nep-int New Economics Papers
on International Trade
Issue of 2006‒09‒23
sixteen papers chosen by
Martin Berka
Massey University

  1. From Groundnuts to Globalization: A Structural Estimate of Trade and Growth By Christian Broda; Joshua Greenfield; David Weinstein
  2. Trade Volume Effects of the Euro: Aggregate and Sector Estimates By Flam, Harry; Nordström, Håkan
  3. Has trade liberalization in South Africa affected men and women differently? By Thurlow, James
  4. Trade liberalization under CAFTA: An Analysis of the Agreement With Special Reference to Agriculture and Smallholders in Central America By Morley, Samuel
  5. Technology Diffusion through Trade with Heterogeneous Firms By Bulent Unel
  6. Portuguese Intra-Industry Trade: A Dynamic Panel Data Analysis By Horácio C. Faustino; Nuno C. Leitão
  7. Service Trade Liberalization as a Handmaiden of Competitiveness in Manufacturing: An Industrialized or Developing Country Issue? By Rolf J. Langhammer
  8. Assessing Russia’s Non-fuel Trade Elasticities: Does the Russian Economy React "Normally" to Exchange Rate Movements? By Christian Gianella; Corinne Chanteloup
  9. Specialization, Outsourcing and Wages By Munch, Jakob Roland; Skaksen, Jan Rose
  10. Financial Market Imperfections and the impact of exchange rate movements on exports By Berman, Nicolas; Berthou, Antoine
  11. The Solow Model in the Empirics of Growth and Trade By Erich Gundlach
  12. On The Advantages of Piecemeal Integration By Hansen, Bodil O.; Keiding, Hans
  13. Angel or Devil? China's Trade Impact on Latin American Emerging Markets By Jorge Blázquez-Lidoy; Javier Rodríguez
  14. Conflict, food insecurity, and globalization: By Messer, Ellen; Cohen, Marc J.
  15. Export Diversification, Externalities and Growth: Evidence for Chile By Herzer, Dierk; Nowak-Lehman, Felicitas D.
  16. Migration Policy and its Interactions with Aid, Trade, and Foreign Direct Investment Policies: A Background Paper By Theodora Xenogiani

  1. By: Christian Broda; Joshua Greenfield; David Weinstein
    Abstract: Starting with Romer [1987] and Rivera-Batiz-Romer [1991] economists have been able to model how trade enhances growth through the creation and import of new varieties. In this framework, international trade increases economic output through two channels. First, trade raises productivity levels because producers gain access to new imported varieties. Second, increases in the number of varieties drives down the cost of innovation and results in ever more variety creation. Using highly disaggregate trade data, e.g. Gabon's imports of Gambian groundnuts, we structurally estimate the impact that new imports have had in approximately 4000 markets per country. We then move from groundnuts to globalization by building an exact TFP index that aggregates these micro gains to obtain an estimate of trade on productivity growth for each country. We find that in the typical country in the world, new imported varieties account for 15 percent of its productivity growth. These effects are larger in developing countries where the median impact of new imported varieties equals a quarter of national productivity growth.
    JEL: E00 F43 O4
    Date: 2006–09
  2. By: Flam, Harry (Institute for International Economic Studies, Stockholm University); Nordström, Håkan (Kommerskollegium)
    Abstract: The gravity model is used to estimate the trade volume effects of the creation of the European currency union. The euro is estimated to have raised the level of aggregate trade between euro countries in 1998-2002 compared to 1989-1997 by 15 per cent and the level of trade with outside countries by 8 per cent. The effect is clearly increasing over time. Estimates for one-digit SITC sectors yield a concentration of effects to highly processed manufactures, indicating that the spillover is caused by increasing vertical specialization across countries.
