nep-int New Economics Papers
on International Trade
Issue of 2006‒07‒15
fourteen papers chosen by
Martin Berka
Massey University

  1. Global redistribution of income By Rosenblatt, David; Levin, Victoria; Bourguignon, Francois
  2. The Rise, Expansion, and Decline of the Italian Cloth Industries, 1100 - 1730: a study in conjoncture, transaction costs, and comparative advantage By John H. Munro
  3. Home versus Host Country Effects of FDI: Searching for New Evidence of Productivity Spillovers By Priit Vahter; Jaan Masso;
  4. Distributional Effects of FDI: How the Interaction of FDI and Economic Policy Affects Poor Households in Bolivia By Peter Nunnenkamp; Rainer Schweickert; Manfred Wiebelt
  5. Intellectual Property Rights Protection and the Location of Research and Development Activities by Multinational Firms By Rene Belderbos; Kyoji Fukao; Hyeog Ug Kwon
  6. Westernization of the Asian Diet: The Case of Rising Wheat Consumption in Indonesia By Jacinto F. Fabiosa
  7. The 'Sophistication' Of Exports: A New Measure Of Product Characteristics By Sanjaya Lall (QEH), John Weiss and Jinkang Zhang
  8. Chinese Manufacturing Performance from Multilateral Perspective: 1980-2004 By Ruoen Ren; Haitao Zheng
  9. China's Competitive Threat to Latin America: An Analysis for 1990-2002 By Sanjaya Lall (QEH) and John Weiss
  10. FDI, AGOA And Manufactured Exports From A Land-Locked, Least-Developed African Economy: Lesotho By Sanjaya Lall (QEH)
  11. China’s Competitive Performance: A Threat To East Asian Manufactured Exports? By Sanjaya Lall and Manuel Albaladejo (QEH)
  12. Falling Walls and Lifting Curtains: Analysis of Border Effects in Transition Countries By Yener Kandogan; ;
  13. The Equilibrium Real Exchange Rate in Peru: BEER Models and Confidence Band Building By Jesús Ferreyra; Jorge Salas
  14. Evaluating the Causal Effect of Foreign Acquisition on Domestic Performances: The Case of Slovenian Manufacturing Firms By Sergio Salis; ;

  1. By: Rosenblatt, David; Levin, Victoria; Bourguignon, Francois
    Abstract: The actual distribution of world income across countries is extremely unequal, much higher than the within country inequality faced by most countries. The question studied in this paper is: How do international policies on aid, trade, and factor movements affect the international distribution of income? To begin to answer this question, the authors calculate the impact by decile of the actual level of aid flows and the effect on potential income of merchandise trade restrictions by high-income countries. They find that aid ' s distributional impact is equality enhancing. While it is extremely small in terms of changes in standard inequality measures, it is of some importance for the lowest decile of the world ' s income distribution. The authors also find that some of this impact is counteracted by lost potential income in the lower deciles from merchandise trade barriers imposed by high-income countries. In brief, there is a contradiction in international policies where aid ' s equality-enhancing effect is somewhat offset by protectionism. They also discuss some of the analytical difficulties with extending this analysis of redistribution to other forms of international factor flows-more specifically, migrant worker and profit remittances. The analysis presented is partial and static and ignores within country distribution. As such, the authors suggest that future research should explore the distributional consequences of the broader general equilibrium effects, dynamic effects, and externalities associated with aid, trade, and factor flows. Future research should also analyze the within country distributional impacts of international policies.
