nep-int New Economics Papers
on International Trade
Issue of 2007‒02‒03
twenty papers chosen by
Martin Berka
Massey University

  1. Do the World Trade Organization and the Generalized System of Preferences foster bilateral trade? By Bernhard Herz; Marco Wagner
  2. Institutions, Infrastructure and Trade By Francois, Joseph; Manchin, Miriam
  3. East Asia's Economic Development cum Trade "Divergence" By Ishido, Hikari
  4. Overall Specialization and Income: Countries Diversify By Luca De Benedictis; Marco Gallegati; Massimo Tamberi
  5. Management for a Variety of Environmental Pollution and North-South Trade By Michida, Etsuyo
  6. Analysis of the Economic Impact of Investment Provisions in Regional Trade Agreements By Molly Lesher; Sébastien Miroudot
  7. Rules of Origin and Local Content in East Asia By Kuroiwa, Ikuo
  8. Environmental impacts of international trade: The Case of Industrial Emission of Sulfur Dioxide (SO2) in Chinese provinces By Jie He
  9. Effectiveness and Challenges of Three Economic Corridors of the Greater Mekong Sub-region By Ishida, Masami
  10. An Economic Derivation on Trade Coefficients under the Framework of Multi-regional I-O Analysis By Meng, Bo; Ando, Asao
  11. Trade, Standards, and Poverty: Evidence from Senegal By Miet Maertens; Jo F.M. Swinnen
  12. On the Evolution of the Spatial Economy with Multi-unit・Multi-plant Firms: The Impact of IT Development By Fujita, Masahisa; Gokan, Toshitaka
  13. International Competitiveness of Manufacturing Firms in sub-Saharan Africa By Fukunishi, Takahiro
  14. Frontiers of the New Economic Geography By Fujita, Masahisa; Mori, Tomoya
  15. Trade, Exchange Rates, and Macroeconomic Dynamics in East Asia: Why the Electronics Cycle Matters By Kumakura, Masanaga
  16. Outward FDI from and intraregional FDI in ASEAN : trends and drivers By Hiratsuka, Daisuke
  17. Transport Sector and Regional Price Differentials: A SCGE Model for Chinese Provinces By Ando, Asao; Meng, Bo
  19. Productivity Growth in Service Industries – Has 'Baumol's Disease' Really Been Cured? By Jochen Hartwig
  20. Strategies Pursued by Swiss Firms in Investing in R&D at Foreign Locations : An Empirical Analysis Based on Firm-level Data By Heinz Hollenstein

  1. By: Bernhard Herz; Marco Wagner
    Abstract: World trade has grown exponentially during the last 60 years. Admittedly, it is not clear if this development can be assigned to international trade agreements like the World Trade Organization or the Generalized System of Preferences as previous empirical studies found contradicting results. In this paper we generalize the different approaches used in the literature to estimate the role of GATT/WTO and the Generalized System of Preferences for trade. We use a gravity model and apply FE estimation on a disaggregated bilateral data set of the trade flows between 145 countries across 1962-99. In our analysis we find a significant positive effect of WTO membership on bilateral trade. Referring to other multilateral institutions, we find robust evidence that membership in regional trade agreements or currency unions substantially increase bilateral trade flows as well. By contrast, we find that the Generalized System of Preferences does not foster trade in general, rather the opposite. This might be due to the opportunistic behavior of industrial countries that grant GSP schemes as long as the concerned products are relatively unimportant, but restrict them as soon as they become relevant.
    Keywords: WTO, GSP, regional trade agreements, currency union, gravity model, international trade
    JEL: C13 C15 F13 F15
  2. By: Francois, Joseph; Manchin, Miriam
    Abstract: We work with a panel of bilateral trade flows from 1988 to 2002, exploring the influence of infrastructure, institutional quality, colonial and geographic context, and trade preferences on the pattern of bilateral trade. We are interested in threshold effects, and so emphasize those cases where bilateral country pairs do not actually trade. We depart from the institutions and infrastructure literature in this respect, using selection-based gravity modeling of trade flows. We also depart from this literature by mixing principal components (to condense our institutional and infrastructure measures) with a focus on deviations from expected values for given income cohorts to control for multicollinearity. Infrastructure, and institutional quality, are significant determinants not only of export levels, but also of the likelihood exports will take place at all. Our results support the notion that export performance, and the propensity to take part in the trading system at all, depends on institutional quality and access to well developed transport and communications infrastructure. Indeed, this dependence is far more important, empirically, than variations in tariffs in explaining sample variations in North-South trade. This implies that policy emphasis on developing country market access, instead of support for trade facilitation, may be misplaced.