    Keywords: -
    JEL: F10
    Date: 2006–06–01
  3. By: Thurlow, James
    Abstract: "Trade liberalization is a central part of South Africa's post-Apartheid development strategy. However, despite considerable reforms, the country has failed to generate pro-poor growth, with both unemployment and inequality worsening over the last ten years. This has raised concern that trade liberalization may have worked against the country's development objectives. This study uses a dynamic general equilibrium and microsimulation model to assess the effects of trade liberalization on growth, employment and poverty in South Africa. More specifically, it examines how men and women have been affected differently and whether liberalization has contributed to the faster rise in female unemployment and poverty. The results suggest that trade policies have not contributed to increased poverty and that trade-induced technological change has accelerated growth. However, liberalization has changed the sectoral structure of production and has exacerbated income inequality. While male and female workers have benefited from trade-induced growth, it is male-headed households who have benefited more from rising factor incomes. Trade reforms have however contributed to the observed decline in the gender wage gap, but this has been driven by rising employment amongst higher-skilled female workers. As such, the decline in poverty amongst female-headed households has remained small. While further liberalization may increase growth and reduce poverty, it is men and male-headed households who are more likely to benefit. These findings suggest that, while there is no trade-off between trade reform and poverty reduction, the country should not rely on further liberalization to generate pro-poor growth or address the prevailing inequalities between different population groups, such as men and women." Author's Abstract
    Keywords: trade liberalization, Inequality, Unemployment, General equilibrium model, Microsimulation model, Poverty, Gender issues, Female labor, Income inequality, Trade reform, Pro-poor growth,
    Date: 2006
  4. By: Morley, Samuel
    Abstract: "This paper is a description and an analysis of trade liberalization under CAFTA. It shows that in the short run the impact of the agreement is likely to be small... Since the U.S. already grants tariff-free access under the CBI, trade liberalization in the CAFTA treaty appears to be asymmetric, with most of the tariff reductions being granted by the Central American countries. That is misleading for two reasons. First there really were some significant tariff barriers in the United States for agricultural commodities under the CBI. Many of these are removed under CAFTA. Second, the current favorable special treatment of the five Central American countries under the CBTPA and the CBI will expire in 2008 if CAFTA is not implemented. CAFTA makes permanent the tariff concessions of the CBI and the liberalized rules of origin of the CBTPA... The fact that the tariff reductions and TRQs granted by the Central American countries under CAFTA will not cause significant price reductions does not mean that domestic producers will be unaffected by the agreement. In the long run the level of protection of many important commodities such as rice, pork and poultry will be significantly lower. But the tariff reductions in these sectors are gradual. That gives farmers time to adjust and to become more competitive. What will be critical from a policy perspective is that this time is used wisely to increase productivity, switch to more profitable crops and take advantage of the new opportunities opened up by CAFTA.." Authors' Abstract
    Keywords: trade liberalization, Agriculture, Smallholders, Tariff on farm produce, Prices, Crops Economic aspects, Central America Free Trade Agreement (CAFTA), Caribbean Basin Initiative (CBI),
    Date: 2006
  5. By: Bulent Unel
    Abstract: I investigate the long-run implications of trade and technology di®usion through trade, when ¯rms are heterogeneous and trade is costly. The paper integrates ¯rm heterogeneity and trade into product innovation growth models from endogenous growth theory. Two speci¯ca- tions of the R&D process are considered. In the ¯rst, R&D uses labor and intermediate goods; in the second, it uses labor and available technology. I ¯nd that under both speci¯cations, exposure to trade increases average productivity. Furthermore, under the ¯rst speci¯cation exposure to trade always has a positive e®ect on economic growth, while it has an ambiguous e®ect on growth under the second.
  6. By: Horácio C. Faustino; Nuno C. Leitão
    Abstract: This paper provides empirical evidence of the determinants of intraindustry trade (IIT), horizontal IIT and vertical IIT between Portugal and six European trading partners, using a dynamic panel data analysis. The paper introduces the distinction between the short-run and the long-run effects of the industry characteristics on IIT. The relationship between IIT and comparative advantages is also tested. The estimation results suggest that Portugal has comparative advantages in low-quality varieties and support Davis’ (1995) hypothesis that decreasing costs are not necessary for IIT. The findings of the paper also provide an answer to Torstenson’s (1996) question, namely that it is primarily human capital, rather than physical capital, that determines the quality of differentiated products.
