nep-int New Economics Papers
on International Trade
Issue of 2006‒12‒22
eleven papers chosen by
Martin Berka
Massey University

  1. Trade Agreements as Endogenously Incomplete Contracts By Henrik Horn; Giovanni Maggi; Robert W. Staiger
  2. Contractual Frictions and Global Sourcing By Pol Antras; Elhanan Helpman
  3. Measuring International Skilled Migration: New Estimates Controlling for Age of Entry By Michel Beinea; Frédéric Docquier; Hillel Rapoport
  4. The Effect of Trade Liberalization on Informality and Wages: Evidence from Mexico By Benjamin Aleman-Castilla
  5. South African Trade Policy Matters: Trade Performance and Trade Policy By Lawrence Edwards; Robert Z. Lawrence
  6. Does Trade Liberalisation Lead to Poverty Alleviation? a CGE Microsimulation Approach for Zimbabwe By Margaret Chitiga; Ramos Mabugu
  7. Why are people more pro-trade than pro-migration? By Anna Maria Mayda
  8. Corporate Hierarchies and the Size of Nations: Theory and Evidence By Marin, Dalia; Verdier, Thierry
  9. China and the Multilateral Trading System By Robert Z. Lawrence
  10. Impact of Structural Change in Education, Industry and Infrastructure on Income Distribution in Sri Lanka By Ramani Gunatilaka; Duangkamon Chotikapanich; Brett Inder
  11. Growth and Intellectual Property By Michele Boldrin; David K. Levine

  1. By: Henrik Horn; Giovanni Maggi; Robert W. Staiger
    Abstract: We propose a model of trade agreements in which contracting is costly, and as a consequence the optimal agreement may be incomplete. In spite of its simplicity, the model yields rich predictions on the structure of the optimal trade agreement and how this depends on the fundamentals of the contracting environment. We argue that taking contracting costs explicitly into account can help explain a number of key features of real trade agreements.
    JEL: D02 F1 F13 F15 F51 F53 F59
    Date: 2006–12
  2. By: Pol Antras; Elhanan Helpman
    Abstract: We generalize the Antras and Helpman (2004) model of the international organization of production in order to accommodate varying degrees of contractual frictions. In particular, we allow the degree of contractibility to vary across inputs and countries. A continuum of firms with heterogeneous productivities decide whether to integrate or outsource the production of intermediate inputs, and from which country to source them. Final-good producers and their suppliers make relationship-specific investments which are only partially contractible, both in an integrated firm and in an arm's-length relationship. We describe equilibria in which firms with different productivity levels choose different ownership structures and supplier locations, and then study the effects of changes in the quality of contractual institutions on the relative prevalence of these organizational forms. Better contracting institutions in the South raise the prevalence of offshoring, but may reduce the relative prevalence of FDI or foreign outsourcing. The impact on the composition of offshoring depends on whether the institutional improvement affects disproportionately the contractibility of a particular input. A key message of the paper is that improvements in the contractibility of inputs controlled by final-good producers have different effects than improvements in the contractibility of inputs controlled by suppliers.
    JEL: D23 F10 L23
    Date: 2006–12
  3. By: Michel Beinea (University of Luxemburg and Université Libre de Bruxelles); Frédéric Docquier (FNRS and IRES, Université Catholique de Louvain); Hillel Rapoport (Department of Economics, Bar-Ilan University, CADRE, Université de Lille 2, and CReAM, University College London)
    Abstract: Recent data on international skilled migration define skilled migrants according to education level independently of whether education has been acquired in the home or in the host country. In this paper we use immigrants’ age of entry as a proxy for where education has been acquired. Data on age of entry are available from a subset of receiving countries which together represent more than 3/4 of total skilled immigration to the OECD. Using these data and a simple gravity model, we estimate the age-of-entry structure of skilled immigration and propose alternative brain drain measures by excluding those arrived before age 12, 18 and 22. The results for 2000 show that on average, 68% of the global brain drain is accounted for by emigration of people aged 22 or more upon arrival (78% and 87% for the 18 and 12 year old thresholds, respectively). For some countries this indeed makes a substantial difference. However, cross-country differences are globally maintained, resulting in extremely high correlation levels between corrected and uncorrected rates. Similar results are obtained for 1990.
