nep-int New Economics Papers
on International Trade
Issue of 2006‒12‒09
eleven papers chosen by
Martin Berka
Massey University

  1. Trade Costs and Foreign Direct Investment By Neary, J Peter
  2. Hub-and-Spoke Free Trade Areas By Deltas, George; Desmet, Klaus; Facchini, Giovanni
  3. Multi-Product Firms and Flexible Manufacturing in the Global Economy By Eckel, Carsten; Neary, J Peter
  4. Command Economy after the Shocks of Opening up: The Factors of Adjustment and Specialisation in the Czech Trade By Vladimír Benáček; Jiří Podpiera; Ladislav Prokop
  5. Trade Policy, Market Leaders and Endogenous Competition Intensity By Jan Boone; Delia Ionascu; Kresimir Zigic
  6. Multinational Enterprises and Manufacturing for Export in Developing Asian Countries: Emerging Patterns and Opportunities for Latecomers By Prema-chandra Athukorala
  7. Strengthening the Integration of Japan in the World Economy to Benefit more Fully from Globalisation By Randall Jones; Taesik Yoon
  8. The income distributional consequences of agrarian tariffs in Sweden on the eve of World War I By Bohlin, Jan
  9. Human Capital and Wages in Exporting Firms By Jakob Roland Munch; Jan Rose Skaksen
  10. Protectionism, agricultural prices and relative factor incomes: Sweden’s wage-rental ratio, 1877-1926 By Bohlin, Jan; Larsson, Svante
  11. Cambodia's Garment Industry - Origins and Future Prospects By Omar Bargawi

  1. By: Neary, J Peter
    Abstract: This paper reviews the theory of foreign direct investment (FDI), focusing on an apparent conflict between theory and recent trends in the globalized world. The bulk of FDI is horizontal rather than vertical, but horizontal FDI is discouraged when trade costs fall. This seems to conflict with the experience of the 1990s, when trade liberalisation and technological change led to dramatic reductions in trade costs yet FDI grew much faster than trade. Two possible resolutions to this paradox are explored. First, horizontal FDI in trading blocs is encouraged by intra-bloc trade liberalisation, because foreign firms establish plants in one country as export platforms to serve the bloc as a whole. Second, cross-border mergers, which are quantitatively more important than greenfield FDI, are encouraged rather than discouraged by falling trade costs.
    Keywords: cross-border mergers and acquisitions; export platform FDI; foreign direct investment; international trade policy; trade liberalisation
    JEL: F13
    Date: 2006–11
  2. By: Deltas, George; Desmet, Klaus; Facchini, Giovanni
    Abstract: This paper analyzes how the sequential formation of free trade areas affects the volume of trade between member countries. In a three--country, three--good model, if two countries have a free trade area, and both sign a similar agreement with the third, trade between the two decreases, and welfare rises in both. However, if only one of them signs an FTA with the third, a hub-and-spoke pattern arises. If the two spokes have a comparative advantage in different goods, trade between the two countries in the initial FTA increases, with welfare rising in the hub and falling in the spoke. We provide evidence consistent with the theoretical model when studying the experience of Israel.
    Keywords: free trade areas; hub-and-spoke; Israel; trade volumes
    JEL: F11 F13
    Date: 2006–11
  3. By: Eckel, Carsten; Neary, J Peter
    Abstract: We present a new model of multi-product firms (MPFs) and flexible manufacturing and explore its implications in partial and general equilibrium. International trade integration affects the scale and scope of MPFs through a competition effect and a demand effect. We demonstrate how MPFs adjust in the presence of single-product firms and in heterogeneous industries. Our results are in line with recent empirical evidence and suggest that MPFs in conjunction with flexible manufacturing play an important role in the impact of international trade on product diversity.
