nep-int New Economics Papers
on International Trade
Issue of 2006‒07‒09
sixteen papers chosen by
Martin Berka
Massey University

  1. Market Size, Trade, and Productivity By Marc J. Melitz; Gianmarco I.P. Ottaviano
  2. How Do Trade in Intermediates and Geographical Forces Interact in Determining the Localisation of Industries in Central Eastern European Countries? By Gianfranco De Simone
  3. Logistics and Time as a Trade Barrier By Hildegunn Kyvik Nordas; Enrico Pinali; Massimo Geloso Grosso
  4. Trade, Foreign Networks and Performance: a Firm-Level Analysis for India By Alessandra Tucci
  5. Trade Preferences in the EU Sugar Sector: Winners and Losers By Leena Kerkelä; Ellen Huan-Niemi
  6. Trade and Growth with Heterogenous Firms By Richard E. Baldwin; Frédéric Robert-Nicoud
  7. Why Haven't Price-Cost Margins Decreased with Globalization ? By Hervé Boulhol
  8. Exchange-rate effects on China’s trade: an interim report By Jaime Marquez; John W. Schindler
  9. Globalization and Endogenous Firm Scope By Volker Nocke; Stephen Yeaple
  10. The tariff-only import regime for bananas in the European Union: Is setting the tariff at right level an impossible mission? By Hervé Guyomard; Chantal Le Mouël; Fabrice Levert; J. Lambana
  11. Exchange Rate Cycles and Canada- U.S. Manufacturing Prices By Baldwin, John R.; Yan, Beiling
  12. Globalization and Poverty By Ann Harrison
  13. Protection for Sale with Imperfect Rent Capturing By Giovanni Facchini; Johannes Van Biesebroeck; Gerald Willmann
  14. EU-Enlargement and Beyond: A Simulation Study on EU and Russia Integration By Pekka Sulamaa; Mika Widgrén
  15. Measuring the miracle: market imperfections and Asia's growth experience By John Fernald; Brent Neiman
  16. The Impacts of WTO Export Subsidy Abolition on the Agri-food Industry in the EU: A Preliminary Assessment By Leena Kerkelä; Heikki Lehtonen; Jyrki Niemi

  1. By: Marc J. Melitz (Harvard University, NBER and CEPR); Gianmarco I.P. Ottaviano (University of Bologna, FEEM and CEPR)
    Abstract: We develop a monopolistically competitive model of trade with firm heterogeneity - in terms of productivity differences - and endogenous differences in the ‘toughness’ of competition across markets - in terms of the number and average productivity of competing firms. We analyze how these features vary across markets of different size that are not perfectly integrated through trade; we then study the effects of different trade liberalization policies. In our model, market size and trade affect the toughness of competition, which then feeds back into the selection of heterogeneous producers and exporters in that market. Aggregate productivity and average markups thus respond to both the size of a market and the extent of its integration through trade (larger, more integrated markets exhibit higher productivity and lower markups). Our model remains highly tractable, even when extended to a general framework with multiple asymmetric countries integrated to different extents through asymmetric trade costs. We believe this provides a useful modeling framework that is particularly well suited to the analysis of trade and regional integration policy scenarios in an environment with heterogeneous firms and endogenous markups.
    Keywords: market structure, market size, productivity heterogeneity, endogenous markups, trade liberalization
    JEL: F12 R13
    Date: 2005
  2. By: Gianfranco De Simone (University of Milan and Centro Studi Luca D'Agliano)
    Abstract: Growing inflows of FDI and the increasing integration Central Eastern European Countries’ firms in International Production Networks set by EU-15 principals have brought to a rise in trade in parts and components. As a consequence, new patterns of localisation of industrial activities in CEECs have been observed. I put forward a general equilibrium model of trade and production which tries to explain cross-country variations of sectoral output on the basis of home market effect, trade in middle products, comparative advantages and market potential. Results coming from the empirical estimation allow me to draw some considerations about the driving forces behind the localisation over the second half of the 1990s of the four sectors in which most of the CEECs’ trade in intermediates with EU-15 is concentrated. I also argue that the proposed framework can be employed to test for the effectiveness of alternative trade theories.
