nep-int New Economics Papers
on International Trade
Issue of 2006‒02‒26
seventeen papers chosen by
Martin Berka
Massey University

  1. The Long and Short of the Canada-U.S. Free Trade Agreement By Daniel Trefler
  2. On the Conditions that Preclude the Existence of the Lerner Paradox and the Metzler Paradox By Masahiro Endoh; Koichi Hamada
  3. New Measures of Port Efficiency Using International Trade Data By Bruce A. Blonigen; Wesley Wilson
  4. Optimal Tariffs: The Evidence By Christian Broda; Nuno Limao; David Weinstein
  5. Transpacific Trade Imbalances: Causes and Cures By Jong-Wha Lee; Warwick J. McKibbin; Yung Chul Park
  6. Welfare in the Nash Equilibrium in Export Taxes under Bertrand Duopoly By Clarke, Roger; Collie, David R.
  7. Trade Regimes, Liberalization and Macroeconomic Instability in Africa By Chantal Dupasquier; Patrick N. Osakwe
  8. The trade-induced effects of the Services Directive and the country of origin principle By Roland de Bruijn; Henk Kox; Arjan Lejour
  9. Do regional trade pacts benefit the poor ? An illustration from the Dominican Republic-Central American Free Trade Agreement in Nicaragua By Niimi, Yoko; Bussolo, Maurizio
  10. Economic Transformation, Population Growth and the Long-Run World Income Distribution By Marcos Chamon; Michael Kremer
  11. Export Taxes under Bertrand Duopoly By Clarke, Roger; Collie, David R.
  12. Home Country Effects of Investing Abroad: Evidence from Quantile Regressions By Anna Maria Falzoni; Mara Grasseni
  13. Exchange Rates, Foreign Trade Prices and PPs in OECD Countries: An Analysis of the period 1960-2003 By Guisan, Carmen
  14. Are Multinational Enterprises More Productive? A Test of the Selection Hypothesis By Yukako Murakami
  15. Doha merchandise trade reform : what ' s at stake for developing countries ? By van der Mensbrugghe, Dominique; Martin, Will; Anderson, Kym
  17. National Treatment in the GATT By Horn, Henrik

  1. By: Daniel Trefler
    Abstract: The Canada-U.S. Free Trade Agreement (FTA) provides a unique windowonto the effects of a reciprocal trade agreement on an industrializedeconomy (Canada). For industries that experienced the deepest Canadiantariff cuts, employment fell by 12 percent and labour productivity rose by 15percent as low-productivity plants contracted. For industries that receivedthe largest U.S. tariff cuts, there were no employment gains, but plant-levellabour productivity soared by 14 percent. These results highlight the conflictbetween those who bore the short-run adjustment costs (displaced workersand struggling plants) and those who are garnering the long-run gains(consumers and efficient plants). Finally, a simple welfare analysis providesevidence of aggregate welfare gains.
    Date: 2006–01
  2. By: Masahiro Endoh (Keio University); Koichi Hamada (Economic Growth Center, Yale University)
    Abstract: The Lerner paradox is the possibility that a tariff on an import good might worsen a country’s terms of trade, and the Metzler paradox is the possibility that a tariff on an import good might reduce a country’s import price. In a general equilibrium framework with multiple goods, this paper shows that the combination of the invertibility of the Slutsky matrix for the world economy and its similarity across countries will preclude both of the paradoxes, and that the combination of the gross-substitutes assumption for the world demand and the substitute assumption for the demand of an import country property of goods will preclude the Lerner paradox. A modified condition for the Slutsky matrix combined with the gross substitute for the world demand will do the same for the Metzler paradox. A concept of non-surpassed diagonal is used in deriving the result.
    Keywords: Lerner paradox, Metzler paradox, tariffs, terms of trade, gross substitutes, dominant diagonal matrix
    JEL: C20 F02 F11
    Date: 2006–02
  3. By: Bruce A. Blonigen; Wesley Wilson
    Abstract: As the clearinghouses for a major portion of the world's rapidly increasing international trade flows, ocean ports and the efficiency with which they process cargo have become an ever more important topic. Yet, there exist very little data that allows one to compare port efficiency measures of any kind across ports and, especially, over time. This paper provides a new statistical method of uncovering port efficiency measures using U.S. Census data on imports into U.S. ports. Unlike previous measures, this study's methodology can provide such estimates for a much broader sample of countries and years with little cost. Thus, such data can be used by future researchers to examine a myriad of new issues, including the evolution of port efficiencies over time and its effects on international trade flows and country-level growth.
