nep-int New Economics Papers
on International Trade
Issue of 2006‒04‒29
25 papers chosen by
Martin Berka
Massey University

  1. Services, Economic Development and the Doha Round: Exploiting the Comparative Advantage of the WTO By Hoekman, Bernard; Mattoo, Aaditya
  2. Do global trade distortions still harm developing country farmers ? By Valenzuela, Ernesto; Anderson, Kym
  3. The Global Chilling Effects of Antidumping Proliferation By Hylke Vandenbussche; Maurizio Zanardi
  4. Transportation Technologyin a Duopoly Model of International Trade. By A. Mantovani
  5. Comparative advantage, demand for external finance, and financial development By Levchenko, Andrei A.; Do, Quy-Toan
  6. The data chase : what ' s out there on trade costs and nontariff barriers ? By Wilson, John S.; Bagai, Shweta
  7. Trade liberalization and the environment in Vietnam By Jha, Shreyasi; Mani, Muthukumara
  8. Immigration, FDI, and International Trade By Chong-Uk Kim
  9. The relative importance of global agricultural subsidies and market access By Valenzuela, Ernesto; Martin, Will; Anderson, Kym
  10. Swords and Plowshares: Regional Trade Agreements and Political Conflict in Africa. By F. Andreatta; P. G. Ardeni; A. Pallotti
  11. Protection, openness, and factor adjustment : evidence from the manufacturing sector in Uruguay By Gandelman, Nestor; Casacuberta, Carlos
  12. Effects of Trade Liberalization on Domestic Prices: Some Evidence from Tunisian Manufacturing By Saggay, Ali; Heshmati, Almas; Adel Dhif, Mohamed
  13. Export Restraints in a Model of Trade with Capital Accumulation. By G. Calzolari; L. Lambertini
  14. Tariffs vs Quotas in a Model of Trade with Capital Accumulation. By G. Calzolari; L. Lambertini
  15. Cyclical differences emerge in border city economies By Jesus Canas; Roberto Coronado; Jose Joaquin Lopez
  16. Services Policies in Transition Economies: On the EU and WTO as Commitment Mechanisms By Eschenbach, Felix; Hoekman, Bernard
  17. Trade and Race-to-the-bottom Wage Competition By Damiaan Persyn
  18. Lobbying and Agricultural Trade Policy in the United States By Gawande, Kishore; Hoekman, Bernard
  19. Productivity Levels in Distributive Trades: A New ICOP Dataset for OECD Countries By Timmer, Marcel P.; Ypma, Gerard
  20. Arm's-Length Transactions as a Source of Incomplete Cross-Border Transmission: The Case of Autos By Rebecca Hellerstein; Sofia Villas-Boas
  21. A decomposition of the sources of incomplete cross-border transmission By Rebecca Hellerstein
  22. Investment in transport and communication technology in a cournot duopoly with trade. By L. Lambertini; G. Rossini
  23. The Relative Sophistication of Chinese Exports By Peter K. Schott
  24. Evaluating the Relative Impact of Fiscal Incentives and Trade Policies on the Returns to Manufacturing in Taiwan 1955-1995 By Glenn P. Jenkins; Chun-Yan Kuo
  25. Footloose Multinationals in Belgium By Ilke Van Beveren

  1. By: Hoekman, Bernard; Mattoo, Aaditya
    Abstract: This paper discusses what could be done to expand services trade and investment through a multilateral agreement in the WTO. A distinction is made between market access liberalization and the regulatory preconditions for benefiting from market opening. We argue that moving forward on multilateral services liberalization requires a shift from bilateral request-offer negotiations to a model schedule approach that sets ambitious objectives - ideally full national treatment for the major backbone services. Attainment of such objectives, especially by smaller and poorer members, requires procompetitive regulation and strengthened regulatory institutions in developing countries. This suggests linking implementation of liberalization commitments to the provision of development assistance (‘aid for trade’) to bolster regulatory capacity and enforcement could enhance the relevance of the WTO for developing countries. Bolstering WTO mechanisms to monitor the actions of both developing and high-income country governments could make the institution much more relevant in promoting not just services liberalization but, more importantly, domestic reform of services policies.
