Development Research) |
| Abstract: | In recent years, employment has fallen in the organised textile sector despite an aggregate rise in output and capital. This paper analyses the role of various factors that influence employment using 3-digit classification of Indian textile industry from 1973-74 to 1997-98. Our results document that the fall in employment can be explained in terms of rise in wages, output shocks, lack of capital utilisation and trade restrictiveness pertaining to Multi Fibre Arrangement (MFA). Environmental regulations enhance employment in the sub-sectors that are most likely to be influenced by them. The results are robust to dierent measures of capital, its utilisation and disaggregation to statelevel. We also illustrate that in a post-MFA regime, employment in the sector is bound to increase owing to absence of trade restrictions and prospects of huge investment in general and in complying with environmental regulations, though the labour regulations might affect the magnitude of that increase. |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2005-005&r=int |
| By: | Maria Inés Terra (Departmento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Marisa Bucheli (Departmento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Silvia Laens (CINVE); Carmen Estrades (Departmento de Economía, Facultad de Ciencias Sociales, Universidad de la República) |
| Abstract: | Uruguay is a small economy. Its integration to MERCOSUR has increased the exposure to regional macroeconomic inestability. The aim of this paper is to assess the impact of regional integration on labour market and poverty. We estimated wage differentials between labour categories, finding a 60% wage gap between formal and informal workers. A CGE model with an efficiency wage specification for unskilled labour was built. Results show that regional shocks deeply affect Uruguayan economy. The consideration of efficiency wage model is particularly important when shocks lead to a reallocation of resources towards sectors intensive in unskilled labour. A subsidy on formal, unskilled labour could contribute to decrease informality and therefore increase GDP, but this type of policy need to be carefully implemented, because it may have negative effects on investment. Finally, the effects on poverty and income distribution obtained through microsimulations are consistent with the results of the CGE experiments. |
| Keywords: | Uruguay, labour market, general equilibrium model, regional integration, efficiency wage, microsimulation, poverty |
| JEL: | D58 I32 F15 F16 J41 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:ude:wpaper:1205&r=int |