nep-int New Economics Papers
on International Trade
Issue of 2007‒03‒31
twenty papers chosen by
Martin Berka
Massey University

  1. Multi-Product Firms and Trade Liberalization By Andrew B. Bernard; Stephen Redding; Peter K. Schott
  2. International trade, technological shocks and spillovers in the labour market; A GVAR analysis of the US manufacturing sector. By Paul Hiebert; Isabel Vansteenkiste
  3. Preferential Trade Liberalization and the Path-Dependent Expansion of Exports By Ingo Borchert
  4. Trade Integration, Firm Selection and the Costs of Non-Europe By Massimo Del Gatto; Giordano Mion; Gianmarco I.P. Ottaviano
  5. North-South Technology Diffusion: How Important Are Trade, FDI and International Telecommunications? By Yanling Wang
  6. Paradoxes and Puzzles in Our Globalized World Public Support of Trade Policy, International Outsourcing Trade Liberalization, Globalization By James W. Dean and G. Robert Ross
  7. Offshoring: General Equilibrium Effects on Wages, Production and Trade By Richard Baldwin; Frederic Robert-Nicoud
  8. Productivity and Size of the Export Market: Evidence for West and East German Plants, 2004 By Joachim Wagner
  9. Why More West than East German Firms Export By Joachim Wagner
  10. Incidence of the WTO Anti-Discrimination Rules on Corporation Income Taxation By Hatice Jenkins; Glenn Jenkins
  11. The Effect of Trade on the Demand for Skill - Evidence from the Interstate Highway System By Guy Michaels
  12. Identifying supply-side constraints to export performance in Ecuador : an exercise with Investment Climate Survey data By Correa, Paulo; Dayoub, Mariam; Francisco, Manuela
  13. Illegal Extractions of Renewable Resources and International Trade with Costly Enforcement of Property Rights By JINJI Naoto
  14. What drives business cycles and international trade in emerging market economies? By Marcelo Sánchez
  15. How Would China's Exports be Affected by a Unilateral Appreciation of the RMB and a Joint Appreciation of Countries Supplying Intermediate Imports? By Mizanur RAHMAN; Willem THORBECKE
  16. Trade Liberalization and Regional Income Convergence in Mexico: a Time-Series Analysis By Manuel Gomez; Daniel Ventosa-Santaularia
  17. The Impact of Exchange Rate Volatility on Indonesia’s Exports to the USA: An Application of ARDL Bounds Testing Procedure By Arief Bustaman; Kankesu Jayanthakumaran
  18. Can the Natural Resource Curse Be Turned Into a Blessing? The Role of Trade Policies and Institutions By Arezki, Rabah; van der Ploeg, Frederick
  19. Trade and Workforce Changeover in Brazil By Marc-Andreas Muendler
  20. Good Governance, Trade and Agglomeration By Candau, Fabien

  1. By: Andrew B. Bernard; Stephen Redding; Peter K. Schott
    Abstract: This paper develops a general equilibrium model of multi-product firms and analyzes their behavior during tradeliberalization. Firm productivity in a given product is modeled as a combination of firm-level "ability" and firmproduct-level "expertise", both of which are stochastic and unknown prior to the firm's payment of a sunk costof entry. Higher firm-level ability raises a firm's productivity across all products, which induces a positivecorrelation between a firm's intensive (output per product) and extensive (number of products) margins. Tradeliberalization fosters productivity growth within and across firms and in aggregate by inducing firms to shedmarginally productive products and forcing the lowest-productivity firms to exit. Though exporters produce asmaller range of products after liberalization, they increase the share of products sold abroad as well as exportsper product. All of these adjustments are shown to be relatively more pronounced in countries' comparativeadvantage industries.
