nep-int New Economics Papers
on International Trade
Issue of 2006‒09‒30
fifteen papers chosen by
Martin Berka
Massey University

  1. Skill Acquisition, Credit Constraints, and Trade By Tatyana Chesnokova; Kala Krishna
  2. Explaining Import Variety and Quality: The Role of the Income Distribution By Yo Chul Choi; David Hummels; Chong Xiang
  3. Firm Structure, Multinationals, and Manufacturing Plant Deaths By Andrew B. Bernard; J. Bradford Jensen
  4. China’s Changing Economic Structures and Its Implications for Regional Patterns of Trade Production and Integration By Tan Kim Song; Khor Hoe Ee
  5. Price Control, Different Demands Between Countries, and Parallel Trade in Pharmaceuticals By Hai Zhong
  6. EU Enlargement and the Internal Geography of Countries By Matthieu Crozet; Pamina Koenig
  7. Trade performances, product quality perceptions and the estimation of trade price-elasticities By Matthieu Crozet; Hélène Erkel-Rousse
  9. Gravity for Dummies and Dummies for Gravity Equations By Richard Baldwin; Daria Taglioni
  10. The GATT and Gradualism By Ben Zissimos
  11. Trade, Growth and Increasing Returns to Infrastructure: The Role of the Sophisticated Monopolist By Ashok S Guha; Brishti Guha
  12. Green Revolutions and Miracle Economies : Agricultural Innovation, Trade and Growth By Brishti Guha
  13. Removing policy based comparative advantage for energy intensive production. Necessary adjustments of the real exchange rate and industry structure By Torstein Bye, Erling Holmøy and Kim Massey Heide
  14. Is Exporting a Source of Productivity Spillovers? By Roberto Alvarez; Ricardo Lopez
  15. India's contribution to the British balance of payments, 1757-1812 By Javier Cuenca Esteban

  1. By: Tatyana Chesnokova; Kala Krishna
    Abstract: This paper looks at the effect of credit constraints on skill acquisition when agents have heterogeneous abilities and wealth. We use a two factor general equilibrium model and assume credit markets are absent. We explore the effects of trade on factor earnings as well as the evolution of the distribution of income in small and large economies. Our work suggests that developed countries need to ensure access to education when liberalizing trade to ensure they reap the potential gains from trade.
    JEL: F16 O15 O16
    Date: 2006–08
  2. By: Yo Chul Choi; David Hummels; Chong Xiang
    Abstract: We examine a generalized version of Flam and Helpman’s (1987) model of vertical differentiation that maps cross-country differences in income distributions to variations in import variety and price distributions. The theoretical predictions are examined and confirmed using micro data on income from the Luxemburg Income Study for 30 countries over 20 years. The pairs of importers whose income distributions look more similar have more export partners in common and more similar import price distributions. Similarly, the importers whose income distributions look more like the world buy from more exporters and have import price distributions that look more like the world.
    JEL: D3 F1
    Date: 2006–09
  3. By: Andrew B. Bernard (Dartmouth College); J. Bradford Jensen (Institute for International Economics)
    Abstract: Plant shutdowns shape industry productivity, the dynamics of employment, and industrial restructuring. Plant closures account for more than half of gross job destruction in US manufacturing. This paper examines the effects of firm structure on US manufacturing plant closures. Plants belonging to multi-plant firms and those owned by US multinationals are less likely to exit. However, the superior survival chances are due to the characteristics of the plants rather than the nature of the firms. Controlling for plant and industry attributes, we find that plants owned by multi-unit firms and US multinationals are much more likely to close.
    Keywords: Exit, shutdown, closure, multi-plant firms, multinational firms, takeovers, entry costs, agglomeration, specialization
    JEL: D21 D24 F23 L20 L6
    Date: 2006–09
  4. By: Tan Kim Song (School of Economics and Social Sciences, Singapore Management University); Khor Hoe Ee (Monetary Authority of Singapore)
    Abstract: There is tremendous momentum for economic and financial integration in East Asia today. Partly inspired by the formation of the European Union and partly as a response to the 1997/98 Asia financial crisis, many East Asian countries are showing greater commitment to regional economic cooperation. A number of bilateral free trade agreements (FTAs) have either been concluded or are being negotiated.1 At a less formal level, the ASEAN+3 grouping has brought the whole region together in regular consultations over trade, investment, as well as monetary and exchange rate policy matters.
    Date: 2005–11
  5. By: Hai Zhong (University of Western Ontario)
    Abstract: In recent years, there are growing concerns on the issue of parallel trade on pharmaceuticals. It is an existing issue in the European Union and an emerging issue in North America and Asia. In this paper, a model is developed to explore the following issues in the presence of parallel trade: 1) the change of firm's profits; 2) drug price, supply and social welfare in the importing country; 3) drug price, supply and social welfare in the exporting country. The possible policy reactions of the government in the two countries are also discussed. By relaxing some assumptions, I extend the existing studies to a more general situation.