    Keywords: Trade in Parts and Components, International Production Networks, Market Potential, Industry Localisation, Home Market Effect
    JEL: F10 F12 F14 F15
    Date: 2005
  3. By: Hildegunn Kyvik Nordas; Enrico Pinali; Massimo Geloso Grosso
    Abstract: This paper analyses the relation between time for exports and imports, logistics services and international trade. Time is found not only to reduce trade volumes, but more importantly lengthy procedures for exports and imports reduce the probability that firms will enter export markets for timesensitive products at all. Furthermore, a broader range of products are becoming time-sensitive following the proliferation of modern supply chain management in manufacturing as well as retailing. Labourintensive products such as clothing and consumer electronics are increasingly time-sensitive and many developing countries urgently need to shorten lead time in order to stay competitive in these sectors. The report argues that reforms to this effect can be implemented at relatively low cost also in low-income countries. The study provides case studies as well as econometric estimates of the relation between time, logistics services and trade performance and draws policy implications.
    Keywords: trade barriers, trade facilitation, GATS, logistics services, international supply chains
    Date: 2006–05–30
  4. By: Alessandra Tucci (University of Milan and Centro Studi Luca d'Agliano)
    Abstract: Using Indian firm-level data, this paper examines the combined role of import and export intensity in a context of foreign networks. The more Indian firms are involved in trade networks the more they have a productivity advantage. Finally, information on the origin of import and on the destination of output are used to shed some light on the kind of networks in which firms are involved. We show that the upstream or downstream contact with more developed countries is not correlated with an higher productivity while there it seems to be an advantage for those firms that import and export to the same area.
    Date: 2005
  5. By: Leena Kerkelä; Ellen Huan-Niemi
    Abstract: The ongoing trade negotiations, unilateral trade concessions and obligations under the WTO are pushing the EU sugar regime to undertake reforms. These reforms will alter the positions of developing countries in the global sugar markets. This paper will describe the trade preferences granted to developing countries under the EU sugar regime. Sugar imports into the EU from the Least Developed Countries (LDCs) are expected to be totally liberalised from year 2009 onwards because of the ?Everything But Arms? (EBA) concession. During the transition period until year 2009, the EBA concession is gradually granting quota preferences and partial duty-free access to sugar imports from the LDCs. Simultaneously, the temporary import quotas (Special Preferential Sugar) given to the African, Caribbean and Pacific (ACP) countries are assumed to be decreasing during the transition period. Within this background, a complete unilateral liberalisation of the EU sugar sector is simulated to depict the winners and losers in the global sugar markets if no preferences are governing the imports of sugar into the EU. The supply responses, which strongly affect the outcomes, are dependent on both the nature of substitution for sugar as well as on the efficiency of sugar production in different countries. The multi-region general equilibrium framework (GTAP) is used for this analysis. The results show that small concessions will not threaten the EU internal market, but total liberalisation of sugar imports from the LDCs will be a major threat to the EU sugar regime. The current regime limits sugar imports from all developing countries or some efficient producers, if the cost data is a right estimate of the potential supply response from developing countries. The LDCs will be the winners under the EBA concession supported by the current regime, but a few efficient sugar producers will be the winners if the current regime is entirely liberalised.
    Keywords: EU sugar regime, WTO, market access, tariffs, preferential, regional, multilateral, trade agreements, ACP countries, least developed countries.
    JEL: F40 F02 C68 Q17
    Date: 2005–01–25
  6. By: Richard E. Baldwin; Frédéric Robert-Nicoud
    Abstract: This paper explores the impact of trade on growth when firms are heterogeneous. We find that greater openness produces anti-and pro-growth effects. The Melitz-model selection effects raises the expected cost of introducing a new variety and this tends to slow the rate of new-variety introduction and hence growth. The pro-growth effect stems from the impact that freer trade has on the marginal cost of innovating. The balance of the two effects is ambiguous with the sign depending upon the exact nature of the innovation technology and its connection to international trade in goods and ideas. We consider five special cases (these include the Grossman-Helpman, the Coe-Helpman and Rivera-Batiz-Romer models) two of which suggest that trade harms growth; the others predicting the opposite.
