nep-int New Economics Papers
on International Trade
Issue of 2007‒02‒10
twenty papers chosen by
Martin Berka
Massey University

  1. South-South Services Trade By Nora Dihel; Felix Eschenbach; Ben Shepherd
  2. South-South Trade In Goods By Przemyslaw Kowalski; Ben Shepherd
  3. Trade effects of regional standards liberalization : a heterogeneous firms approach By Baller, Silja
  4. Differentiated products and evasion of import tariffs By Javorcik, Beata S.; Narciso, Gaia
  5. A Panel Analysis of the FDI Impact on International Trade By Manuela Magalhães; Ana Paula Africano
  6. Pricing-to-Market in a Ricardian Model of International Trade By Andrew Atkeson; Ariel Burstein
  7. Entry costs and adjustments on the extensive margin - an analysis of how familiarity breeds exports By Andersson, Martin
  8. The Economic Impact on the Dominican Republic of Baseball Player Exports to the USA By Amavilah, Voxi Heinrich
  9. Labour Mobility, Capital-Skill Complementarity and the Redistributive Effects of Trade Integration By Carlo Devillanova; Michele Di Maio; Pietro Vertova
  10. Efficient Barriers to Trade: A Sequential Trade Model with Heterogeneous Agents By Benjamin Eden
  11. Trade Adjustment and Human Capital Investments: Evidence from Indian Tariff Reform By Eric V. Edmonds; Nina Pavcnik; Petia Topalova
  12. Rules of origin in services : a case study of five ASEAN countries By Fink, Carsten; Nikomborirak, Deunden
  13. On the Rationale for the Use of Border Taxes in Developing Countries By Knud Jørgen Munk
  14. Migration, Trade, Capital and Development: Substitutes, Complements and Policies By Gustav Ranis
  15. Managing Firm Competitiveness in Global Markets By Mark Gehlhar; Anita Regmi; Spyro Stefanou; Barry Zoumas
  16. Tax-tariff reform with costs of tax administration By Knud Jørgen Munk
  17. The influence of culture on the economic freedom and the international business By Herciu, Mihaela
  18. Teaching Locals New Tricks: Foreign Experts as a Channel of Knowledge Transfers By James R. Markusen; Natalia Trofimenko
  19. Distributional Effects of Globalization in Developing Countries By Pinelopi Koujianou Goldberg; Nina Pavcnik
  20. Multinational Firms, FDI Flows and Imperfect Capital Markets By Pol Antras; Mihir A. Desai; C. Fritz Foley

  1. By: Nora Dihel; Felix Eschenbach; Ben Shepherd
    Abstract: This paper contributes to the debate on the development potential of South-South trade in services. It represents the first attempt to identify key features governing the South-South dimension of services. Services trade between developing countries is predominantly regional and may reflect an increasing tendency to incorporate disciplines to liberalise services trade in regional agreements. It is estimated that cross-border South-South exports currently represent around 10 percent of world services exports. The bulk of developing countries? exports is...
    Keywords: trade policy, development, Doha Development Agenda, south-south trade, North-South trade, trade between developing countries, services barriers/restrictions, trade restrictiveness index, multilateral liberalisation, gains/benefits from liberalisation, efficiency gains, World Trade Organisation (WTO) negotiations, Doha round
    Date: 2006–10–17
  2. By: Przemyslaw Kowalski; Ben Shepherd
    Abstract: The empirical analysis presented in this paper indicates that trade between developing countries (South-South trade) offers a wide scope for specialisation and efficiency gains. The first part of the paper takes an ex-post perspective and employs the gravity methodology to contribute to understanding past trends in world goods trade with a special focus on South-South trade. Analysis shows that far from experiencing a ?death of distance?, South-South trade is still severely...