    Date: 2006–10
  4. By: Benjamin Aleman-Castilla
    Abstract: This paper studies the impact of NAFTA on informality and real wages in Mexico. Using a dynamicindustry model with firm heterogeneity, it is predicted that import tariff elimination could reduce theincidence of informality by making more profitable to some firms to enter the formal sector, forcingthe less productive informal firms to exit the industry, and inducing the most productive formal firmsto engage in trade. The model also predicts market share reallocations towards the most productivefirms, and an increase in real wages due to the increased labour demand by these firms. Using data onMexican and U.S. import tariffs together with the Mexican National Survey of Urban Labour(ENEU), I find that reductions in the Mexican import tariffs are significantly related to reductions inthe likelihood of informality in the tradable industries. I also find that informality decreases less inindustries with higher levels of import penetration, while it decreases more in industries that arerelatively more export oriented. Finally, I confirm that the elimination of the Mexican import tariffs isrelated to an increase in real wages, and that the elimination of the U.S. import tariff has contributedto the expansion of the formal-informal wage differentials.
    Keywords: trade liberalization, informality, wage differentials
    JEL: F00 F02 F14 F15 F16 J00 J21 J23 J31
    Date: 2006–12
  5. By: Lawrence Edwards; Robert Z. Lawrence
    Abstract: South African trade policy has exerted a major influence on the composition and aggregate growth of trade. In the Apartheid period, trade protection seriously impeded both exports and imports, and the economy depended on favorable global commodity price trends to avoid running into an external constraint. South Africa developed a comparative advantage in capital-intensive primary and manufactured commodities partly because of its natural resource endowments but also because the pattern of protection was particularly detrimental to exports of non-commodity manufactured goods. High and opaque tariffs seriously impeded export growth. When global commodity markets were weak, in combination with declining gold exports, this seriously constrained aggregate growth and dulled the response of exports to the weaker rand in the late 1980s. On the other hand, surcharges were effective in reducing imports. By contrast, trade liberalization in the 1990s not only increased imports but, by reducing both input costs and the relative profitability of domestic sales, also boosted exports. The growth in non-commodity manufactured sectoral exports as a result of liberalization was actually faster than sectoral imports. This evidence suggests that additional trade liberalization could well be part of the strategy to enhance export diversification. It points to the importance of policies that afford South African firms with access to inputs at world prices as well as a competitive real exchange rate.
    JEL: F1 F13
    Date: 2006–12
  6. By: Margaret Chitiga; Ramos Mabugu
    Abstract: A CGE microsimulation model is used to study the poverty impacts of trade liberalization in Zimbabwe. A sample of 14006 households from a 1995 household survey is individually modeled in a CGE framework. The experiment performed is a 50 percent reduction in all import tariffs. The sectors with the highest initial tariffs are the non-export agriculture sectors and the most export-intensive sectors are found in agriculture and in mining. The halving of tariffs favors export-oriented sectors, mainly in agriculture, whereas industrial sectors are hardest hit by the increased import competition. As agriculture is intensive in unskilled labor and industry is intensive in skilled labor, unskilled wages rise relative to skilled wages. The consumer prices fall and this, together with increased unskilled wages, leads to a fall in poverty. The fall in the price of manufactured food, which is consumed mainly in urban areas, coupled with the large number of unskilled workers in these urban areas, explains why poverty falls more here than in rural Zimbabwe.
