nep-int New Economics Papers
on International Trade
Issue of 2007‒02‒17
twenty papers chosen by
Martin Berka
Massey University

  1. Vietnam’s Accession to the WTO: Lessons from Past Trade Agreements By Philip Abbott; Jeanet Bentzen; Finn Tarp
  3. National welfare effects of trade bloc enlargement By Thilo W. Glebe
  4. REGIONAL INTEGRATION AND TRADE DIVERSION IN EUROPE By Kokko, Ari; Mathä, Thomas; Gustavsson Tingvall, Patrik
  5. What does the eclectic trade model say about the Samuelson conundrum? By Kwok Tong Soo
  6. Do positive agricultural externalities provide a justification against trade liberalisation? By Thilo W. Glebe
  7. Welfare Economics of Trade Liberalisation and Strategic Environmental Policy By Thilo W. Glebe
  8. Optimal adjustment of environmental policy following agricultural trade liberalization By Thilo W. Glebe; Uwe Latacz-Lohmann
  9. Product Market Integration and Labour Markets: Aggregate Gains at the Cost of More Inequality? By Torben M. Andersen; Allan Sørensen
  10. The Economics of Fair Trade: For Whose Benefit? An Investigation into the Limits of Fair Trade as a Development Tool and the Risk of Clean-Washing. By Pierre Kohler
  11. German Exports to the Euro Area - A Cointegration Approach By Sabine Stephan
  12. Modelling agri-environmental policy in the context of international trade By Thilo W. Glebe; Uwe Latacz-Lohmann
  13. Pricing-to-Market Effects in Foreign Trade Prices. Evidence from a Cointegration Approach for Germany By Sabine Stephan
  14. Open regionalism in the Andean countries: existing and divergent treaty arrangements and approaches and it's consequences for the trade in financial services By Mauricio Baquero Herrera
  15. Distribution and growth reconsidered - empirical results for Austria, France, Germany, the Netherlands, the UK and the USA By Eckhard Hein; Lena Vogel
  16. Bureaucratic Corruption, MNEs and FDI By Dahlström, Tobias; Johnson, Andreas
  17. Export Orientation among New Ventures and Economic Growth By Hessels, S.J.A.; Stel, A.J. van
  18. The Export-Growth Relationship: Estimating a Dose-Response Function By Fryges, Helmut
  19. The export of Russian gas to Europe: breaking up the monopoly of Gazprom By Marina Tsygankova
  20. Multi-Output Firm Under Price Uncertainty By Hennessy, David A.

  1. By: Philip Abbott (Purdue University); Jeanet Bentzen (Department of Economics, University of Copenhagen); Finn Tarp (Department of Economics, University of Copenhagen)
    Abstract: This paper examines Vietnam’s experience with bilateral trade agreements and compares subsequent outcomes with predictions from existing computable general equilibrium (CGE) models. Those model based assessments have greatly underestimated the impact of past agreements. Tariff reform is not the main factor driving economic adjustments, and market imperfections mean there is potential for greater output and trade expansion. The key questions to ask in future research are what critical new institutional reforms WTO accession will bring, and what incentives will be put in place to determine the evolution of investment by sector.
    Keywords: trade liberalization; bilateral trade agreements; WTO accession; Vietnam
    JEL: F13 F14 O24 O53
    Date: 2007–02
  2. By: Fabio Veras Soares (International Poverty Centre)
    Abstract: We assess whether or not the trade liberalisation process in Brazil had any effect on both the reduction in the wage differential between registered and non-registered (roughly formal and informal) workers and the fall in the proportion of registered workers. We discuss the channels through which trade liberalisation could affect these two variables and put forward three empirical approaches to test the existence of any correlation between them. Our results suggest that the fall in the wage gap between registered and non-registered workers in the manufacturing sector was affected by trade-related variables, particularly, by the import penetration ratio. However, we do not find robust evidence that trade liberalisation had a substantial effect on the fall in the proportion of registered workers.
    Keywords: Trade Liberalisation, Wage differential, Informal Sector, Developing Countries
    JEL: F16 J31
    Date: 2005–06
  3. By: Thilo W. Glebe (Environmental Economics and Agricultural Policy Group, Technical University of Munich)
    Abstract: This paper analyses how the enlargement of a trade bloc will affect national welfare. We establish a partial equilibrium model of a trade bloc either operating as a monopoly with a competitive fringe or facing a duopolistic game in production taxes/subsidies. Given this framework, we demonstrate how member countries' welfare effects depend on their trade flow and the market power of the trade bloc. A numerical estimation of the effects of EU enlargement on the major grain corp marktets suggests that welfare effects are negliglible. Economic reasons are therefore unlikely to be a motivating force for further enlargement.
