nep-int New Economics Papers
on International Trade
Issue of 2006‒06‒17
thirteen papers chosen by
Martin Berka
Massey University

  1. Measuring International Trade in Services By Robert E. Lipsey
  2. Globalization and Endogenous Firm Scope By Volker Nocke; Stephen Yeaple
  3. Baumol-Tobin and the Welfare Costs of National Security Border Delays By Hui Huang; John Whalley
  4. Selling Protection for Sale By Wilfred J. Ethier
  5. The Theory of Trade Policy and Trade Agreements: A Critique By Wilfred J. Ethier
  6. A Quantitative Assessment of the Outcome of the Doha Development Agenda By Yvan Decreux; Lionel Fontagne
  7. An Analysis of the Potential Economic Effects of Bilateral, Regional, and Multilateral Free Trade By Kozo Kiyota
  8. Trade Potential in an Enlarged European Union: A Recent Approach By Maria Paula Fontoura; Enrique Martínez-Galán; Isabel Proença
  9. The China's Rise as an International Trading Power By Christopher Edmonds; Sumner J. La Croix; Yao Li
  10. The effect of FDI and foreign trade on wages in the Central and Eastern European Countries in the post-transition era: A sectoral analysis By Özlem Onaran; Engelbert Stockhammer
  11. Measuring Efficiency externalities from Trade and Alternative Forms of Foreign Investment By Krishna G. Iyer; Alicia N. Rambaldi; Kam Ki Tang
  12. Effects of Foreign Presence in a Transition Economy : Regional and Industry-Wide Investments and Firm-Level Exports in Ukrainian Manufacturing By Stefan Lutz; Oleksandr Talavera; Sang-Min Park
  13. An empirical analysis of UK imports: is there evidence of hysteresis? By Emilia Penkova

  1. By: Robert E. Lipsey
    Abstract: World trade in services has recently been a little under $US2 trillion, about a quarter of world trade in goods. That ratio does not appear to have changed much in the last 50 years. For the US, exports of services have recently been over 40% and imports about 20% of exports and imports of goods, a return, for exports to the ratios of the early 1800s. Imports of services are now increasing more rapidly than exports, but not faster than goods imports. Because measures of service trade are not anchored in any observation of physical movement, they are dependent on definitions of residence. An example of that dependence and the ambiguities it creates is exports of educational services, a domestic activity that becomes an export because students are defined as foreign residents. Since many students later become US residents, the supposedly exported service never leaves the US, or returns to the US unobserved and uncounted. A particularly serious problem of measurement is the growing transfer of intangible US corporate assets to foreign affiliates of US firms, some of which use virtually no foreign factors of production. These transfers, mainly for tax saving purposes, give rise to phantom flows of services from the foreign affiliates to the US and to other countries and remove the exports from the U.S. balance of payments. They make the meaning of measures of the current balances and GDP ambiguous. One possible solution to the measurement problems would be to use measures assigning at least intangible assets to countries of ownership, rather than nominal residence.
    JEL: F10 F23 F30 F40
    Date: 2006–06
  2. By: Volker Nocke (Department of Economics, University of Pennsylvania); Stephen Yeaple (Department of Economics, University of Pennsylvania)
    Abstract: We develop a theory of multiproduct firms to analyze the effects of globalization on the distributions of firm size, scope, and productivity. Our model explains two puzzles. First, it explains the well-known size-discount puzzle: large firms have lower values of Tobin’s Q than small firms. Second, it explains the globalization-skewness puzzle documented in the empirical part of our paper: a multilateral reduction in trade costs leads to a flattening of the size distribution of firms. In our model, globalization not only affects the distribution of observed productivities but also productivity at the firm level.
    Keywords: multiproduct firms, firm size distribution, trade liberalization, size discount, firm heterogeneity, productivity
    JEL: F12 F15 L11 L25
    Date: 2006–06–03
  3. By: Hui Huang; John Whalley
    Abstract: The implications of national security related procedures for trade flows at border points in OECD countries has become a major topic of commentary in popular press. We discuss whether the economic costs of border delays are represented solely by time spent in awaiting processing. This has been the basis of calculations in Canada-US-Ontario (2004) and Ontario Chamber of Commerce (2004, 2005) of advalorem equivalent tariff representations of the time delays involved. While time can be a significant part of the social cost of security related delays in customs clearance, added costs also arise from the behavioral response to delays and looking only at the time delays at the border can be misleading. We use a formulation where border delays occur with certainty and add to the fixed costs of importing in any period. We develop analytics for the case where there is endogeneity both in the frequency of transactions and in the size of individual transactions across the border in the tradition of the well known Baumol (1952) and Tobin (1952) inventory theoretical analysis of the demand for money.