    Keywords: Intra-industry trade; dynamic panel data; Portugal
    JEL: F12 C33 L60
  7. By: Rolf J. Langhammer
    Abstract: This paper discusses the issue whether developing countries forego chances in world manufactured markets by protecting intermediate services against market entry of new suppliers. By scanning the empirical literature on effective rates of protection (ERP), the evidence is supportive. Yet, it seems more the indirect effect via expanding the service sector in total through liberalization and deregulation than the direct effect of lowering ERP in intermediate service industries for downstream manufacturing industries which is relevant. Developed countries on the other hand enjoy a much lower level of protection in important intermediate services like banking and telecom and thus these industries can be instrumental to help downstream manufacturing industries in adjustment and restructuring. It is argued that especially in the EU competition in intermediate services will further rise due to various EU-policy rooted factors. As a result, protection rates of services in individual EU countries will converge. This paper presents a theoretical model of the labor market in which these effects can be analyzed. We then calibrate the model with respect to the German labor market to shed light on the relative strengths of these effects and thereby assess the degree to which low-wage subsidies encourage or discourage employment
    Keywords: Trade Liberalization, Services, Effective Rates of Protection
    JEL: F13 F15
    Date: 2006–09
  8. By: Christian Gianella; Corinne Chanteloup
    Abstract: This paper attempts to assess the impact of exchange rate movements on Russian import and nonfuel export performance, using an error correction model. The estimation of trade equations shows that long-run price elasticities for imports and non-fuel exports are close to 0.6 and 0.7 respectively, hence relatively similar to those obtained for OECD countries. The Marshall-Lerner condition clearly holds. More precisely, we find that a 10% real appreciation (depreciation) of the currency leads on average to a non-fuel current account deterioration (improvement) of around 1% of GDP. Moreover, the short-term dynamics of the error correction model indicate that the response of the trade balance to exchange rate shocks is rapid, the adjustment being almost complete after one quarter. Finally, the evolution of import prices and non-fuel export prices of Russia, relatively to its competitors on domestic and third markets, suggests that the Russian economy lost already in 2004 the price-competitiveness advantage it had gained after the 1998 crisis. <P>Évaluation des élasticités-prix du commerce extérieur hors hydrocarbures en Russie : L'économie russe réagit-elle "normalement" aux mouvements de taux de change ? <BR>Cette étude vise à évaluer l'impact des mouvements du taux de change sur les importations et les exportations hors hydrocarbures de la Russie, à partir d'un modèle à correction d'erreur. Les estimations d'équation de commerce extérieur montrent que les élasticités-prix de long terme pour les importations et les exportations hors hydrocarbures se situent respectivement autour de 0.6 et 0.7, soit des valeurs similaires à celles obtenues pour les pays membres de l'OCDE. La condition de Marshall-Lerner est clairement vérifiée. Plus précisément, une appréciation (dépréciation) réelle de 10% du taux de change conduit à une dégradation (amélioration) de la balance courante hors produits pétroliers d'environ 1%. Par ailleurs, la dynamique de court terme du modèle à correction d'erreur indique que la réponse de la balance commerciale aux chocs sur le taux de change est rapide, l'ajustement étant quasiment achevé après un trimestre. Enfin, l'évolution des prix à l'import et à l'export -- hors hydrocarbures -- de la Russie, relativement à de ses concurrents sur les marchés domestiques et tiers, suggère que l'économie russe a épuisé dès 2004 l'avantage de compétitivité-prix qu'elle avait gagné après la crise de 1998.
    Keywords: exchange rates, taux de change, Russia, Russie, foreign trade, non-fuel trade balance, price elasticities, price-competitiveness, commerce extérieur, balance commerciale hors hydrocarbures, élasticité-prix, compétitivité-prix
    JEL: C22 F19 O11 P27
    Date: 2006–09–04
  9. By: Munch, Jakob Roland (Department of Economics, Copenhagen Business School); Skaksen, Jan Rose (Department of Economics, Copenhagen Business School)
    Abstract: This paper studies the impact of outsourcing on individual wages. In contrast to the standard approach in the literature, we focus on domestic outsourcing as well as foreign outsourcing. By using a simple theoretical model, we argue that, if outsourcing is associated with specialization gains arising from an increase in the extent of the market for intermediate goods, domestic outsourcing tends to increase wages for both unskilled and skilled labor. We use a panel data set of workers in Danish manufacturing industries to show that domestic and foreign outsurcing affect wages as predicted by the theory.
    Keywords: Outsourcing; Comparative advantage; Specialization; Wages
    JEL: C23 F16 J31
    Date: 2006–11–13
  10. By: Berman, Nicolas; Berthou, Antoine
    Abstract: This paper studies the role of financial market imperfections in the way countries' exports react to a currency depreciation. Using quarterly data for 27 developed and developing countries over the period 1990-2005, we show that the impact of a depreciation will be less positive - or even negative - for a country as: (i) firms borrow in foreign currency ; (ii) they are credit constrained ; (iii) they are specialized in industries that require more external capital; (iv) the depreciation's or devaluation's magnitude is large. This last result confirms the existence of a non-linear relationship between an exchange rate depreciation and a country's exports reaction when financial imperfections are observed. This work offers a new explanation for the consequences of recent currency crises in middle income countries.