    Date: 2006
  6. By: Matthieu Crozet (TEAM - Théories et Applications en Microéconomie et Macroéconomie - [CNRS : UMR8059] - [Université Panthéon-Sorbonne - Paris I]); Pamina Koenig (TEAM - Théories et Applications en Microéconomie et Macroéconomie - [CNRS : UMR8059] - [Université Panthéon-Sorbonne - Paris I], CREST - Centre de Recherche en Économie et Statistique - [INSEE] - [ École Nationale de la Statistique et de l'Administration Économique])
    Abstract: This paper focuses on the relation between trade openness and the location of economic<br />activity in a country. The problematic lies in the context of the EU enlargement process and of<br />its impact on the location of economic activity inside each of the accessing countries. We develop a new economic geography model based on the original Krugman (1991) model, and show that trade liberalization will foster agglomeration of economic activity in the location that has the lowest-cost access to foreign markets. Our results thus differ from Krugman and Livas's (1996) conclusions. We expect the CEECs' economies to shift economic activity towards EU markets. We provide empirical evidence of this result focusing on the post-1991 Romanian urban system.
    Keywords: economic integration; urban concentration; agglomeration; CEECs
    Date: 2006–09–20
  7. By: Matthieu Crozet (TEAM - Théories et Applications en Microéconomie et Macroéconomie - [CNRS : UMR8059] - [Université Panthéon-Sorbonne - Paris I]); Hélène Erkel-Rousse (TEAM - Théories et Applications en Microéconomie et Macroéconomie - [CNRS : UMR8059] - [Université Panthéon-Sorbonne - Paris I], DP - Direction de la Prévision - [Ministère de l'Economie des Finances et de l'Industrie])
    Abstract: Traditional trade models ignoring the dimension of product quality generally lead to excessively low trade price elasticities. In this paper, we show that higher estimated trade price elasticities, more in conformity with theory, can be obtained by controlling product quality in trade equations. To do so, we have estimated trade equations including a product quality proxy derived from survey data. Our estimation results, based on panel data for the four main EU member States, confirm the part played by product quality in the estimation of trade price elasticities, at least for traditionally highly differentiated products.
    Keywords: Trade performances ; trade equations ; trade price elasticities ; imperfect competition ;<br />product differentiation ; quality ; unit value indices
    Date: 2006–09–20
  8. By: Macho-Stadler; Licun Xue
    Abstract: Although global free trade is efficient, each country’s benefit from free trade depends on the path that leads to the global free trade agreement. Using a dynamic model of trading bloc formation, we show that when global free trade is reached gradually, the countries that are initially excluded gain less than the rest and may be even made worse-off by the final free trade agreement, compared with the initial state of no trading blocs.
    JEL: C71 C72 F13
    Date: 2006–09
  9. By: Richard Baldwin; Daria Taglioni
    Abstract: This paper provides a minimalist derivation of the gravity equation and uses it to identify three common errors in the literature, what we call the gold, silver and bronze medal errors. The paper provides estimates of the size of the biases taking the currency union trade effect as an example. We generalize Anderson-Van Wincoop's multilateral trade resistance factor (which only works with cross section data) to allow for panel data and then show that it can be dealt with using time-varying country dummies with omitted determinants of bilateral trade being dealt with by time-invariant pair dummies.
    JEL: F1 F3 F4
    Date: 2006–09
  10. By: Ben Zissimos (Department of Economics, Vanderbilt University)
    Abstract: This paper shows how the institutional rules imposed on its signatories by the GATT created a strategic incentive for countries to liberalize gradually. Trade liberalization must be gradual, and free trade can never be achieved, if punishment for deviation from an agreement is limited to a `withdrawal of equivalent concessions' and if initial deviation from an agreement is also limited. The paper shows how (sufficiently patient) countries have an incentive to deviate in a limited way when operating under GATT dispute settlement procedures.