    Keywords: Economic Theory & Research,Inequality,Country Strategy & Performance,Poverty Impact Evaluation,Population Policies
    Date: 2006–07–01
  2. By: John H. Munro
    Abstract: This study of the Italian wool-based textile industries (woollens, worsteds, and serges) seeks to examine its rise, expansion, and ultimate decline, over a period of five centuries (from ca. 1200 to ca. 1730) in the context of both international competition and economic conjoncture, in the context of the major macro-economic and demographic changes that the European economy experienced during these five centuries. The story commences during the so-called ‘Commercial Revolution’ era of the thirteenth-century when the Franco-Flemish cloth industries of north-west European dominated the international markets in a very wide range of these textiles, even in the Mediterranean basin. From the 1290s, and then into the better know period of the Hundred Years’ War (1337-1453) the European economy suffered from the ravages of ever more widespread and debilitating warfare, throughout the Mediterranean basin and western Europe, and then from various factors, including plagues, that led to serious depopulation. The consequences led to a severe rise in transportation and transaction costs that gravely undermined the profitability of long-distance trade in cheaper textiles. That, in turn forced most textile manufacturers dependent on long-distance trade, and especially those who had operated as price-takers, to re-orient their export-based production to far higher priced, indeed luxury textiles, which could better sustain the burden of rising transactions costs, especially in acting as ‘price-makers’ engaged in monopolistic competition. That industrial-commercial transformation can be seen in the textile industries of northern France, the Low Countries, and England; but also those in Catalonia and above all in Italy: principally Tuscany and Lombardy. In so far as warfare and rising transaction costs limited the importation of even luxury textiles from north-west Europe, the Italian cloth industries thereby gained a far larger share of Mediterranean markets. This study focuses in particular on the ensuring history of the Florentine woollen cloth industry in the later Middle Ages. One price that all of these luxury-oriented cloth industries had to pay was steeply rising tax burdens on exported English wools; for the prime determinant of luxury quality in these textiles was the use of the finer grade English wools, the best in the world, until the development (through breeding and management) of Spanish merino wools, which finally succeeded in rivalling and then surpassing the English by the later sixteenth century. By the sixteenth century, with a reduction in European warfare and with renewed population growth, substantial economic growth, and significant innovations in transportation, transactions costs fell, and fell enough to make long-distance trade in cheaper textiles once more profitable; and that is reflected in product changes in the Florentine textile industry, which increasingly used Spanish merino wools in place of the English. But the most important events in the history of the Italian textile industries was the sudden rise of the Venetian cloth industry from the early to mid-sixteenth century, reaching a peak in the early seventeenth century, and then experiencing an equally rapid decline, in the famous of English textile competition, by the agency of the new Levant Company, which gained major advantages over the Italians in the large Ottoman Empire. The study concludes by examining the nature of those English advantages, which lay far more in the commercial (and transportation sphere) than in the industrial sphere, in terms of both traditional heavy weight woollens (made from Spanish wools) and the lighter, coarser, and cheaper fabrics of the English New Draperies (benefiting from a transformation in English wool production, from the Tudor-Stuart Enclosures). In sum: a study of comparative advantage in five centuries of international trade, in wool-based textiles, in terms of transaction costs, inputs (wools), and commercial organization.
    Keywords: woollens, worsteds, serges, warfare, English and Spanish wools, Florence, Milan, Venice, Ottoman Empire, Flanders, Levant Company, New Draperies
    JEL: D23 D43 E32 F10 H25 J11 L14 L23 L79 L91 N63 N7
    Date: 2006–07–10
  3. By: Priit Vahter; Jaan Masso;
    Abstract: This paper investigates the effects of both inward and outward foreign direct investment (FDI) on productivity in manufacturing and services sectors. The main novelty is the analysis of the spillover effects of outward FDI that may occur outside the investing firms on the rest of the home country. Our results based on panel data from Estonia do not indicate much spillover effects of outward or inward FDI that are robust to different specifications of the estimated model. There is substantial heterogeneity in the findings on spillovers across different specifications of the model or sector studied.
    Keywords: foreign direct investment, spillovers, home country effects, productivity
    JEL: F10 F21 F23
    Date: 2006–03–01
  4. By: Peter Nunnenkamp; Rainer Schweickert; Manfred Wiebelt
    Abstract: This paper provides a computable general equilibrium analysis of the medium to long-run impact of FDI inflows on poverty and income distribution in Bolivia. The CGE analysis addresses several important transmission channels which have been neglected in the empirical literature by (i) investigating the impact of FDI inflows on incomes of urban and rural households; (ii) taking into account informal activities; and (iii) differentiating between various segments of the urban workforce, whereas previous studies are typically confined to the dichotomy between white-collar and blue-collar workers in manufacturing industries. The simulation results suggest that FDI inflows add to Bolivia’s investment ratio, enhance economic growth, and reduce poverty. However, the income distribution typically becomes more unequal. In particular, FDI widens income disparities between urban and rural areas Our results point to two levers through which the Bolivian government may promote growthenhancing and poverty-alleviating effects of FDI. First, it seems important to overcome labor market segmentation. Second, complementary public investment in infrastructure may help remove bottlenecks in the absorptive capacity of the economy that tend to limit productive employment of the poor. Yet, simulated policy reforms or alternative productivity scenarios are hardly effective in reducing the divide between urban and rural areas.