    Keywords: exports; gravity model; infrastructure; institutions; trade; zero-trade
    JEL: F10 F15
    Date: 2007–01
  3. By: Ishido, Hikari
    Abstract: This paper addresses some salient features of how some of "successful" East Asian economies have been faring in terms of enhancing their export competitiveness. That export becomes more divergent in terms of its unit price as more technology-enhancing economic activity is undertaken within an economy, is the primary message that this study conveys. This is indeed what Schumpeter had addressed in conjunction with his "creative destruction" thesis. From this perspective, East Asia's export-led industrialization has been attained through a particular policy focus upon high "trade divergence" sectors underpinned by a generally high level of manufacturing flexibility. The experience of Malaysia's development serves as the strong case in point. As an East Asia-wide FTA is expected to facilitate "divergent" export-led industrialization through enhanced knowledge interaction, this dynamic or "divergent" impact that knowledge creation could exert should come to the fore of relevant policy arguments, together with static consideration of trade creation and diversion. A formal statistical test of the "divergence hypothesis" above is called for with a view to building upon this preliminary study.
    Keywords: International trade, Trade policy, International competition, Exports, Asia, East Asia
    JEL: F10 F13 O10
    Date: 2007–01
  4. By: Luca De Benedictis (DIEF - University of Macerata - Italy); Marco Gallegati (DEA - Università Politecnica delle Marche - Italy); Massimo Tamberi (DEA - Università Politecnica delle Marche - Italy)
    Abstract: This paper gives evidence to a stylized fact often disregarded in international trade empirics: countries' diversification. In the last fifteen years, the growth of world trade coexisted with the tendency of countries to reduce the specialization of their export composition along the development path. On average, countries do not specialize, they diversify. Our semiparametric empirical analysis shows how this result is robust to the use of different statistical indexes used to measure trade specialization to the level of sectoral aggregation and to the level of smoothing in the nonparametric term associated to income per capita. Using a General Additive Model (GAM) with country-specific fixed-effect, we show that, controlling for countries heterogeneity, sectoral export diversification increases with income.
    Keywords: International Trade, Specialization, Development, Generalized Additive Models
    JEL: C14 E32 F10
  5. By: Michida, Etsuyo
    Abstract: A simple static model incorporating a variety of environmental pollution is developed. An autarky model shows that a developing country regulates fewer types of pollution by income-induced environmental policy. As income grows, the types of regulated pollution increase and also introduced regulations become tougher.Then the model incorporates international trade between a developed country and a developing country. The model gives a new interpretation for the pollution haven hypothesis. Some types of pollution abated with inefficient technology are emitted more in a developing country but other types necessarily increase in a developed country in order to meet the trade balance.
    Keywords: Pollution, Trade, Developing countries, Developed countries, Environmental policy, International trade, Trade problem
    JEL: F11 O11 Q25
    Date: 2006–10
  6. By: Molly Lesher; Sébastien Miroudot
    Abstract: As countries turn more to regionalism as a means of forwarding co-operation on trade rules and other areas of policymaking, rules on investment are increasingly being incorporated into regional trade agreements (RTAs). We analyse the economic consequences of including investment provisions in trade agreements by creating an index of the extensiveness of investment provisions in RTAs and then using that index in a gravity model framework of trade and investment. The results indicate that investment provisions are positively associated with trade and, to an even greater extent, investment flows. Further, we observe an insignificant effect of bilateral investment treaties on investment flows, suggesting either that substantive investment provisions in RTAs impact trade and FDI flows more profoundly, or that the combination of substantive investment rules and provisions liberalising other parts of the economy jointly impact trade and investment more significantly. The report also includes case studies that confirm that the relationship between investment and other provisions in trade agreements is complex and depends on many factors.