    Keywords: trade bloc, trade liberalisation, game theory, European Union
    Date: 2006–02
  4. By: Kokko, Ari (European Institute of Japanese Studies); Mathä, Thomas (Central Bank of Luxembourg); Gustavsson Tingvall, Patrik (European Institute of Japanese Studies)
    Abstract: This paper re-examines the relation between regional integration and trade by using the framework suggested by Yeats [1998] to analyze the effects of European integration. We identify the industries that experienced the largest increases in regional trade orientation during three phases of European integration, and examine the simultaneous changes in revealed comparative advantages. Our main conclusion is that there are signs of trade diversion for the earliest phase of European integration (1962-1973), when intra-regional trade increased in industries with weak comparative advantages, but not for later time periods. The main reason is that regional integration has coincided with reductions in external trade barriers, improving market access also for outsiders. At the same time, integration has promoted economic growth and import demand, which has been beneficial for outside producers. We also argue that the static concept of trade diversion is not well suited for analyzing modern integration, which aims to raise the comparative advantage of regional producers by promoting scale economies and competition. If successful, it will reduce the market shares of outsiders, but it does not constitute trade diversion: more efficient outsiders are not replaced by less efficient insiders.
    Keywords: European integration; trade creation and diversion
    JEL: F12 F15
    Date: 2006–12–01
  5. By: Kwok Tong Soo
    Abstract: Can growth of a trading partner harm a country? This paper seeks to answer this question through the use of an eclectic trade model which is similar in flavour to Markusen (1986). This paper makes two contributions. First, it develops a simple and tractable model of international trade based on a combination of imperfectcompetition, comparative advantage, and identical but non-homothetic preferences in a three country framework. Second, it uses this framework to consider the possibility of losses from partner-country growth in a free-trading environment. We find that the presence of nonhomothetic preferences in particular, leads to a home bias in consumption which dampens any negative welfare effects when a country's trading partners grow.
    Keywords: International trade; three countries; non-homothetic preferences.
    Date: 2006
  6. By: Thilo W. Glebe (Environmental Economics and Agricultural Policy Group, Technical University of Munich)
    Abstract: This paper analyses the welfare effects of agricultural trade liberalisation when taking into account the positive environmental externalities of European farming. We show that free trade is suboptimal, if no efficient environmental policy addressing the provision of multifunctional amenities is implemented. However, tariff reductions in a net-importing country will increase the incentive for introducing an environmental policy, though this policy will be strategically distorted. Despite its strategic character, introducing an optimal environmental policy, when simultaneously abolishing a tariff policy in an importing country, will unambiguously enhance global welfare.
    Keywords: Agricultural trade, agricultural multifunctionality, strategic environmental policy
    Date: 2005–06
  7. By: Thilo W. Glebe (Environmental Economics and Agricultural Policy Group, Technical University of Munich)
    Abstract: The paper employs a partial equilibrium model of international trade to derive optimal environmental policy responses to tariff reduction requirements and assesses the impact of such policies on social welfare. The domestically optimal policy adjustment for a large importing country committing itself to unilateral tariff reduction is to lower the Pigouvian tax rate. Transforming a Pigouvian instrument into a strategic environmental policy, following trade liberalization, enhances global welfare. The paper thereby proves that the distorting effect of an optimal tariff is generally greater than that of a strategically motivated environmental policy. On the other hand, global efficiency gains are uncertain, if countries engage in an environmental tax war as a result of trade liberalization. To avoid situations where gains from trade liberalisation are impaired by strategically motivated adjustments to domestic policies, tariff reductions should be negotiated along with environmental standards. It is argued that criteria for distinguishing genuine policy from disguised protectionism need to be established.
    Date: 2005–07
  8. By: Thilo W. Glebe (Environmental Economics and Agricultural Policy Group, Technical University of Munich); Uwe Latacz-Lohmann (Department of Agricultural Economics, Christian-Albrechts University, Kiel)
    Abstract: We use an extended partial equilibrium trade model to derive optimal environmental policy responses to tariff reduction requirements and assess the impact of such policies on the welfare of trading partners. We find that countries which attribute preferential political weights to farmers’ welfare have an incentive to implement environmental policies that deviate from the Pigouvian solution – even if production is not de facto linked to environmental externalities. We clarify the conditions under which trading partners do not gain from unilateral trade liberalization if trade concessions are accompanied by strategic environmental policy changes. We postulate a role for the WTO in overseeing the process of formulating domestic policies to further the multifunctional role of agriculture.
