nep-int New Economics Papers
on International Trade
Issue of 2006‒02‒19
twenty-one papers chosen by
Martin Berka
Massey University

  1. Globalisation and the mix of wage and profit taxes By Haufler, Andreas; Klemm, Alexander; Schjelderup, Guttorm
  2. Cross-Border Flows of People, Technology Diffusion and Aggregate Productivity By Thomas Barnebeck Andersen; Carl-Johan Dalgaard
  3. SUNK COSTS HYSTERESIS IN SPANISH MANUFACTURING EXPORTS By Juan A. Máñez; Juan A. Sanchis Llopis; María E. Rochina
  4. Vying for Foreign Direct Investment: An EU-Type Model of Tax Competition By Razin, Assaf; Sadka, Efraim
  5. Trade and the Great Divergence: The Family Connection By Galor, Oded; Mountford, Andrew
  6. Modeling Spatial Sustainability: Spatial Welfare Economics versus Ecological Footprint By Fabio Grazi; Jeroen C.J.M. van den Bergh; Piet Rietveld
  7. Home Market Effect and Regulation Costs --Homogeneous Firm and Heterogeneous Firm Trade Models By Toshihiro Okubo
  8. FDI and trade: complements and substitutes By Jose Pedro Pontes
  9. Rags in the High Rent District: The Evolution of Quota Rents in Textiles and Clothing By Francois, Joseph; Wörz, Julia
  10. Macroeconometric Modelling with a Global Perspective By M. Hashem Pesaran; Ron Smith
  11. Trade Bloc Formation in Interwar Japan --Gravity Model Analysis-- (forthcoming in Journal of the Japanese and International Economies) By Toshihiro Okubo
  12. Assessing the Effects of EU Trade Preferences for Developing Countries By Persson, Maria; Wilhelmsson, Fredrik
  13. What Are EU Trade Preferences Worth for Sub-Saharan Africa and Other Developing Countries? By Fabien Candau; Sebastien Jean
  14. Trade Marks and Market Value in UK Firms By Christine Greenhalgh; Mark Rogers
  15. Antitrust in Open Economies By Francois, Joseph; Horn, Henrik
  16. What Drives Regional Trade Agreements that Work? By Tammy Holmes
  17. Intra-industry Trade and Production Networks By Toshihiro Okubo
  18. Introducing Imperfect Competition in CGE Models: Technical Aspects and Implications By Roberto Roson
  19. Je t'aime, moi non plus : Bilateral Opinions and International Trade By Anne-Celia Disdier; Thierry Mayer
  21. Is There a Euro Effect on Trade? An Application of End-of-Sample Instability Tests for Panel Data. By Tommaso Mancini-Griffoli; Laurent L. Pauwels

  1. By: Haufler, Andreas; Klemm, Alexander; Schjelderup, Guttorm
    Abstract: This paper analyses the development of the ratio of corporate taxes to wage taxes using a simple political economy model with internationally mobile and immobile firms. Among other results, our model predicts that countries reduce their corporate tax rate, relative to the wage tax, either when preferences for public goods increase or when a rising share of capital is employed in multinational firms. The predicted relationships are tested using panel data for 23 OECD countries for the period 1980 through 2001. The results of the empirical analysis support our central hypotheses.
    JEL: F23 F15 H73 H20
    Date: 2006–02
  2. By: Thomas Barnebeck Andersen (Department of Economics, University of Copenhagen); Carl-Johan Dalgaard (Department of Economics, University of Auckland)
    Abstract: A number of empirical studies have investigated the hypothesis that cross-border flows of goods (international trade) and capital (FDI) lead to international technology diffusion. The contribution of the present paper consists in examining an as yet neglected vehicle for technology diffusion: cross-border flows of people. We find that increasing the intensity of international travel, for the purpose of business and otherwise, by 1% increases the level of aggregate total factor productivity and GDP per worker by roughly 0.2%.
