nep-int New Economics Papers
on International Trade
Issue of 2007‒04‒09
24 papers chosen by
Martin Berka
Massey University

  1. Exchange rate regimes and trade By Christopher Adam; David Cobham
  2. Effects of Exchange Rate Volatility on the Volume and Volatility of Bilateral Exports By Christopher F Baum; Mustafa Caglayan
  3. Beyond Icebergs: Modeling Globalization as Biased Technical Change By Kiminori Matsuyama
  4. Trade Costs and the Home Market Effect By Matthieu Crozet; Federico Trionfetti
  5. Evidence-based Trade Policy Decision Making in Australia and the Development of Computable General Equilibrium Modelling By Peter B. Dixon
  6. Strategic Trade Policy under International Price and Quantity Competition By Conrad, Klaus
  7. Financial services and trade agreements in Latin America and the Caribbean : an overview By Stephanou, Constantinos; Goncalves, Marilyne Pereira
  8. Services in Free Trade Agreements By OCHIAI Ryo; Philippa DEE; Christopher FINDLAY
  9. An Analysis of the Restrictions on Foreign Direct Investment in Free Trade Agreements By URATA Shujiro; John SASUYA
  10. On the Comparison of Safeguard Mechanisms of Free Trade Agreements By KOTERA Akira; KITAMURA Tomofumi
  11. The Impact of Regulations on Agricultural Trade: Evidence from SPS and TBT Agreements By Anne-Celia Disdier; Lionel Fontagne; Mondher Mimouni
  12. Market Access in FTAs: Assessment Based on Rules of Origin and Agricultural Trade Liberalization By Inkyo CHEONG; Jungran CHO
  13. The Effect of FDI on Child Labor By Ronald B. Davies; Annie Voy
  14. Is It Worthwhile for Indonesia to Rush into a Free Trade Deal with Japan? By Oyamada, Kazuhiko
  15. Credit Market Imperfections and Patterns of International Trade and Capital Flows By Kiminori Matsuyama
  16. Substitutability and protectionism : Latin America ' s trade policy and imports from China and India By Willmann, Gerald; Silva, Peri; Olarreaga, Marcelo; Facchini, Giovanni
  17. Determinants of Finnish-Russian Economic Relations By Markku Kotilainen
  18. The surge of Preferential Trade Agreements across Asia: What is at stake? By Christian Milelli
  19. "Logistics, Market Size and Giant Plants in the Early 20th Century: A Global View" By Leslie Hannah
  20. Reducing Barriers to Services Trade: The U.S. Case By Lawrence J. White
  21. The impact of OECD Agricultural trade liberalization on poverty in Uganda By Charles Augustine Abuka; Michael Atingi-Ego; Jacob Opolot; Marian Mraz
  22. The Urban Informal Sector and Poverty: Effects of Trade Reform and Capital Mobility in India By Suguta Marjit; Saibal Kar
  23. Competition for Firms in an Oligopolistic Industry: Do Firms or Countries Have to Pay? By Haufler, Andreas; Wooton, Ian
  24. Textiles Protection and Poverty in South Africa/La protection du secteur des textiles et la pauvreté en Afrique du Sud: une analyse en équilibre général calculable dynamique micro-simulé By Ramos Mabugu; Margaret Chitiga

  1. By: Christopher Adam (Oxford University); David Cobham (Heriot-Watt University)
    Abstract: A ‘new version’ gravity model, is used to estimate the effect of a full range of de facto exchange rate regimes, as classified by Reinhart and Rogoff (2004), on bilateral trade. The results indicate that, while participation in a common currency union is typically strongly ‘pro-trade’– as first suggested by Rose (2000) – other exchange rate regimes which lower the exchange rate uncertainty and transactions costs associated with international trade between countries are significantly more pro-trade than the default regime of a ‘double float’. They suggest that the direct and indirect effects of exchange rate regimes on uncertainty and transactions costs tend to outweigh the trade-diverting substitution effects. In addition, there is evidence that membership of different currency unions by two countries has pro-trade effects, which can be understood in terms of a large indirect effect on transactions costs. Tariff-equivalent monetary barriers associated with each of the exchange rate regimes are also calculated
    Keywords: gravity, geography, exchange rate regime, currency union, transactions costs, tariff-equivalent barriers
    JEL: F10 F33 F49
    Date: 2007–02–02
  2. By: Christopher F Baum (Boston College); Mustafa Caglayan (University of Glasgow)
    Abstract: We present an empirical investigation of a recently suggested but untested proposition that exchange rate volatility can have an impact on both the volume and variability of trade flows, considering a broad set of countries' bilateral real trade flows over the period 1980-1998. We generate proxies for the volatility of real trade flows and real exchange rates after carefully scrutinizing these variables' time series properties. Similar to the findings of earlier theoretical and empirical research, our first set of results show that the impact of exchange rate uncertainty on trade flows is indeterminate. Our second set of results provide new and novel findings that exchange rate volatility has a consistent positive and significant effect on the volatility of bilateral trade flows.
