nep-int New Economics Papers
on International Trade
Issue of 2006‒10‒21
twelve papers chosen by
Martin Berka
Massey University

  1. Preferential trade agreements and their role in world trade By Medvedev, Denis
  2. The dynamics of trade and competition By Natalie Chen; Jean Imbs; Andrew Scott
  3. Singapore and ASEAN in the New Regional Division of Labour By Prema-chandra Athukorala
  4. Commercial Policy in a Predatory World By James E. Anderson
  5. Bounds testing approach: an examination of foreign direct investment, trade, and growth relationships By Frimpong, Joseph Magnus; Oteng-Abayie, Eric Fosu
  6. Did US Safeguard Protection on Steel Affect Market Power of European Steel Producers? By Hylke Vandenbussche; Ziga Zarnic
  7. General Equilibrium Model of Arbitrage Trade and Real Exchange Rate Persistence By Berka, Martin
  8. Testing the Theory of Trade Policy: Evidence from the Abrupt End of the Multifibre Arrangement By James Harrigan; Geoffrey Barrows
  9. Price and wage setting in an integrating Europe : firm level evidence By Filip Abraham; Jozef Konings; Stijn Vanormelingen
  10. Notes on Factor Price Equality and Biased Technical Change in a Two-Cone Trade Model By Daniel Becker; Erich Gundlach
  11. An Overview of Anti-Dumping Practices in the World and in the Framework of EU-Turkey Relations By Burak Serkan Yasar
  12. Labour productivity growth and industry structure. The impact of industry structure on productivity growth, export prices and labour compensation By Sinkkonen , Johanna

  1. By: Medvedev, Denis
    Abstract: The author investigates the effects of preferential trade agreements (PTAs) on bilateral trade flows using a comprehensive database of PTAs in force and a detailed matrix of world trade. He shows that total trade between PTA partners is a poor proxy for preferential trade (trade in tariff lines where preferences are likely to matter): while the former amounted to one-third of global trade in 2000-02, the latter was between one-sixth and one-tenth of world trade. His gravity model estimates indicate that using total rather than preferential trade to assess the impact of PTAs leads to a significant downward bias in the PTA coefficient. The author finds that product exclusions and long phase-in periods significantly limit preferential trade, and their removal could more than double trade in tariff lines above 3 percent of most-favored-nation (MFN) duties. He also shows that the effects of PTAs on trade vary by type of agreement and are increasing in the incomes of PTA partners.
    Keywords: Free Trade,Trade Law,Trade Policy,Economic Theory & Research,Trade and Services
    Date: 2006–10–01
  2. By: Natalie Chen (Warwick, ECARES; CEPR); Jean Imbs (HEC Lausanne, Swiss Finance Institute; CEPR); Andrew Scott (London Business School; CEPR)
    Abstract: We present, extend and estimate a model of international trade with firm heterogeneity in the tradition of Melitz (2003) and Melitz and Ottaviano (2005). The model is constructed to yield testable implications for the dynamics of international prices, productivity levels and markups as functions of openness to trade at a sectoral level. The theory lends itself naturally to a difference in differences estimation, with international differences in trade openness at the sector level reflecting international differences in the competitive structure of markets. Predictions are derived for the effects of both domestic and foreign openness on each economy. Using disaggregated data for EU manufacturing over the period 1989-1999 we find evidence that trade openness exerts a competitive effect, with prices and markups falling and productivity rising. Consistent with theory however, these effects diminish and may even revert in the longer term as less competitive economies become attractive havens from which to export from. We provide evidence that this entry into less open economies induces pro-competitive effects overseas in response to domestic trade liberalization.
    Keywords: Competition, Globalization, Markups, Openness, Prices, Productivity, Trade
    JEL: E31 F12 F15 L16
    Date: 2006–10
  3. By: Prema-chandra Athukorala
    Abstract: This paper examines the implications of international fragmentation of production for trade patterns of Singapore and the other ASEAN economies, with emphasis on their regional and global economic integration. The analysis reveals that the degree of dependence of these countries on this new global division labour is much larger compared to the other countries East Asia, Europe and North America. Network-related trade in parts and components has certainly strengthened economic interdependence among ASEAN countries and between ASEAN and other major economies in East Asia, but this has not lessoned the dependence of growth dynamism of these countries on the global economy. The operation of cross-border production networks depends inexorably on trade in final goods with North America and the European Union.