    Keywords: technology diffusion; productivity; IV estimation
    JEL: O47 C21
    Date: 2006–02
  3. By: Juan A. Máñez (Universitat de València); Juan A. Sanchis Llopis (Universitat de València); María E. Rochina (Universitat de València)
    Abstract: This paper tests the sunk costs explanation for hysteresis in exports using a sample of Spanish manufacturing firms for the period 1990-2000. The data are drawn from the Spanish Encuesta sobre Estrategias Empresariales. To obtain consistent estimates for sunk costs, we control for all other sources of persistence and use a dynamic random effects multivariate probit model that is estimated through pseudo simulated maximum-likelihood techniques. Our results support the sunk costs explanation for hysteresis. Furthermore, regional spillovers and some firm characteristics such as size, productivity or vertical and horizontal product differentiation are found to have a significant influence on the probability of exporting. El objetivo de este artículo es analizar el papel de los costes irrecuperables como factorexplicativo de la histéresis de las exportaciones. Para ello se hace uso de una muestra deempresas industriales españolas para el período 1999-2000, que proviene de la Encuestasobre Estrategias Empresariales. Con el objetivo de obtener estimaciones consistentespara los costes irrecuperables, controlamos por todas las posibles fuentes alternativas depersistencia y estimamos nuestro modelo usando técnicas de pseudo máximaverosimilitud simulada. Nuestros resultados confirman a los costes irrecuperables comocausante de la histéresis de las exportaciones. Adicionalmente, encontramos que lasexternalidades regionales y algunas características empresariales tales como tamaño,productividad o diferenciación horizontal y vertical tienen un impacto significativosobre la probabilidad de exportar.
    Keywords: Histéresis de las exportaciones, costes irrecuperables, modelos dinámicos de elección discrecional hysteresis in trade, sunk costs, dynamic discrete choice models
    JEL: F12 L1 C23 C25
    Date: 2004–09
  4. By: Razin, Assaf; Sadka, Efraim
    Abstract: This paper brings out the special mechanism through which taxes influence bilateral FDI, when investment decisions are two-fold in the presence of fixed setup flows costs. For each pair of source-host countries, there is a set of factors determining whether aggregate FDI flows will occur at all, and a different set of factors determining the volume of FDI flows (provided that they occur). We develop a two-country tax competition model which yield an asymmetric Nash-equilibrium with high corporate tax rate and high level of public good provision in the rich source country for FDI outflows and with low corporate tax rate and low level of public good provision in the poor host country for FDI inflows. This is akin to the asymmetry among the EU 15 and EU 10 in the enlarged European Union, as of 2004. We also demonstrate that the notion that the mere international tax differentials are a key factor behind the direction and magnitude of FDI flows, the traditional race to the bottom argument in tax competition are too simple.
    Keywords: enlarged European Union; source-host country foreign direct investment; tax competition
    JEL: F15 F2 H3
    Date: 2006–02
  5. By: Galor, Oded; Mountford, Andrew
    Abstract: This research argues that the rapid expansion of international trade in the second phase of the industrial revolution has played a major role in the timing of demographic transitions across countries and has thereby been a significant determinant of the distribution of world population and a prime cause of the 'Great Divergence' in income per capita across countries in the last two centuries. The analysis suggests that international trade had an asymmetrical effect on the evolution of industrial and non-industrial economies. While in the industrial nations the gains from trade were directed primarily towards investment in education and growth in output per capita, a significant portion of the gains from trade in non-industrial nations was channelled towards population growth.
    Keywords: demographic transition; growth; human capital; industrial revolution; international trade
    JEL: F11 F43 J10 N30 O40
    Date: 2006–02
  6. By: Fabio Grazi (University of Venice); Jeroen C.J.M. van den Bergh (Free University); Piet Rietveld (Free University)
    Abstract: A spatial welfare framework for the analysis of the spatial dimensions of sustainability is developed. It incorporates agglomeration effects, interregional trade, negative environmental externalities and various land use categories. The model is used to compare rankings of spatial configurations according to evaluations based on social welfare and ecological footprint indicators. Five spatial configurations are considered for this purpose. The exercise is operationalized with the help of a two-region model of the economy that is in line with the ‘new economic geography’. Various (counter) examples show that the footprint method is not consistent with an approach aimed at maximum social welfare.
    Keywords: Agglomeration effects, Trade advantages, Negative externalities, Population density, Spatial configuration, Transport
    JEL: F12 F18 Q56 Q57 R12
    Date: 2006–01
  7. By: Toshihiro Okubo (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: This paper studies how market-specific entry sunk costs (regulation costs) affect the Home Market Effect (HME) with firm marginal costs heterogeneity. Our model is based on the Dixit-Stiglitz monopolistic competition model with firm heterogeneity plus regulation costs difference. We find that a regulation costs gap works as dispersion force by inducing a market potential gap, which reduces the HME and could cause the reverse HME or the anti-HME. The Home Market Magnification Effect (HMME) in terms of trade openness is hump-shaped, whereas the pro-HMME in terms of regulation costs coordination by technical barriers to trade (TBT) agreements can be found. Firm heterogeneity dampens the dispersion force by the regulation costs difference and thus works as an agglomeration force. Firm heterogeneity causes a perfect spatial sorting, in which a large country attracts only high productivity firms and vice versa.