    JEL: F10 L92
    Date: 2006–02
  4. By: Christian Broda; Nuno Limao; David Weinstein
    Abstract: The theoretical debate over whether countries can and should set tariffs in response to export elasticities goes back over a century to the writings of Edgeworth (1894) and Bickerdike (1907). Despite the optimal tariff argument's centrality in debates over trade policy, there exists no evidence about whether countries actually apply it when setting tariffs. We estimate disaggregate export elasticities and find evidence that countries that are not members of the World Trade Organization systematically set higher tariffs on goods that are supplied inelastically. The result is robust to the inclusion of political economy variables and a variety of model specifications. Moreover, we find that countries with higher aggregate market power have on average higher tariffs. In short, we find strong evidence in favor of the optimal tariff argument.
    JEL: F13 H21 F14
    Date: 2006–02
  5. By: Jong-Wha Lee; Warwick J. McKibbin; Yung Chul Park
    Abstract: This paper explores the causes of the transpacific trade imbalances using an empirical global model. It also evaluates the impact of various policies to reduce these imbalances. We find the fundamental cause of trade imbalance since 1997 is changes in saving-investment gaps, attributed to the surge of the U.S fiscal deficits and the decline of East Asia's private investment after the 1997 financial crisis. Our simulation results show that a revaluation of East Asia's exchange rates by 10 percent (effectively a shift in monetary policy) cannot resolve the imbalances. We find East Asia's concerted efforts to stimulate aggregate demand can have significant impacts on trade balances globally, but the impact on the US trade balance is not large. US fiscal contraction is estimated to have large impacts on the US trade position overall and on the bilateral trade balances with East Asian economies. These results suggest that in order to improve the transpacific imbalance, acroeconomic adjustment will need to be made on both sides of the Pacific.
  6. By: Clarke, Roger (Cardiff Business School); Collie, David R. (Cardiff Business School)
    Abstract: In the Eaton and Grossman (1986) model of export taxes under Bertrand duopoly, it is shown that welfare in the Nash equilibrium in export taxes is always higher than welfare under free trade for both countries.
    Keywords: Trade Policy; Imperfect Competition; Oligopoly
    JEL: F12 F13 L13
    Date: 2006–02
  7. By: Chantal Dupasquier (UN Economic Commission for Africa, Addis Ababa, Ethiopia); Patrick N. Osakwe (UN Economic Commission for Africa, Addis Ababa, Ethiopia)
    Abstract: Trade policy has been a very contentious issue in the discourse on African development. Using panel data for 33 African countries spanning the period 1986-2000, we examine the relationship between trade liberalization and macroeconomic instability in Africa. We focus on instabilities in output, consumption and investment, and use both single and system estimation techniques as well as different measures of trade regimes. After controlling for key potential sources of macroeconomic instability, we find no substantial evidence that trade liberalization has a systematic impact on instability in the region. The study shows that the volatilities of inflation and the terms of trade, as well as climatic disasters, the nature of fiscal policy, and the severity of debt are more robust determinants of macroeconomic instability in the region. The paper also argues that policymakers in the region can reduce macroeconomic instability and vulnerability to shocks by diversifying their export structures, using fiscal policy in a countercyclical manner, and improving the functioning of the financial sector.
    Keywords: instability, openness, trade regime, Africa, macroeconomic, panel data
    JEL: F13 O24 O55
  8. By: Roland de Bruijn; Henk Kox; Arjan Lejour
    Abstract: The proposed Services Directive by the European Commission could increase intra European trade in commercial services by 30 to 60 percent. This paper analyses the welfare effects of the trade growth using an applied general equilibrium model WorldScan. It shows that GDP could be raised by 0.3 to 0.7 percent and consumption by 0.5 to 1.2 percent in the European Union as a whole. These results could only be realised if the Services Directive is implemented including the country of origin principle. If this principle is excluded from the directive, trade increases only by 20 to 40 percent. The trade-induced welfare effects are correspondingly lower. GDP could rise by 0.2 to 0.4 percent and consumption by 0.3 to 0.7 percent in the EU as a whole. The country-specific effects vary: most of the new Member States will experience larger gains than the average Member State because their services trade is now still hampered by relatively large regulatory barriers in these countries.
