nep-int New Economics Papers
on International Trade
Issue of 2006‒11‒04
fourteen papers chosen by
Martin Berka
Massey University

  1. Trade Liberalization and Productivity Growth By Gustafsson, Peter; Segerstrom, Paul
  2. Do Endowments Matter for Vertical Intra-Industry Trade with Emergent Countries? Empirical Evidence for Spain. By Juliette Milgram Baleix; Ana I. Moro Egido
  3. Trade Effects of the Europe Agreements By Julia Spies; Helena Marques
  4. The Free Trade Agreement Morocco-EU: a simulation of the impact on EU exports. By José V. Blanes; Juliette Milgram Baleix
  5. Rules of origin for preferential trading arrangements : implications for the ASEAN Free Trade Area of EU and U.S. experience By Cadot, Olivier; de Melo, Jaime; Portugal-Perez, Alberto
  6. Trade Costs in the First Wave of Globalization By David S. Jacks; Christopher M. Meissner; Dennis Novy
  7. Networks for Free Trade Agreements among Heterogeneous Countries By Ana, MAULEON; Huasheng, SONG; Vincent, VANNETELBOSCH
  8. North-South Trade and Economic Growth By Dinopoulos, Elias; Segerstrom, Paul
  9. Trade reforms and welfare : an ex-post decomposition of income in Vietnam By Isik-Dikmelik, Aylin
  10. Does Services Liberalization Benefit Manufacturing Firms? By Arnold, Jens; Mattoo, Aaditya; Smarzynska Javorcik, Beata
  11. Globalization, De-Industrialization and Mexican Exceptionalism 1750-1879. By Rafael Dobado González; Aurora Gómez Galvarriato; Jeffrey G. Williamson
  12. Inequality and Schooling Responses to Globalization Forces: Lessons from History By Williamson, Jeffrey G
  13. Export promotion agencies : what works and what doesn ' t By Lederman, Daniel; Olarreaga, Marcelo; Payton, Lucy

  1. By: Gustafsson, Peter; Segerstrom, Paul
    Abstract: This paper presents a trade model with firm-level productivity differences and R&D-driven growth. Trade liberalization causes the least productive firms to exit but also slows the development of new products. The overall effect on productivity growth depends on the size of intertemporal knowledge spillovers in R&D. When these spillovers are relatively weak, then trade liberalization promotes productivity growth in the short run and makes consumers better off in the long run. However, when these spillovers are relatively strong, then trade liberalization retards productivity growth in the short run and makes consumers worse off in the long run.
    Keywords: endogenous fimrs; heterogenous firms; international trade; productivity growth; trade liberalization
    JEL: F12 F13 O31 O41
    Date: 2006–10
  2. By: Juliette Milgram Baleix (Department of Economic Theory and Economic History, University of Granada.); Ana I. Moro Egido (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: In this paper, we study the nature of Spanish intra-industry trade and find that intra-industry trade with CEEC, Asian and Mediterranean countries has increased considerably since the middle of the Nineties. The second aim of the paper is to study if the comparative advantage argument also explains the vertical intra-industry trade between countries with different income levels. To this end we build physical, technological and human capital stocks for a large sample of countries. Results obtained with the panel techniques support the idea of a neo Ricardian explanation of VIIT rather than the neo-Hecksher-Ohlin explanation for intra-industry trade with emergent countries. Furthermore, our results suggest that the variables considered, mostly country-specific better explain vertical intra-industry trade than horizontal intra-industry trade. Results obtained with the Heckman method support the idea that IIT is more likely to occur with emergent countries with higher income per capita and with OECD countries that have a more similar level of income to that of Spain. Differences in endowments play an important role to determine the volume of IIT rather than the probability of IIT to occur. An aditional contribution of this paper is to demonstrate that panel approach allows for more robust conclusions than OLS estimations when explaining intra-industry trade. The Heckman procedure to account for the zero flows also represents a major improvement respect to the standard approach.