    Date: 2005–08
  9. By: Torben M. Andersen (University of Aarhus, CEPR, EPRU and IZA); Allan Sørensen (University of Aarhus)
    Abstract: Important labour market consequences of globalization may arise via product market integration which affects the room for wage negotiations and generates job creation and destruction through structural changes. We find in a Ricardian trade model that aggregate increases in wages and employment may conceal important differences across sectors/groups driven by a different balance between "protection" and "specialization" rents. In particular, wage inequality tends to be U-shaped, at first decreasing and then increasing in the process of product market integration. Consequently, there are gains in both the efficiency and the equity dimension until the level of integration reaches a certain level at which a trade-off arises.
    Keywords: trade frictions, relative productivity, rent sharing, job turnover, inequality
    JEL: F15 F16 J39 J50 J63
    Date: 2007–01
  10. By: Pierre Kohler (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: This paper considers the system of fair trade coffee. It first gives a short description of the coffee market and some of its major trends. The origin of the fair trade movement is then explained. The structure of FLO is examined and its pricing scheme compared to those of other private labeling initiatives. Benefits generated for participants on the supply and the demand side then come under scrutiny. To gauge its potential as a development tool, revenues to coffee producers are estimated on the basis of available information. Revenues to fair trade organizations in the Western world are also examined. Finally, two hypotheses are tested on data from 13 European countries to get a better picture of what is happening on the demand side. First, an OLS regression is tested to see if consumer awareness does Òmake a differenceÓ. Secondly, a treatment regression is used to correct for a sample self-selection bias and to check if there is some support for the claim that supermarkets that have started to sell fair trade coffee are clean-washing their reputation in the fair trade business.
    Keywords: Coffee, Fair Trade, Development, Clean-Washing, Treatment Regression
    JEL: C31 D83 H23 M39
    Date: 2006–08
  11. By: Sabine Stephan (IMK at the Hans Boeckler Foundation)
    Abstract: This paper analyses the determinants of German exports to the euro area, which is by far the biggest market for German products. Four conditional error-correction models based on regionally disaggregated data are developed. One specification includes EMU industrial production and a real external value based on consumer prices, the other three use different EMU investment aggregates, the corresponding real external values and a proxy for European market integration to explain exports. The models perform equally well in a number of diagnostic tests. For short-term forecasts, however, the model using industrial production seems to be the best, since it outperforms the other models in terms of one-step ahead out-of-sample forecasts. Furthermore, the explanatory variables of this equation (industrial production and consumer prices) are easier to forecast than investment aggregates and the corresponding prices.
    Keywords: Export Function, Income and Price Elasticity of Exports, Intra-EMU Trade, Error Correction Model, Forecasting
    JEL: C22 C52 F47
    Date: 2005–09
  12. By: Thilo W. Glebe (Environmental Economics and Agricultural Policy Group, Technical University of Munich); Uwe Latacz-Lohmann (Department of Agricultural Economics, Christian-Albrechts University, Kiel)
    Abstract: The paper develops a conceptual framework for the welfare analysis of agri-environmental policy within an international trade context. Based on a two-factor production model, we analyse the marginal social costs of agricultural production before and after the introduction of an efficient agri-environmental policy. The paper shows that an assessment of social external costs, which is predicated on the factor intensity prior to the implementation of an agri-environmental policy, underestimates the potential welfare improvements that can be achieved by introducing an efficient environmental policy. We further demonstrate that, even if the marginal environmental effect of farming is negative prior to introducing agri-environmental policy, the co-existence of positive and negative externalities might cause the production level to increase as a result of an optimal environmental policy.