    Keywords: regulation costs, market potential, perfect spatial sorting, home market effect, home market magnification effect, firm heterogeneity, technical barriers to trade
  8. By: Jose Pedro Pontes
    Abstract: This paper presents a non-monotonic relationship between foreign direct investment and trade based on the idea that, although FDI eliminates trade costs on the final good, the investing firm has to bear increased trade costs on an intermediate good.
    Keywords: Foreign Direct Investment; Trade; Firm Location.
    JEL: F23 L12 R30
  9. By: Francois, Joseph; Wörz, Julia
    Abstract: We develop a mixed complementarity programming (MCP) based estimating framework for non-tariff barriers (NTBs) to examine the evolution of market access conditions in the textile and clothing sectors, working with a panel of bilateral trade data on textile and clothing trade, underlying bilateral tariffs, and the country-pair coverage of quotas under the WTO's Agreement on Textiles and Clothing (ATC). Our estimating framework takes advantage of the panel nature of trade data when calculating export tax equivalents while allowing for inequality constraints on the quota premium estimates. We also introduce Gaussian quadrature for estimating goodness of fit for regression-based NTB measures based on residual fitting.
    Keywords: ATC; Gaussian Quadrature; import quotas; MFA; NTB estimation
    JEL: C15 F13
    Date: 2006–02
  10. By: M. Hashem Pesaran; Ron Smith
    Abstract: This paper provides a synthesis and further development of a global modelling approach introduced in Pesaran, Schuermann and Weiner (2004), where country specific models in the form of VARX* structures are estimated relating a vector of domestic variables to their foreign counterparts and then consistently combined to form a Global VAR (GVAR). It is shown that VARX* models can be derived as the solution to a dynamic stochastic general equilibrium (DSGE) model where over-identifying long-run theoretical relations can be tested and imposed if acceptable. Similarly, short-run over-identifying theoretical restrictions can be tested and imposed if accepted. The assumption of the weak exogeneity of the foreign variables for the long-run parameters can be tested, where foreign variables can be interpreted as proxies for global factors. Rather than using deviations from ad hoc statistical trends, the equilibrium values of the variables reflecting the long-run theory embodied in the model can be calculated.
    Keywords: Global VAR (GVAR), DSGE models, VARX*
    JEL: C32 E17 F42
    Date: 2006–02
  11. By: Toshihiro Okubo (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: The purpose of this paper is to discuss the trading system in the interwar period concerning the Japanese Empire by means of border effect analysis in the gravity model. The results show sizeable and steadily increasing trading bloc border effects from the 1910s through the 1930s. This sizeable border effect might have resulted from many possible factors: trade diversion and creation due to increased protectionism and industrialisation in Korea and Formosa, certain political factors, and Japanese migration to Korea and Formosa, which contributed to a 52% increase of bloc border effects in mainland Japan.
    Keywords: Trade Blocs; Gravity Model; Bloc Border Effect; Trade Diversion and Creation, Migration.
  12. By: Persson, Maria (Department of Economics, Lund University); Wilhelmsson, Fredrik (Department of Economics, Lund University)
    Abstract: Since the 1960’s, the EU has offered trade preferences to developing countries in a complex set of systems. Broadly these systems can be divided into preferences for African, Caribbean and Pacific (ACP) countries, Mediterranean preferences and the Generalised System of Preferences (GSP). We construct a detailed database over these trade preferences and use it to assess whether they have had an effect on developing countries’ exports and whether the systems have had different impact on exports. To achieve this we also estimate the effect of the successive EU enlargements on exports from developing countries. A gravity model taking into account the evolution of developing countries’ exports is estimated on a large sample of EU importers and developing country exporters over the period 1960-2002. The main findings are that certain preference systems have had large effects—the largest are found for the ACP countries, where the preferences increase exports by about 30 %, followed by Mediterranean countries—and that, countries joining the EU, ceteris paribus, import less from developing countries as they become members.
