nep-int New Economics Papers
on International Trade
Issue of 2006‒03‒18
fifteen papers chosen by
Martin Berka
Massey University

  1. Integration and Trade Specialization in East Asia By Yose Rizal Damuri; Raymond Atje; Arya B. Gaduh
  2. The Impact of Trade Liberalization on Household Welfare and Poverty in India By Basanta K. Pradhan; Sahoo Amarendra
  3. The Impact of Trade Liberalization on Household Welfare in Vietnam By Nguyen Chan; Tran Kim Dung
  4. Changing Structure of Pork Trade, Production, and Processing in Mexico, The By Batres-Marquez, S. Patricia; Clemens, Roxanne; Jensen, Helen H.
  5. The adjustment of global external imbalances: does partial exchange rate pass-through to trade prices matter? By Christopher Gust; Nathan Sheets
  6. Trade, FDI, and the Organization of Firms By Elhanan Helpman
  7. The Impact of International Organizations on the Environment: An Empirical Analysis By Axel Dreher; Magdalena Ramada-Sarasola
  8. The Effect of Exchange Rate Changes on Trade in East Asia By Willem THORBECKE
  9. Immigrant’s Characteristics and their different effects on bilateral trade. Evidence from Spain. By José V. Blanes
  10. Liberalisation of the European services market and its impact on Switzerland By Henk Kox; Arjan Lejour
  11. Swedish Industry and Kyoto An Assessment of the Effects of the European CO2 Emission Permit Trading System By Brännlund, Runar; Lundgren, Tommy
  12. Scale Economies and Imperfect Competition in WorldScan By Roland de Bruijn
  13. Hurricanes: Intertemporal Trade and Capital Shocks By John C. Bluedorn
  14. A Habit-Based Explanation of the Exchange Rate Risk Premium By Adrien Verdelhan
  15. Do Crises Tear the Fabric of Oil Trade? By Weiner, Robert

  1. By: Yose Rizal Damuri (Centre for Strategic and International Studies, Jakarta, Indonesia); Raymond Atje (Centre for Strategic and International Studies, Jakarta, Indonesia); Arya B. Gaduh (Centre for Strategic and International Studies, Jakarta, Indonesia)
    Abstract: The 1990s saw East Asia becoming more integrated as trade barriers fell, trade intensity and intra-industry trade increased, and production networks formed. This greater integration has resulted in changing patterns of trade specialization in the region, as different economies adjust. Some economies (especially resource-rich economies) maintain their top trade-specialty products, while others move towards higher-productivity manufacturing goods. Nonetheless, we observe in all East Asian countries in our study a trend towards specializing in products with higher sophistication and technological intensity. Meanwhile, our examination of the product specialization mobility and our empirical analysis suggest no indication of East Asian countries being in a "low-productivity specialization trap" which would disable them from shifting their specialization towards higher-productivity and higher-value goods.
    Keywords: trade specialization, regional integration, East Asia
    JEL: F15
    Date: 2006–03
  2. By: Basanta K. Pradhan; Sahoo Amarendra
    Abstract: A 28-sector, 3-factor and 9-household group Computable General Equilibrium (CGE) model for India is constructed to analyze the impacts of Tariffs and Non-tariff Barriers (NTBs) on the welfare and poverty of socio-economic household groups. A general cut in tariffs leads to a decrease in overall welfare and reduction in poverty, which urban households are in a relatively better position to address. The choice of a fiscal compensatory mechanism with indirect tax on domestic consumption does not substantially change the pattern of impact except that it increases overall poverty in the economy. On the other hand, quota reductions on agriculture and food products result in a gain in welfare and a bigger reduction of poverty, with rural households doing better than urban households.
    Keywords: Computable general equilibrium (CGE) model, microsimulations, International trade, poverty, India
    JEL: D33 D58 E27 F13 F14 I32 O15 O53
    Date: 2006
  3. By: Nguyen Chan; Tran Kim Dung
    Abstract: This paper evaluates the efficiency and distributional effects of trade liberalization in the context of fiscal reform in Vietnam. The analysis is performed using a computable general equilibrium (CGE) model of the Vietnamese economy calibrated to late- 1990s production and household data. It is a standard small open price taking economy model with CES nested demand and CES production functions. Results show that the efficiency gains (in term of aggregate welfare measure) from the combined tax and tariff reform are modest, but significant redistribution occurs among rich and poor household groups and between urban and rural populations. Careful analyses show that the sharpness of the redistribution falls as the country moves from only trade liberalization the combined tax and tariff reforms. Finally, additional simulations have been performed to make clearer the transmission mechanisms linking tariff policy to income distribution and household welfare. A key finding is that trade liberalization is pro-rich due essentially to the higher share of imported goods consumed by the rich.