    JEL: F1 F10 F13 F19
    Date: 2006–06
  4. By: Wilfred J. Ethier (Department of Economics, University of Pennsylvania)
    Abstract: The Received Theory of trade policy, based solely on terms-of-trade externalities between national governments, has become the conventional wisdom among international trade theorists. But it displays two puzzles that render that theory inconsistent with reality. Significant empirical work, however, supports aspects of the Grossman-Helpman Protection-for-Sale model, a subset of the Received Theory. This paper shows that a simple formulation of the political economy of protection, that dispenses with terms-of-trade externalities, predicts the properties that the empirical work has confirmed, and is free of the counterfactual implications of the Received Theory. The implication is that, despite its claims to the contrary, the empirical literature offers no real support for the Protection-for-Sale model or, therefore, for the Received Theory.
    Keywords: The Protection-for-Sale model, the Received Theory, the Terms-of-Trade Puzzle, the Export-Subsidy-Transfer Puzzle
    JEL: F02 F13
    Date: 2006–05–08
  5. By: Wilfred J. Ethier (Department of Economics, University of Pennsylvania)
    Abstract: During the past half century, multilateral trade liberalization has reduced tariffs to historically low levels. The Received Theory of multilateral trade agreements, based solely on terms-of-trade externalities between national governments, offers an explanation that has become the conventional wisdom among international trade theorists. But it displays two puzzles that cast doubt on its practical relevance: the Terms-of-Trade Puzzle and the Anti-Trade-Bias Puzzle. This paper examines the consistency of the implications of the Received Theory with actual trade policy. The basic conclusion is that the theory is inconsistent with reality. Furthermore, it is the role of terms-of-trade externalities — the central component of the Received Theory — that is the sole cause of this inconsistency.
    Keywords: Political externalities, trade agreements, the Received Theory, the Terms-of-Trade Puzzle, the Anti-Trade-Bias Puzzle
    JEL: F02 F13
    Date: 2002–11–23
  6. By: Yvan Decreux; Lionel Fontagne
    Abstract: Different options contemplated by the negotiators of the Doha Development Agenda are assessed using the Computable General Equilibrium model MIRAGE, the MAcMap and GTAP databases, existing estimates of protection in the services sector as well as estimates of the administrative and transaction costs to be reduced by trade facilitation measures. In all scenarios (with the exception of “free trade”), we consider that the “G90” will not be requested to liberalise. Export subsidies in agriculture are completely eliminated, taking into account the 2013 deadline agreed in Hong Kong in December 2005, and domestic farm support is halved. When an average 36% linear cut in tariffs is implemented in the industrial and in the agricultural sectors (but with a reduction limited to 25% for sensitive products in the latter sector), we end up with a “Round for nothing”. At the opposite of the spectrum, free trade in goods would lead to USD 232 bn welfare gains for the world economy (expressed in 2005 terms). There is however more to be gained, for the world economy, from a 25% cut of the barriers in services, than from a 70% tariff cut in agriculture in the North and a 50% cut in the South. On the top of this, a successful trade facilitation agenda would be equivalent to doubling official development aid to Sub-Saharan Africa countries after 2020. In the latter case, how to finance such program remains however a challenging issue.
    Keywords: Trade negotiations; computable general equilibrium models; WTO; international trade
    JEL: D58 F12 F13
    Date: 2006–05
  7. By: Kozo Kiyota
    Abstract: This paper presents a computational analysis of the potential economic effects of trade liberalization in various regional and bilateral free trade agreements (FTAs) that have been negotiated in recent years and the negotiations currently in process, as well as the effects of global (multilateral) free trade. The analysis is based on the Michigan Model of World Production and Trade. The major findings are summarized as follows. First, the effects of regional FTA are larger than those of bilateral FTA. Second, among FTA member countries, small countries have larger benefits (in terms of the percentage of GDP) than large countries. Finally, the effects of multilateral free trade are significantly larger than those of bilateral and regional FTAs.
    Date: 2006–06
  8. By: Maria Paula Fontoura; Enrique Martínez-Galán; Isabel Proença
    Abstract: This paper aims to evaluate the trade potential of manufactured products between countries belonging to the EU in the threshold of its Eastern enlargement. For this purpose we use a Gravity model which is estimated with a Poisson Pseudo-Maximum Likelihood Method. We extend the specification of the gravity model in order to capture bilateral trade specificities between groups of countries of the enlarged EU, allowing to test the statistical significance of these inter-groups’ trade potential. In addition, it includes the Commodity Composition of Trade. The estimated coefficients are used to project exports of each country. We conclude that in 2002 the CEEC as a group had exhausted their export potentialities to the enlarged EU, whereas the same does not apply to its imports from the EU members.