    Keywords: exchange rates, volatility, fractional integration, trade flows
    JEL: F17 F31 C22
    Date: 2007–02–02
  3. By: Kiminori Matsuyama
    Abstract: We propose a new approach to model costly international trade, which includes the standard approach, the “iceberg” transport cost, as a special case. The key idea is to make the technologies of supplying the good depend on the destination of the good. To demonstrate our approach, we extend the Ricardian model with a continuum of goods, due to Dornbusch, Fischer and Samuelson (1977), by introducing multiple factors of production and by making each industry consist of the domestic division, which supplies the good at home, and the export division, which supplies the good abroad. If the two divisions differ only in the total factor productivity, our model becomes isomorphic to the DFS model with the iceberg transport cost. When the two divisions differ also in the factor intensity, globalization changes the relative factor prices in the same direction across the countries, in sharp contrast to the usual Stolper-Samuelson effect, which suggests that the relative factor prices move in different directions in different countries.
  4. By: Matthieu Crozet; Federico Trionfetti
    Abstract: Models characterized by the presence of increasing returns, monopolistic competition, and trade costs typically give rise to a more-than-proportional relationship between a country’s share of world production of a good and its share of world demand for the same good. This relation between country’s market size and industrial specialization has become known as the Home Market Effect after Krugman (1980) and Helpmand and Krugman (1985). This relationship has a central place in theoretical discussions about international trade. Indeed, it suggests that larger countries should specialize in increasing return to scale industries; on the contrary, countries in remote location should specialize in constant return to scale industries and consequently have lower income and long term economic growth. Moreover, the Home Market Effect is the main engine of the agglomeration processes emphasized by the new economic geography models (Krugman, 1991). This literature shows that trade openness may influence capital flows and accumulation, and thus contribute to widen international inequalities. Testing for the existence of the Home Market Effect is a first step toward and empirical validation of the new economic geography framework. Finally, the HME is so closely associated to the presence of increasing returns to scale (IRS) and monopolistic competition (MC) that it has been used as a discriminating criterion in a novel approach to testing trade theory pioneered by Davis and Weinstein (1999, 2003). However, Davis (1998) shed doubt on the theoretical robustness of this relationship. Indeed, one pervasive assumption in the literature to date is that of the presence of an “outside good”, freely traded and produced under constant returns to scale (CRS) and perfect competition (PC) ; Davis (1998) shows that in the absence of an outside good (i.e. assuming trade costs in all sectors), the HME may disappear. The assumption of the existence of a freely traded CRS-PC good is as much convenient as it is at odds with reality. As noted by Head and Mayer (2004, p. 2634) when discussing this issue in their comprehensive account of the literature:“... the CRS sector probably does not have zero trade costs or the ability to absorb all trade imbalances.” The pervasive use of the outside good assumption and its inconsistency with reality raise the question of what are the consequences of its removal on the HME. The present paper investigates this question.
    Keywords: International trade; test of trade theories; economic geography; models; home market effect; market access; international trade theory
    JEL: F10 R12
    Date: 2007–03
  5. By: Peter B. Dixon
    Abstract: This paper explains why evidence-based trade policy decision making is heavily reliant on results generated by CGE models and why the development and application of these modelling has been particularly active in Australia. The paper provides a short history of CGE modelling and describes the impetus to the field provided by two factors: (a) the failures of less theoretically formal approaches; and (b) the recognition of the ability of CGE modelling to handle policy-relevant detail. The paper argues that CGE modelling flourished in Australia because Australia had the right issue, the right institutions and the right model.
    Keywords: Trade policy, CGE modeling
    JEL: A11 F14
    Date: 2006–10
  6. By: Conrad, Klaus (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: The purpose of this paper is to explore the structure of trade policy measures (export subsidy, export tax, tariff) under intra-industry trade between two countries or trading blocs. Governments act strategically to distort free trade knowing that this wi
  7. By: Stephanou, Constantinos; Goncalves, Marilyne Pereira
    Abstract: The authors review the international framework governing trade in financial services, describe the treatment of financial services in recent trade agreements involving Latin America and Caribbean countries, and analyze the liberalization commitments made in three selected country case studies-Chile, Colombia, and Costa Rica. They give emphasis to free trade agreements because of the generally deeper level of liberali zation and rule-making achieved to-date. The authors discuss some of the causes and potential implications of their findings.