    Keywords: heterogeneous firms, endogenous product scope, love of variety, core competency
    JEL: F12 F13 L11
    Date: 2006–12
  2. By: Paul Hiebert (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Isabel Vansteenkiste (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: We empirically analyse the response of US manufacturing labour market variables to various shocks, notably to trade openness and technology. The econometric approach involves an application of the recently developed global VAR (GVAR) methodology of Dées, DiMauro, Pesaran, and Smith (2005) to 12 manufacturing industries over the period 1977-2003. This frame-work allows for an assessment of both shocks to weakly exogenous variables and intra-industry spillovers. In this vein, beyond a standard set of labour-market related variables (employment, real compensation, productivity and capital stock) and exogenous factors (a sector-specific measure of trade openness, along with common technology and oil price shocks), specific measures of manufacturing-wide variables are included for each sector. Generalised impulse responses indicate that increased trade openness negatively affects real compensation, has negligible employment effects and leads to higher labour productivity. These impacts, however, are relatively weaker those induced by technology shocks, with the latter positively and significantly affecting both real compensation and employment. There is also evidence of positive spillovers across industries from sector-specific employment and productivity shocks. Impact elasticities suggest strong intra-sectoral linkages for employment and capital stock formation, contrasting with weak linkages for what concerns real compensation and productivity. JEL Classification: F16; J01; O33.
    Keywords: Trade; technological change; labour market; global VAR (GVAR); impulse responses.
    Date: 2007–02
  3. By: Ingo Borchert
    Abstract: In the presence of sunk costs to exporting, preferential tariff liberalization may have a prolonged, dynamic effect on the pattern of a beneficiary country's exports. In particular, preferential tariff liberalization might trigger a geographic spread of exports to third markets outside the preferential trading area. I test this hypothesis for the pattern of Mexican exports after the inception of NAFTA to several Latin American trading partners. After controlling for product specific shocks and the overall trend in export growth, the evidence is consistent with the hypothesis that initial exports to the United States further prompted exports to third markets. The results suggest a significant impact on exports to large or geographically proximate countries (Argentina, Brazil, Peru, Costa Rica, Guatemala, Honduras and Panama). The stunning growth in the extensive margin as a count measure owes much to rather simple goods, while more sophisticated goods exert a substantial impact on the value of Mexican exports. The findings also document the existence of considerable tariff-induced trade diversion for goods with little skill or technology content.
    Keywords: Preferential tariffs, Mexico, NAFTA, sunk costs, conditional logit panel estimation
    JEL: F13 F15 K33
    Date: 2007–03
  4. By: Massimo Del Gatto; Giordano Mion; Gianmarco I.P. Ottaviano
    Abstract: In models with heterogeneous …rms trade integration has a positive impact on aggregate productivity through the selection of the best …rms as import competition drives the least productive ones out of the market. To quantify the impact of …rm selection on productivity, we calibrate and validate a multi-country multi-sector model with monopolistic competition and variable markups using …rm-level data and aggregate trade …gures on a panel of 11 EU countries. Simulating the model, we …nd that EU trade has a sizeable impact on aggregate productivity. For instance, in 2000 the introduction of prohibitive trade barriers would have caused an average productivity loss of roughly 13 per cent, whereas a reduction of intra-EU trade costs by 5 per cent would have generated a productivity gain of roughly 2 per cent. Productivity losses and gains, however, vary a lot across countries and sectors depending on market accessibility and trade costs, which maps into di¤erential responses of average markups, prices, quantities and pro…ts. We show that our results are robust to alternative distance and productivity measures.
    Keywords: European integration, …rm-level data, …rm selection, gains from trade, total factor
    JEL: F12 R13
    Date: 2007
  5. By: Yanling Wang (The Norman Paterson School of International Affairs, Carleton University)
    Abstract: There is an influential literature studying the impact on total factor productivity (TFP) of foreign technology obtained through imports (trade). This paper builds on that literature and is a first attempt to examine the effects on TFP in the South of technology developed in the North that is diffused not only through international trade, but also through foreign direct investment (FDI) and international telecommunications (ITC) measured in call traffic. For developing countries in the South, we construct trade-related, FDI-related and ITC-related North foreign R&D indices, using country specific R&D stocks in the North, and respectively with North-South bilateral trade patterns, FDI patterns and ITC volumes. We find: (i) trade and ITC both significantly promote North- South technology diffusion, while FDI seems to generate North-South technology diffusion, though not always significantly; (ii) the effects on TFP through ITC-related foreign R&D are the largest, followed in order by those through trade-related, and then by those through FDI-related foreign R&D indices; and (iii) the effects on TFP of traderelated North foreign R&D are primarily driven by the growth in developing countries’ trade-to-GDP ratios, while the effects from ITC-related North foreign R&D are largely due to the growth in the Northern R&D stocks.