    Keywords: Services Directive; trade; internal market EU; country of origin principle
    JEL: F12 F15 L51 L8
    Date: 2006–02
  9. By: Niimi, Yoko; Bussolo, Maurizio
    Abstract: The main objective of this paper is to provide an ex-ante assessment of the poverty and income distribution impacts of the Central American Free Trade Area agreement on Nicaragua. The authors use a general equilibrium macro model to simulate trade reform scenarios and estimate their price effects, while a micro-module maps these price changes into real income changes at the individual household level. A useful insight from this analysis is that even if the final total impact on poverty is not too large, its dispersion across households-due to their heterogeneity of factor endowments, inputs use, commodity production, and consumption preferences-is significant and should be taken into account when designing compensatory policies. Additionally, growth and redistribution decomposition show that, at least in the short to medium run, redistribution can be as important as growth. The main policy message that emerges from the paper is that Nicaragua should consider enlarging its own liberalization to countries other than the United States to boost trade-induced poverty reductions.
    Keywords: Economic Theory & Research,Free Trade,Inequality,Markets and Market Access,Consumption
    Date: 2006–02–01
  10. By: Marcos Chamon; Michael Kremer
    Abstract: This paper considers the long-run evolution of the world economy in a model in which countries' opportunities to develop depend on their trade with advanced economies. Trade opportunities in turn depend on the relative population of the advanced and developing world. As developing countries become advanced, they further improve the trade prospects for the remaining developing countries. As long as the population growth differential between developing and advanced countries is not too large, the rate at which countries transition to prosperity accelerates over time. However, if population growth differentials are large relative to the transition rate, the world economy converges to widespread prosperity if and only if the proportion of the world population in advanced countries is above a critical level. In our baseline calibration the world economy is below that critical level, but further declines in population growth in the developing world or rapid growth in China would bring it above that threshold. Even then, the share of the world population living in developing countries would decrease very slowly. Substantial narrowing of population growth differentials, increases in the transition rate or the rapid development of India could bring the world economy to a trajectory of accelerating development.
    JEL: J11 F43 O41
    Date: 2006–02
  11. By: Clarke, Roger (Cardiff Business School); Collie, David R. (Cardiff Business School)
    Abstract: This article analyses export taxes in a Bertrand duopoly with product differentiation, where a home and a foreign firm both export to a third-country market. It is shown that the maximum-revenue export tax always exceeds the optimum-welfare export tax. In a Nash equilibrium in export taxes, the country with the low cost firm imposes the largest export tax. The results under Bertrand duopoly are compared with those under Cournot duopoly. It is shown that the absolute value of the export subsidy or tax under Cournot duopoly exceeds the export tax under Bertrand duopoly.
    Keywords: Trade Policy; Imperfect Competition; Oligopoly
    JEL: F12 F13 L13
    Date: 2006–02
  12. By: Anna Maria Falzoni (CESPRI, Università Bocconi, Milano and University of Bergamo, Italy); Mara Grasseni (University of Bergamo, Italy)
    Abstract: Home country effects of domestic firms investing abroad have been a highly debated issue. Overall, the results of a number of empirical studies seem not to support the fear that MNEs are exporting domestic production and/or jobs; however the issue should be examined more deeply. In particular, following the recent theoretical and empirical literature on firm heterogeneity, an important point that should be investigated is whether the impact of outward FDI on the performance of parent firms might differ according to their level of productivity or their size. Using quantile regressions and a data set for Italian firms investing abroad, this paper shows that the impact of international expansion on parents’ performance (measured in terms of total factor productivity, labour productivity and employment) varies across firms in different quantiles of the performance distribution and across foreign affiliates’ geographical locations. In particular, quantile regressions seem to show that firms throughout the productivity distribution do not benefit from FDI in Less Developed Countries. Differently, parent firms in the upper quantiles of productivity seem to be positively affected by foreign expansion in Developed Countries. As for employment, only small firms seem to be negatively influenced by outward FDI. Finally, measures of multinational experience influence positively and significantly parent firms across quantiles of productivity and employment.