    Keywords: computable general equilibrium, south-south trade, gravity model, gains from trade, distance, tariff barriers
    Date: 2006–10–16
  3. By: Baller, Silja
    Abstract: This study investigates trade effects of the regional liberalization of technical barriers to trade (TBTs) in the form of harmonization and mutual recognition agreements (MRAs) for testing procedures. The theoretical part of the paper is framed in terms of a heterogeneous firms approach. This paper adds to the existing literature by formalizing the effects of MRAs and harmonization initiatives on bilateral trade flows and by applying this new theoretical framework in the empirical part of the paper. The latter consists of a two-stage gravity estimation and investigates sectoral effects of TBT liberalization on parties to the agreement as well as excluded industrial and developing countries. It finds that MRAs have a strong positive influence on both export probabilities and trade volumes for partner countries. Regarding harmonization, results seem to suggest that the impact on parties to the agreement is negligible, however that on excluded OECD countries is large and positive. Third party developing countries do not seem to benefit from the market integration effect brought about by harmonization in other regions. Overall, effects on the probability that a new firm will export are much more pronounced than effects on the trade volumes of incumbent exporters.
    Keywords: Trade and Regional Integration,Economic Theory & Research,Markets and Market Access,Free Trade,Trade Law
    Date: 2007–02–01
  4. By: Javorcik, Beata S.; Narciso, Gaia
    Abstract: Emerging literature has demonstrated some unique characteristics of trade in differentiated products. This paper contributes to the literature by postulating that differentiated products may be subject to greater tariff evasion due to the difficulties associated with assessing their quality and price. Using product-level data on trade between Germany and 10 Eastern European countries during 1992-2003, the authors find empirical support for this hypothesis. They show that the trade gap, defined as the discrepancy between the value of exports reported by Germany and the value of imports from Germany reported by the importing country, is positively related to the level of tariff in 8 out of 10 countries. Further, the authors show that the responsiveness of the trade gap to the tariff level is greater for differentiated products than for homogeneous goods. A one-percentage-point increase in the tariff rate is associated with a 0.6 percent increase in the trade gap in the case of homogeneous products and a 2.1 percent increase in the case of differentiated products. Finally, the data indicate that greater tariff evasion observed for differentiated products tends to take place through misrepresentation of the import prices.
    Keywords: Free Trade,International Trade and Trade Rules,Water and Industry,Markets and Market Access,Commodities
    Date: 2007–02–01
  5. By: Manuela Magalhães (NIPE - Research Unit in Economic Policies); Ana Paula Africano (CEMPRE, Faculdade de Economia do Porto, Universidade do Porto)
    Abstract: This paper examines the relationship between Foreign Direct Investment (FDI) and international trade. Specifically, the relationship between the stocks of inward FDI and outward FDI, and Imports and Exports in the Portuguese economy. This paper also studies some technical problems associated with panel data, which have frequently been ignored in previous studies. The problems of serial and contemporaneous correlation have not been taken into account by a panel approach and, as we know, they can have an impact on estimates and statistical inferences. The results show that there exists a complementary relationship between trade and inward stock of FDI and also a country-specific effect on the corrected panel data of heteroscedasticity and correlation.
    Keywords: FDI; Trade; Gravity Analysis; Panel Data
    JEL: F1 F4
    Date: 2007–01
  6. By: Andrew Atkeson; Ariel Burstein
    Abstract: We study the implications for international relative prices of a simple Ricardian model of international trade with imperfect competition and variable markups, providing a tractable account of firm-level and aggregate prices. We show that both trade costs and imperfect competition with variable markups are needed to account for pricing-to-market at the firm and aggregate levels. We also show that international trade costs are essential, but pricing-to-market is not, to account for a high volatility of tradeable consumer prices relative to the overall CPI-based real-exchange rate.
    JEL: E31 F1 F12 F41
    Date: 2007–01
  7. By: Andersson, Martin (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: Fixed entry costs play an important role to explain the heterogeneity among exporters in terms of the geographical scope of their export activities. Yet, the existing literature has paid little attention to the nature and variation of such costs across different markets. This paper proposes a link between familiarity and fixed entry costs, such that (all else equal) the cost of entering a familiar market is lower than entering an unfamiliar one. A testable implication of this is that familiarity should primarily affect the extensive margin (number of exporters) of exports. This hypothesis is tested by estimating a gravity equation on a panel that describes Swedish firms’ exports to 150 destination countries over a period of seven years. The results are consistent with the hypothesis and show that the effect of familiarity on the volume of aggregate exports is primarily due to adjustments on the extensive margin. Adjustments on the extensive margin are large and have a significant impact on aggregate export volumes. The findings do not only help to clarify the nature and variation of fixed entry costs across destination markets: they also suggest a precise mechanism through which familiarity affects trade.