    Keywords: Doha round; investment; negotiations; services trade; WTO
    JEL: F13
    Date: 2006–04
  2. By: Valenzuela, Ernesto; Anderson, Kym
    Abstract: The authors estimate the impact of global m erchandise trade distortions and services regulations on agricultural value added in various countries. Using the latest versions of the Global Trade Analysis Project (GTAP) database and the GTAP-AGR model of the global economy, their results suggest real net farm incomes would rise in developing countries with a move to free trade, thereby alleviating rural poverty. This occurs despite a terms of trade deterioration for developing countries that are net food importers or that enjoy preferential access to agricultural markets of high-income countries. The authors also show, for several large developing countries, the contribution of their own versus other countries ' trade policies.
    Keywords: Agribusiness,Economic Theory & Research,Free Trade,Rural Development Knowledge & Information Systems,Trade Law
    Date: 2006–04–01
  3. By: Hylke Vandenbussche; Maurizio Zanardi
    Abstract: Advocates of antidumping (AD) laws downplay their effects by arguing that the trade flows that are subject to AD are small and their distortions negligible. This paper is the first to counter that notion by quantifying the worldwide effect of AD laws on aggregate trade flows. The recent proliferation of AD laws across countries provides us with a natural experiment to estimate the trade effects of adopting versus using AD laws; differences in the intensity of use among countries with older AD laws allow us to investigate reputation effects. For this purpose, we estimate worldwide trade flows using a gravity equation spanning 21 years (1980-2000) of annual observations. Our estimates confirm that AD effects are not small. Among other findings, new tough users have their aggregate imports depressed by 15.7 billion US$ a year (or 6.7%) as a result of the AD measures they have imposed. For a traditional user like the United States, current AD measures depress annual imports by almost 20 billion US$ on top of the cumulative negative effect of reputation. For some countries, the dampening effects of AD laws on trade flows are found to nearly offset the gains from trade liberalization.
    Keywords: Antidumping, gravity equation, trade liberalization, trade flows
    JEL: F13 F14
    Date: 2006
  4. By: A. Mantovani
  5. By: Levchenko, Andrei A.; Do, Quy-Toan
    Abstract: The differences in the levels of financial development between industrial and developing countries are large and persistent. Theoretical and empirical literature has argued that these differences are the source of comparative advantage and could therefore shape trade patterns. This paper points out the reverse link: financial development is influenced by comparative advantage. The authors illustrate this idea using a model in which a country ' s financial development is an equilibrium outcome of the economy ' s productive structure: financial systems are more developed in countries with large financially intensive sectors. After trade opening demand for external finance, and therefore financial development, are higher in a country that specializes in financially intensive goods. By contrast, financial development is lower in countries that primarily export goods which do not rely on external finance. The authors demonstrate this effect empirically using data on financial development and export patterns in a panel of 96 countries over the period 1970-99. Using trade data, they construct a summary measure of a country ' s external finance need of exports and relate it to the level of financial development. In order to overcome the simultaneity problem, they adopt a strategy in the spirit of Frankel and Romer (1999). The authors exploit sector-level bilateral trade data to construct, for each country and time period, a predicted value of external finance need of exports based on the estimated effect of geography variables on trade volumes across sectors. Their results indicate that financial development is an equilibrium outcome that depends strongly on a country ' s trade pattern.