    Keywords: Multinational Firms; Productivity; Employment, Quantile Regression
    JEL: F23 J23
    Date: 2005–06
  13. By: Guisan, Carmen
    Abstract: We analyse the evolution of Exchange Rates of Euro and previous national currencies of Euro Zone, as well as those corresponding to other currencies of OECD countries, with particular emphasis on the reaction of exchange rates to inflation differences, and the consequences of those changes on foreign trade and economic growth. We also compare the evolution of Exchange Rates and Purchasing Power Parities in those countries for the period 1960-2003. We present main comparative data and some econometric models which show the strong inverse relationships between the movements of relative domestic prices and exchange rates of domestic currencies to dollar, and test for homogeneity of this relationship among OECD countries.
    Date: 2005
  14. By: Yukako Murakami
    Abstract: This paper investigates whether differences in productivity explain why some Japanese manufacturing firms sell only in the domestic market, while others serve foreign markets, either through exports, overseas production, outsourcing or licensing. Using firm level data, it is shown empirically that the productivity of multinational firms differs significantly from that of firms that sell only in the domestic market. It shows therefore that the heterogeneous productivity levels explain the channels of multinational enterprises.
    Keywords: FDI, exports, outsourcing, licensing, TFP
    JEL: F2
    Date: 2006–02
  15. By: van der Mensbrugghe, Dominique; Martin, Will; Anderson, Kym
    Abstract: This paper provides new estimates of the global gains from multilateral trade reform and their distribution among developing countries in the presence of trade preferences. Particular attention is given to agriculture, as farmers constitute the poorest households in developing countries but are the most assisted in rich countries. The latest GTAP database (Version 6.05) and the LINKAGE model of the global economy are used to examine the impact first of current merchandise trade barriers and agricultural subsidies, and then of possible reform outcomes from the WTO ' s Doha Development Agenda. The results suggest moving to free global merchandise trade would boost real incomes in Sub-Saharan Africa proportionately more than in other developing countries or high-income countries, despite a terms of trade loss in parts of that region. Net farm incomes would rise substantially in that and other developing country regions, thereby alleviating rural poverty. A Doha partial liberalization could move the world some way toward those desirable outcomes, but more so the more developing countries themselves cut applied tariffs, particularly on agricultural imports.
    Keywords: Agribusiness,Free Trade,Economic Theory & Research,Country Strategy & Performance,Trade Policy
    Date: 2006–02–01
  16. By: Roberto Hernan; Praveen Kujal
    Abstract: In this paper we study incentives for a government to impose a discriminatory or uniform import tariff on its low and high quality imports. In comparison to free trade both tariffs decrease total welfare. In response to any tariff, firms decrease quality investment and total output sold declines. The degree of product differentiation under both the tariffs increases. Consumer surplus declines by a greater amount than the increase in revenues under an import tariff. While the uniform tariff works to the advantage of the high quality firm, the discriminative tariff works to the advantage of the low quality firm. Total welfare, though lower than under free trade, is greater under a uniform than under a discriminatory tariff.
    Date: 2005–11
  17. By: Horn, Henrik (The Research Institute of Industrial Economics)
    Abstract: The National Treatment clause (NT) is the first-line defense in the GATT (and in most other trade agreements) against opportunistic exploitation of the inevitable incompleteness of the agreement. This paper examines the role of NT as it applies to internal taxation under the GATT. It is shown that despite severely restricting the freedom to set internal taxes, NT may improve government welfare. But it will not completely solve the incomplete contract problem it is meant to remedy. Furthermore, it requires a high degree of economic sophistication on behalf of trade negotiators in order for this beneficial effect to materialize.
    Keywords: National Treatment; GATT; WTO; Trade Agreements
    JEL: F13
    Date: 2006–01–27

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