    Keywords: CGE model, counterfactual simulations, distributional effects, efficiency, household welfare, tariff, tax reform, trade liberalization, VAT, Vietnam
    JEL: R13 R20 C68 D58 D63
    Date: 2006
  4. By: Batres-Marquez, S. Patricia; Clemens, Roxanne; Jensen, Helen H.
    Abstract: The structure of the pork production, slaughter, and processing sectors in Mexico has changed significantly since implementation of the North American Free Trade Agreement (NAFTA) and with rising income and increased urbanization. Today, Mexico’s pork industry has become more integrated and achieved greater production efficiencies in response to increasing demand for better product quality and stricter sanitary practices in production and processing pork for both the domestic market and for export. However, despite these improvements Mexico’s pork industry has not kept up with the rising domestic demand, and Mexico has become an increasingly important market for the United States. A key to the development of increased trade in both live animals and pork is growth of federally inspected or “Tipo Inspección Federal” (TIF) plant production, as well as development of marketing channels and product promotion that support high-quality consumer meat products.
    Keywords: live hogs and pork trade, Mexico, NAFTA, pork industry, pork slaughter, TIF plants.
    Date: 2006–03–14
  5. By: Christopher Gust; Nathan Sheets
    Abstract: Recent papers have found evidence of a decline in exchange rate pass-through to import prices in the United States and in a number of other industrial countries as well. This paper examines the implications of a decline in pass-through for the prospective adjustment of global external imbalances. We find that a decline in pass-through to trade prices may mute the responsiveness of the nominal trade balance to shifts in the exchange rate, but that a decline in pass-through does not shut down nominal adjustment completely. We also find that the channels of adjustment vary with pass-through. When pass-through is high, nominal adjustment is driven by moves in trade quantities. When pass-through is low, nominal adjustment mainly reflects shifts in the terms of trade (i.e., export prices relative to import prices). Our work employs a forward-looking, optimizing model in which firms set their prices with an eye toward maintaining their competitiveness against other producers; this feature of the model generates a variable desired markup and, hence, exchange rate pass-through that is less than complete.
    Keywords: Foreign exchange rates ; Balance of trade
    Date: 2006
  6. By: Elhanan Helpman
    Abstract: New developments in the world economy have triggered research designed to better understand the changes in trade and investment patterns, and the reorganization of production across national borders. Although traditional trade theory has much to offer in explaining parts of this puzzle, other parts required new approaches. Particularly acute has been the need to model alternative forms of involvement of business firms in foreign activities, because organizational change has been central in the transformation of the world economy. This paper reviews the literature that has emerged from these efforts. The theoretical refinements have focused on the individual firm, studying its choices in response to its own characteristics, the nature of the industry in which it operates, and the opportunities afforded by foreign trade and investment. Important among these choices are organizational features, such as sourcing strategies. But the theory has gone beyond the individual firm, studying the implications of firm behavior for the structure of industries. It provides new explanations for trade structure and patterns of FDI, both within and across industries, and has identified new sources of comparative advantage.
    JEL: D23 F1 F2
    Date: 2006–03
  7. By: Axel Dreher (Department of Management, Technology, and Economics, Swiss Federal Institute of Technology Zurich (ETH)); Magdalena Ramada-Sarasola (University of Konstanz, Department of Economics)
    Abstract: When analyzing the impact of international organizations on the environment, two main issues arise. First, we have to quantify the participation of the organizations on countries they deal with. Second, the environmental impact of this involvement has to be measured. This paper attempts to do this. We employ panel data to empirically analyze whether and to what extent the presence of IMF, World Bank, regional Multilateral Development Banks, WTO and Global Environmental Facilities has an impact on environmental governance and outcomes. Our results for a large number of countries and years show that the international organizations affect the environment directly via their impact on CO2 emissions. Projects financed by World Bank, ADB, UNDP, and membership in the WTO increase emissions, while IADB projects reduce emissions. EBRD and UNEP do not significantly affect CO2 emissions, while the AfDB increases emissions after 1985 only. Taking the indirect impact through trade liberalization into account, however, the WTO reduces emissions, while the IADB increases emissions. There is some evidence that the international organizations investigated here also influence SO2 emissions, water pollution, and round wood production; environmental governance is not affected.
