nep-int New Economics Papers
on International Trade
Issue of 2006‒05‒27
ten papers chosen by
Martin Berka
Massey University

  1. Trade adjustment and the composition of trade By Christopher J. Erceg; Luca Guerrieri; Christopher Gust
  2. Foreign Direct Investment and Technology Spillovers: Evidence from The Indian Manufacturing Sector By Sasidharan, Subash
  3. Explaining the Euro's Effect on Trade? Interest Rates in an Augmented Gravity Equation By Tommaso Mancini Griffoli
  4. Relative Factor Abundance and FDI Factor Intensity in Developed Countries By Alfons Palangkaraya; Andreas Waldkirch
  5. How globalised really is European trade? By T. Huw Edwards
  6. Why unwinding preferences is not the same as liberalisation: the case of sugar By Christopher Stevens
  7. Export dynamics in Small Open Economies: Indigenous Irish Manufacturing Exports, 1985-2003 By Anne Marie Gleeson; Frances Ruane
  8. Steel Safeguards and the Welfare of U.S. Steel Firms and Downstream Consumers of Steel: A Shareholder Wealth Perspective By Benjamin H. Liebman; Kasaundra M. Tomlin
  9. Breaking the Fence: Patent Rights and Biomedical Innovation in 'Technology Followers' By Gehl Sampath, Padmashree
  10. Child Work and Schooling Costs in Rural Northern India By Gautam Hazarika; Arjun S. Bedi