    Keywords: Technology Diffusion, Trade, FDI, International telecommunications
    JEL: F1
    Date: 2006–03–15
  6. By: James W. Dean and G. Robert Ross (Simon Fraser University)
    Date: 2006–10–13
  7. By: Richard Baldwin; Frederic Robert-Nicoud
    Abstract: A simple model of offshoring, which depicts offshoring as 'shadow migration,' permits straightforward derivation of necessary and sufficient conditions for the effects on wages, prices, production and trade. We show that offshoring requires modification of the four classic international trade theorems, so econometricians who ignore offshoring might reject the Heckscher-Ohlin theorem when a properly specified version held in the data. We also show that offshoring is an independent source of comparative advantage and can lead to intra-industry trade in a Walrasian setting. The model is extended to allow for two-way offshoring between similar nations, and to allow for monopolistic competition.
    JEL: F11 F12 F16
    Date: 2007–03
  8. By: Joachim Wagner (University of Lueneburg, Max Planck Institute of Economics, Jena and IZA)
    Abstract: Using unique recently released nationally representative high-quality data at the plant level, this paper presents the first comprehensive evidence on the relationship between productivity and size of the export market for Germany, a leading actor on the world market for manufactured goods. It documents that firms that export to countries inside the euro-zone are more productive than firms that sell their products in Germany only, but less productive than firms that export to countries outside the euro-zone, too. This is in line with the hypothesis that export markets outside the euro-zone have higher entry costs that can only by paid by more productive firms.
    Keywords: exports, productivity, micro data, Germany
    JEL: F14 D21
    Date: 2007–03
  9. By: Joachim Wagner (University of Lueneburg and IZA)
    Abstract: Using unique new data and a recently introduced non-linear decomposition technique this paper shows that the huge difference in the propensity to export between West and East German plants is to a large part due to differences in firm size and human capital intensity.
    Keywords: exports, micro data, West Germany, East Germany
    JEL: F14
    Date: 2007–03
  10. By: Hatice Jenkins (Assistant Professor); Glenn Jenkins (Professor)
    Abstract: Many countries with free trade zones or export processing zones now exempt from corporate income taxation the income of firms exporting from these areas. The WTO has attempted to eliminate this exemption through its rules to promote the non-discrimination of fiscal systems with respect to export production. In particular, these rules do not allow countries to exempt the income of firms exporting from Free Trade Zones from corporate income taxation. This paper examines both theoretically as well as empirically the incidence of removing this corporate income tax exemption. The empirical analysis is carried out for the case of the Dominican Republic. The findings indicate that in the case of the Dominican Republic the removal of the corporate income tax exemption would inflict a burden on labour equal to about 6 times the amount of additional corporate tax revenue collected from the companies operating in its free trade zones.
    Keywords: WTO, tax incidence, Free Trade Zones, corporate taxation
    JEL: H22 F13
    Date: 2007–03
  11. By: Guy Michaels
    Abstract: Since changes in trade openness are typically confounded with other factors, it has been difficult toidentify the labor market consequences of increased international trade. The advent of the UnitedStates Interstate Highway System provides a unique policy experiment, which I use to identify theeffect of reducing trade barriers on the relative demand for skilled labor. The Interstate HighwaySystem was designed to connect major metropolitan areas, to serve national defence and to connectthe United States to Canada and Mexico. As a consequence - though not an objective - many ruralcounties were also connected to the highway system. I find that these counties experienced anincrease in trade-related activities, such as trucking and retail sales, by 7-10 percentage points percapita. Most significantly, by increasing trade the highways raised the relative demand for skilledmanufacturing workers in counties with a high endowment of human capital and reduced it elsewhere,consistent with the predictions of the Heckscher-Ohlin model.