    Keywords: EU trade preferences; Trade; Developing Countries; Gravity model
    JEL: C23 F13
    Date: 2006–02–14
  13. By: Fabien Candau; Sebastien Jean
    Abstract: This study shows that EU preferences to developing countries were fairly well utilised in 2001, especially in sub-Saharan Africa. For several sub-Saharan African countries, the value of EU tariff preferences, even without accounting for tariff rate quota rents, is worth a significant proportion of their world exports. For non-African Least Developed Countries, in contrast, we find that the EBA initiative was only half-utilised approximately, although it is the only preferential regime available to most of them. It is difficult to reach a firm conclusion since 2001 was the first year of enforcement of Everything But Arms (EBA), and figures for 2002 show utilisation is on the rise, but rules of origin appear to limit significantly the value of this scheme. This also likely explains why the Generalised System of Preferences (GSP) scheme is significantly under-utilised in the manufacturing sector, even when the receiving country is not eligible to any other preferential regime.
    Keywords: Preferential trade arrangements; EU; Africa; GSP
    JEL: F13 N77
    Date: 2005–12
  14. By: Christine Greenhalgh (Oxford Intellectual Property Research Centre, St Peter's College, Oxford University); Mark Rogers (Harris Manchester College, Oxford University)
    Abstract: This paper uses a new data set of the trade mark activity of UK manufacturing and service sector firms (1996-2000) to investigate the market value of trade marks. Data on both trade (and service) marks sought via the UK Patent Office (UKTM) and the European Community Office for Harmonisation of the Internal Market (CTM) are available. Firms use trade marks to signal to consumers that the product is of a certain origin, implying consistent quality and reducing consumer search costs, thus increasing customer loyalty. The value of trade marks may vary across firms and industries, depending on such factors as whether or not patents can be filed and the market structure. Equally the costs of trade marks vary between UKTM and CTM applications, being higher for the latter. We analyse Tobin's q, the ratio of stock market value to the book value of tangible assets. We explore the impact of undertaking any trade mark activity and also the effects of increasing trade mark intensity among those who do. The results indicate that stock market values are positively associated with R&D and trade mark activity by firms. We find larger differences between firms with and without trade marks for services than for manufacturing. We also find bigger differences in Tobin's q when the services firm is applying for Community marks, rather than just applying for UK marks. Increasing the intensity of trade marks matters for both manufacturing and services, although at a decreasing marginal rate for manufacturing and only for the years excluding 2000 for services. The rapid fall in the UK stock market in 2000 appeared to negate the benefits of trade marks for innovative services firms.
    Date: 2006–02
  15. By: Francois, Joseph; Horn, Henrik
    Abstract: We examine antitrust rules in a two-county general equilibrium trade model, contrasting national and multilateral (cooperative) determination of competition policy, exploring the properties of the policy equilibrium. It is not imperfect competition, but variation in competitive stance between sectors that matters for trading partners. Beggar-thy-neighbor competition policies relate to countries' comparative advantages, and hurt the factor intensively used, or specific to, the imperfectly competitive sector. They also create a competitive advantage for export firms. FDI can be pro-competitive in this context, reducing the scope for beggar-thy-neighbor policies and reducing the gains from a multilateral competition agreement.
    Keywords: antitrust policy; competition policy; FDI; merger policy; trade and imperfect competition
    JEL: F12 F3 L4
    Date: 2006–02
  16. By: Tammy Holmes (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: Economists have recently begun trying to explain that pattern of Regional Trade Agreement (RTA) formation around the world. This paper adds to the developing literature by taking into account the fact that many of the RTAs signed are not effectively implemented. The analysis proceeds in two steps: the gravity model is used to establish which RTAs are effectively implemented, in the sense that they positively and significantly increase trade flows between member countries compared to the flows predicted by the gravity model; second a hypothesis is tested about the pattern of effective RTAs – that successful RTAs are found between pairs of countries which send a large share of their exports to each other’s markets. Convincing evidence is found to support this hypothesis, including evidence that export interest from one partner alone does not improve the probability of an effective RTA.
    Keywords: International Economics; Trade; Regional Trade Agreements.
    Date: 2005–11
  17. By: Toshihiro Okubo (IUHEI)
    Abstract: This paper examines alternative determinants of intra-industry trade (IIT). Technology transfer via vertical FDI can be an alternative determinant to distance and country-specific factors in gravity equations. Vertical FDI is likely to be made in neighbouring countries in the presence of large gaps in wages and technology. These large gaps lead to foreign direct investment (FDI) and promote technology transfer from headquarters to overseas affiliates. The technology transfer through vertical FDI promotes activities in the overseas affiliates and thus increases re-imports, which can increase IIT.