    Keywords: European Union; CEEC; Gravity Model; Commodity Composition of Trade; Poisson Pseudo-Maximum Likelihood Estimator; Trade Potential.
    JEL: F14 F15 F17
  9. By: Christopher Edmonds (East-West Center and Department of Economics at the University of Hawaii at Manoa); Sumner J. La Croix (Department of Economics, University of Hawaii at Manoa); Yao Li (East-West Center)
    Abstract: This paper undertakes a detailed review of the policies that have shaped China's explosion of a global supply of exports, and examines long trend statistics on the evolution of China's trading partners and the goods it trades in the post-reform period. This review notes common characteristics in China's trade experience with those of earlier successful export-based economies of East Asia, such as South Korea and Japan. The survey finds that China's pattern of trade and trading partners are similar to those of more market-based Asian economies, but that the Chinese economy's orientation toward foreign trade is considerably greater than expected for an economy of its size and level of development. The authors argue that China still has a long way to go in terms of its export boom, especially if compared to the experiences of South Korea, Japan, and Taiwan. This suggests that China is on track to become one of the world's most formidable trading powers and its export policies and export performance will exert increasing influence on how the global trade regime evolves in the future.
  10. By: Özlem Onaran; Engelbert Stockhammer (Department of Economics, Vienna University of Economics & B.A.)
    Abstract: The aim of this paper is to estimate the effect of FDI and trade openness on wages in the CEECs in the post-transition era. We utilize a cross-country sector-specific eceonometric analysis based on one-digit level panel data for manufacturing industry in the Czech Republic, Hungary, Poland, Slovakia, Slovenia, for the period of 2000-2004. The results suggest that the increases in productivity are reflected in wages only to a modest extent, even in the long-term, leading to a steady decline in the share of labor in manufacturing industry in almost all sub-sectors in all countries. Meanwhile, the high significant and negative effect of unemployment on wages shows that the labor market is flexible in terms of wage flexibility. FDI has a positive effect on wages only in the capital and skill intensive sectors. The results also show that the increase in trade with EU did not lead to positive prospects for wages in manufacturing industry, contrary to the expectations of pro-market policies and traditional trade theory. The long-term net effect of exports and imports is negative, suggesting that integration of CEECs to EU via trade liberalization have worked at the expense of labor.
    JEL: F16 F21 J31
    Date: 2006–06
  11. By: Krishna G. Iyer; Alicia N. Rambaldi; Kam Ki Tang (CEPA - School of Economics, The University of Queensland)
    Abstract: The literature has concentrated on evaluating technological spillovers from trade and inflows of foreign direct investment (FDI). Little effort has been directed towards identifying efficiency externalities arising from international linkages. We evaluate these for a sample of 20 OECD countries between 1982 and 2000 using a stochastic frontier approach. The analysis includes trade, inflows and outflows of FDI, foreign portfolio investment (FPI), and other foreign investment (OFI), and a measure of the absorptive capacities of host economies. We find trade and all foreign investment inflows to lead to increased efficiency. Outflows of FDI are found to exacerbate inefficiency.
    Date: 2005–06
  12. By: Stefan Lutz; Oleksandr Talavera; Sang-Min Park
    Abstract: We investigate the effects of regional and industry-wide foreign presence and foreign direct investment (FDI) on export volumes of Ukrainian manufacturing firms using unpublished panel data from 1996-2000. Foreign presence through FDI may have negative competition effects on domestic firms' performance while, at the same time, domestic firms' productivity may be increased by technology transfer or through training and demonstration effects. From a Cournot competition model including negative competition and positive technology-spillover effects, we derive the hypotheses that foreign presence and foreign investment might positively affect domestic firms' output and exports. Our estimation results support these hy-potheses and suggest in particular that large firms and durable-goods producers benefit most from foreign presence and investments.
    Keywords: transition, foreign direct investment, spillovers, firm performance.
    JEL: F14 F23 L60
    Date: 2006
  13. By: Emilia Penkova
    Abstract: The paper re-examines the validity of the hysteresis hypothesis by applying it to the UK import volume from the world's five largest economies: Germany, France, Italy, Japan and the USA, over the period 1975 to 1994. Disaggregated bilateral data (4- digit ISIC) are used and hysteresis is captured by dummy variable which is an extension of work by Parsley and Wei (1993). Panel estimation is undertaken and the Seemingly Unrelated Regression (SUR) technique is employed. There is evidence that hysteresis appears important for UK imports and varies across industries and countries.

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