    Keywords: Skill Premium, Trade, Highways
    JEL: F16 J23 J31
    Date: 2006–12
  12. By: Correa, Paulo; Dayoub, Mariam; Francisco, Manuela
    Abstract: The authors apply a Heckman selection model to the 2003 Investment Climate Survey (ICS) to investigate supply-side constraints to export performance at the firm level in Ecuador. To correct for the non-random truncation problems, they use the Heckman selection model to estimate the probability of exporting (export propensity) and the share of total sales that are exported (export intensity) by Ecuadorian firms. They develop a baseline model with 12 independent variables divided into three categories-idiosyncratic characteristics, technology, and business environment. The authors develop three other models with the addition of variables related to trade integration, business environment, and infrastructure. Results corroborate with the hypothesis implicit in the Heckman model, which considers both decisions made by a firm-whether to export, and how much of its sales to export-to be interdependent. In the Ecuadorian case, they find three important results for the firm ' s export performance: technology matters; infrastructure does not; and trade orientation is significant, with specialized firms tending to have smaller export intensity when their main trade partners are countries of the Andean Community, and the opposite happening if the United States is their main trade partner. The authors find a robust and stable relationship for export propensity and intensity with size, import of inputs, labor regulations, in-house research and development, quality certification, web-use, and foreign ownership. Also, capacity utilization and trade with the United States positively affect export intensity, while trade within the Andean Community has the opposite effect in the outcome variable. But they find no significant relationship for the infrastructure variables.
    Keywords: Free Trade,Private Participation in Infrastructure,Microfinance,Small Scale Enterprise,Markets and Market Access
    Date: 2007–03–01
  13. By: JINJI Naoto
    Abstract: Illegal extractions of renewable resources threaten sustainable use of those resources. The world community has recently paid increasing attention to the issue of illegal logging. This paper tries to explain why it is important to exclude illegally logged timber from the international market by using a stylized model in the literature of trade and renewable resources. It is shown that a fall in the price of timber may cause a switch of management regime from enforced property rights to open-access, expanding the supply of timber and reducing forest stock. When several countries export timber, an increase in illegal logging in one country due to a regime switch may also increase illegal logging in other countries. While conflicting with the GATT/WTO rules for reasons of discrimination by process and production methods (PPMs), import restrictions only on illegally logged timber will be effective to prevent the international diffusion of illegal logging.
    Date: 2007–03
  14. By: Marcelo Sánchez (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper investigates the role of domestic and external factors in explaining business cycle and international trade developments in fifteen emerging market economies. Results from sign-restricted VARs show that developments in real output, inflation, real exchange rates and international trade variables are dominated by domestic shocks. External shocks on average explain a fraction of no more than 10% of the variation in the endogenous variables considered. Moreover, real imports fail to display a cross-regional pattern, while technology shocks appear to be the disturbances playing a somewhat more important role in explaining consumer prices developments. Consumer prices and – depending on the disturbance considered – real imports are the variables showing larger impulse responses to unit shocks. JEL Classification: C32; E32; F41.
    Keywords: Business cycles; international trade; emerging markets; structural shocks.
    Date: 2007–02
  15. By: Mizanur RAHMAN; Willem THORBECKE
    Abstract: In 2005 55% of China's exports were "processed exports" produced using intermediate goods that came from other countries. The lion's share of the volume of imports for processing and of the value-added of processed exports came from other East Asian countries. We investigate how a unilateral appreciation of the RMB and a joint appreciation of countries supplying intermediate inputs would affect China's exports. To do this we estimate a panel data model including ordinary and processed exports from China to 33 countries. Results obtained using generalized method of moments techniques indicate that a joint appreciation would significantly reduce China's processed exports while a unilateral appreciation would not.
    Date: 2007–03
  16. By: Manuel Gomez (School of Economics, Universidad de Guanajuato); Daniel Ventosa-Santaularia (School of Economics, Universidad de Guanajuato)
    Abstract: We study the hypothesis of convergence amongst Mexican regions since 1940 with special interest in the post-trade liberalization period. A standard time-series convergence test shows that per capita income levels between the capital and the rest of the regions tend to narrow over time. Using the concept of deterministic and stochastic convergence, we describe the specific characteristics of the growth pattern for each of the regions. We find evidence that supports the hypothesis that trade reforms reversed the convergence process of some regions, especially those less developed. Results further suggest that trade liberalization did not contribute to per capita income convergence between the U.S. and Mexico border regions.