    Keywords: FDI; Technology Transfer; Wage Gap; Comparative Advantage; Firm Heterogeneity.
    Date: 2004–12
  18. By: Roberto Roson (Università Ca’ Foscari di Venezia)
    Abstract: This paper considers the technical aspects and the consequences, in terms of simulation results and policy assessment, of introducing imperfect competition in a CGE model. The modifications to the standard CGE framework needed to model imperfect competition in some industries are briefly discussed. Next, the paper discusses whether, how much and why, those changes may affect the qualitative output of a typical simulation experiment. It is argued that technical choices made in designing the model structure may have a significant impact on the model behavior. This is especially evident when the output of the model, under an imperfect competition closure, is compared with that obtained under a standard closure, assuming perfect competition. As an illustration, a scenario of agricultural trade liberalization under alternative market structures is analyzed.
    Keywords: Computable general equilibrium models, Imperfect competition, Oligopolistic models, Economies of scale, Empirical industrial organization, Agriculture, Trade liberalization, Trade policy
    JEL: D58 F12 L16
    Date: 2006–01
  19. By: Anne-Celia Disdier; Thierry Mayer
    Abstract: This paper studies the relationship between bilateral trade patterns and opinions. It uses the Eurobarometer public opinion surveys published by the European Commission, which provide data on the share of the population in each EU member country in favor of each CEEC joining the EU. Our results first suggest that bilateral opinions have a statistically robust and relatively large effect on imports, even when standard and new covariates capturing proximity between countries are controlled for. We interpret this effect as reflecting a positive impact of “bilateral affinity” on trade patterns. We also show that it is possible to go some way towards explaining the variance in bilateral opinions among our sample. Last we provide some preliminary attempt to determine causality between bilateral opinions and imports.
    Keywords: Gravity model; enlargement; international trade
    JEL: F10
    Date: 2006–01
  20. By: Lilia Maliar (Universidad de Alicante); Dmytro Kylymnyuk (Universidad de Alicante); Serguei Maliar (Universidad de Alicante)
    Abstract: This paper presents a two-sector growth model of international trade that can account for the key features of the postwar world development experience. Two sectors represent the traditional primitive production and the modern sophisticated production. Due to increasing returns in the modern sector, the open-economy version of our model gives rise to three different equilibria: one in which the country produces only primitive goods and converges to a low-income steady state; another in which it produces both primitive and sophisticated goods and converges to the world-average steady state; and a third in which it specializes in the production of sophisticated goods and converges to a balanced growth path. We argue that the development experiences of poor, rich and growth-miracle countries are well described by these three equilibria.
    Keywords: International trade, small-open economy, multiple equilibria, poverty trap, growth miracles, coordination proble
    JEL: C00 F12 O14 O30 O41
    Date: 2004–10
  21. By: Tommaso Mancini-Griffoli; Laurent L. Pauwels (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: The debate on whether a common currency increases trade has persisted for years. Recently, the introduction of the Euro has been hailed as a possible natural experiment to test this theory. But the ensuing empirical literature has inadequately dealt with the very few observations in the post-break period, by recurring to formal residuals-based tests constructed on asymptotic results that cannot be verified. We extend the very recent Andrews' (2003) end-of-sample instability test to panel data in order to rigorously investigate whether the introduction of the Euro has affected trade in the EU. The test features a distribution built with empirical subsampling techniques, robust to very few post break observations. We also use recently developed methods to deal with nonstationarity in our regressors. As in the literature, we find a structural break in trade between Euro-Area countries when using a traditional gravity equation. The break begins in 1999 Q1, but is short-lived as it lasts only 10 quarters (2 1/2 years). We then take the additional step to explain this break. We test a micro-founded augmented gravity equation to capture supply-side effects stemming from macroeconomic policies accompanying the Euro. Namely, we show that the break can be explained by a marked decrease in real interest rates across the Euro-Area preceding and following the introduction of the Euro. Alternatively, we find equally conclusive evidence for the role of institutional integration deployed at the time of the Euro in fostering trade. Lastly, we find no evidence of a break in trade between non Euro Area EU15 countries and between non Euro Area EU 15 and Euro Area countries.
    Keywords: Gravity equation; International Trade; Common Currency; Instability tests in Panel data; Euro Area.
    Date: 2006–02

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