    Keywords: Trade Law,Trade and Services,Trade and Regional Integration,Free Trade,World Trade Organization
    Date: 2007–04–01
  8. By: OCHIAI Ryo; Philippa DEE; Christopher FINDLAY
    Date: 2007–03
  9. By: URATA Shujiro; John SASUYA
    Date: 2007–03
  10. By: KOTERA Akira; KITAMURA Tomofumi
    Date: 2007–03
  11. By: Anne-Celia Disdier; Lionel Fontagne; Mondher Mimouni
    Abstract: According to WTO rules, countries are allowed to adopt regulations under the Sanitary and Phyto-Sanitary (SPS) and Technical Barriers to Trade (TBT) agreements in order to protect human, animal and plant health as well as environment, wildlife and human safety. These non-tariff barriers (NTBs) may play an important role in the conduct of international negotiations. Developing countries (DCs) protest regularly against the increasing use of NTBs by developed countries. In this paper focusing on agricultural trade where such measures play a prominent role, we investigate two central questions: first, do these measures influence significantly trade flows? Second, is the impact similar for all exporting countries or are there differences (i) between OECD countries and developing (DCs) & least developed (LDCs) ones? Our source data are WTO members’ notifications of SPS and TBTs. These notifications are collected and analyzed by the UNCTAD. For each notification, the database provides the notifying country, the affected product (at the six-digit level of the Harmonized System of classification), and the classification code of the barrier. The UNCTAD distinguishes seven broad categories of measures. These categories includes 43 different measures such as the ban of some products (SPS) or technical measures (pre-shipment inspection or quarantine requirements). Considering the number of affected products, “technical barriers” is the most frequent measure. With rare exceptions, SPS and TBT measures are applicable to all exporting countries. They do not have a bilateral dimension. However, exporters will be differently affected by these measures depending on the structure of their exports in terms of products and markets.
    Keywords: Agriculture; sanitary and phyto-sanitary norms; technical barriers to trade; ad valorem equivalents; protectionism; SPS; NTB; market access; international trade
    JEL: F13 Q17 Q10
    Date: 2007–02
  12. By: Inkyo CHEONG; Jungran CHO
    Date: 2007–03
  13. By: Ronald B. Davies; Annie Voy
    Abstract: This paper examines the extent to which foreign direct investment (FDI) affects child labor. Using 1995 data for 145 countries, we find that, contrary to common fears, FDI is negatively correlated with child labor. This effect, however, disappears when controlling for per capita income. After doing so, we find no robust effect of either FDI or international trade on child labor. This result is robust to corrections for the endogeneity of FDI, trade, and income. Furthermore, this result is confirmed when using data from earlier years and when using fixed effects. This suggests that the impact of FDI and trade on child labor, if any, is the increases in income they generate.
    Keywords: Child Labor, Foreign Direct Investment, International Trade
    Date: 2007–04–04
  14. By: Oyamada, Kazuhiko
    Abstract: This report represents a preliminary attempt to refine some basic ideas on the potential impact Indonesia might experience from a free trade arrangement with Japan, using a forward-looking, multi-regional, multi-sectoral applied general equilibrium model of global trade to capture growth effects through capital accumulation paying attention to the changes in the patterns of interregional capital flows that might happen even before the policy change occurs. The simulation results revealed that the welfare gains of rushing into trade liberalization with Japan are not so large. This makes out that taking time over negotiations might be the best choice for Indonesia if the government places priority on convincing the Indonesian people that a free trade deal with Japan will definitely bring positive effects, while proceeding rapidly might be the answer if the country is serious about recovering the welfare levels that might be lowered by free trade arrangements among Malaysia, the Philippines, and Japan.
    Keywords: Applied general equilibrium, Economic growth, Forward-looking, Free trade agreement, Interregional capital flows, International trade, International agreements, Trade policy, Indonesia, Japan
    JEL: C68 D58 D90 F15 F41 O41
    Date: 2007–03
  15. By: Kiminori Matsuyama
  16. By: Willmann, Gerald; Silva, Peri; Olarreaga, Marcelo; Facchini, Giovanni
    Abstract: The authors examine the trade policy response of Latin American governments to the rapid growth of China and India in world markets. To explain higher protection in sectors where a large share is imported from these countries, they extend the " protection for sale " model to allow for different degrees of substitutability between domestically produced and imported varieties. The extension suggests that higher levels of protection toward Chinese goods can be explained by high substitutability between domestically produced goods and Chinese goods, whereas lower levels of protection toward goods imported from India can be explained by low substitutability with domestically produced goods. The data support the extension to the " protection for sale " model, which performs better than the original specification in terms of explaining Latin America ' s structure of protection.