    Keywords: Economic Theory & Research,Free Trade,Trade Policy,Investment and Investment Climate,Trade Law
    Date: 2006–04–01
  6. By: Wilson, John S.; Bagai, Shweta
    Abstract: Trade costs and nontariff barriers are at the forefront of discussions on competitiveness and expanding trade opportunities for developing countries. This paper provides a summary overview of data and indicators relevant to these issues and has been informed by work underway at the World Bank on trade facilitation over the past several years to catalogue data sets and indicators. Although there has been progress in expanding data sets and developing policy-relevant indicators on trade costs and barriers, much more is needed. In order to assess progress toward achieving the Millennium Development Goals, evaluating the impact of development projects, and whether meeting Aid for Trade goals will be met, for example, a dedicated and expansive new effort to collect and assess data is needed. This paper attempts to highlight gaps in data on trade costs and provides insight into the type of new data that might be developed in the future.
    Keywords: Transport Economics Policy & Planning,Economic Theory & Research,Trade Law,Free Trade,Trade Policy
    Date: 2006–04–01
  7. By: Jha, Shreyasi; Mani, Muthukumara
    Abstract: Vietnam ' s integration with the international economy has increased significantly over the past decade, aided by substantial liberalization of trade, and appears set to increase further as trade-expanding measures take full effect. This dramatic shift in Vietnam ' s trading patterns has important implications for the environment and use of natural resources. This paper offers a systematic analysis of the trading and investment patterns to give a broader understanding of the environmental implications of greater openness of the economy during the past decade. The results suggest increasing manufacturing and export activity in water and toxic pollution-intensive sectors compared with the less pollution-intensive sectors. The story is, on the surface, consistent with the changing composition of Vietnamese production and exports away from traditional sectors and toward pollution-intensive manufacturing (especially leather and textiles). The paper also highlights the need to consider strengthening environmental policies while further trade liberalization is being contemplated through Vietnam ' s joining of the World Trade Organization.
    Keywords: Environmental Economics & Policies,Water a nd Industry,Economic Theory & Research,Free Trade,Green Issues
    Date: 2006–04–01
  8. By: Chong-Uk Kim (University of Oregon Economics Department (Student))
    Abstract: This paper examines the interactions among immigrants, inbound FDI, and imports in the U.S. In testing the patterns of international movements of factors of production, most existing analyses have omitted the role of international trade. On the other hand, research on the relationship between FDI and international trade has neglected the importance of international labor movements. This study uses a vector error correction model to consider all three variables. Using U.S. annual data from 1969 to 2000, I find that labor and FDI move in the same direction and labor movements cause FDI movements. In addition, I also find that inbound FDI and imports are substitutes.
    Keywords: Foreign Direct Investment, Immigration, Imports
    JEL: F15 F22 F23
    Date: 2004–09–01
  9. By: Valenzuela, Ernesto; Martin, Will; Anderson, Kym
    Abstract: The claim by global trade modelers that the potential contribution to global economic welfare of removing agricultural subsidies is less than one-tenth of that from removing agricultural tariffs puzzles many observers. To help explain that result, the authors first compare the OECD and model-based estimates of the extent of the producer distortions (leaving aside consumer distortions), and show that 75 percent of total support is provided by market access barriers when account is taken of all forms of support to farmers and to agricultural processors globally, and only 19 percent to domestic farm subsidies. Then the authors provide a back-of-the-envelope (BOTE) calculation of the welfare cost of those distortions. Assuming unitary supply and demand elasticities, that BOTE analysis suggests 86 percent of the welfare cost is due to tariffs and only 6 percent to domestic farm subsidies. When the higher costs associated with the greater variability of trade measures relative to domestic support are accounted for, the BOTE estimate of the latter ' s share falls to 4 percent. This is close to the 5 percent generated by the most commonly used global model (GTAP) and reported in the paper ' s final section.