    Keywords: Free trade, gradual trade liberalization, strategic interactions, trade agreement, welfare
    JEL: F02 F13 F15 C73
    Date: 2006–08
  11. By: Ashok S Guha (Jawaharlal Nehru University); Brishti Guha (School of Economics and Social Sciences, Singapore Management University)
    Abstract: We consider a model of international trade with increasing returns in a non-traded input into industry, “infrastructure”, and show that the nature of equilibrium depends crucially on whether the infrastructure provider acts in a “naïve” manner – akin to a Level 1 agent in a cognitive hierarchy (C-H) model – or in a more sophisticated manner. Infrastructure requires a fixed investment and is produced under decreasing marginal costs, and we model two possible market forms, monopoly and Cournot oligopoly with free entry – both capable of generating pecuniary externalities in the manufacturing sector . Unlike most other work exploring the theme of increasing returns, we derive a unique closed economy equilibrium. In a small open economy, we show that with “naïve” infrastructure provider(s), multiple equilibria obtain. In this event whether or not a small open economy becomes an industrial exporter depends crucially on the presence of unexhausted economies of scale, and it is possible to have equilibria where manufactures are exported in spite of the world price of manufactures being lower than the autarky price. With a more sophisticated infrastructure provider, however, even an open economy has a unique equilibrium, which for a wide range of parameter values also involves a greater degree of industrialization than any of the “naïve” equilibria. For some parameter values, however, neither infrastructure nor manufacturing can develop and the economy remains totally agrarian.
    Keywords: Increasing returns to scale, cognitive hierarchy, multiple equilibria, uniqueness, Cournot oligopoly.
    JEL: F1 O1
    Date: 2005–09
  12. By: Brishti Guha (School of Economics and Social Sciences, Singapore Management University)
    Abstract: The purpose of this paper is to develop a simple model of an economy in which growth is driven by a combination of exogenous technical change in agriculture as well as by a rising world demand for labor-intensive manufactured exports. We explore the relative roles of agricultural innovation and rising export demand in a model with two traded industrial goods and a non-traded agricultural good, food. When the non-traded sector uses a specific factor, we show that technical change in agriculture may be the key to sustained factor accumulation in industry, in particular driving intersectoral labor migration. A key assumption is a less than unitary price elasticity of demand for food. Our results could form a crucial link in capturing the story of labor-abundant economies which experienced structural transformation and growth through labor-intensive manufactured exports, without prior technology breakthroughs in industry. They contribute to explaining the massive growth in factor accumulation which shows up in some growth accounting studies : they may also imply that some of the contribution of “technical progress” is mistakenly attributed solely to factor accumulation.
    Keywords: Structural change, agricultural productivity, labor migration, terms of trade.
    JEL: O3 O4 F1
    Date: 2005–09
  13. By: Torstein Bye, Erling Holmøy and Kim Massey Heide (Statistics Norway)
    Abstract: National and international expansion of transmission networks and diminishing returns to scale in hydropower capacity expansion has raised the opportunity cost of electricity. The resulting changes in comparative advantage between industries have in many countries been counteracted by government assistance to energy intensive industries. A good example is the implicit electricity price subsidies offered to energy intensive manufacturing in Norway through the state owned power company Statkraft. We use firm data to assess the share of firms that will survive in the long run when these subsidies are removed, highlighting that large cost heterogeneity within the industries may imply diminishing returns to scale at the industry level. This feature is incorporated in a multisectoral CGE model, which is used to estimate the equilibrium adjustments of the industry structure and relative prices of removing the subsidies. Such a policy will lead to a less specialised industry structure and reduces gross trade. The positive public budget effect allows the government to cut other taxes, which fuels the real exchange rate depreciation necessary to meet the national budget constraint.
    Keywords: Industry policy; Comparative advantage; Structural change
    JEL: D21 E23 E27 E62 F13 F18 F41 F43
    Date: 2006–07
  14. By: Roberto Alvarez (Central Bank of Chile); Ricardo Lopez (Indiana University Bloomington)
    Abstract: This paper investigates whether exporting generates positive productivity spillover effects on other plants operating in the same industry and whether exporting affects productivity of plants in vertically related industries. Using plant-level data from Chile we find that exporters improve productivity of their local suppliers but not of plants that purchase intermediate inputs from them. We also find evidence of horizontal spillovers from exporting. Exporting by foreign-owned plants generates positive spillovers in all directions: to their suppliers, customers, and to other plants in the same industry. Domestic exporters increase productivity of their suppliers and, to a lesser extent, that of plants in the same sector.
    Keywords: exporting, spillovers, productivity, vertical linkages, Chile
    JEL: F10 F23
    Date: 2006–09
  15. By: Javier Cuenca Esteban
    Abstract: The East India Company's "regulated" trade monopoly more effectively served Britain's national interest during the French wars than might be inferred from contemporary complaints and recent scholarship. The Board of Control's assessment of India's importance to the British balance of payments in the 1780s was well informed and was borne out by subsequent developments. British net inflows from India remained substantial through 1765-1812 and were arguably least dispensable. British trade with Asia most frequently outgrew the worldwide totals and retained some of the acquired gains to the end of the period. The real constraints faced by private traders should be weighed against the external economies and scale advantages rendered by the East India Company to a wider range of British interests.
    Date: 2006–03

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