nep-int New Economics Papers
on International Trade
Issue of 2006‒12‒04
nine papers chosen by
Martin Berka
Massey University

  1. Re-examination of the Mayer Median Voter Model of Trade Policy By Dhingra, Swati
  2. The impact of trade with China and India on Argentina’s manufacturing employment By Castro, Lucio; Olarreaga, Marcelo; Saslavsky, Daniel
  3. Does Regionalism Lead to More Global Trade Integration in East Asia? By Lee, Jong-Wha; Shin, Kwanho
  4. The Political Economy of Bilateralism and Multilateralism: Institutional Choice in Trade and Taxation By Rixen, Thomas; Rohlfing, Ingo
  5. Globalisation and Inflation in the OECD Economies By Nigel Pain; Isabell Koske; Marte Sollie
  6. The Impact of ISO 9000 Diffusion on Trade and FDI: A New Institutional Analysis By Joseph A. Clougherty; Michal Grajek
  7. The Evolution of Ukrainian Economy: New Trade Theory Evidence By Konchyn, Vadym
  8. East Asian Financial Crisis of 1997 Revisited: Is it Possible to Devise an Early Warning System? By Feridun, Mete
  9. International recycling of petrodollars By Ruiz, Juan; Vilarrubia, Josep

  1. By: Dhingra, Swati
    Abstract: This paper examines the empirical validity of the Mayer-Heckscher-Ohlin (M-H-O) model. We test the inequality-tariff relationship studied by Dutt & Mitra (2002) as well as a large country version of Mayer’s model. Dutt and Mitra (2002) found support for the inequality-tariff implication of the model for a cross-section of countries in the 1980s, using physical capital and labor as the two factors in the MH- O model. Our results suggest that this finding is not robust. Instead, we find that when human capital and (unskilled) labor are taken as relevant factors, the Mayer implication is validated in the 1980s. Using cross-sectional country data, we also find that the Mayer implication holds for the 1990s with either physical capital or human capital. We discuss possible explanations for the different findings in the two periods. We extend the model to a large country and obtain tariff levels which are a function of the median voter component and a terms of trade factor. For the 1990s, the positive impact of terms of trade considerations on tariff levels across countries is validated. Using human capital, we find that the median voter component has a negative impact on tariffs in labor-abundant countries and a positive impact in capital-abundant countries.
    Keywords: median voter; Mayer; large country; terms of trade
    JEL: F59 F14 F13
    Date: 2006–01–30
  2. By: Castro, Lucio; Olarreaga, Marcelo; Saslavsky, Daniel
    Abstract: For many in Latin America, the increasing participation of China and India in international markets is seen as a looming shadow of two ‘mighty giants’ on the region’s manufacturing sector. Are they really mighty giants when it comes to their impact on manufacturing employment? This paper attempts to answer this question estimating the effects of trade with China and India on Argentina’s industrial employment. We use a dynamic econometric model and industry level data to estimate the effects of trade with China and India on the level of employment in Argentina’s manufacturing sector. Results suggest that trade with China and India only had a small negative effect on industrial employment, even in a period of swift trade liberalization like the nineties.
    Keywords: China; Latin America; Trade; Import Competition; Trade and Labor Market Interactions; Employment
    JEL: F17 F14 F16 L60 F15
    Date: 2006–10–20
  3. By: Lee, Jong-Wha; Shin, Kwanho
    Abstract: Since early 1999, global trade liberalization has moved to the wayside as regional preferentialtrade agreements have become the preferred choice in East Asia. Does this shift toward regional trade agreements (RTA) suggest that global trade and welfare levels will be raised? Regional preferential trade arrangements, in contrast to unilateral trade liberalization, may well cause both 'trade creation’ and ‘trade diversion’. If an RTA raises trade and welfare among its members but hurts the welfare of non-members, its net effect on global trade and welfare becomes ambiguous. The hypothesis of ‘natural trading partners’ suggests that RTAs comprising natural trading partners are more likely to create trade between member countries, and less likely to divert trade from non-member countries, and thus leading to large improvements of economic welfare. Based on the existing RTAs in the world, we find that if an RTA forms between geographically proximate countries (measured either by distance or border), trade significantly increases between member countries. At the same time, we find that geographical proximity also contributes to increasing trade between a member and the rest of the world. We apply our findings to East Asia and examine how the existing or proposed East Asian trading blocs affect intra-bloc and extra-bloc trade, and thereby global trade. We find the East Asian RTAs are likely to create more trade among members without diverting trade from non-members.
