nep-int New Economics Papers
on International Trade
Issue of 2006‒07‒28
six papers chosen by
Martin Berka
Massey University

  1. Welfare gains by reducing transaction costs: Linking trade and innovation policy By Baeten, Joost; Butter, Frank A.G. den
  2. Ecological Labelling in North-South Trade By Wilhelm Althammer; Susanne Dröge
  3. Trade and product innovations as sources for productivity increases: an empirical analysis By Butter, Frank A.G. den; Wit, Paul
  4. Exports, Foreign Direct Investment and the Costs of Corporate Taxation By Christian Keuschnigg
  5. Foreign and Domestic Firms in Colombia: How Do They Differ? By Peter Rowland
  6. Real Exchange Rate and International Reserves in the Era of Growing Financial and Trade Integration By Joshua Aizenman; Daniel Riera-Crichton

  1. By: Baeten, Joost (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Butter, Frank A.G. den
    Abstract: Specialisation and trade are major sources of productivity increases, and therefore of welfare gains. With reference to the Netherlands this paper discusses how (international) fragmentation of production and outsourcing may enhance productivity. In order to promote further specialisation and trade, innovations which lead to lower transaction costs - trade innovations - are needed. When trading countries, which are likely to have a comparative advantage in reducing transaction costs, focus on the coordination function in the production chain, they are able to internalize part of the welfare gains from increased trade. Infrastructure and knowledge investments that reduce transaction costs, the so called trade capital, partly have the character of a public good. Moreover, trade innovations bring about positive externalities, which is another reason for government intervention and for linking trade and innovation policy. From this perspective the paper gives some policy recommendations.
    Keywords: Outsourcing; transaction costs; Knowledge spill-overs; Trade policy; Innovations; Coordination function
    JEL: F10 Z13 D23 K12
    Date: 2006
  2. By: Wilhelm Althammer; Susanne Dröge
    Abstract: We investigate in a horizontal product differentiation model with North-South trade the implications of a home bias in consumers' demand for labelled goods. We compare mutual recognition and international harmonisation of ecological labels with respect to firms' profits and welfare. Northern consumers perceive a warm glow from buying green, but have information problems with imported labelled products. Firms differ in labelling costs which could help a Southern firm to compensate for the home bias under mutual recognition. Under harmonisation the home bias disappears. Welfare analysis of harmonised labelling shows that a Southern firm gains from adopting a harmonised label - even if there is "eco-imperialism". Given the specific trade structure in our model, harmonisation is a beneficial regime except for the case that labelling costs reach a specific treshold.
    Keywords: Ecological Labels; Product Differentiation; North-South Trade; WTO Rules
    JEL: F13 F18 L13 Q56
    Date: 2006
  3. By: Butter, Frank A.G. den (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Wit, Paul
    Abstract: Commonly increases in total factor productivity (TFP) are associated with technological innovations measured by R&D expenditures. Empirical evidence seems to corroborate this relationship. However, in trading countries like the Netherlands, productivity increases, even in industry, can also be the result of innovations in the way transactions are managed. These innovations reduce transaction costs and exploit the welfare gains from (further) international division of labour. Such innovations are only partly included in R&D data. Consequently there is not much attention for these "trade innovations" - as we label them - in policy. In an empirical analysis this paper compares the influence of trade innovations with the influence of R&D expenditures on TFP in various industrialized countries. It appears that, at least in the Netherlands, trade innovations are as important for TFP as technological innovations which directly affect the efficiency of production, and which we label "product innovations".
    Keywords: R&D; Innovation; Transaction costs; Total factor productivity
    JEL: F10 F43 O47
    Date: 2006
  4. By: Christian Keuschnigg
    Abstract: Depending on the definition of the tax base, the statutory corporate tax rate implies rather different measures of effective average and marginal tax rates. This paper develops a model of a monopolistically competitive industry with extensive and intensive business investment and shows how these margins respond to changes in average and marginal corporate tax rates. Intensive investment refers to the size of a firm's capital stock. Extensive investment refers to the firm's production location and reflects the trade-off between exports and foreign direct investment as alternative modes of foreign market access. The paper derives comparative static effects of the corporate tax and shows how the cost of public funds depends on the elasticities of the extensive and intensive investment responses.
    Keywords: Exports, foreign direct investment, corporate taxation, extensive and intensive investment, costs of public funds
    JEL: D21 F23 H25 L11 L22
    Date: 2006–07
  5. By: Peter Rowland
    Abstract: This paper studies foreign and domestic firms in Colombia and, in particular, whether these firms behave differently. The study uses a dataset containing the 2003 balance sheets and income statements for some 7,001 firms. The dataset was obtained from the Superintendencia de Sociedades. The study concludes that foreign and domestic firms differ in a number of aspects. Foreign firms tend to have a larger total asset turnover than domestic firms; they are more leveraged than domestic firms; and they tend to have a lower net-profit margin than domestic firms. However, these results are not conclusive. When the dataset is broken down by sector, the results are much less clear. When analysing external debt, foreign firms do, nevertheless, tend to hold almost four times as much external debt as domestic firms of the same size. Foreign firms also tend to import more.
  6. By: Joshua Aizenman; Daniel Riera-Crichton
    Abstract: This paper evaluates the impact of international reserves, terms of trade (TOT) shocks and capital flows on the real exchange rate (REER). We observe that international reserves (IR) cushions the impact of TOT shocks on REER, and that this effect is important for developing but not for industrial countries. This buffer effect is especially significant for Asian countries, and for countries exporting natural resources. As suggested by theory, financial depth reduces the buffer role of IR in developing countries. The role of shock absorber for IR remains robust to the addition of various controls, dealing with capital flows (FDI, hot money, etc.), exchange rate management and monetary policy, as well as trade openness. We also find that short term capital inflows (Other Investment, Portfolio Investment) and increases in foreign reserves are associated with appreciated real exchange rate. Developing countries REER seem to be more sensitive to changes in reserve assets; whereas industrial countries display a significant relationship between hot money and REER and no effect on REER due to changes in reserve assets.
    JEL: F15 F21 F32 F36
    Date: 2006–07

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