nep-int New Economics Papers
on International Trade
Issue of 2006‒04‒01
twelve papers chosen by
Martin Berka
Massey University

  1. Tariff retaliation versus financial compensation in the enforcement of international trade agreements By Saggi, Kamal; Limao, Nuno
  2. FDI and Exports: the case of the High Performing East Asian Economies By Johnson, Andreas
  3. Net exports, consumption volatility and international real business cycle models By Andrea Raffo
  4. Some Aspects of Recent Trade Developments in South-East Europe By Vitalija Gaucaite-Wittich
  5. Competitive Pressure in Transition: A Role for Trade and Competition Policies? By Rosen Marinov
  6. Exchange Rates, Shocks and Inter-Dependency in East Asia - Lessons from a Multinational Model By Sophie Saglio; Yonghyup Oh; Jacques Mazier
  7. Trade Liberalization and Rising Wage Inequality in Latin America: Reconciliation with HOS Theory By Manoj Atolia
  8. Sticky Borders By Gita Gopinath; Roberto Rigobon
  9. Openness and inflation volatility: Cross-country evidence By Christopher Bowdler; Adeel Malik
  10. Trend followers lose more often than they gain By Marc Potters; Jean-Philippe Bouchaud
  11. Shake Hands or Shake Apart? Pre-war Global Trade and Currency Blocs--the role of the Japanese Empire By Toshihiro Okubo
  12. The Basics of International Trade: A Classroom Experiment By Alberto Isgut; Ganesan Ravishanker; Tanya Rosenblat

  1. By: Saggi, Kamal; Limao, Nuno
    Abstract: The authors analyze whether financial compensation is preferable to the current system of dispute settlement in the World Trade Organization that permits member countries to impose retaliatory tariffs in response to trade violations committed by other members. They show that monetary fines are more efficient than tariffs in terms of granting compensation to injured parties when there are violations in equilibrium. However, fines suffer from an enforcement problem since they must be paid by the violating country. If fines must ultimately be supported by the threat of retaliatory tariffs, they fail to yield a more cooperative outcome than the current system. The authors also consider the use of bonds as a means of settling disputes. If bonds can be posted with a third party, they do not have to be supported by retaliatory tariffs and can improve the negotiating position of countries that are too small to threaten tariff retaliation.
    Keywords: Free Trade,International Trade and Trade Rules,Contract Law,Tax Law,Economic Theory & Research
    Date: 2006–04–01
  2. By: Johnson, Andreas (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: The paper investigates the flows of FDI and trade in eight high performing East Asian economies with a focus on the relationship between FDI and host country exports. The development and importance of FDI and trade for the region is described. The empirical part of the paper examines the relationship between FDI and host country exports, using data for the period 1980 to 2003. Time series regressions for individual economies as well as panel data estimation indicate that FDI inflows have a significant and positive effect on host country exports, suggesting that export-platform FDI may be important for the East Asian economies. No clear link between outflows of FDI and exports was found, allowing FDI outflows to function as both a complement and a substitute for source country exports. Granger causality tests find indications of FDI inflows causing exports, providing further evidence that the export-platform FDI strategy applies for the East Asian economies.
    Keywords: foreign direct investment; East Asia; international trade; exports
    JEL: F14 F21 F23
    Date: 2006–03–29
  3. By: Andrea Raffo
    Abstract: Conventional two-country RBC models interpret countercyclical net exports as reflecting, in large part, the dynamics of capital. I show that, quantitatively, theoretical economies rely on counterfactual terms of trade effects: trade fluctuations, on the contrary, are driven primarily by consumption smoothing, thus generating procyclical net trade in goods. I then consider a class of preferences that embeds home production in a reduced form: consumption volatility increases so that countercyclical net exports reflect primarily a strong relation between income and imports, as in the data. The major discrepancy between theory and data concerns the variability of international prices.