    Keywords: Regionalism; Global trade integration; Trade creation; Trade diversion
    JEL: F15
    Date: 2005–10
  4. By: Rixen, Thomas; Rohlfing, Ingo
    Abstract: Trade relations are governed by the multilateral GATT, whereas the avoidance of international double taxation rests on a network of around 2000 bilateral treaties. Given the two regimes’ similar economic rationales this difference between bilateralism in international double tax avoidance and multilateralism in the trade regime poses an empirical puzzle. In this paper we develop an answer to this puzzle. Differentiating between different stages of international cooperation, we first describe the institutional form in the bargaining and agreement stages of cooperation. This description shows that the regimes are quite similar in the bargaining stage, both exhibiting a mix of bilateral and multilateral bargaining. However, while agreement is multilateral in the trade regime it is bilateral in taxation. Based on stylized institutional histories of both cases we develop simple game theoretic models incorporating domestic level considerations. Building on these models we then go on to explain the institutional choice between bilateral and multilateral cooperation. We show that state concerns for the distribution of benefits can be best achieved under bilateral bargaining in both regimes. However, in order to lower transaction costs there are also elements of multilateral bargaining. Agreement is multilateral in trade in order to overcome a free-rider problem that results from an interaction of concerns for distribution and enforcement. Since such a problem of free-riding does not exist in taxation, there is no need for binding multilateral agreement.
    Keywords: Theories of International Cooperation; International Trade; International Double Taxation; Bilateralism; Multilateralism
    JEL: F59 F53
    Date: 2005
  5. By: Nigel Pain; Isabell Koske; Marte Sollie
    Abstract: Over the past 25 years inflation has moderated considerably in all OECD economies. At the same time, the production of many goods and services has become increasingly internationalised and the level of trade between the OECD and non-OECD economies has risen markedly. This paper investigates the extent to which the observed changes in the inflation process can be attributed to the increasing integration of non-OECD economies into the global economy. The results of the analysis show that i) import prices have become a more important driver of domestic consumer prices since the mid-1990s; ii) the sensitivity of inflation to domestic economic conditions has declined whereas the sensitivity to foreign economic conditions has risen, working through import prices; and iii) the strong GDP growth in the non-OECD economies over the past five years has contributed to the growth of real oil and metals prices. A scenario analysis shows that globalisation has put upward pressure on inflation via higher commodity prices and downward pressure via lower non-commodity import prices with the latter effect having dominated in most OECD economies. <P>Mondialisation et inflation dans les économies de l'OCDE <BR>Au cours des 25 dernières années, l’inflation a considérablement diminué dans toutes les économies de l'OCDE. Pendant ce temps, la production de nombreux biens et services est devenue de plus en plus internationalisée et le niveau du commerce entre les pays de l'OCDE et les pays non membres a sensiblement augmenté. Ce papier étudie dans quelle mesure les changements observés dans le mécanisme d'inflation peuvent être attribués à l'intégration croissante des pays non membres de l'OCDE dans l'économie mondiale. Les résultats de l'analyse montrent que i) les prix d'importation jouent un rôle plus important dans la détermination des prix de consommation domestiques depuis le milieu des années 1990 ; ii) la sensibilité de l'inflation aux conditions économiques domestiques a diminué alors que la sensibilité aux conditions économiques extérieures a augmenté, en jouant à travers les prix d'importation ; et iii) la croissance forte du PIB dans les pays non membres au cours des cinq dernières années a contribué à l'augmentation des prix réels du pétrole et des métaux. Les simulations montrent que la globalisation a entraîné des pressions inflationnistes via des prix des matières premières plus élevés et des pressions désinflationnistes via des prix des importations des produits hors matières premières plus faibles. Le dernier effet semble avoir dominé dans la plupart des pays de l'OCDE.
    JEL: E31 E37 E52 F15
    Date: 2006–11–21
  6. By: Joseph A. Clougherty (Wissenschaftszentrum Berlin (WZB), Reichpietschufer 50, 10785 Berlin, Germany. Tel: +49 30 25491 427, Fax: +49 30 25491 444.; Michal Grajek (Wissenschaftszentrum Berlin (WZB) and Humboldt-University of Berlin)
    Abstract: The effects of ISO 9000 diffusion on trade and FDI have gone understudied. We employ panel data reported by OECD nations over the 1995-2002 period to estimate the impact of ISO adoptions on country-pair economic relations. We find ISO diffusion to have no effect in developed nations, but to positively pull FDI (i.e., enhancing inward FDI) and positively push trade (i.e., enhancing exports) in developing nations.