    Keywords: investment, trade policy, foreign direct investment, regional trade agreements
    Date: 2006–07–11
  7. By: Kuroiwa, Ikuo
    Abstract: Rules of Origin (RoO) are an integral part of all trade rules. In order to be eligible for Common Effective Preferential Tariffs (CEPT) under AFTA and similar arrangements under the ASEAN-China FTA, a product must satisfy the conditions relative to local content. The paper tries to calculate local content as well as cumulative local content in East Asian economies, with use of the Asian International Input-Output Tables; it also investigates factors of change in local content by applying decomposition analysis. The paper finds that the cumulation rule increased local content of the electronics industry more significantly than local content of the automotive industry, and the contribution of the cumulation rule increased in the period 1990-2000, due to rising dependency on neighboring ASEAN countries and China.
    Keywords: Rules of origin, Local content, International input-output tables, Southeast Asia, East Asia, China, ASEAN, Trade policy, International trade, International agreements, Manufacturing industries
    JEL: C67 F15 L60
    Date: 2007–01
  8. By: Jie He (GREDI, Département d'économique, Université de Sherbrooke)
    Abstract: To get better understanding on trade’s impact on environment, we construct a four-equation simultaneous system, in which emission is determined by the three economic determinants: scale, composition and technical effects and directly by trade. Supposing the three economic determinants are also endogenous to trade, we check in the following three functions the indirect impacts of trade on environment through the intermediation of the three effects. The model is then estimated by 29 Chinese provinces’ panel data on industrial SO2 emission (1993-2001). Our estimation results reveal totally opposite role of export expansion and accumulation of manufactured goods import in industrial SO2 emission determination. The results do not support “pollution haven” hypothesis; the reinforced competition faced by exporters is a positive factor encouraging technology progress in pollution abatement. China’s actual comparative advantage resides in labor-intensive industries, exporting to world market actually helps to reduce pollution increasing caused by its heavy-industry-oriented industrialization strategy, which is traditionally supported by government-intervened import activities.
    Keywords: : international trade, industrial SO2 emission, simultaneous system, scale effect, composition effect, income effect, Hypothesis of “Porter” and “Racing to the bottom”, China.
    JEL: Q56 Q53
    Date: 2007
  9. By: Ishida, Masami
    Abstract: Since the Greater Mekong Sub-region (GMS) program began in 1992, activities have expanded and flourished. The three economic corridors are composed of the East-West, North-South, and Southern; these are the most important parts of the flagship program. This article presents an evaluation of these economic corridors and their challenges in accordance with the regional distribution of population and income, population pyramids of member countries, and trade relations of member economies.
    Keywords: GMS, Mekong, Population, Trade, Human resources, Economic development, Income distribution, International trade, Southeast Asia, Thailand, Cambodia, Laos, Myanmar, Vietnam, China
    JEL: F10 J60 O22 R12
    Date: 2006–10
  10. By: Meng, Bo; Ando, Asao
    Abstract: The gravity model, entropy model, potential type model and others like these have been adopted to formulate interregional trade coefficients under the framework of Multi-Regional I-O (MRIO) analysis. Since most of these models are based upon analogies in physics or on statistical principles, they do not provide a theoretical explanation from the view of a firm's or individual's rational and deterministic decision making. In this paper, according to the deterministic choice theory, not only is an alternative formulation of the trade coefficients presented, but also a discussion of an appropriate definition for purchasing prices indices. Since this formulation is consistent with the MRIO system, it can be employed as a useful model-building tool in multi-regional models such as the spatial CGE model.