    Keywords: Computable General Equilibrium, Trade Liberalisation, Microsimulation, Poverty
    JEL: C68 D31 D58 I32
    Date: 2006
  7. By: Anna Maria Mayda (Economics Department and School of Foreign Service, Georgetown University)
    Abstract: I analyze individual attitudes towards trade and immigration in comparative terms. I find that individuals are on average more pro-trade than pro-immigration across several countries. I identify a key source of this difference: the cleavage in trade preferences, absent in immigration attitudes, between individuals working in traded as opposed to non-traded sectors.
    Keywords: Immigration Attitudes, Trade Attitudes, Political Economy
    JEL: F22 F1 J61
    Date: 2006–07
  8. By: Marin, Dalia; Verdier, Thierry
    Abstract: Corporate organization varies within a country and across countries with country size. The paper starts by establishing some facts about corporate organization based on unique data of 660 Austrian and German corporations. The larger country (Germany) has larger firms with flatter more decentral corporate hierarchies compared to the smaller country (Austria). Firms in the larger country change their organization less fast than firms in the smaller country. Over time firms have been introducing less hierarchical organizations by delegating power to lower levels of the corporation. We develop a theory which explains these facts and which links these features to the trade environment that countries and firms face. We introduce firms with internal hierarchies in a Krugman (1980) model of trade. We show that international trade and the toughness of competition in international markets induce a power struggle in firms which eventually leads to decentralized corporate hierarchies. We offer econometric evidence which is consistent with the models predictions.
    Keywords: international trade with endogenous firm organizations; trade and corporate organization in similar countries; power struggle in the firm; corporate organization in Austria and Germany; empirical test of the theory of the firm
    JEL: F12 F14 L22 D23
    Date: 2006–12
  9. By: Robert Z. Lawrence
    Abstract: This paper reviews China's multilateral and preferential trade policies. It reviews the demanding terms of China's WTO accession, its current tariff and trade regime and its participation in the Doha Round negotiations and the institution's regular activities. The analysis concludes that China's trade policies are broadly supportive of a rules based multilateral trading order and its behavior at the WTO is that of a status quo power rather than one seeking major systemic changes. The discussion then turns to China's regional trade initiatives. China has been extremely active in negotiating these and their implications remain uncertain. Concerns about an East Asian fortress, though, appear misplaced. Directly, and through their impact in inducing others to respond, these FTAs could provide a powerful impetus to the process of competitive global liberalization. Countries that do implement agreements with China will find it relatively easy to open their markets to other developing countries. There is also a risk however that the proliferation of FTAs will lead to web of overlapping agreements that could make the trading system unnecessarily complex
    JEL: F13
    Date: 2006–12
  10. By: Ramani Gunatilaka; Duangkamon Chotikapanich; Brett Inder
    Abstract: Income inequality increased in Sri Lanka following trade liberalization in 1977. This study applies a semi-parametric method to investigate whether structural changes in education, industry and infrastructure access underlay the change in the distribution. The study finds that while the concentration of people shifted towards higher income ranges at every stage in the distribution between 1985 and 2002, changes in access to infrastructure triggered much of the shift. Higher levels of educational attainment also had an impact. But the middle classes appear to have benefited disproportionately more from the provision of education and infrastructure services than did the poor. The analysis recommends that such services are targeted more effectively towards those in the poorest income deciles to enable them to move out of poverty to higher income ranges.
    Keywords: Income inequality; Sri Lanka; education; infrastructure; kernel density decomposition
    JEL: D31
    Date: 2006–11
  11. By: Michele Boldrin; David K. Levine
    Abstract: Intellectual property (IP) protection involves a trade-off between the undesirability of monopoly and the desirable encouragement of creation and innovation. Optimal policy depends on the quantitative strength of these two forces. We give a quantitative assessment of current IP policies. We focus particularly on the scale of the market, showing that as it increases, due either to growth or to the expansion of trade, IP protection should be reduced.
    JEL: A0 A1 A10 D0 D00 D02
    Date: 2006–12

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