    Keywords: International Trade, Exchange Rate Movements, Financial Development, Financial Market Imperfections
    JEL: F10 F32 F37
    Date: 2006
  11. By: Erich Gundlach
    Abstract: Translated to a cross-country context, the Solow model (Solow, 1956) predicts that international differences in steady state output per person are due to international differences in technology for a constant capital output ratio. However, most of the cross-country growth literature that refers to the Solow model has employed a specification where steady state differences in output per person are due to international differences in the capital output ratio for a constant level of technology. My empirical results show that the former specification can summarize the data quite well by using a measure of institutional technology and treating the capital output ratio as part of the regression constant. This reinterpretation of the cross-country Solow model provides an interesting implication for empirical studies of international trade. Harrod-neutral technology differences as presumed by the Solow model can explain why countries have different factor intensities and may end up in different cones of specialization.
    Keywords: Solow Model, Lerner diagram
    JEL: O40 F11
    Date: 2006–09
  12. By: Hansen, Bodil O. (Department of Economics, Copenhagen Business School); Keiding, Hans (Department of Economics, Copenhagen Business School)
    Abstract: For the study of economic integration, it is costumary to use a three countryworld, where two of the countries may introduce forms of closer economic cooperation. In the present model, we follow this tradition but put special emphasis on the role of credit and entrepreneurship. Our model is of the standard neoclassical type, with the addition that production takes time and is subject to uncertainty. Also, firms must use the financial system in order to buy inputs; the cost of credit may differ among countries and industries, reflecting their basic patterns of uncertainty. Following the Newbery-Stiglitz approach, we show that in such model we may exhibit cases of Pareto inferior trade and, in particular, Pareto inferior economic integration. More specifically, we show that integrating countries of very different economic size may give rise to adverse effects on welfare, whereas integration of countries with a more similar economic structure and size tends to have beneficial effects for the parties.
    Keywords: trade; uncertainty; Pareto inferior trade; regional integration
    JEL: F11 F15 F34
    Date: 2005–02–01
  13. By: Jorge Blázquez-Lidoy; Javier Rodríguez
    Abstract: China’s economy has expanded by leaps and bounds, with dazzling progress since it first opened to foreign investment and reform in 1978. Over the last 25 years and after a long period of economic autarky, the country has emerged as a major player in world trade. Its accession to the World Trade Organisation (WTO) in 2001 was a milestone. China presents both a threat and an opportunity for Latin American emerging markets. On average and despite some exceptions, Latin America is a clear trade winner from Chinese global integration. This contribution studies China’s exporting and importing structure, using a database of 620 different goods. It builds two indices of trade competition to compare Chinese impacts over 1998-2004 on 34 economies, of which 15 are Latin American. The results generally confirm that there is no relevant trade competition between China and Latin America. Not surprisingly, countries that export mainly commodities face lower competition, because China is a net importer of raw materials. But the emergence of China is also a wake-up call for Latin American countries. More reforms are needed, especially in infrastructures if the region wishes to maintain its comparative advantages. Latin America will have also to deal with the Chinese bonanza. The dark side of this windfall is the risk of being stuck out of the global value chain in a raw material corner. <BR>L’économie de la Chine s’est développée à pas de géants, en progressant de manière spectaculaire depuis qu’elle a commencé à s’ouvrir aux investissements étrangers et s’est réformée en 1978. Tout au long des 25 dernières années et suite à une longue période d’autarcie économique, le pays s’est imposé en tant qu’acteur majeur du commerce mondial. Son adhésion à l’Organisation Mondiale du Commerce (OMC) en 2001 a été un événement de taille. Ainsi, la Chine représente à la fois une menace et une opportunité pour les marchés émergents d’Amérique latine. En moyenne et en dépit de certaines exceptions, l’Amérique latine fait partie des gagnants de l’intégration globale de la Chine. Ce document étudie les structures d’importation et d’exportation de la Chine, en s’appuyant sur une base de données composée de 620 biens. Deux indices de compétitivité commerciale ont été élaborés afin de comparer les impacts de la Chine sur 34 économies tout au long de la période 1998-2004, 15 d’entre elles étant des économies latino-américaines. De manière générale, les résultats confirment qu’il n’y a pas de concurrence importante entre la Chine et l’Amérique latine. Mais l’émergence de la Chine appelle aussi les pays latino-américains à se réveiller. Si la région souhaite maintenir ses avantages comparatifs, d’autres réformes sont nécessaires, en particulier au niveau des infrastructures.