    Keywords: Foreign direct investment, poverty and income distribution, Bolivia, computable general equilibrium analysis
    JEL: C68 D3 F21 O5
    Date: 2006–06
  5. By: Rene Belderbos; Kyoji Fukao; Hyeog Ug Kwon
    Abstract: We develop a model of the location of global R&D investments by multinational firms, where research investments increase the number of varieties of goods sold globally by the firm, and development activities reduce the cost of producing existing varieties in specific countries. Intellectual Property Rights (IPR) protection in a country enhances the efficiency of the firms' local research as well as the profitability local development efforts. We test predictions of the model on survey data on foreign and domestic R&D for 605 Japanese multinational firms with manufacturing activities in 42 foreign countries in 1996. We find the strength of IPR protection to have a positive impact both on development expenditures and research expenditures in a country, while both research and development expenditures are also sensitive to local wage costs. Research expenditures depend positively on technological opportunities in the industry and country, while development expenditures are positively affected by potential local demand for the firm's products.
    Keywords: R&D, multinational firms, Foreign Direct Investment
    JEL: F23 O32
    Date: 2006–06
  6. By: Jacinto F. Fabiosa (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI))
    Abstract: With sustained income growth and fast urbanization, Indonesia will see a major shift in the growth of grain consumption from rice to wheat products. New demand estimates from consumption survey data give a relatively high income elasticity of demand for wheat-based products, in the range of 0.44 to 0.84, with 26% to 34% of this response coming from the impact of income on the probability of consumption for non-consuming households and the remaining impact coming from the response on the level of consumption for households currently consuming wheat products. Urban location of households also contributes an increase of 0.11% to 0.13% to consumption. In contrast, elasticities in rice show a negative impact of income and urbanization on the probability of consumption and a positive but small impact on the unconditional mean. A partial liberalization scenario shows the domestic wheat flour price declining by 13.66%, inducing consumption to increase by 7.06%, which translates into 7.04% growth in imports. This exerts an upward pressure on the world price, increasing it by 0.23%. A faster income growth scenario shows higher consumption (2.60%), imports (2.59%), and prices (0.09%). Countries with a proximity advantage such as Australia, China, and India will benefit from the growth in this market. But, with dependable supply, product quality assurance, and credit availability, North American suppliers may still remain in this market.
    Keywords: double-hurdle demand, trade, Westernization of diet.
    Date: 2006–04
  7. By: Sanjaya Lall (QEH), John Weiss and Jinkang Zhang
    Abstract: Trade data are often classified by product characteristics in the trade, technology and development literature to analyze trade patterns, competitive performance and structural change. However, existing classifications are constrained in that trade data are far more detailed than the industry data on which categories are based (e.g. current classifications only have 4-5 technology groups). We propose a new classification - 'sophistication' - as a means of analyzing product characteristics in great detail, based on the average income of exporting economies. Sophistication captures more than technical characteristics; it includes product differentiation, production fragmentation, resource availability and other factors. However, it has the advantage of providing unique continuous scores for each product at any level of detail. We calculate sophistication scores for 237 exports at the 3-digit SITC level and 766 exports at the 4-digit level for 1990 and 2000 (detailed values can be provided on request). We show sophistication scores for exports by selected countries, technology groups and industries. Our intention is to provide a database for further empirical analysis.
  8. By: Ruoen Ren; Haitao Zheng
    Abstract: Based on our research work of 1998, we discuss Chinese manufacturing performance from multilateral perspective in 1980-2004 through performing the comparison of labour productivity between China and its trade partners so as to better understand the problems of RMB exchange rate. We talk about Chinese manufacturing competitiveness through the multilateral comparison of PPPs, relative price levels, labor productivity and ULCs, with the PPPs being standardized according to the base year 1997. All of the results are compared with those in the year 1987. The following findings are presented: in Chinese manufacturing, the various PPPs in the base year 1997 are approximately 3.7 yuan/international $. After the middle 1980s, the relative price turns the lowest in all the five investigation countries. Furthermore, it is still trending downward. ULC is declining albeit the fluctuations. In the 1980s, there is no "catch-up" rapid growth in labor productivity. However, after 1992, it has shown a distinct "catch-up", though with the low level.
    Keywords: Multilateral comparison, Manufacturing, International competitiveness
    JEL: O47 O57 F14
    Date: 2006–06
  9. By: Sanjaya Lall (QEH) and John Weiss
    Abstract: This paper explores China's competitive threat to Latin America in trade in manufactures. The direct threat in exports to third country markets appears small: LAC's trade structure is largely complementary to that of China. In bilateral trade, several LAC countries are increasing primary and resource-based exports to China. However, the pattern of trade, with LAC specializing increasingly in resource-based products and China in manufactures, seems worrying. Given cumulative capability building, China's success in increasingly technology-based products with strong learning externalities can place it on a higher growth path than specialisation in 'simpler' goods, as in LAC. China may thus affect LAC's technological upgrading in exports and industrial production. The issue is not so much current competition as the 'spaces' open for LAC in the emerging technology-based world.