  1. By: Christopher J. Erceg; Luca Guerrieri; Christopher Gust
    Abstract: A striking feature of U.S. trade is that both imports and exports are heavily concentrated in capital goods and consumer durables. However, most open economy general equilibrium models ignore the marked divergence between the composition of trade flows and the sectoral composition of U.S. expenditure, and simply posit import and exports as depending on an aggregate measure of real activity (such as domestic absorption). In this paper, we use a SDGE model (SIGMA) to show that taking account of the expenditure composition of U.S. trade in an empirically-realistic way yields implications for the responses of trade to shocks that are markedly different from those of a "standard" framework that abstracts from such compositional differences. Overall, our analysis suggests that investment shocks, originating from either foreign or domestic sources, may serve as an important catalyst for trade adjustment, while implying a minimal depreciation of the real exchange rate.
    Date: 2006
  2. By: Sasidharan, Subash (Indian Institute of Technology)
    Abstract: During the recent period, we observe that many countries compete with each other to attract foreign investment. When MNCs invest in a host country, it is assumed that a part of their technology spills to the host country firms. But the empirical studies on spillover effects of FDI have failed to find robust empirical results about the possibility of positive spillover effects. This study is an attempt to empirically examine the spillover effects from the entry of foreign firms using firm level data of Indian manufacturing industries for the period 1994-2002. We consider both the horizontal and vertical spillover effects of FDI. Consistent with the findings of the previous studies, we find no evidence of significant horizontal spillover effects. In contrast, we find negative vertical spillover effects, although it is not statistically significant.
    Keywords: Foreign Direct Investment, Horizontal Spillover, Vertical Spillover, Panel Data
    JEL: F2 O1 O3 C5
    Date: 2006
  3. By: Tommaso Mancini Griffoli (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: If the Euro has boosted intra Euro-Area trade, what exactly in the new currency is responsible for such an effect? Most explanations focus on a decrease in exchange rate volatility or in transaction costs, receiving mixed empirical support. After briefly surveying the relevant literature, this paper points to a novel channel of transmission: the sharp decrease in real interest rates that accompanied the Euro. The argument is that lower interest rates spurred investment spending and manufacturing value added, as in Flam and Helpman (1987), and induced a greater number for firms to enter the export market, ultimately boosting trade. This phenomenon is captured in a simple model with fixed costs, where the number of firms or varieties supported in a market is endogenous. The model is used to augment the traditional trade gravity equation. In the end, empirical results are presented in support of the interest rate's role at explaining the "Rose effect".
    Keywords: Gravity equation, International Trade, Common Currency, Instability tests in Panel data, Euro Area.
    JEL: F1 F4 C23 C52
    Date: 2006–05
  4. By: Alfons Palangkaraya (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Andreas Waldkirch (Colby College)
    Abstract: This study looks at the link between the patterns of trade-revealed comparative advantage and net inward foreign direct investment in five developed countries: France, Italy, Japan, the United Kingdom, and the United States. Despite assertions that market access is the primary motive for foreign direct investment flows among developed countries, the study confirms an earlier study which found a significant role of comparative advantage in determining inflows of foreign direct investment in developed countries, especially in the services industry.
    JEL: F21 F14
    Date: 2006–05
  5. By: T. Huw Edwards (Loughborough University)
    Abstract: Using a new set of measures of concentration of trade, I suggest that the opening up of trade to date has been greatly exaggerated. At least judging on the basis of trade concentration, agriculture and service sectors should barely be seen as globalised at all. Contrary to other recent studies, Europe's main economies lag behind the USA in terms of global openness, and most are behind Japan, Canada and China. The Balkans, Poland and Czech Republic are near the bottom end of the global openness league table. Since there is a strong correlation between concentration of trade and poor economic performance, this should be of concern to those countries and to the European Union.
    Keywords: Globalisation, Regional Integration, Trade, Europe.
    JEL: F10 F15 C49
    Date: 2006–05
  6. By: Christopher Stevens
    Abstract: Many of the changes to developed country trade policy that affect developing countries do not fit neatly into the category of ‘liberalisation’ yet they are frequently assessed as if they did. The recent changes to the EU’s regimes for production and imports of sugar fall into this group: both production and trade policies were highly distorted before the change and will remain so after it, but the distribution of the effects of these distortions will be altered. This will affect three of the six Development Cooperation Ireland programme countries in Africa: Mozambique, Tanzania and Zambia. Returns from sugar exports to the EU will be less than otherwise would have been. How much lower depends critically on how the sugar market develops after 2009.
    Keywords: Sugar, liberalisation, value chains
    Date: 2006–05–23
  7. By: Anne Marie Gleeson; Frances Ruane
    Abstract: The aim of this paper is to explore how a recent methodology developed to look at export dynamics in a region in a large economy can be extended to look at export dynamics in a small open economy, where local market size means that enterprises tend to engage in exporting at an early stage in their development. Building on work by Wagner (2004) and in the context of the recent trade modelling of export heterogeneity (e.g., Melitz (2003)), this paper explores export dynamics in the Irish indigenous manufacturing sector using Davis, Haltiwanger and Schuh (1996) type decomposition techniques from the labour turnover literature. Overall export growth rates in the manufacturing sector vary widely, and we focus particularly on two years when exceptional rates of growth and decline were experienced. We conduct our analysis using a plant level panel data set constructed from the annual Irish Census of Industrial Production for the period 1985 to 2003. We find that there is considerable entry/re-entry and exit/re-exit in the export market but most of the export dynamics are dominated by the activities of continuing exporters.
    Keywords: Exports; decomposition, manufacturing, plant-level panel data
    Date: 2006–05–25
  8. By: Benjamin H. Liebman; Kasaundra M. Tomlin
    Abstract: This paper analyzes the steel safeguards implemented and subsequently removed during 2001-2003. Our results reveal that for shareholders of U.S. steel companies, safeguards generated positive “abnormal” returns of approximately 6%; and the cancellation of the safeguards resulted in wealth gains of about 5%. Steel shareholders experienced negative abnormal returns of -5% in response to the WTO ruling that the U.S. violated WTO law. The results here are consistent with the neoclassical view that producers gain at the expense of consumers. Downstream consumers in transportation equipment and electrical equipment showed the clearest negative reaction to the safeguards. Moreover, steel firms that received larger cash disbursements under the Byrd amendment received additional wealth gains when the safeguard duties were imposed. Finally, empirical results indicate that U.S. downstreamconsuming firms that diversify production in NAFTA countries avert some trade policy risk associated with the initiation of the safeguard investigation and the imposition of the safeguard duties.
    Keywords: Antidumping Policy; Welfare
    Date: 2006–05–25
  9. By: Gehl Sampath, Padmashree (United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology)
    Abstract: The impact of patent protection on biomedical innovation has been a controversial issue. Although a "medical anti-commons" has been predicted due to a proliferation of patents on upstream technologies, evidence to test these concerns is only now emerging. However, most industrial surveys that shed light on this issue are mainly from developed countries, making it very difficult to predict the impact of patenting on biomedical innovation in developing and least developed countries. This paper develops a framework of analysis for the impact of patent rights on biomedical innovation in "technology follower" developing countries. Based on the framework developed in the paper, empirical data collected in an industry-level survey of the Indian pharmaceutical industry between November 2004 and January 2005 is used to analyze the impact of patent rights as recognized under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS Agreement) on biomedical innovati on in technology followers.
    Keywords: intellectual property rights, trade agreements, TRIPS, biotechnology, pharmaceutical industry, patents, innovation
    JEL: O34 O31 L65 F13
    Date: 2006
  10. By: Gautam Hazarika (University of Texas at Brownsville and IZA Bonn); Arjun S. Bedi (Institute of Social Studies, The Hague)
    Abstract: It is widely held that work by children obstructs schooling, so that working children in impoverished families will find it difficult to escape poverty. If children’s school attendance and work were highly substitutable activities, it would be advisable to quell work in the interest of schooling and, if less child work were desirable for its own sake, to boost school attendance so as to reduce child work. Hence, this article examines the effects of schooling costs upon both children’s propensities to work and to attend school in rural northern India in a bid to assess the extent of trade-off between the activities. Analyses of data from Uttar Pradesh and Bihar, two Northern Indian states, reveal a positive relation between child work and schooling costs, a negative relation between school enrollment and schooling costs, and that the decrease in the probability of child work from a decrease in schooling costs is comparable in magnitude to the corresponding increase in the probability of school enrollment, implying children’s work and school attendance are strongly substitutable activities. Thus, unlike recent studies of child work in India’s South Asian neighbors of Bangladesh and Pakistan, this paper uncovers evidence of substantial trade-off between child work and school attendance.
    Keywords: child labor, schooling costs, India
    JEL: J22 O12
    Date: 2006–05

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