    Date: 2006–06–29
  14. By: Messer, Ellen; Cohen, Marc J.
    Abstract: "We explore how globalization, broadly conceived to include international humanrights norms, humanitarianism, and alternative trade, might influence peaceful and foodsecure outlooks and outcomes. The paper draws on our previous work on conflict as a cause and effect of hunger and also looks at agricultural exports as war commodities. We review studies on the relationships between (1) conflict and food insecurity, (2) conflict and globalization, and (3) globalization and food insecurity. Next, we analyze countrylevel, historical contexts where export crops, such as coffee and cotton, have been implicated in triggering and perpetuating conflict. These cases suggest that it is not export cropping per se, but production and trade structures and food and financial policy contexts that determine peaceful or belligerent outcomes. Export cropping appears to contribute to conflict when fluctuating prices destabilize household and national incomes and when revenues fund hostilities. Also, in these scenarios, governments have not taken steps to progressively realize the right to adequate food or to reduce hunger and poverty. We conclude by exploring implications for agricultural development, trade, and human rights policies." Authors' Abstract
    Keywords: Hunger, Conflict, war, Globalization, Crops, exports, coffee, Cotton, Human rights, Right to food, Fair trade,
    Date: 2006
  15. By: Herzer, Dierk; Nowak-Lehman, Felicitas D.
    Abstract: It is frequently suggested that export diversification contributes to an acceleration of growth in developing countries. Horizontal export diversification into completely new export sectors may generate positive externalities on the rest of the economy as export oriented sectors gain from dynamic learning activities due to contacts to foreign purchasers and exposure to international competition. Vertical diversification out of primary into manufactured exports is also associated with growth since primary export sectors frequently do not exhibit strong spillovers. Thus, it is to be expected that both horizontal and vertical export diversification are positively correlated with economic growth. However, there have been remarkably few empirical investigations into the link between export diversification and growth. This paper attempts to examine the hypothesis that export diversification is linked to economic growth via externalities of learning-by-doing and learning-by-exporting fostered by competition in world markets. The diversification-led growth hypothesis is tested by estimating an augmented Cobb-Douglas production function on the basis of annual time series data from Chile. Based on the theory of cointegration three types of statistical methodologies are used: the Johansen trace-test, a multivariate error-correction model and the dynamic OLS procedure. The estimation results suggest that export diversification plays an important role in economic growth.
    Date: 2006
  16. By: Theodora Xenogiani
    Abstract: It is recognised that migration can, under certain conditions, generate important net gains for the migrants’ home countries. These gains may be in terms of growth, poverty reduction, insurance against risk and accumulation of human capital. Moreover migration may interact in various and complex ways with other policy vectors such as trade, investment and development assistance and they may have various joint impacts on development. This paper reviews the literature on the impact of migration on development. It also identifies the major methodological issues in terms of data use, data availability and econometric techniques. Moreover it investigates the joint development impact of migration, trade, investment and development assistance and assesses the degree of substitutability and/or complementarity among them. It shows that there is a great degree of heterogeneity of outcomes across countries and regions of the world and across time. The paper concludes by drawing some main lessons from the literature. <BR>Les migrations peuvent, dans certaines conditions, être source de gains importants pour les pays d’origine des migrants. Ces bénéfices peuvent être sous forme de croissance économique, de réduction de la pauvreté, d’assurance contre le risque et d’accumulation de capital humain. De surcroît, les migrations peuvent interagir de manière diverse et plus ou moins complexe avec d’autres déterminants politiques tels que le commerce, l’investissement ou encore l’Aide publique au développement, et ils peuvent alors avoir divers effets conjugués sur le développement. Ce document explore la littérature sur l’impact des migrations sur le développement. Il identifie également les principales problèmatiques méthodologiques liées au traitement des données, à leur accessibilité et aux techniques économétriques. En outre, l’ouvrage étudie l’impact conjugué des migrations, du commerce, de l’investissement et de l’APD sur le développement, et évalue leur degré de substituabilité et/ou de complémentarité. Il met ainsi en exergue l’extrême hétérogénéité des résultats pour tous les pays et toutes les régions du monde, mais également à travers le temps. Le document tire enfin les leçons importantes de ce fonds de littérature.
    Date: 2006–06–26

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