    Keywords: Trade coefficients, Multi-regional, Input-output tables, Armington assumption, Regional economic cooperation, Trade problem, G World,others
    JEL: C67 C68
    Date: 2006–10
  11. By: Miet Maertens; Jo F.M. Swinnen
    Abstract: An emerging literature on standards, global supply chains, and development argues that enhanced quality and safety standards are major trade barriers for developing country exports and cause the marginalization of small businesses and poor households in developing countries. This paper is the first to quantify income and poverty effects of such high-standards trade and to integrate labor market effects, by using company and household survey data from the vegetable export chain in Senegal. First, horticultural exports from Senegal to the EU have grown sharply over the past decade, despite strongly increasing food standards in the EU. Second, these exports have strong positive effects on poor households’ income. We estimate that these exports reduced regional poverty by around 12 percentage points and reduced extreme poverty by half. Third, tightening food standards induced structural changes in the supply chain including a shift from smallholder contract-based farming to large-scale integrated estate production. However, these changes mainly altered the mechanism through which poor households benefit: through labor markets instead of product markets. Moreover, the impact on poverty reduction is stronger as the poorest benefit relatively more from working on large-scale farms than from contract farming. These findings challenge several basic arguments in this research field.
    Date: 2006
  12. By: Fujita, Masahisa; Gokan, Toshitaka
    Keywords: Agglomeration, Headquarters, Plants, Supply chain, Re-location, Monopolistic competition, Information technologies (technology), International division of labor, Costs, Communication, International trade, G World,others
    JEL: F12 L13 R13
    Date: 2006–10
  13. By: Fukunishi, Takahiro
    Keywords: Manufacturing exports, International competitiveness, Sub-Saharan Africa, Manufacturing industries, Exports, International competition, Business enterprises, Africa
    JEL: F14 L60 O14 O55
    Date: 2006–10
  14. By: Fujita, Masahisa; Mori, Tomoya
    Abstract: This paper presents an overview of recent development in the new economic geography (NEG), and discusses possible directions of its future development. Since there already exist several surveys on this topic, we focus on the selected features of the NEG which are important yet have attracted insufficient attention, and also on the recent refinements and extensions of the framework.
    Keywords: New economic geography, Agglomeration, International trade, Economic growth, Transport costs, Economics, Transportation, Costs, Economic geography, G World,others
    JEL: F12 F23 R11 R12 R13 R14
    Date: 2006–10
  15. By: Kumakura, Masanaga
    Abstract: Against the background of increasing regional trade and investment, there is growing interest in monetary and macroeconomic policy coordination in East Asia. Although there is a sizable literature on macroeconomic linkages among East Asian countries and the potential merit of policy coordination in the region, the existing studies tend to examine these issues exclusively in terms of macroeconomic variables and do not consider how these aggregate variables are influenced by one prominent feature of a number of East Asian economies: their heavy dependence on the electronics industry. Although active engagement in the global electronics industry has been a powerful growth engine for the Asian countries, it has also left their economies vulnerable to cyclical fluctuations in the world electronics market. As the cycle of the global electronics industry exerts profound impacts on the medium-term dynamics of the Asian economies, it is imperative to take an explicit account of its influence when studying the way in which the regional economies are linked to one another and how this relationship can be altered by a specific policy initiative. We illustrate the importance of this point by examining recent studies on: (1) trade competition between China andother Asian countries and the role of the Chinese renminbi therein; and (2) the effect offluctuations in the yen/dollar exchange rate on the regional economies.
    Keywords: Electronics cycle, Export competition, Renminbi, Yen/dollar exchange rate, Electronics, International trade, Foreign exchange, East Asia, Southeast Asia
    JEL: F14 F15 F33
    Date: 2006–10
  16. By: Hiratsuka, Daisuke
    Abstract: Developing-country transnational corporations (TNCs) are increasing in importance in the global economy. Outward FDI from developing countries is a proxy indicator to measure how much of an important role enterprises of developing countries have played in the world market and how they benefit from globalization where border barriers are reduced. This study finds that ASEAN enterprises have extended their business activities within ASEAN, East Asia, and then to the world, as both regional and global players.