    Keywords: Intra-industry trade; Comparative Advantage, Spain, Vertical Differentiation, Panel data, Truncated models.
    JEL: F11 F12 F14 C23 C24
    Date: 2006–10–28
  3. By: Julia Spies; Helena Marques
    Abstract: The eastern enlargement of the European Union (EU) brought and will bring full membership to countries whose trade barriers with the EU had to a large extent already been removed under Free Trade Agreements (FTAs) during the 1990s. We employ a theory-based new version of a gravity equation, whose specification allows for an assessment of the impact of the arrangements on extra- and intra-group imports. We find robust evidence that the agreements have substantially increased intra-group trade, in the case of the Czech and Slovak Republic at the expense of the Rest of the World (ROW).
    Keywords: Free Trade Agreements; Gravity equation; Central and Eastern Europe; Panel data
    JEL: F15 C23
    Date: 2006
  4. By: José V. Blanes (Universidad Pablo de Olavide); Juliette Milgram Baleix (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: We analyse the effect due of the next FTA between Morocco and the EU on bilateral Moroccan imports. As our main contribution to the existing literature, we include in our gravity equation tariff data at the industry level. This allows to better estimate trade determinants and also makes possible to perform simulations of the tariff dismantling taking into account its different path for each industry and year. A complete tariff dismantling will double the average yearly trade growth observed in the years just before the transition period to the FTA begun. The average effect follows the tariff reduction schedule being greater at the beginning and at the end of the transition period. The effect is positive for all EU Member States but exports growth to Morocco is greater for Portugal, Greece, Slovakia, Lithuania and Spain and lower for Germany, Denmark, Finland, France and Sweden. By industries, the faster growth are predicted for Leather and leather products, Wood and wood products, Textiles and textile products, Rubber and plastic products and Pulp, paper an paper products and publishing and printing. Finally, we also find a positive effect of Moroccan immigration in the EU on bilateral trade.
    Keywords: liberalisation; EU; Morocco; Free Trade Area; Tariff; Immigration; Liberalisation; gravity equation.
    JEL: F13 F14 F17 F22
    Date: 2006–10–26
  5. By: Cadot, Olivier; de Melo, Jaime; Portugal-Perez, Alberto
    Abstract: With free trade areas (FTAs) under negotiation between Japan and the ASEAN Free Trade Area (AFTA) members and between the Republic of Korea and AFTA members, preferential market access will become more important in Asian regionalism. Protectionist pressures will likely increase through rules of origin, the natural outlet for these pressures. Based on the experience of the European Union and the United States with rules of origin, the authors argue that, should these FTAs follow in the footsteps of the EU and the U.S. and adopt similar rules of origin, trading partners in the region would incur unnecessary costs. Using EU trade under the Generalized System of Preferences with Africa, Caribbean, and Pacific partners, the authors estimate how the use of preferences would likely change if AFTA were to veer away from its current uniform rules of origin requiring a 40 percent local content rate. Depending on the sample used, a 10 percentage point reduction in the local value content requirement is estimated to increase the utilization rate of preferences by between 2.5 and 8.2 percentage points.
    Keywords: Free Trade,Rules of Origin,Trade and Regional Integration,Economic Theory & Research,Trade Policy
    Date: 2006–09–01
  6. By: David S. Jacks; Christopher M. Meissner; Dennis Novy
    Abstract: We use a new measure of total trade costs at the bilateral country level to examine the change in international trade integration between 1870 and 1913. Trade costs are lowest amongst the most developed countries and highest in the peripheral and poor countries. On average, our measure declined by roughly ten percent during the period declining most slowly in the richest countries. Core-periphery dyads saw the fastest declines. We sort the determinants of trade costs into four main categories: geographic, political, transportation/communications and institutional/cultural. We find that all of these factors play a role in explaining the variation in the data. Transportation costs and other factors related to proximity seem to explain the largest fraction of the variance. Membership in the British Empire and a shared language are also of great importance. Tariffs, and increased exchange rate regime coordination play a strong role too. Finally we find that reductions in trade costs explain roughly 40 percent of the global trade boom. Economic expansion accounts for the rest.