    Keywords: flexible manufacturing; general oligoplistic equilibrium (GOLE); international trade; multi-product firms; product diversity
    JEL: F12 L13
    Date: 2006–11
  4. By: Vladimír Benáček (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Jiří Podpiera (Czech National Bank, Prague, Czech Republic); Ladislav Prokop (Czech National Bank, Prague, Czech Republic)
    Abstract: This analysis focuses on factors determining the transition of international trade in the Czech economy. Even though the Czech economy was exposed to several structural shocks during 1993–2002 and grew at a very low rate, its external trade flows sustained an annual growth at around 10%. The restructuring in the pattern of specialisation with the EU-15 was exceptionally intensive and our results confirm that its progress can be explained by the variables used in the theories of open economies. The undergoing changes were profound and painful, but their positive final outcome is undisputable. In the econometric part of this study we quantify the determining factors of Czech exports and imports during 1993–2002 when the trade flows have undergone intensive structural and qualitative changes facilitating the trade creation. Our findings lend significance to the variables of aggregate demand and the real exchange rate, in addition to liberalisation of tariffs, evolution of unit prices of exports and imports, changes in quality, diversion in factor usage and economies of scale. Unimpeded opening-up can be a crucial driver of an in-depth restructuring, which brings positive results from the very start, even though its spillovers into an overall fast growth can be delayed.
    Keywords: industrial specialisation; export and import dynamics; dynamic estimation; trade determinants
    JEL: F14 F43 O24 P30
    Date: 2006–04
  5. By: Jan Boone; Delia Ionascu; Kresimir Zigic
    Abstract: It is well known that tariff policy can alleviate the negative consequences of breaching intellectual property rights by foreign firms. Yet, the positive effect of tariff protection is thought to be the benefit firms get at the expense of consumers (at least in the short run). Using a set-up in which the intensity of market competition is endogenous, we argue that consumers can benefit from tariffs even in the short run. A high level of tariff protection alters the firms’ cost efficiency distribution and induces tougher market competition. Consumers benefit from the tariff policy, and governments that assign a high enough weight to the consumer surplus set positive tariff levels. Under protection the innovation level remains the same as under free trade but the average industry efficiency increases.
    Keywords: Tariff protection, supergames, cost asymmetries, market conduct, leadership, consumer welfare
    JEL: F12 F13
    Date: 2006–10
  6. By: Prema-chandra Athukorala
    Abstract: This paper examines the role of multinational enterprises (MNEs) is the expansion of manufacturing exports from developing countries, in the light of the Asia experience. First a typology of MNE-export nexus is developed in the context changes in patterns of international production over the past two decades. The typology is then applied to empirical evidence from newly industrialized countries (NICs) and latecomer exporting countries in Asia. The evidence suggests that the share of MNEs in manufactured exports from all these countries has recorded a significant increase from about the mid 1970s and the entry of MNEs is virtually essential for the export success of latecomers.
    Keywords: multinational enterprises, manufacturing exports, Asia, newly industrialized countries
    Date: 2006–12
  7. By: Randall Jones; Taesik Yoon
    Abstract: Globalisation through international trade, foreign direct investment (FDI) and international movements of labour is a key force driving economic growth. However, Japan is an outlier among OECD countries, with the lowest levels of import penetration, stock of inward FDI relative to GDP and foreign workers as a share of employment, reflecting the legacy of policies during its post-war development. Policy reforms would help Japan make greater use of goods, services, capital, technology and human resources from abroad. Given the close links among trade, investment and labour flows, it is important to pursue a comprehensive approach, including; i) reducing barriers to FDI and imports, particularly in agriculture, through multilateral trade negotiations and regional trade agreements; ii) relaxing product market regulations, notably in the service sector; iii) fully opening the M&A market to foreign firms; and iv) easing controls on the inflow of foreign workers, including those in non-technical occupations. This Working Paper relates to the 2006 Economic Survey of Japan ( <P>Renforcer l'intégration du Japon dans l'économie mondiale afin de profiter plus pleinement de la mondialisation <BR>La mondialisation qui s'opère par le biais du commerce international, de l'investissement direct étranger (IDE) et des flux internationaux de ressources humaines est un moteur essentiel de la croissance