    Keywords: Catching-up, Convergence, Deterministic Trend, Unit Root
    JEL: O10 O40 R1
  17. By: Arief Bustaman (Department of Economics, Padjadjaran University); Kankesu Jayanthakumaran (Discipline of Economics, University of Wollongong)
    Abstract: This paper investigates the long-run and short-run impacts of exchange rate volatility on Indonesia’s exports of priority commodities to the United States of America over the monthly period 1997-2005. Estimates of cointegration relations are obtained using ARDL bounds testing procedure. Estimates of the short-run dynamics are obtained using an error-correction model. The results show significant positive and negative coefficients among the range of commodities. However, in the long-run, majority of commodities tend to support the traditional view that higher exchange rate of volatility leads to higher cost and to less foreign trade. The net effect of exchange rate uncertainty on production and exports depends on the degree of relative risk aversion of the exporter of various commodities. This ultimately influences the reallocation of resources by participants.
    Keywords: Exchange rate volatility, exports, ARDL bounds testing, error-correction model, Indonesia
    JEL: C32 F14 F31 F41
    Date: 2006–12
  18. By: Arezki, Rabah; van der Ploeg, Frederick
    Abstract: We criticize existing empirical results on the detrimental effects of natural resource dependence on the rate of economic growth after controlling for institutional quality, openness, and initial income. These results do not survive once we use instrumental variables techniques to correct for the endogenous nature of the explanatory variables. Furthermore, they suffer from omitted variables bias as they overestimate the effect of initial income per capita and thus underestimate the speed of conditional convergence. Instead, we provide new evidence for the impact of natural resource dependence on income per capita in a systematic empirical cross-country framework. In addition to a significant negative direct impact of natural resources on income per capita, we find a significant indirect effect of natural resources on institutions. We allow for interaction effects and provide evidence that the natural resource curse is particularly severe for economic performance in countries with a low degree of trade openness. Adopting policies directed toward more trade openness may thus soften the impact of a resource curse. We also check the robustness of our results by using a variety of instruments and also employing the ratio of natural capital rather than natural resource exports to national income as an explanatory variable. We find evidence that resource abundance, measured by the stock of natural capital, also induces a resource curse, but less severely for countries that are relatively open.
    Keywords: growth performance; income per capita; institutions; resource curse; trade policies
    JEL: C21 C82 O11 O41
    Date: 2007–03
  19. By: Marc-Andreas Muendler
    Abstract: Linked employer-employee data for Brazil over a period of large-scale trade liberalization document two salient workforce changeovers. Within the traded-goods sector, there is a marked occupation downgrading and a simultaneous education upgrading by which employers fill expanding low-skill intensive occupations with increasingly educated jobholders. Between sectors, there is a labor demand shift towards the least and the most skilled, which can be traced back to relatively weaker declines of traded-goods industries that intensely use low-skilled labor and to relatively stronger expansions of nontraded-output industries that intensely use high-skilled labor. Whereas these observations are broadly consistent with predictions of Heckscher-Ohlin trade theory for a low-skill abundant economy, classic trade theory is a less useful guide to the observed reallocation pattern. Establishment-level regressions show that exporters exhibit significant employment downsizing. Workforce changeovers are neither achieved through worker reassignments to new tasks within employers nor are they brought about by reallocations across employers and traded-goods industries. Instead, trade-exposed industries shrink their workforces by dismissing less-schooled workers more frequently than more-schooled workers especially in skill-intensive occupations, while most displaced workers shift to nontraded-output industries or out of recorded employment. It remains an important task for research to analyze the impact of economic reform on worker separations, accessions and spell durations outside employment at the individual worker level.
    JEL: F14 J23 J63
    Date: 2007–03
  20. By: Candau, Fabien
    Abstract: We develop a model for developing countries that investigates the factors behind agglomeration of activities in urban giants. Firstly we show that relatively easier market access to external demand provided by the urban giant tends to attract entrepreneurs to this place. Secondly we find that the attractive power of the urban giant can be linked to a lack of democracy. Indeed we demonstrate that democracy acts as a dispersive force in the sense that by reversing the cost of living effect, it allows to reduce the spatial inequality and then the tendency of agglomeration. Lastly we analyse how the funds embezzled by a bad government vary according to internal and external trade liberalisation. We show that a decrease in the disadvantage of the periphery to trade with the external market can limit the funds embezzled by a Leviathan.
    Keywords: Economic geography; Cities; Trade; Corruption.
    JEL: R12 H25
    Date: 2006–05–31

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