    Keywords: production fragmentation, multinational enterprises, trade patterns, ASEAN
    JEL: F15 F23 O53
    Date: 2006
  4. By: James E. Anderson
    Abstract: Predation -- extortion or theft -- imposes significant, sometimes prohibitive, costs on trade. Mutual causation of predation and trade can explain trade volume responses to liberalization that are otherwise puzzlingly 'too big' or 'too small'. Efficient commercial policy in this setting should subsidize (tax) trade when enforcement is weak (strong). The Mercantilist predilection for trade monopoly and for subsidy has a rationale. Tolerance (intolerance) of smuggling is rational when enforcement is weak (strong). The switch from weak to strong enforcement explains the switch from tolerance to intolerance by British policy toward its North American colonies after 1763.
    JEL: F13 K42 O17
    Date: 2006–10
  5. By: Frimpong, Joseph Magnus; Oteng-Abayie, Eric Fosu
    Abstract: Purpose: This paper examines the long-run impact of foreign direct investment and trade on economic growth in Ghana. Methodology: Using an augmented aggregate production function (APF) growth model, we apply the bounds testing (ARDL) approach to cointegration which is more appropriate for estimation in small sample studies. The data span for the study is from 1970 to 2002. Findings: The results indicated the impact of FDI on growth to be negative which is consistent with other past studies. Trade however was found to have significant impact on growth.
    Keywords: Ghana; ARDL cointegration; unit roots; equilibrium-correction; FDI; Trade
    JEL: F14 C32 F39
    Date: 2006–08–09
  6. By: Hylke Vandenbussche; Ziga Zarnic
    Abstract: This paper empirically investigates the effects of US safeguard protection on steel imports in 2002 on the mark-ups of EU steel producers. We identify a large panel of European steel producers between 1995 and 2004 affected by the safeguards. Using the Roeger method, our results show that US safeguards significantly reduced EU firms’ mark-ups. Single-product EU steel firms suffered relatively more from the protection than multi-product firms. Controlling for firm heterogeneity, these results are robust to alternative specifications. Our evidence further suggests that US protection resulted in some rerouting of European steel especially towards China, aggravating the situation on the Chinese steel market and ultimately resulting in Chinese trade protection of steel imports.
    Keywords: Firm data; Markups; Safeguards; Steel industry; Trade deflection
    JEL: F13 L13 L61
    Date: 2006
  7. By: Berka, Martin
    Abstract: Modelling of the physical characteristics of goods and geography can explain both the puzzling persistence and volatility in the deviations of the international relative prices and the real exchange rate (the PPP persistence puzzle). In a two-country, three-good general equilibrium model, arbitrage firms trade goods across borders using a linear transportation technology. Distance and product weights (their physical mass) determine the costs to arbitrage trade, while the differences in the endowments between countries create profitable trading opportunities. Tradability of goods is endogenous, in that only goods with a deviation from the law of one price in excess of their trade cost are traded. The adjustment of prices across borders is non-linear, with heterogeneous thresholds that depend positively on the weight of a product and distance { an empirical regularity. Aggregation of the law of one price deviations implies a smooth threshold non-linearity in the real exchange rate, justifying a reoccurring finding in the recent empirical literature. When stochastic endowments follow an AR(1) process calibrated to match the quarterly HP-filtered US and EU GDPs, and the aggregate trade costs consume 1.7% of the GDP, the half-life of deviation in the real exchange rate matches the persistence found in the data. A model with quadratic adjustment costs in the volume of trade is also capable of creating real exchange rate volatility, and so can explain the PPP puzzle entirely as a trade phenomenon.