    Keywords: Economic Theory & Research,Markets and Market Access,Free Trade,Trade Law,Tax Law
    Date: 2006–04–01
  10. By: F. Andreatta; P. G. Ardeni; A. Pallotti
  11. By: Gandelman, Nestor; Casacuberta, Carlos
    Abstract: The authors use a panel of manufacturing firms to analyze the adjustment process in capital blue collar and white collar employment in Uruguay during a period of trade liberalization when average tariff protection fell from 43 to 14 percent. They calculate the desired factor levels arising from a counterfactual profit maximization in the absence of adjustment costs, generating a measure of factor shortages or surpluses. The average estimated output gap for 1982-95 is 2 percent. The authors ' policy analysis shows that trade openness affected the adjustment functions of all three factors of production. Highly protected sectors adjust less when creating jobs (reducing labor shortages) than sectors with low protection. This may be due to fears of policy reversal in highly protected sectors. Also, highly protected sectors adjust more easily (than low protection sectors) when destroying jobs (reducing labor surpluses), especially in the case of blue collar labor. This suggests that trade protection may in fact destroy rather than create jobs within industries, as firms in highly protected sectors are more reluctant to hire and more ready to fire than firms in sectors with low protection. The results for capital are qualitatively similar but quantitatively smaller, suggesting that trade protection plays less of a role in explaining adjustment costs for capital. Interestingly, export-oriented sectors have lower adjustment costs for blue collar labor but not for white collar employment or capital, suggesting that export-led growth may be particularly successful in reducing blue collar unemployment.
    Keywords: Economic Theory & Research,Labor Markets,Free Trade,Economic Growth,Educational Sciences
    Date: 2006–04–01
  12. By: Saggay, Ali; Heshmati, Almas (Ratio); Adel Dhif, Mohamed
    Abstract: This paper presents estimates of the competitive effects of trade liberalization on domestic pricing behaviour of Tunisian manufacturing industries. The theoretical framework is based on a dynamic flexible adjustment model of price determination in a small open economy. It investigates the process of adjustment in price level toward a desired level. The adjustment process is both industrial and time-specific. The empirical results show that, in the long run, domestic price responds greatly to import penetration, followed by demand pressure. There was a negative effect from import competition on domestic price. Trade policy is a viable policy option to promote competitiveness.
    Keywords: dynamic model; domestic price; trade liberalization; panel data; speed of adjustment; Tunisia
    JEL: C33 E31 F14 L60
    Date: 2006–04–25
  13. By: G. Calzolari; L. Lambertini
  14. By: G. Calzolari; L. Lambertini
  15. By: Jesus Canas; Roberto Coronado; Jose Joaquin Lopez
    Keywords: Maquiladora ; North American Free Trade Agreement ; Business cycles
    Date: 2005
  16. By: Eschenbach, Felix; Hoekman, Bernard
    Abstract: We analyze the extent to which the EU-15 and 16 transition economies used the WTO General Agreement on Trade in Services (GATS) to commit to service sector policy reforms. GATS commitments are compared with the evolution of actual policy stances over time. While there is substantial variance across transition economies on both actual policies and GATS commitments, we find an inverse relationship between the depth of GATS commitments and the 'quality' of actual services policies as assessed by the private sector. In part this can be explained by the fact that the prospect of EU accession makes GATS less relevant as a commitment device for a subset of transition economies. However, for many of the non-EU accession candidates the WTO seems to be a weak commitment device. One explanation is that the small size of the markets concerned generates weak external enforcement incentives. Our findings suggest greater collective investment by WTO members in monitoring and transparency is needed to increase the benefits of WTO membership to small countries.
    Keywords: accession; EU; services liberalization; trade agreements; WTO transition economies
    JEL: F13
    Date: 2006–04
  17. By: Damiaan Persyn
    Abstract: This paper looks at how increasing economic integration affects wage bargaining between unions and firms if firms are internationally mobile. Using a simple NEG model we find that if firms are perfectly mobile, countries are sufficiently symmetric and wages are bargained over at the firm level they are set on the competitive level. For a more centralised bargaining scheme wage demands are made even if firms can perfectly threat to relocate. If countries are asymmetric full agglomeration becomes possible and rent-sharing between unions and firms then occurs as unions are able to appropriate part of the agglomeration rents in form of higher wages. As agglomeration rents are a hump-shaped function of trade freeness in the larger country this implies the same non-monotonic relationship between wages and the level of trade freeness. We then investigate the case where wage bargaining takes place sequentially in each country. The comparative statics of the international Nash-equilibrium in wages show increased international economic integration only leads to tighter international wage competition if countries are sufficiently symmetric. For the asymmetric case the comparative advantage and relative size of the country determine whether and how economic integration leads to lower wages.