    JEL: H32 P16
    Date: 2006–06
  7. By: Hervé Boulhol (CES - Centre d'Economie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: This study analyzes the determinants of price-cost margins (PCMs) for OECD countries between 1970-2003. The main objective is to quantify the pro-competitive effect of international trade and understand why, despite trade liberalization, PCMs have not fallen overall. An increase of one percentage point in the import penetration ratio is estimated to lower the PCM by around 0,005 : on average, imports contributed to a large decrease of 0,042 in the PCM. In addition, domestic product market deregulation has reduced PCMs. However, these effects are countervailed by the impacts of exports, financial deepening and disinflation. Union participation seems negatively related to PCMs.
    Keywords: Price-cost margin ; pro-competitive effect ; wage bargaining ; dynamic panel.
    Date: 2006–07–06
  8. By: Jaime Marquez; John W. Schindler
    Abstract: Though China's share of world trade is comparable to that of Japan, little is known about the response of China's trade to changes in exchange rates. The few estimates available suffer from two limitations. First, the data for trade prices are based on proxies for prices from other countries. Second, the estimation sample includes the period of China's transformation from a centrally-planned economy to a market-oriented system. To address these limitations, this paper develops an empirical model explaining the shares of China's exports and imports in world trade in terms of the real effective value of the renminbi. The specifications control for foreign direct investment and for the role of imports of parts to assemble merchandise exports. Parameter estimation uses disaggregated monthly trade data and excludes the period during which most of China's decentralization occurred. The estimation results suggest that a ten-percent real appreciation of the renminbi lowers the share of aggregate Chinese exports by a half of a percentage point. The same appreciation lowers the share of aggregate imports by about a tenth of a percentage point.
    Keywords: Foreign exchange rates - China ; Trade ; Econometric models
    Date: 2006
  9. By: Volker Nocke; Stephen Yeaple
    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.
    JEL: F12 F15 L11 L25
    Date: 2006–06
  10. By: Hervé Guyomard (INRA-Unité d'économie - [INRA]); Chantal Le Mouël (INRA-Unité d'économie - [INRA]); Fabrice Levert (INRA-Unité d'économie - [INRA]); J. Lambana
    Abstract: The European Union is bound by World Trade organisation agreements to move to a tariff-only import system for bananas no later than 1 january 2006. From that date, imports from non-ACP countries will be subject to a single tariff while ACP country bananas will continue to enter the EU market duty free. This regime will replace the highly contested tariff-rate quota policy in place since 1993. This paper shows that setting the tariff at a level that maintain tha status quo is an impossible mission given uncertainties on quota rates estimates and quota rent distribution
    Keywords: Politique Agricole Commune - PAC - Pays ACP - Banane -
    Date: 2006–07–03
  11. By: Baldwin, John R.; Yan, Beiling
    Abstract: During the post-1970 period, Canadian manufacturing prices have alternately increased and fallen relative to U.S. prices' just the reverse of the cycle in the Canada' U.S. exchange rate. But not all manufacturing industries have experienced the same amplitude of relative price changes. This paper examines the industry characteristics that are related to the shifts in competitiveness, measured as the relative price ratio between Canadian prices and U.S. prices adjusted by the exchange rate. We find that relative factor input costs and relative productivity growth are the two most important factors influencing changes in relative Canada' U.S. prices. Competitive pressures emanating from trade are important determinants of the extent to which relative productivity differences are passed through to cross-country relative prices in the manufacturing sector. We also find that the magnitude of domestic market competition and export intensity affects the short-run relative price shifts over the cycle of exchange rate.
    Keywords: Trade, Prices and price indexes, Manufacturing, International trade, Prices, Manufacturing industries
    Date: 2006–06–28
  12. By: Ann Harrison
    Abstract: This essay surveys the evidence on the linkages between globalization and poverty. I focus on two measures of globalization: trade and international capital flows. Past researchers have argued that global economic integration should help the poor since poor countries have a comparative advantage in producing goods that use unskilled labor. The first conclusion of this essay is that such a simple interpretation of general equilibrium trade models is likely to be misleading. Second, the evidence suggests that the poor are more likely to share in the gains from globalization when there are complementary policies in place. Such complementary policies include investments in human capital and infrastructure, as well as policies to promote credit and technical assistance to farmers, and policies to promote macroeconomic stability. Third, trade and foreign investment reforms have produced benefits for the poor in exporting sectors and sectors that receive foreign investment. Fourth, financial crises are very costly to the poor. Finally, the collected evidence suggests that globalization produces both winners and losers among the poor. The fact that some poor individuals are made worse off by trade or financial integration underscores the need for carefully targeted safety nets.