    JEL: F15 N70
    Date: 2006–10
  7. By: Ana, MAULEON (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)); Huasheng, SONG (Zhejiang University); Vincent, VANNETELBOSCH
    Abstract: The paper examnes the formation of free trade agreements as a network formation game. We consider a three-country model in which international trade occurs between economies with imperfectly competitive product markets. Labor markets can be unionized and non-unionized in each country. We show that if all countries are of the same type (all of them are either unionized or non-unionized), the global free trade network is both the unique pairwise stable network and the unique efficient network. If some countries are unionized while others are non-unionized, other networks apart from the global free trade network are likely to be pariwise stable. however the efficient network is always the global free trade network. Thus, a conflict between stability and efficiency may occur. Moreover, starting from the network in which no country has signed a free trade agreement, all sequences of networks due to continuously profitable deviations to do not lead (in most cases) to the global free trade network, even when global free trade is stable
    Keywords: Free-trade agreements, Network formation games, Unionization
    JEL: F15 F16 C70
    Date: 2006–06–15
  8. By: Dinopoulos, Elias; Segerstrom, Paul
    Abstract: This paper develops a dynamic general equilibrium model of North-South trade and economic growth. Both innovation and imitation rates are endogenously determined as well as the degree of wage inequality between Northern and Southern workers. Northern firms devote resources to innovative R&D to discover higher quality products and Southern firms devote resources to imitative R&D to copy state-of-the-art quality Northern products. The steady-state equilibrium and welfare implications of three aspects of globalization are studied: increases in the size of the South (i.e., countries like China joining the world trading system), stronger intellectual property protection (i.e., the TRIPs agreement that was part of the Uruguay Round) and lower trade costs.
    Keywords: economic growth; globalization; North-South trade; trade costs; welfare
    JEL: F12 F43 O31 O34
    Date: 2006–10
  9. By: Isik-Dikmelik, Aylin
    Abstract: This paper analyzes the impact of trade reforms on household welfare. In particular, it studies the importance of each of the links that together constitute the impact using data from the Vietnamese experience in the 1990s. The implementation of trade reforms in the 1990s, most noteworthy of which was the liberalization of rice, resulted in substantial improvement in welfare as evidenced by the drastic decline in poverty. Using analytical and empirical methods, the author examines the role of each channel (direct versus indirect) in this improvement for different groups of households. Results indicate that the growth has been broad based and pro-poor. Poorer households experienced more growth for each and every group analyzed. And contrary to the standard literature, net buyer households had more growth compared with net sellers, emphasizing the importance of indirect links. Decomposition of the growth shows that for rural households, both the direct effect and the multiplier effect drive growth while the multiplier effect was key in urban areas. The importance of the secondary effects underscores the need for a broader model to estimate the impact of trade reforms fully.
    Keywords: Rural Poverty Reduction,Economic Theory & Research,Small Area Estimation Poverty Mapping,Inequality,Consumption
    Date: 2006–11–01
  10. By: Arnold, Jens; Mattoo, Aaditya; Smarzynska Javorcik, Beata
    Abstract: While there is considerable empirical evidence on the impact of liberalizing trade in goods, the effects of services liberalization have not been empirically established. This study examines the link between services sector reforms and the productivity of manufacturing industries relying on services inputs. The results, based on firm-level data from the Czech Republic for the period 1998-2003, show a positive relationship between services sector reform and the performance of domestic firms in downstream manufacturing sectors. When several aspects of services liberalization are considered, namely, the presence of foreign providers, privatization and the level of competition, we find that allowing foreign entry into services industries is the key channel through which services liberalization contributes to improved performance of downstream manufacturing sectors. As most barriers to foreign investment today are not in goods but in services sectors, our findings may strengthen the argument for reform in this area.