    Keywords: international trade; fixed entry costs; transaction costs; gravity models; extensive margin; intensive margin; heterogeneous firms
    JEL: F10 F14 R12
    Date: 2007–02–05
  8. By: Amavilah, Voxi Heinrich
    Abstract: This paper pulls together into one practical model two strands of economic theory to assess the impact of baseball player exports on the aggregate economic performance of the Dominican Republic. On one hand, foreign trade theory predicts a strong correlation between a country’s exports and economic performance measured as per capita income. On the other hand, microeconomic research finds a positive, but statistically insignificant, impact of sports activities on local economies. Analysis finds a strong correlation between baseball player exports and economic performance for the years 1962-2004, suggesting that both the USA and the Dominican Republic benefit from encouraging baseball player trade and repatriation of baseball export earnings.
    Keywords: baseball player exports; sports exports; sports and economic performance; sports export-led growth
    JEL: R58 O40 L83 O54 F43 F14
    Date: 2006–10–22
  9. By: Carlo Devillanova (Bocconi University, Milano, Italy.); Michele Di Maio (University of Macerata, Italy.); Pietro Vertova (University of Bergamo, Italy.)
    Abstract: This paper addresses the role of mobility costs in shaping the effects of trade integration on wage inequality and welfare. We present a three-factor, two-sector model in which the production technology exhibits capital-skill complementarity and the cost of moving across sectors differs between unskilled and skilled workers. We consider a proportional tax on skilled workers’ wage that is used to finance a re-training program to reduce the mobility costs of unskilled workers. We show that if the training program is sufficiently effective, a positive tax rate can both reduce wage inequalities and reinforce the welfare-enhancing effects of trade integration. In addition we show that, even when the public programme entails some welfare losses, it can make trade integration Pareto superior with respect to autarky.
    Keywords: Capital-Skill Complementarity, Intersectoral Labour Mobility, Wage In-equality, Trade Integration.
    JEL: E24 J31 R23
    Date: 2006–11
  10. By: Benjamin Eden (Department of Economics, Vanderbilt University)
    Abstract: This paper studies a flexible price version of the Prescott (1975) hotels model. Unlike rigid price versions of the model, here the equilibrium outcome is efficient if potential buyers have the same downward sloping demand curve or if the probability of becoming active does not depend on their type. In the absence of these conditions the equilibrium outcome may not be efficient even in the second best (constrained) sense. I apply the analysis to discuss barriers to trade that are motivated by efficiency considerations. I show that a tariff, for example, may lead to Pareto improvement.
    Keywords: Efficiency, tariffs, sequential trade
    JEL: F13
    Date: 2007–01
  11. By: Eric V. Edmonds; Nina Pavcnik; Petia Topalova
    Abstract: Do the short and medium term adjustment costs associated with trade liberalization influence schooling and child labor decisions? We examine this question in the context of India's 1991 tariff reforms. Overall, in the 1990s, rural India experienced a dramatic increase in schooling and decline in child labor. However, communities that relied heavily on employment in protected industries before liberalization do not experience as large an increase in schooling or decline in child labor. The data suggest that this failure to follow the national trend of increasing schooling and diminishing work is associated with a failure to follow the national trend in poverty reduction. Schooling costs appear to play a large role in this relationship between poverty, schooling, and child labor. Extrapolating from our results, our estimates imply that roughly half of India's rise in schooling and a third of the fall in child labor during the 1990s can be explained by falling poverty and therefore improved capacity to afford schooling.