    JEL: F1 O1 I3
    Date: 2006–07
  13. By: Giovanni Facchini (University of Illinois and University of Milan); Johannes Van Biesebroeck (University of Toronto and NBER); Gerald Willmann (University of Kiel)
    Abstract: The Grossman and Helpman (1994) model explains tariffs as the outcome of a lobbying game between special interests and the government. Most empirical implementations of this framework use instead non-tariff barriers to measure the extent of protection. Importantly, while the former set of instruments allow the government to fully capture the rents from protection, the latter does not. As a result, structurally estimating the ‘protection for sale’ model using data on non-tariff barriers is likely to lead to biased parameter estimates. To address this problem, we augment Grossman and Helpman’s (1994) model by explicitly considering trade policy instruments allowing only partial capturing. Taking our specification to the data, we find that, on average, 72–75 percent of the rent is actually captured. Furthermore, we obtain more realistic, lower estimates of the implied share of the population involved in lobbying activities than in the previous literature, while the estimated weight of aggregate welfare in the objective function of the government is as high as in previous studies.
    Keywords: Protection for Sale, Non-tariff Barriers, Partial Rent Capturing
    JEL: F13
    Date: 2005
  14. By: Pekka Sulamaa; Mika Widgrén
    Abstract: This paper examines the economic effects of the opening of the Russian Federation. The analysis carried out in the paper is two-fold. First we simulate the impact of the eastern enlargement of the EU and, second, we analyse how deeper integration between the EU and Russia contributes to this. The analysis is carried out with GTAP computable general equilibrium model. We find that there is a trade-off between the two roads of European integration arrangements. Eastern enlargement seems, even in its very deep form, be beneficial for all EU regions without causing substantial welfare losses outside the Union. EU-Russia integration, on the other hand, has different impact. To be beneficial for Russia free trade between the EU and Russia requires improved productivity in the latter, which may be due to better institutions or increased FDI. This might make the negotiations of the agreement cumbersome and if agreed its implementation difficult.
    Keywords: Integration, Free Trade Agreement, GTAP, EU, Russia
    Date: 2004–12–16
  15. By: John Fernald; Brent Neiman
    Abstract: The newly industrialized economies (NIEs) of Asia are the fastest-growing economies in the world since 1960. A clear understanding of their rapid development remains elusive, with continuing disputes over the roles of technology growth, capital accumulation, and international trade and investment. We reconcile seemingly contradictory explanations by accounting for imperfections in output and capital markets. For instance, in Singapore, growth-accounting studies using quantities (the primal approach) find rising capital-output ratios and a constant labor share; but studies using real factor prices (the dual approach) find a constant user cost. We provide evidence that "favored" firms reaped economic profits and received preferential tax treatment, subsidies, and access to capital-- market imperfections that are difficult to capture when implementing the dual approach. Further, declining pure profits can reconcile the constant or rising labor shares in revenue in the NIEs with theories of international trade that predict falling labor shares in cost. We provide empirical support for the quantitative importance of profits and heterogeneous user costs, describe the two-sector dynamics, and derive measures of technology growth, corrected for the imperfections that we quantify. We then discuss implications for broader disputes about Asian development.
    Keywords: Asia ; Economic conditions ; Productivity
    Date: 2006
  16. By: Leena Kerkelä; Heikki Lehtonen; Jyrki Niemi
    Abstract: As a part of agricultural negotiations, the WTO members have agreed to phase out all forms of export subsidies. This study evaluates the current level and commitments of subsidised export quantities and subsidy expenditures of the EU, which is by far the largest user of export subsidies. The effects of removing subsidies are studied by a multi-region general equilibrium model GTAP on world-wide, EU wide and on the level of the Finnish agriculture. The results show decreasing prices and production in the EU for subsidised products especially in dairy, grain and meat production and slight increases in their world market prices. The effects for Finland are magnified compared to the rest of the EU and are seen especially in grains production.
    Keywords: Export subsidies, WTO Negotations, CGE Analysis
    Date: 2005–12–08

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