    Date: 2006
  4. By: Vitalija Gaucaite-Wittich (United Nations Economic Commission for Europe)
    Abstract: This paper aims to provide some insight into the changing potential of trade for the south-east European countries, including Turkey. The study presents a comprehensive analysis of changes in south-east European trade flows over the past ten years (1995-2004) and investigates the region’s factor endowments. It also draws attention to policy measures aimed at addressing challenges in the increasingly competitive global economy. On most of these issues the study draws a comparison with the pre-accession experience of the new EU member countries from eastern Europe (EU-8). The study stresses the importance of openness to trade for the economic development of the region and the need to work together within cooperative arrangements.
    Keywords: South-east Europe, Western Balkans,international trade, factor intensity, revealed comparative advantage
    JEL: F15 P27 P52
    Date: 2005–12
  5. By: Rosen Marinov (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: This paper investigates the effects of trade reforms and antitrust enforcement on the pricing behavior of firms, shedding light on the respective contributions of these policy instruments to the shaping of competitive markets. To this end, we use a rich panel data set of more than 25,000 manufacturing firms from Bulgaria, the Czech Republic, Estonia, Hungary, Poland, the Slovak Republic and Slovenia, spanning a five-year period. We find a positive and statistically significant relationship between domestic firms' mark-ups and industry protection, as reflected in MFN and trade-weighted import tariffs. The toughness of competition policy enforcement, captured by the number of final instance decisions delivered by national antitrust authorities and an index developed by the EBRD, has a negative impact of greater magnitude than tariff protection. We also test for the significance of enacting major legislative amendments with regard to competition policy in the studied countries, as well as for differential effects in export-oriented and import-competing industries.
    Keywords: Competition policy; Mark-up; Import penetration; Transitional economies
    Date: 2006–03–29
  6. By: Sophie Saglio (University of Paris 13); Yonghyup Oh (Department of International Economics and Finance of Korea Institute for International Economic Policy); Jacques Mazier (University of Paris 13)
    Abstract: This paper presents a simple macroeconomic model of international interdependency describing Korea, Japan, China, and the rest of East Asia in their relations with the United States and the rest of the world. The model includes both a foreign trade block and an internal demand block analysing demand formation and the price-wage-employment adjustment process. Exchange rates are fixed, but can be manipulated exogenously. The main features of the East Asian trade structure are integrated into the model, and foreign trade price elasticises are higher for Korea and China and smaller for Japan.
    Keywords: Multinational model, East Asian interdependency, exchange rates, asymmetric shocks
    JEL: C52 F15 F17 F42
    Date: 2005–12
  7. By: Manoj Atolia (Department of Economics, Florida State University)
    Abstract: The paper puts forward the hypothesis that transitory effects of trade liberalization on wage inequality can differ from the long-run outcome based on the HOS theory. In cases where HOS theory predicts a decline in wage inequality in the long run, a temporary rise can occur due to (i) asymmetries in the speed of contraction in the import sector and expansion in other sectors, and (ii) capital-skill complementarity in production. Asymmetric contraction and expansion causes transitory capital accumulation that boosts the relative and the real wage of the skilled labor due to capital-skill complementarity. Although long-run HOS fundamentals are, therefore, dominated in short run by the transient effects arising due to capital-skill complementarity, the observed rise in wage inequality is, nevertheless, consistent with the HOS theory appropriately extended to a dynamic setting.
    Keywords: Wage Inequality, Trade Reform, HOS, Capital-Skill Complementarity, Dynamic Analysis
    JEL: F11 F13 F17 J31
    Date: 2002–03
  8. By: Gita Gopinath; Roberto Rigobon
    Abstract: The stickiness of traded goods prices and the currency in which prices are sticky play a central role in international macroeconomics. Despite the existence of a rich theoretical literature, there is very little empirical evidence that directly measures the extent of price stickiness in traded goods prices. To address these questions, we use unpublished micro data on import and export prices at-the-dock for the United States for the period 1994-2005. We present three main results: First, the trade weighted average price duration in dollars is 12.26 months for imports and 13.77 months for exports. This level of stickiness is about twice as high as recent evidence on retail goods prices. The fact that both imports and exports are sticky in dollars suggests that contrary to standard modeling assumptions there is producer currency pricing in U.S. exports and local currency pricing in U.S. imports. Second, there is tremendous heterogeneity in price duration across goods, with differentiated goods adjusting prices far less frequently than homogenous goods. Further, the degree of stickiness does not change dramatically with exchange rate volatility. Third, we document that the degree of stickiness in import prices has been increasing throughout the last 10 years, with very little of this increase explained by a compositional shift from homogenous to differentiated goods.