    JEL: J50 J31 F16
    Date: 2006
  18. By: Gawande, Kishore; Hoekman, Bernard
    Abstract: This paper studies whether political campaign contributions influence agricultural protection in the United States in the manner suggested by the political economy model of Grossman and Helpman (1994), using a detailed cross-sectional data set of agricultural protection, subsidies, and contributions to Political Action Committees in the late 1990s. The data do not reject the qualitative predictions of the model: that policymakers will consider both the wishes of specific lobbies and the interests of society as a whole in their decisions. However, the estimated weight of lobbying contributions in decision-making (actual policy) is found to be very low. This is a puzzle as it seems to suggest irrational behavior on the part of the lobbies that make political contributions. It is also inconsistent with the large estimates of deadweight losses from distortionary policy in agriculture. We show that the puzzle can be resolved by extending the model to allow uncertainty about the ability of politicians to deliver policy combined with the fact that contributions are made before policy is decided. The results of the analysis illustrate that the underpinnings of the prevailing political economy equilibrium that supports restrictive agricultural trade policies will be difficult to dislodge in the absence of mobilizing strong counter-lobbying to induce a more liberal policy stance. This of course is one rationale for international trade negotiations - but it requires that other groups in society see enough of an incentive to engage in the political process, pointing to the importance of the design of the negotiating agenda.
    Keywords: agriculture; lobbying; political economy of protection
    JEL: F13
    Date: 2006–04
  19. By: Timmer, Marcel P.; Ypma, Gerard (Groningen University)
    Abstract: This study provides a new dataset for international comparisons of labour productivity levels in distributive trade (retail and wholesale trade) between OECD countries. The productivity level comparisons are based on a harmonised set of Purchasing Power Parities (PPPs) for 1997 using the industry-of-origin approach as developed in the International Comparisons of Output and Productivity (ICOP) project. The methodology mimics current national accounts practice in measuring real output over time. The comparative estimates are extrapolated from the benchmark year using those national accounts series. The main finding of this study is that there is still a wide variety in labour productivity levels in the distribution sector across the OECD area. In 2002, the Germany, the Benelux and Scandinavian countries (except Sweden) were leading in terms of PPP-converted value added per hour worked with higher levels than in the U.S.. In Asia, the comparative labour productivity level is on average 39% of the U.S. level, whereas it is 48% on average in Eastern Europe. Within the ?old? EU-15, countries like Italy, Portugal, Spain and the U.K. had relative levels less than 70% of the U.S.. There is no clear sign of convergence in productivity levels among OECD countries during the past two decades.
    Date: 2006
  20. By: Rebecca Hellerstein (Federal Reserve Bank of New York); Sofia Villas-Boas (University of California, Berkeley)
    Abstract: A growing share of international trade occurs through intra-firm transactions between domestic and foreign subsidiaries of a multinational firm. The difficulties associated with writing and enforcing a vertical contract compound when a product must cross a national border, and may explain the high rate of multinational trade across such borders. We show that this common cross-border organization of the firm may have implications for the well-documented incomplete transmission of shocks across such borders. We present new evidence of a positive relationship between an industry's share of multinational trade and its rate of exchange-rate pass-through to prices. We then develop a structural econometric model with both manufacturers and retailers to quantify how firms' organization of their activities across national borders affects their pass-through of a foreign cost shock. We apply the model to data from the auto market. Counterfactual experiments show why cross-border transmission may be much higher for a multinational than for an arm's-length transaction. In the structural model, firms' pass-through of foreign cost shocks is on average 29 percentage points lower in arm's-length than in multinational transactions, as the higher markups from a double optimization along the distribution chain create more opportunity for markup adjustment following a shock. As arm's-length transactions account for about 60 percent of U.S. imports, this difference may explain roughly 20 percent of the incomplete transmission of foreign-cost shocks to the U.S. in the aggregate.