    Keywords: Arbitrage trade; real exchange rate; persistence; volatility
    JEL: F41 F19 F49
    Date: 2005–08
  8. By: James Harrigan; Geoffrey Barrows
    Abstract: Quota restrictions on United States imports of apparel and textiles under the multifibre arrangement (MFA) ended abruptly in January 2005. This change in policy was large, predetermined, and fully anticipated, making it an ideal natural experiment for testing the theory of trade policy. We focus on simple and robust theory predictions about the effects of binding quotas, and also compute nonparametric estimates of the cost of the MFA. We find that prices of quota constrained categories from China fell by 38% in 2005, while prices in unconstrained categories from China and from other countries changed little. We also find substantial quality downgrading in imports from China in previously constrained categories, as predicted by theory. The annual cost of the MFA to U.S. consumers was about $100 per household.
    JEL: F1 F13 F14
    Date: 2006–10
  9. By: Filip Abraham (Faculty of Economics and Applied Economics, Katholieke Universiteit Leuven); Jozef Konings (Faculty of Economics and Applied Economics, Katholieke Universiteit Leuven; LICOS, Centre for Transition Economics; Katholieke Universiteit Leuven; CEPR, London); Stijn Vanormelingen (Faculty of Economics and Applied Economics, Katholieke Universiteit Leuven)
    Abstract: Europe has witnessed the last decade an accelerated process of economic integration. Trade barriers were removed, the euro was introduced and ten new member states entered the European Union. Economic integration is likely to have an impact on both labor and product markets. Unlike most other papers, that focus on product and labor markets separately, we look at the link between globalization and product and labor market imperfections simultaneously. To this end, we rely on a rich panel of manufacturing firms in Belgium, a small open economy. We find that union bargaining power is higher in sectors characterized by high price cost margins. Moreover, ignoring imperfections on the labor market, leads to an underestimation of product market power. Concerning the influence of globalization, our main findings are that both price cost margins and union bargaining power are typically lower in sectors that are subject higher international competition. This result is especially true for competition from low wage countries
    Keywords: Mark-ups, Trade Unions, International Trade
    JEL: F16 J50 L13
    Date: 2006–10
  10. By: Daniel Becker; Erich Gundlach
    Abstract: We reconsider the effects of long-run economic growth on relative factor prices across cones of specialization. We model economic growth as exogenous technical change. Allowing for capital biased technical change with a sector bias and for endogenous commodity prices, we find that economic growth may increase or decrease factor price differences across cones. For a neutral demand side and capital biased growth in the most capital intensive sector, we find that economic growth encourages less factor price diversity across cones.
    Keywords: factor price equality, economic growth, two cone trade model
    JEL: F11 O40
    Date: 2006–09
  11. By: Burak Serkan Yasar
    Abstract: This paper has two main objectives. First, we aim to discuss current developments in the field of AD and document the AD practices in the world. Second, we aim to assess the implications of possible future enlargement of the EU to include Turkey on the AD practices of both. We show that there is a proliferation of AD cases by the WTO Members until 2001 but the number of cases decreased since then. AD has been more used by developing countries than developed countries between 1995 and 2005. China has been the main target of AD practices and metal sector has been the main concern of AD practices by the WTO Members. We then show that, despite the larger number of cases by the EU, Turkey has been using AD instrument more intensively than the EU. Both the EU and Turkey mainly target Asian Countries regarding dumped imports, however, their priorities in terms of targeted sectors are not the same. Thus EU's possible future enlargement to include Turkey will be a real challenge for both of the parties regarding their AD practices. Despite the Customs Union between the EU and Turkey, both parties retain the right to impose AD duties on imports from the other. Once Turkey accedes to the Union, the AD measures between the parties will drop automatically, however, the abolition of such measures before Turkey’s accession is not very likely to occur.
    Date: 2006
  12. By: Sinkkonen , Johanna (Bank of Finland)
    Abstract: In this paper labour productivity growth and its impacts are studied at the industry level. The development of productivity is analysed in 54 industries in 14 EU countries and in the US between 1979 and 2001. The conclusion of the study is that the industry structure that leads to fast productivity growth is connected to falling export prices. The relationship between labour productivity growth and labour compensation growth is relative weak and therefore the majority of the utility resulting from the productivity growth does not benefit the labour force.
    Keywords: industry structure; labour productivity; export prices; labour compensation
    JEL: F41 J30 O47
    Date: 2005–02–13

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