    JEL: F30
    Date: 2006–03
  9. By: Christopher Bowdler (Nuffield College, Oxford University); Adeel Malik (Centre for the Study of African Economies, University of Oxford)
    Abstract: Recent decades have seen a considerable expansion of global trade and a simultaneous decline in inflation volatility. This paper investigates whether greater openness to trade helps achieve inflation stability. Using panel data for a sample of developing and industrial countries over the period 1961-2000, we document a negative and statistically significant effect of openness on inflation volatility. This relationship is estimated after controlling for the potential endogeneity of openness, and the average rate of inflation. We conduct a battery of robustness tests, showing in particular the robustness of our conclusions to controlling for the choice of exchange rate regime. A sub-sample analysis suggests that the relationship between openness and inflation volatility is more pronounced in developing and emerging market economies than in OECD countries. We also identify potential channels underpinning this relationship. In particular, we provide evidence that openness may promote inflation stability through dampening monetary and terms of trade shocks.
    Keywords: Openness, inflation, globalization, volatility, panel data.
    JEL: E31 F41 O57
    Date: 2005–03–15
  10. By: Marc Potters (Science & Finance, Capital Fund Management); Jean-Philippe Bouchaud (Science & Finance, Capital Fund Management; CEA Saclay;)
    Abstract: We solve exactly a simple model of trend following strategy, and obtain the analytical shape of the profit per trade distribution. This distribution is non trivial and has an option like, asymmetric structure. The degree of asymmetry depends continuously on the parameters of the strategy and on the volatility of the traded asset. While the average gain per trade is always exactly zero, the fraction f of winning trades decreases from f = 1/2 for small volatility to f = 0 for high volatility, showing that this winning probability does not give any information on the reliability of the strategy but is indicative of the trading style.
    Date: 2005–08
  11. By: Toshihiro Okubo (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: Despite world-wide bloc economies after the Depression, Japan had a tight relationship with the British Commonwealth and created tight connections with the Sterling and the Gold blocs in the late 1930s. The world-wide bloc economies did not isolate Japan.
    Keywords: International Economics; Exchange Rates; Trade; Whatever Related
    Date: 2006–03–22
  12. By: Alberto Isgut (Institute for Competitiveness & Prosperity, Toronto, Ontario M5S 2V6); Ganesan Ravishanker (ITS, Wesleyan University); Tanya Rosenblat (Department of Economics, Wesleyan University)
    Abstract: We introduce a simple web-based classroom experiment in which students learn the Ricardian model of international trade. Students are assigned to countries and then make individual production, trade and consumption decisions. The analysis of experimental data introduces students to the concepts of absolute and comparative advantage, relative prices, production possibility frontier, specialization, gains from trade, utility maximization and general equilibrium. Students learn about the relationship between individual decision-making and aggregate economic activity. The associated software, Ricardian Explorer, is easy to setup and requires minimal preparation time for instructors. The game is developed as a tool to complement courses in international trade, but it can be used in introductory and intermediate microeconomics courses as well. The analysis of teaching effectiveness has demonstrated that integration of this experiment in the curriculum enhances student learning.
    Keywords: Absolute advantage, comparative advantage, specialization, production possibility frontier, gains from trade, utility maximization, general equilibrium, classroom experiments
    Date: 2005–05

This nep-int issue is ©2006 by Martin Berka. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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