  10. By: Sanjaya Lall (QEH)
    Abstract: Lesotho, a small, mountainous and resource poor country inside South Africa, has emerged as the largest and fastest growing exporter of apparel from Sub-Saharan Africa to the US. Its rapid manufacturing growth has been driven by inflows of export-oriented foreign direct investment. This paper explores this unusual experience against the setting of the dismal record of industrial growth and competitiveness in Sub-Saharan Africa. It traces the origins of apparel-based FDI in Lesotho and the critical role of trade preferences in stimulating its exports and notes the limited integration of foreign affiliates into the local economy. The recent export spurt reflects first mover advantages in apparel manufacture, but long-term prospects, after trade preferences, remain dubious unless there is a significant improvement in skills and productivity. The experience has important policy lessons for the Lesotho government, foreign investors and international community in terms of stimulating competitive industrial development in Africa.
  11. By: Sanjaya Lall and Manuel Albaladejo (QEH)
    Abstract: There is growing concern in Southeast and East Asia about the competitive threat posed by China’s burgeoning exports, exacerbated by its accession to the WTO. The threat is not confined to labour-intensive products but spans the whole technological and skill range. At the same time, China is rapidly raising its imports from the region, and it is not clear whether its burgeoning exports will damage its neighbours. We examine the dimensions of China’s competitive threat in the 1990s, benchmarking competitive performance by technology and market, and finds that market share losses are so far mainly in low technology products, with Japan being the most vulnerable market. We analyse market share changes and highlight product groups that are directly or indirectly exposed to a competitive threat. We examine intra-regional trade and find that China and its neighbours are raising high technology exports in tandem: the nature of the international production systems involved lead to complementarity rather than confrontation. China is thus acting as an engine of export growth for its neighbours in terms of direct trade. However, this will change as China moves up the value chain and takes on the activities that have driven East Asian export growth
  12. By: Yener Kandogan; ;
    Abstract: Since McCallum’s (1995) finding of surprisingly high border effect on trade between US and Canada, there have been a number of studies on other parts of the world, and improvements made to the gravity model to accurately measure this effect. This paper suggests some other modifications to the model, and applies it to a region of the world that presents a distinctly interesting case. Changes in border effects of formerly socialist countries in Central and East Europe, and countries in the former Soviet Union are analyzed during 1976-2002 at country and sectoral levels, and also with respect to blocs of countries. A discussion on cross-country variations in border effects follows the computations.
    Keywords: Gravity models, integration, disintegration
    JEL: F14 F15 P20 P33
    Date: 2006–03–01
  13. By: Jesús Ferreyra (Central Bank of Peru); Jorge Salas (Central Bank of Peru)
    Abstract: This paper uses the "Behavioral Equilibrium Exchange Rate" (BEER) approach to estimate the equilibrium real exchange rate (RER) for Peru. A bootstrap technique is then employed to build confidence bands for the equilibrium path, so that it is possible to determine whether exchange rate misalignments are statistically significant. Additionally, structural breaks are modeled in the long-run relationship between the RER and its fundamentals. Using quarterly data for 1980.I-2005.III, the authors find that the long-run behavior of the Peruvian RER is explained by the following fundamentals: net foreign liabilities, terms of trade, and, less conclusively, government expenditure and openness. Moreover, the ratio of tradable to non-tradable sector productivities, both in domestic terms and relative to trading partners, appears as an additional RER fundamental only since the 1990s. Finally, there is evidence of some statistically significant RER misalignment episodes over the analyzed period.
    Keywords: Equilibrium Real Exchange Rate, BEER Models, Cointegration, Structural Break, Bootstrap
    JEL: F31 F41 C15 C22
    Date: 2006–06
  14. By: Sergio Salis; ;
    Abstract: This paper investigates the impact of foreign acquisition in 1997 on the performances of a sample of Slovenian manufacturing firms. It uses the propensity score-matching estimation technique combined with the difference-in-differences approach to control for the potential bias arising from the non-random selection of acquired firms (endogeneity of foreign ownership). After confirming that foreign investors acquire the most productive firms in Slovenia, it shows that the productivity of such firms subsequently increases as a result of foreign takeover. This finding is consistent with the hypothesis that foreign firms transfer their technology to Slovenian affiliates.
    Keywords: Foreign acquisition, productivity, propensity score, matching estimator
    JEL: F23 D21 C14
    Date: 2006–01–01

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