    Date: 2006–01
  13. By: Sabine Stephan (IMK at the Hans Boeckler Foundation)
    Abstract: The article analyses the impact of exchange rate changes on German export and import prices. The analytical framework is a mark-up model which is based on the assumption that the markets under consideration are imperfectly competitive as well as segmented. Hence, firms will no longer set prices at marginal costs, but charge a mark-up on costs to earn above normal profits. The mark-up is not fixed, but can be adjusted in response to demand pressure and competitive pressure in the relevant market. Consequently, firms can practice price discrimination. We find evidence that domestic and foreign producers follow different price setting strategies: German exporters largely pass-through exchange rate changes; i.e. an appreciation of domestic currency is reflected in a significant increase in export prices (expressed in terms of foreign currency) indicating that German exporters have significant market power and/or face a fairly inelastic export demand curve. Foreign exporters to Germany, however, largely follow a pricing-to-market strategy; i.e. they absorb price increases due to an appreciation of foreign currency into their profit margins in order to stabilise export prices (expressed in terms of domestic currency). Thus, they can protect market shares in the highly competitive German market.
    Keywords: export prices, import prices, exchange rate pass-through, pric- ing to market, error correction model
    JEL: C51 E31 F31
    Date: 2005–12
  14. By: Mauricio Baquero Herrera
    Abstract: The Andean Countries i.e., Bolivia, Colombia, Ecuador, Peru and Venezuela are immersed in an unprecedented environment of unilateral openness to foreign markets (including financial markets) and in simultaneous deeper sub-regional economic integration through the Andean Community as well as in the gradual implementation of a range of multilateral and bilateral, extra-sub-regional commitments and advancing negotiations with non-member countries as to a variety of trade/investment/economic integration schemes. This complex integration matrix, which affects the provision of financial services in the sub-region, has its roots in the original Andean integration process and it is based upon the policy of open regionalism. In this sense, this memo firstly studies the policy of open regionalism as it is understood in Latin America. Secondly, it introduces the main features of the Andean integration process underlying the strong political influence that marked the origin and development of the Andean Pact and its subsequent transformation into the Andean Community. Third, it focuses on the Andean Countries’ different approaches towards liberalisation of financial services that are converging as their various obligations are being implemented. To that end, through a comprehensive view of the origins of the Andean integration as well as by differentiating the approaches, commitments and clauses of the several treaties and agreements actually in place, this memo tries to address some of the questions issued by the conference organisers. Readers and discussants have to bear in mind that the integration of financial services by means of treaties is a subject that has come to the international scene quiterecently. At the same time, developing countries have been extremely cautious when undertaking commitments at multilateral, regional and sub-regional levels related to the opening of their boundaries to the provision of financial services. In the Andean countries case, there is evidence of nesting institutions related to the provision of financial and banking services. However, due to the lack of regulation in the field of financial services provision at sub-regional level (the Andean Commission has not issued it yet) as well as in all NAFTA-like type of agreements individually signed by some of the Andean countries (no Protocols or Annexes found), the evidence of conflicting overlapping institutions and rules is still theoretical. This author foresees that the result of the negotiations undertaken by some Andean countries and USA towards the establishment of a NAFTA-like Free Trade Area will pave the way for the harmonisation of rules regarding the trade in banking and financial services intra sub-region and with the global economy. Such outcome is not the consequence of thoroughly designed economic, financial and external policies at Andean domestic and supranational levels. It almost happened by chance. Hopefully, this circumstance will help avoiding the complexity of the nesting evidenced.
    Keywords: open regionalism, NAFTA, Free Trade Area, Andean countries
  15. By: Eckhard Hein (IMK at the Hans Boeckler Foundation); Lena Vogel (University of Hamburg (Student))
    Abstract: The authors analyse the relationship between functional income distribution and economic growth in Austria, France, Germany, the Netherlands, the UK and the USA from 1960 until 2005. The analysis is based on a demand-driven distribution and growth model for an open economy inspired by Bhaduri/Marglin (1990), which allows for profit- or wage-led growth. We find that growth in France, Germany, the UK, and the USA has been wage-led, whereas Austria and the Netherlands have been profit-led. In the case of Austria a domestically wage-led economy is turned profit-led when including the effect of distribution on external trade. The Netherlands, however, are already profit-led without external trade. Our results so far only partially confirm Bhaduri/Marglin's (1990) theoretical conclusion that wage-led growth becomes less feasible when the effects of distribution on foreign trade are taken into account. We conclude that following a strategy of profit-led growth via the net export channel, and therefore relying on a kind of 'beggar thy neighbour' policy, is not only harmful for the trading partners and hence for the world economy in the long run, but also for the wage-led countries pursuing such a strategy in the short run.