    Keywords: foreign direct investment; productivity; services liberalization
    JEL: D24 F2 L8
    Date: 2006–10
  11. By: Rafael Dobado González (Universidad Complutense de Madrid. Facultad de Ciencias Económicas y Empresariales. Dept. de Historia Económica); Aurora Gómez Galvarriato (CIDE. Division of Economics. México); Jeffrey G. Williamson (Harvard University. Department of Economics)
    Abstract: Like the rest of the poor periphery, Mexico had to deal with de-industrialization forces between 1750 and 1913, those critical 150 years when the economic gap between the industrial core and the primary-product-producing periphery widened to such huge dimensions. Yet, from independence to mid-century Mexico did better on this score than did most countries around the periphery. This paper explores the sources of Mexican exceptionalism with de-industrialization. It decomposes those sources into those attributable to productivity events in the core and to globalization forces connecting core to periphery, and to those attributable to domestic forces specific to Mexico. It uses a neo-Ricardian model (with non-tradable foodstuffs) to implement the decomposition, and advocates a price dual approach, and develops a new price and wage data base 1750-1878. There were three forces at work that account for Mexican exceptionalism: first,the terms of trade and Dutch disease effects were much weaker; second, Mexico maintained secular wage competitiveness with the core; and third, Mexico had the autonomy to devise effective ways to foster industry. The first appears to have been the most important.
    Date: 2006
  12. By: Williamson, Jeffrey G
    Abstract: In the first global century before 1914, trade and especially migration had profound effects on both low-wage, labour abundant Europe and the high-wage, labour scarce New World. Those global forces contributed to a reduction in unskilled labour scarcity in the New World and to a rise in unskilled labour scarcity in Europe. Thus, it contributed to rising inequality in overseas countries, like the United States, and falling inequality in most of Europe. Falling unskilled labour scarcity and rising skill scarcity contributed to the high school revolution in the US. Rising unskilled scarcity also contributed to the primary schooling and literacy revolution in Europe. Under what conditions would we expect the same responses to globalization in today's world? This paper argues that modern debates about inequality and schooling responses to globalization should pay more attention to history.
    Keywords: brain drain; emigration; immigration; inequality; schooling
    JEL: D3 F1 I2 J6 N3
    Date: 2006–10
  13. By: Lederman, Daniel; Olarreaga, Marcelo; Payton, Lucy
    Abstract: The number of national export promotion agencies (EPAs) has tripled over the past two decades. While more countries have made them part of their national export strategy, studies have criticized their efficiency in developing countries. Partly in reaction to these critiques, EPAs have been retooled (see ITC 1998 or 2000, for example). This paper studies the impact of existing EPAs and their strategies based on a new data set covering 104 industrial and developing countries. Results suggest that on average they have a strong and statistically significant impact on exports. For each $1 of export promotion, the paper estimates a $300 increase in exports for the median EPA. However, there is heterogeneity across regions, levels of development, and types of instruments. Furthermore, there are strong diminishing returns, suggesting that as far as EPAs are concerned, small is beautiful.
    Keywords: Country Strategy & Performance,Economic Theory & Research,Trade Policy,Tax Law,Marketing
    Date: 2006–11–01
  14. By: Hernán Vallejo G
    Abstract: The theories of natural market structures have been well known in economics for a long time. In this paper, a framework for such natural market structures is developed, where natural monopoly, natural oligopoly, perfect competition and monopolistic competition are special cases. The paper explains why with increasing returns to scale at the level of the firm; a given market size; a continuum of firms; complete information and homogeneous goods, there is usually a margin for regulation –most notably when the number of firms in the market is low. The paper shows that R&D, FDI and trade liberalization can improve welfare, and that they can be complements or imperfect substitutes to the need for market regulation. It is argued that when markets are expected to grow, or technologies to change, avoiding policies that prevent entry of firms –such as licences- can reduce significantly the need for regulation while allowing for a more efficient allocation of resources. It is also argued that the need for market regulation can be better explained by the exploitation of economies of scale, than by the existence of economic rents. Finally, the paper shows that when there is a discrete number of firms, the level of profits and the regulatory margins, can be described by a “saw”
    Date: 2006–02–05

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