économique. Cependant, le Japon est un cas à part parmi les pays de l'OCDE, se classant au dernier rang du point de vue de la pénétration des importations, de la part de l'IDE dans le PIB et de la proportion de travailleurs étrangers dans l'emploi, autant d'héritages des politiques menées au cours de son développement après la guerre. Des réformes aideraient le Japon à mieux exploiter les ressources que constituent les biens, les services, les capitaux, la technologie et la main-d'oeuvre de provenance étrangère. Compte tenu des liens étroits qui unissent les flux d'échanges, d'investissement et de main-d'oeuvre, il importe d'adopter une approche globale consistant à i) réduire les obstacles à l'IDE et aux importations, en particulier dans l'agriculture, par le biais de négociations commerciales multilatérales et d'accords commerciaux régionaux, ii) assouplir la réglementation des marchés de produits, notamment dans le secteur des services, iii) ouvrir complètement le marché des fusions-acquisitions aux entreprises étrangères ; et iv) assouplir les contrôles sur l'entrée de travailleurs étrangers, notamment dans les professions non techniques. Ce Document de travail se rapporte à l'Étude économique du Japon 2006 (
    Keywords: globalisation, international trade, Japan, Japon, foreign direct investment, investissement direct étranger, trade liberalisation, regional trade agreements, accords commerciaux régionaux, mondialisation
    JEL: F1 F21 F22 F23
    Date: 2006–11–29
  8. By: Bohlin, Jan (Department of Economic History, School of Business, Economics and Law, Göteborg University)
    Abstract: After 1870 Swedish agriculture was transformed in the direction of more animal husbandry. Small farmers in particular specialized in animal produce. Yet, agricultural protectionism primarily served the interest of large landowners specializing in bread-grain production. The paper explores the impact of agrarian tariffs on the factor rewards of landowners, capitalists and workers. Landowners predictably benefited from agrarian tariffs, the more so if they specialized in bread-grain, as did rural workers. With an integrated ruralurban labour market real incomes of urban workers would have come under pressure if agrarian tariffs had been dismantled while capitalists would have been little affected. <p>
    Keywords: Economic History; Protectionism; Trade Policy; Income Distribution; Computable General Equilibrium Model
    JEL: C68 D33 F13 N23 N33 N43
    Date: 2006–12–01
  9. By: Jakob Roland Munch (University of Copenhagen, CEBR and EPRU); Jan Rose Skaksen (Copenhagen Business School, CEBR and IZA Bonn)
    Abstract: This paper studies the link between a firm’s education level, export performance and wages of its workers. We argue that firms may escape intense competition in international markets by using high skilled workers to differentiate their products. This story is consistent with our empirical results. Using a very rich matched worker-firm longitudinal dataset we find that firms with high export intensities pay higher wages. However, an interaction term between export intensity and skill intensity has a positive impact on wages and it absorbs the direct effect of the export intensity. That is, we find an export wage premium, but it accrues to workers in firms with high skill intensities.
    Keywords: exports, wages, human capital, rent sharing, matched worker-firm data
    JEL: J30 F10 I20
    Date: 2006–10
  10. By: Bohlin, Jan (Department of Economic History, School of Business, Economics and Law, Göteborg University); Larsson, Svante (Department of Economic History, School of Business, Economics and Law, Göteborg University)
    Abstract: Trends in wage-rental ratios have figured prominently in the recent literature on factor price convergence and globalisation in the late nineteenth century. In that literature Sweden has been described as a free trade country whose wage-rental ratio exhibited a distinguished upward trend before World War I. This article presents a new series of land prices which indicates an increase in land rentals and an evolution of the wage-rental ratio more in line with other European protectionist countries. We explore the determinants of the Swedish wage-rental ratio and assess the relative importance of protectionism and the change in the product mix from arable to animal products in Swedish agriculture. <p>
    Keywords: Economic History; Land prices; wages; wage-rental ratio; protectionism; Sweden
    JEL: F20 N13 N53 O47
    Date: 2006–12–01
  11. By: Omar Bargawi
    Abstract: The paper, written largely before Multi-Fibre Agreement (MFA) quotas on developing country exports of textiles and garments were removed on 31 December 2004, argues that Cambodia’s garment industry is well placed to withstand the increase in competition in its export markets that quota removal has brought. This conclusion is highly significant for the Cambodian economy, over 80% of whose exports now consist of garments.
    Keywords: Cambodia, garment industry, Multi-Fibre Agreement, competition
    Date: 2005–10

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