    Keywords: Cross-border transmission, Multinationals, Arm's-length transactions, Real exchange rates, Exchange-rate pass-through, Vertical contracts, Autos,
    Date: 2006–03–13
  21. By: Rebecca Hellerstein
    Abstract: Despite its importance, the microeconomics of the international transmission of shocks is not well understood. The conventional wisdom is that relative price changes are the primary mechanism by which shocks are transmitted across borders. Yet traded-goods prices exhibit significant inertia in the face of shocks such as exchange rate changes. This paper uses a structural model to quantify the relative importance of manufacturers' and retailers' local-cost components and markup adjustments as sources of this incomplete transmission. The model is applied to a panel dataset of one industry with retail and wholesale prices for UPC (Universal Product Code)-level products. Markup adjustments by manufacturers and the retailer explain two-thirds of the incomplete transmission, and local-cost components account for the remaining one-third. Foreign manufacturers generally bear more of the cost (or reap more of the benefit) of an exchange-rate-induced marginal cost shock than do domestic consumers, domestic manufacturers, or the domestic retailer.
    Keywords: Prices ; Business cycles ; International trade ; Manufactures ; Retail trade
    Date: 2006
  22. By: L. Lambertini; G. Rossini
  23. By: Peter K. Schott
    Abstract: This paper examines the relative "sophistication" of China's exports to the United States along two dimensions. First, I compare China's export bundle to those of the relatively skill- and capital-abundant members of the OECD as well as to similarly endowed U.S. trading partners. Second, I examine prices within product categories to determine if China's varieties command a premium relative to its level of development.
    JEL: F1 F2 F4
    Date: 2006–04
  24. By: Glenn P. Jenkins (Department of Economics, Queen's University); Chun-Yan Kuo (John Deutsch Institute, Department of Economics, Queen’s University)
    Abstract: In this paper, an integrated cash flow model is developed to examine the relative impact of tax incentives, financial subsidies, and macroeconomic variables on the profitability of industrial investments. It allows for various variables to interact with each other. An application of the model is carried out for Taiwan, which implemented a variety of fiscal incentives over the past forty years. The principal policy conclusion is that trade and macroeconomic policies are much more important than income tax incentives or subsidized finance policies in determining the success of industrialization process. The effects of any of the fiscal incentives are found generally much smaller than those of the trade policies or the fundamental trends in macroeconomic variables such as the movement of the real exchange rate and the real wage rate.
    Keywords: tax incentives, export promotion, industrialization, real exchange rate, trade policy, Taiwan
    JEL: H25 F13 O12
    Date: 2006–04
  25. By: Ilke Van Beveren
    Abstract: Using firm level panel data for the years 1996-2001, covering all sectors of the economy, the impact of multinational ownership on the exit decisions of firms located in Belgium is estimated. In the analysis, I clearly distinguish for nationality of ownership, allowing for possible differences between firms that are foreign-owned and multinationals rooted in the domestic economy. Controlling for various firm- and industry-specific factors, it is found that while foreign multinationals are more likely to shut down operations compared to national firms in both manufacturing and service sectors, domestic multinationals only exhibit significantly higher exit rates in the manufacturing industries. The analysis has important policy implications, especially in terms of the desirability of the large impact of multinational firms on employment and output generation in Belgium.
    Keywords: exit, survival, multinational firms, nationality of ownership
    JEL: D21 F23 L20 L25
    Date: 2006

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