    Keywords: International Organizations, Environment, Governance, IMF, World Bank, WTO, Trade Liberalization
    JEL: Q53 Q56 F34 F35
    Date: 2006–02
  8. By: Willem THORBECKE
    Abstract: East Asia is characterized by intricate production and distribution networks. Higher skilled workers in Japan, South Korea, and Taiwan produce sophisticated technology-intensive intermediate goods and capital goods and ship them to China and ASEAN for assembly by lower skilled workers and reshipment throughout the world. These networks have promoted economic efficiency and functioned as an engine of growth. They have also been accompanied by large trade imbalances with the U.S. that could cause Asian currencies to appreciate against the dollar. This in turn would alter relative exchange rates in Asia, given the variety of exchange rate regimes in the region. This paper investigates how such exchange rate changes would affect trade within Asia and between Asia and the U.S. The results indicate that exchange rate changes can cause significant declines in exports of intermediate and capital goods from developed Asia to developing Asia. This evidence implies that exchange rate appreciations in developed Asia relative to developing Asia would disrupt the complimentary relationship that exists between these countries in the trade of sophisticated technology-intensive goods. The results also indicate that exchange rate elasticities for trade between Asia and the U.S. are not large enough to lend confidence that a depreciation of the dollar would improve the U.S. trade balance with Asia. This evidence implies that policymakers in the U.S. should not expect too much from an appreciation of Asian currencies and should focus instead on shortfalls of saving relative to investment if they are concerned about their trade imbalances.
    Date: 2006–03
  9. By: José V. Blanes (Department of Economics, Universidad Pablo de Olavide)
    Abstract: This paper tests for the impact of immigration on bilateral trade using Spanish data from 1995 to 2003. It also explores some possible mechanisms behind this link. It uses a gravity equation for trade augmented with an immigrants stock variable and a set of control variables. The immigrants variable enters the estimated equation in different ways depending on immigrant relevant characteristics both individual and non individual-specific. Results show that there is a positive link between immigration and both exports and imports. We find evidence for the trade transaction cost channel but not for the preference one. The mechanisms behind this link are the information effect – immigrant’s additional information about product and about social and political institutions - and the social o ethnic network effect - immigrants with a medium level of education and those related to business activities are the one who have a positive effect on bilateral trade.
    Keywords: International Trade, Migration.
    JEL: F10 F22
    Date: 2006–03
  10. By: Henk Kox; Arjan Lejour
    Abstract: This report estimates the quantitative economic implications of a possible decision by the Swiss government to fully adopt the European Commission proposals for a services directive. The European Commission's 2004 proposals for a Services Directive consists of measures to reduce or eliminate the obstacles of cross-border trade of services by introducing the 'country of origin' principle. It implies that regulation of the country of origin is relevant, and that the country of destination has no right to impose new regulation.<BR> Our results indicate that the introduction of the 2004 EU services directive in Switzerland would very much intensify the economic relations between the service industries of Switzerland and the European Union. We have investigated the direct effects of mutual liberalisation of services markets. These are positive, both for Switzerland and the EU. Swiss exports of commercial services to the EU could increase by 40 to 84 per cent, while Swiss foreign direct investment stocks in EU services industries could increase by 20 to 41 per cent. EU services exports to Switzerland may rise by 41 to 85 per cent, while EU direct investment stocks in Swiss service markets could rise by 29 to 55 per cent.
    Keywords: EU; internal market; services; service trade; direct investment; regulatory barriers; gravity model; Switzerland
    JEL: F13 F15 F17 F23 L5 L8
    Date: 2005–12
  11. By: Brännlund, Runar (Department of Forest Economics, Swedish University of Agricultural Sciences); Lundgren, Tommy (Department of Forest Economics, Swedish University of Agricultural Sciences)
    Abstract: We assess the effects on Swedish industry input and output demands of different climate policy scenarios connected to energy policy induced by the Kyoto protocol. A unique data set containing firm level data on outputs and inputs during the years 1991 – 2001 is used to estimate a factor demand model, which is then simulated for different policy scenarios. Sector specific estimation suggests that the proposed quadratic profit function specification exhibit properties and robustness that are consistent with economic <p> theory; that is, all own-price elasticities are negative and all output elasticities are positive. Furthermore, the elasticities show that the input demands are, in most cases, relatively inelastic. Simulation of the model for 6 different policy scenarios reveal that the effects on Swedish base industry of a EU level <p> permit trade system is dependent on (i) removal or no removal of current CO2 tax, (ii) the established price of permits, and (iii) what will happen to the electricity price. Our analysis show that changes in electricity price may be more important than the price of permits for some sectors.