    Keywords: Distribution, growth, demand-led accumulation regimes
    JEL: E12 E21 E22 E23 E25
    Date: 2007–01
  16. By: Dahlström, Tobias (Jönköping International Business School (JIBS), Jönköping); Johnson, Andreas (Jönköping International Business School (JIBS), Jönköping)
    Abstract: This paper adds to the limited number of studies analysing the relationship between host country corruption and FDI inflows. A model describes the incentives foreign MNEs and host country bureaucrats have for engaging in corruption and shows how corruption increases the MNE costs of operations in the host country. The model predicts that the costs caused by corruption reduce FDI inflows. Regression analysis using panel data finds that host country corruption has a significant negative effect on FDI inflows to developing economies but not for developed economies.
    Keywords: corruption; foreign direct investment; multinational enterprises
    JEL: D73 F21 F23
    Date: 2007–02–13
  17. By: Hessels, S.J.A.; Stel, A.J. van (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: While it is generally acknowledged that entrepreneurship as well as export activity may both be important strategies for achieving national economic growth, it has remained unclear how export activity among new ventures is related to economic growth. This paper investigates whether the presence of export-oriented entrepreneurs is a more important determinant of economic growth than entrepreneurial activity in general. We focus on the national or macro-level and use data from the Global Entrepreneurship Monitor for a sample of 36 countries. An important advantage of using the macro-level is that indirect effects of exporting entrepreneurs that reach further than the performance of these firms themselves (e.g. spillovers) are captured in the analysis. To our knowledge, no attempt has been made thus far to link international activity of early-stage ventures to macro-economic out-comes. Our results suggest that export-oriented entrepreneurship is indeed more important for achieving high economic growth rates than entrepreneurial activity in general. This suggests that international activity by small and new firms strongly contributes to higher levels of competition and, consequently, to the emergence of highly dynamic economies and higher levels of economic growth.
    Keywords: Entrepreneurship;Export;Economic growth;Global Entrepreneurship Monitor;
    Date: 2007–01–26
  18. By: Fryges, Helmut
    Abstract: The relationship between individual firms’ export behaviour and firm performance has been studied extensively in the economic literature. However, most studies from the field of economics only distinguish between exporting and non-exporting companies, using the firms’ export status as a binary treatment variable and comparing the performance of exporting and non-exporting firms. This paper introduces the newly developed generalised propensity score (GPS) methodology to the literature of individual firms’ export behaviour. Instead of a binary treatment variable, the GPS method allows for continuous treatment, that is, different levels of the firms’ export activities. Based on the GPS methodology, a dose-response function is estimated, depicting the relationship between the firms’ pre-treatment export-sales ratio and their subsequent sales growth rate as a measure of firm performance.
    Keywords: Degree of internationalisation, continuous treatment, generalised propensity score, dose-response function, high-technology industries
    JEL: F23 L60 L86
    Date: 2006
  19. By: Marina Tsygankova (Statistics Norway)
    Abstract: Having exports from more than one Russian gas producer has been an important issue in the Russian–EU energy dialogue during the last decade. Nevertheless, in June 2006, Russian Federal law legalized the de facto export monopoly of Gazprom. Political and commercial interests have regularly explained the Russian strategy for the European gas market. However, it is important that economic efficiency is also taken into account. Economists often evaluate the efficiency of a policy through its effect on national welfare. In this paper, I examine both theoretically and numerically whether a liberalization of Russian gas exports would increase Russian national welfare, given that the Russian domestic market is already deregulated. The results of the paper show that the dominant position of Gazprom in the Russian gas industry might stimulate the government to support Gazprom's export monopoly. The market share of independent producers in the Russian gas market would have to be significantly increased for Russian export liberalization to be welfare enhancing.
    Keywords: Russia; Natural gas; export; monopoly; national welfare
    JEL: D43 D60 L13 Q38
    Date: 2007–02
  20. By: Hennessy, David A.
    Abstract: A closed-form dual representation of the multi-output production problem is developed under CARA and the large exponential family of multivariate price distributions. System-wide response analysis allows an understanding of second moment and risk tolerance effects, and provides insights on distorting subsidies admissible under World Trade Organization agreements. We demonstrate second-order flexibility in the sense that any empirical first and second moments can be imposed. Production complementarity results are identified for a special linearized version of the model. Incentives under the class of elliptically contoured distributions are studied, as are speculation decisions in the presence of futures markets.
    Keywords: Associated random variables; Exponential family; Hedging
    Date: 2005–08–18

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