    JEL: F14 F16
    Date: 2007–02
  12. By: Fink, Carsten; Nikomborirak, Deunden
    Abstract: An important question in the design of bilateral and regional free trade agreements (FTAs) covering services is to what extent nonmembers benefit from the trade preferences that are negotiated among members. This question is resolved through services rules of origin. The restrictiveness of rules of origin determines the degree of preferences entailed in market opening commitments, shaping the bargaining incentives of FTAs and their eventual economic effects. Even though the number of FTAs in services has increased rapidly in recent years, hardly any research is available that can guide policymakers on the economic implications of different rules of origin. After outlining the key economic tradeoffs and options for rules of origin in services, the paper summarizes the main findings of a research project that has assessed the rules of origin question for five countries in the ASEAN region. For selected service subsectors and a number of criteria for rules or origin, simulation exercises evaluated which service providers would or would not be eligible for preferences negotiated under a FTA. Among other findings, the simulation results point to the binding nature of a domestic ownership or control requirement and, for the specific case of financial services, a requirement of incorporation.
    Keywords: Free Trade,Trade Law,Trade and Services,Economic Theory & Research,Trade Policy
    Date: 2007–02–01
  13. By: Knud Jørgen Munk (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: With reference to the size of the informal sector, Stiglitz (2003) argues that border taxes are superior to VAT in certain developing countries. By way of a quantitative example this paper shows that, while Stiglitz’ claim is probably will turn out to be correct, a large informal sector is not a sufficient condition for border taxes to be preferable to a VAT regime as shown by Keen (2006). Making the case for using border taxes also requires the plausible supplementary assumptions that (i) border taxes are associated with lower administrative costs, and (ii) that this difference is sufficiently large to justify the larger distortionary costs associated with border taxes compared to domestic taxes.
    Keywords: Optimal trade policy, VAT, tax-tariff reform, costs of tax administration, informal sector, developing countries
    JEL: F11 F13 H21
    Date: 2006–12–30
  14. By: Gustav Ranis (Economic Growth Center, Yale University)
    Abstract: Migration of the unskilled clearly benefits the origin country, mainly due to the flow of remittances but also if the departure of some raises the ability of others to migrate. This depends on whether trade is a complement or a substitute for migration. The impact of such flows on the destination country is more ambiguous, although most research indicates that wages and employment are not likely to be seriously affected. Migration of the skilled is ambiguous with respect to the origin country since the impact of brain drain on local development must be weighed against the signaling effect for additional education plus the contribution of remittances. With respect to the destination country, the inflow of skilled labor is generally considered an unambiguous plus as it contributes to the enhancement of productivity. The paper concludes with policy recommendations aimed at seizing the opportunities arising from the fact that international migration remains the most constrained element of globalization.
    Keywords: Migration, Trade, Globalization
    JEL: O11 O15
    Date: 2007–01
  15. By: Mark Gehlhar (Economic Research Service, USDA); Anita Regmi (Economic Research Service, USDA); Spyro Stefanou (Pennsylvania State University); Barry Zoumas (Pennsylvania State University)
    Abstract: The globalization profile of US food firms is mixed. US sales from foreign direct investment is now over six times the level of exports, while US processed food trade balance has moved from +$9 billion in 1995 to -$7 billion in 2004. Competitive forces drive firms to seek new areas of growth, with either portfolio expansion or penetration and expansion in new markets. Although the forces that weigh heavily on a firm are recognized, their influence in determining a firm’s action in choosing a particular strategy is not well understood. As the nature of food manufacturing is evolving and the operational scope of a food manufacturing firm has grown from local, to regional, national, and global, is there a new role for policy? What we do know is that a firm trades with other firms and that aggregate trade patterns do not fully reflect how firms view prospects, make decisions and factor in policies as they organize themselves for trade. Addressing the potential characterizations of competitiveness for the industry and the firm followed by the conflicting influences of R&D on competitiveness, we focus on what is meant by a global food firm with the use of the experiences of three industry case studies.