    Keywords: CO2-emissions; factor demand; fossil fuels; tradable permit market
    JEL: Q58
    Date: 2006–03–03
  12. By: Roland de Bruijn
    Abstract: WorldScan, the CGE model for international policy analysis and long-term scenario studies, is applied regularly at the CPB. The production technology in the model is that of constant returns to scale and the market structure is characterized by perfect competition. However, it is a well known fact that many sectors such as manufacturing and service sectors feature increasing returns and firms compete imperfectly. To give the model more realism, it is therefore necessary to expand the model. Besides that, several research projects require an identification of scale economies in order to perform a sound welfare analysis. In this memorandum, I review the literature on scale economies and imperfect competition and analyze which approach is most suitable to implement in WorldScan. For the objectives at hand it appears most efficient to expand the model with an extended Dixit-Stiglitz approach. Simulations with an aggregated version of WorldScan show that the effects of incorporating scale economies are significant. Evidently, in a liberalisation scenario, sectors with increasing returns can exploit their technology more than sectors with constant returns, implying considerable increases in production and exports for these sectors. Concluding, this expansion of the model allows for an identification of formerly unidentified welfare effects.
    Keywords: Love of variety; monopolistic competition; general equilibrium; specialisation
    JEL: D43 D58 F12 L13
    Date: 2006–01
  13. By: John C. Bluedorn
    Abstract: Hurricanes in the Caribbean and Central America represent a natural experiment to test the intertemporal approach to current account determination. The intertemporal approach allows for the possibility of intertemporal trade, via international borrowing. Previous tests of intertemporal current account (ICA) models have typically relied upon the identification of shocks in a VAR framework with which to trace the current account response. Hurricane shocks represent exactly the kind of temporary, country-specific shock required by the theory, allowing for the intertemporal current account response to be estimated without recourse to a VAR shock decomposition. Using data on the economic damages attributable to a hurricane, I estimate the economy`s response to a hurricane-induced capital shock within a fixed effects panel model. The current account response qualitatively conforms to the S-shaped response predicted by the theory, indicating that countries are engaging in intertemporal trade. However, the exact timing and magnitude of the response differs from a standard ICA model`s smooth behavior. A hurricane which destroys capital valued at one year`s GDP pushes the current account over GDP into deficit by 5 percentage points initially. 3-8 years after such a hurricane, the current account over GDP moves into surplus at 2.7 percentage points.
    Keywords: Hurricanes, Natural Experiment, Current Account Dynamics
    JEL: F32 F41
    Date: 2005
  14. By: Adrien Verdelhan (Department of Economics, Boston University)
    Abstract: This paper presents a fully rational general equilibrium model that produces a time- varying exchange rate risk premium and solves the uncovered interest rate parity (U.I.P) puzzle. In this two-country model, agents are characterized by slow-moving external habit preferences derived from Campbell & Cochrane (1999). Endowment shocks are i.i.d and real risk-free rates are time-varying. Agents can trade across countries, but when a unit is shipped, only a fraction of the good arrives to the foreign shore. The model gives a rationale for the U.I.P puzzle: the domestic investor receives a positive exchange rate risk premium when she is more risk-averse than her foreign counterpart. Times of high risk- aversion correspond to low interest rates. Thus, the domestic investor receives a positive risk premium when interest rates are lower at home than abroad. The model is both simulated and estimated. The simulation recovers the usual negative coefficient between exchange rate variations and interest rate differentials. When the iceberg-like trade cost is taken into account, the exchange rate variance produced is in line with its empirical counterpart. A nonlinear estimation of the model using consumption data leads to reasonable parameters when pricing the foreign excess returns of an American investor.
    Keywords: Exchange rate, Time-varying risk premium, Habits
    JEL: F31 G12 G15
    Date: 2005–08
  15. By: Weiner, Robert (Resources for the Future)
    Abstract: In 1990, Iraq invaded Kuwait, touching off an economic, financial, diplomatic, and military crisis associated with a tremendous spike in oil prices and recession in OECD and oil-importing developing countries. But was the Gulf Crisis a disruption? Did it affect the fabric of oil trade? To examine this question, this paper examines the changing role of international trade intermediaries (ITIs, often referred to as “trading companies”) in the oil market. ITIs connect buyers and sellers, serving as the glue that holds many commodity markets together. Oil trading companies have attracted harsh scrutiny form policymakers as a result of allegations regarding their role in the United Nations’ Iraqi Oil-for-Food Program, but minimal scholarly attention. The paper takes advantage of a unique microdatabase on the Brent market. Produced in the U.K. North Sea, Brent Blend is by far the most widely traded crude oil in the international market. Participants in the Brent market are diverse, with the largest traders falling into two categories. The first comprises “industrial MNEs”—companies active in the business of producing or refining crude oil. The second category comprises financial houses and trading companies. This diversity provides an opportunity to test hypotheses regarding behavioral differences across types of companies and geographic origin, before, during, and after the crisis.
    Keywords: oil, trading companies, crisis, Brent, North Sea
    JEL: D74 F23 L14 L71 Q41
    Date: 2006–03–08

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