    Keywords: Economic integration, International economic integration, FDI, Southeast Asia, Foreign investments, ASEAN
    JEL: F15 F23 O53
    Date: 2006–11
  17. By: Ando, Asao; Meng, Bo
    Abstract: With regression formulas replaced by equilibrium conditions, a spatial CGE model can substantially reduce data requirements. Detailed regional analyses are thus possible in countries where only limited regional statistics are available. While regional price differentials play important roles in multi-regional settings, transport does not receive much attention in existing models. This paper formulates a spatial CGE model that explicitly considers the transport sector and FOB/CIF prices. After describing the model, performance of our model is evaluated by comparing the benchmark equilibrium for China with survey-based regional I-O and interregional I-O tables for 1987. The structure of Chinese economies is summarized using information obtained from the benchmark equilibrium computation. This includes regional and sectoral production distributions and price differentials. The equilibrium for 1997 facilitates discussion of changes in regional economic structures that China has experienced in the decade.
    Keywords: SCGE model, FOB/CIF prices, Transport sector, Chinese regional economy, Transportation, Econometric model, Local economy, Prices, International trade, China
    JEL: C68 O5 R13 R15
    Date: 2007–01
  18. By: Kristina Toming
    Abstract: This paper seeks to answer the question about whether the investments made by Estonian food processing companies to meet the EU’s strict hygiene and structural requirements have enhanced their competitiveness and opened up better export opportunities to the EU-15 market. Enhanced competitiveness means not only larger export volumes, but also redirection of exports towards higher value-added products. The current study focuses on the milk, meat and fish industries, concluding that in general, foodstuffs exports to the EU-15 have increased, but only the milk processing industry has experienced a shift towards value-added consumer products. This shows that the Estonian food industry has not (yet) been able to reap the benefits of the EU market, and further investments in product development and quality, as well as in larger production volumes are necessary.
    Keywords: ___
    Date: 2006
  19. By: Jochen Hartwig (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH))
    Abstract: Since the mid-nineties, U.S. labor productivity outgrows its European counterpart by a wide margin. Several recent studies have found that this result is brought about by relatively few service industries, where productivity growth has accelerated in the U.S., but not so in Europe. Based on this finding, TRIPLETT/BOSWORTH (2003) have asserted that ‘Baumol’s Disease’, according to which imbalances in productivity growth between a ‘progressive’ (manufacturing) and a ‘nonprogressive’ (service) sector of the economy lead to constant expenditure shifts into the latter, ‘has been cured’ – at least in the U.S. The present paper challenges this statement, showing that there is only one genuine service industry with a lasting increase in productivity, namely wholesale and retail trade. Labor productivity in the U.S. retail industry has grown fast due to a recent proliferation of Wal-Mart-type ‘big box’ stores that would be practically impossible in Europe because of stricter zoning plans. Since this ‘Wal-Mart effect’ is likely to taper off sooner or later, it is more accurate to say that ‘Baumol’s Disease’ has been protracted than to say that it has been cured.
    Keywords: Productivity, services sector, Baumol’s Disease, statistical artifacts
    JEL: C82 L80 L81 O41 O47 O57
    Date: 2006–11
  20. By: Heinz Hollenstein (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH))
    Abstract: The aim of this paper is twofold: Firstly, we try to identify and characterise different types of strategies firms pursue in performing foreign R&D. Secondly, it is analysed whether the types of R&D strategies we identified in the first part differ in terms of their impact on firm productivity. In order to identify foreign R&D strategies we perform, in a first step, a non-hierarchical cluster analysis of data on the firms’ motives for investing abroad in R&D. In a second step, we characterise these clusters by use of a large number of variables that, according to the well-known OLI paradigm, determine a firm’s FDI in distribution, manufacturing and R&D. In this way, we can check whether the clusters identified by applying a (purely) statistical classification procedure effectively may be interpreted as “types of foreign R&D strategies”. We end up with four types of strategies, which significantly differ in terms of characteristics that are important according to the OLI approach. In the second part we estimate a production function where the standard factor inputs are complemented by domestic R&D and strategy-specific foreign R&D. It turns out that only one of the four strategies exerts a positive influence on firm productivity. However, it cannot be excluded that some of the other strategies have, in the longer run, a positive productivity effect as well. The paper also finds that foreign and domestic R&D, on balance, are complements.
    Keywords: Internationalisation of R&D; outward FDI in R&D; motives for foreign R&D; types of foreign R&D strategies; foreign R&D and productivity; substitution vs. complementarity of foreign and domestic R&D.
    JEL: F21 F23 O3
    Date: 2006–10

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