    Keywords: Competitiveness, Food Manufacturing, Globalization, Case study
    JEL: L2 F2 Q18
    Date: 2006–06–16
  16. By: Knud Jørgen Munk (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: As is broadly recognized, the straightforward application of the Diamond-Mirrlees (1971) production efficiency theorem implies that when lump-sum taxation is not available, then it is optimal for the government in a small open economy to rely on taxes on the net demand of households rather than on border taxes to finance its resource requirements. However, the theorem does not hold when taxation is associated with administrative costs. The present paper explores the implications of taking into account the costs of tax administration for optimal taxation and for desirable directions of tax-tariff reform in countries at different levels of economic development. The paper clarifies the reasons for, and lends support to, the criticism by Stiglitz (2003) of the IMF and the World Bank's recommendation to developing countries to adopt VAT to replace border taxes.
    Keywords: Optimal taxation, optimal trade policy, VAT, tax-tariff reform, costs of tax administration, informal sector, developing countries
    JEL: F11 F13 H21
    Date: 2006–12–30
  17. By: Herciu, Mihaela
    Abstract: The firms who decide to expand their business in an international environment must modify their management style through international management. Certainly, international management must adapt their on functions to the different framework of the business development. The culture is a cardinally factor, being an essential component in the success equation of multinational companies. The culture, the habits and the attitudes became points of major interests on the global market. Their importance is obvious through numerous "blunders" which find out in international trade and international. For the success of international business the economies must bees free, but the economic freedom is influenced by the national culture. All the undertake activities of managers are accessible to cultural environment. The global firm is due to negotiate with different international organisms, and where through the negotiations to fall flat, the managers must understand the cultural environment of the negotiator and must have cross-cultural competence.
    Keywords: culture; economic freedom; international business
    JEL: O57 F23 M14
    Date: 2006–09–02
  18. By: James R. Markusen; Natalia Trofimenko
    Abstract: Gains from productivity and knowledge transmission arising from the presence of foreign firms have received a good deal of empirical attention, but theoretical micro-foundations for this mechanism are limited. Here we develop a dynamic model in which foreign experts may train domestic workers who work with them. Gains from training can in turn be decomposed into two types: (a) obtaining knowledge and skills at a lower cost than if they were self-learnt at home, (b) producing domestic skilled workers earlier in time than if the domestic economy had to rediscover the relevant knowledge through "reinventing the wheel." We use fixed effects and nearest neighbour matching estimators on a panel of plant-level data for Colombia that identifies the use of foreign experts, to show that these experts have substantial, although not always immediate, positive effects on the wages of domestic workers and on the value added per worker.
    JEL: F2 O19 O47
    Date: 2007–01
  19. By: Pinelopi Koujianou Goldberg; Nina Pavcnik
    Abstract: We discuss recent empirical research on how globalization has affected income inequality in developing countries. We begin with a discussion of conceptual issues regarding the measurement of globalization and inequality. Next, we present empirical evidence on the evolution of globalization and inequality in several developing countries during the 1980s and 1990s. We then examine the channels through which globalization may have affected inequality discussing theory and evidence in parellel. We conclude with directions for future research.
    JEL: F10 F16
    Date: 2007–02
  20. By: Pol Antras; Mihir A. Desai; C. Fritz Foley
    Abstract: This paper examines how costly financial contracting and weak investor protection influence the cross-border operational, financing and investment decisions of firms. We develop a model in which product developers have a comparative advantage in monitoring the deployment of their technology abroad. The paper demonstrates that when firms want to exploit technologies abroad, multinational firm (MNC) activity and foreign direct investment (FDI) flows arise endogenously when monitoring is nonverifiable and financial frictions exist. The mechanism generating MNC activity is not the risk of technological expropriation by local partners but the demands of external funders who require MNC participation to ensure value maximization by local entrepreneurs. The model demonstrates that weak investor protections limit the scale of multinational firm activity, increase the reliance on FDI flows and alter the decision to deploy technology through FDI as opposed to arm's length licensing. Several distinctive predictions for the impact of weak investor protection on MNC activity and FDI flows are tested and confirmed using firm-level data.
    JEL: F21 F23 G32 L24
    Date: 2007–01

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