    Keywords: FDI, Trade, Transaction Costs, Institutions
    JEL: C51 F23 L31
    Date: 2006–11
  7. By: Konchyn, Vadym
    Abstract: As the experience of European transition countries shows, the opening-up of their economic systems for international competition and FDIs, deepening economic liberalization and integration, and on this basis, the realization of real convergence within the integration block lead to the increased role of New Trade Theory in explaining their international economic relations. The processes of Ukraine's economic liberalization and approximation of its level of economic development to that of the EU-members should stipulate for transition of Ukrainian economy onto the dimension which explains industrial and trade relations through the prism of the New Trade Theory postulates coupled with Traditional Trade Theory principles. This article explores the position of Ukraine in the intra-industry trade with its main trade partners and problems of measuring the homogeneity degree of Ukraine’s trade structure and the trade structures of its trade partners as well as its potential reciprocal demand within the regional EU and SEA integration blocks. The empirical analysis reveals that inasmuch as consumer preferences in Ukraine differ from those of its two SEA-partners (Russia and Kazakhstan), their disposition to intensify intra-regional trade relations with Ukraine in the future would be reduced. The SEA countries would rather prefer to expand their integrated export potential (for example, by forming big oligopolistic financial and industrial groups in the mining, metallurgy, heavy engineering, aircraft and space industries on the basis of intra-regional mergers and acquisitions, thus enjoying external economies of scale) and satisfy their individual importing wishes on the markets of third countries in compliance with the postulates of the Traditional Trade Theory. Nevertheless, it is believed that intra-industry trade of Ukraine would develop optimally under deepening of its industrial and trade relations with advanced industrial countries, which have objectively reached the highest level of international specialization and product differentiation. In view of the optimization of their reciprocal demand, advanced industrial countries would try to pull the Ukrainian economy towards European economic area in order to realize their trade and investment interests. FDIs turned Ukraine into an increasingly export-oriented economy due to homogenous products. At the same time, the influence of FDIs on Ukrainian imports of differentiated goods tends to decrease significantly. This means that there still is no effect of increasing complementarity between imports and FDIs, which – under condition of transition – is responsible for structural market changes, saturation of domestic market with differentiated products and as a result for development of intra-industry trade.
    Keywords: New Trade Theory; Multinational Corporations; Intra-industry Trade; Internal Increasing Returns to Scale; Trade Structures Homogeneity; Potential Reciprocal Demand; Cross-Border Mergers & Acquisitions; Foreign Direct Investment; Investment and Trade Openness; Single Economic Area; European Union
    JEL: F15 P27 F14 F12
    Date: 2006–10–26
  8. By: Feridun, Mete
    Abstract: This study examines the causes of the East Asian financial crisis and presents an early warning system based on data from Mmalaysia, Iindonesia, Tthailand, Ssingapore, and Pphilippines during 1982:1–1998:1 through a panel probit regression model using 20 monthly macroeconomic and financial sector variables. Results indicate that the significant variables are current account/GDPgdp, domestic credit/terms of trade, lending and deposit rate spread, and foreign direct investment/GDPgdp. Evidence further suggests that the probability of the crisis increases with an increase in domestic credit/Mm1, imports, and foreign direct investment/Tthe probability of the crisis increases with a decrease in exports, stock prices, terms of trade, current account, and lending and deposit rate spread. model correctly indicates 64% of the crises and 77% of the tranquil periods even with a cut-off probability of 10%.
    Keywords: Asian financial crisis; probit model; early warning systems
    JEL: F0
    Date: 2006–01
  9. By: Ruiz, Juan; Vilarrubia, Josep
    Abstract: The continued rise in oil prices since 2002 has resulted in a significant increase in export revenue for oil exporting countries. This increase in the price of oil and other commodities means that OPEC countries and Russia have received, between 2003 and 2006, a windfall of 1.3 trillion dollars with respect to their export level in 2002. This paper analyzes, using the limited data available, the recycling of these resources back to the world economy through the trade channel, via higher imports, or the financial channel, via an increase in the net external asset position of these countries. Our results show that around 50% of the windfall revenue has been used to increase imports, while the rest has been directed towards international reserve accumulation and other improvements in the net asset position of these countries. Comparing the current oil price increase with previous ones, such as those resulting from the tightening of oil supply in the 70’s, we find that the trade channel has been more important in the current episode than in previous ones. This can be attributed to (i) the perception of a more permanent increase in the price of oil in the context of rising demand, and (ii) the gradualism of the current oil price increase, which has allowed a stronger response from imports.
    Keywords: Oil exporting countries; oil revenues; oil windfall; recycling; trade; imports; exports; reserve accumulation; marginal propensity to import; petrodollars; OPEC; Russia
    JEL: F32 Q43 F14
    Date: 2006–04

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