    Keywords: Economic Theory & Research,Markets and Market Access,Free Trade,Globalization and Financial Integration,International Trade and Trade Rules
    Date: 2007–04–01
  17. By: Markku Kotilainen
    Abstract: The broad context of the study is the main determinants of Finnish-Russian economic relations during the post-Soviet era and the prospects for the future. The study explores the determination of trade as well as foreign direct investment (FDI). The main emphasis is on the structure and development of foreign trade. When measured by the Grubel-Lloyd index of intra-industry trade (SITC3, 4-digit), it is seen that less than 3 per cent of Finnish-Russian trade occurred inside the same industry in 2004. This percentage has even declined slightly during the period studied. In Finland’s trade with Germany, the corresponding figure was 31 per cent and in trade with Sweden 47 per cent in 2004. When assessing the development of Finnish imports from Russia, we notice that the dominance of changes in oil prices and of imports of big companies does not allow sensible econometric explanations. In the case of Finnish exports to Russia we find econometric evidence on volumes and values, on aggregate and sectoral, and on annual and quarterly exports. We present several kinds of classifications of FDI, and ask which factors favour exports and which FDI. We also classify the investments of Finnish firms in Russia according to these criteria – in a very illustrative and preliminary way. Exports as well as FDI have profited from the high market growth and rapid structural change of the Russian economy.
    Keywords: Finland, Russia, economic relations, foreign trade, foreign direct investment (FDI)
    JEL: F14 F21 F23
    Date: 2007–03–26
  18. By: Christian Milelli (EconomiX - [CNRS : UMR7166] - [Université de Paris X - Nanterre])
    Abstract: Economists along with policy makers are generally viewing trade agreements as a ‘second best' process for trade expansion and economic growth on a global scale. The current surge of Preferential Trade Agreements on a bilateral basis, particularly in Asia, is somehow challenging such common view. The following paper is grounded on updated rough facts and put forward that the standard economic approach is a bit flawed. Obviously, the outcomes and prospects for Asian countries seem much more problematic insofar as power asymmetry and discrimination are embedded in these arrangements.
    Keywords: Asia; Preferential Trade Agreement; Regionalization
    Date: 2007–03–30
  19. By: Leslie Hannah (Faculty of Economis, University of Tokyo and Ecole des Hautes Etudes en Sciences Sociales)
    Abstract: Around 1900, the businesses of developed Europe - transporting freight by a more advantageous mix of ships, trains and horses - encountered logistic barriers to trade lower than the tyranny of distance imposed on the sparsely populated United States. Highly urbanized, economically integrated and compact northwest Europe was a market space larger than, and - factoring in other determinants besides its (low) tariffs - not less open to inter-country trade than the contemporary American market was to interstate trade. By the early twentieth century, the First European Integration enabled mines and factories - in small, as well as large, countries - to match the size of United States plants, where factor endowments, consumer demand or scale economies required that.
    Date: 2007–03
  20. By: Lawrence J. White
    Date: 2007
  21. By: Charles Augustine Abuka; Michael Atingi-Ego; Jacob Opolot; Marian Mraz
    Abstract: The paper examines the projected impacts of agricultural trade liberalisation by OECD countries on poverty in Uganda and compares them to the poverty impacts of all merchandise trade liberalisation. The overall impact of OECD agricultural trade liberalisation on welfare in Uganda from this simulation is positive in contrast to previous research, nevertheless, the poor appear to be made worse off. The liberalisation of all OECD merchandise trade including non-agricultural commodities reduces welfare for all deciles irrespective of household poverty status, residence and region. The results for global partial merchandise trade liberalisation are similar to those for total trade liberalisation with an overall welfare decline of about 0.5 percent. More specifically, even the modest welfare gains for producers from increased prices seem to be offset by welfare losses from increases in consumer goods. Overall, because of the large subsistence agricultural sector, households tend to experience little or no change in total welfare arising from agricultural price changes. Increases in market value of their agricultural based output tend to be offset by changes in the opportunity cost of their subsistence consumption of the bulk of that output.
    Keywords: Microsimulation, agricultural trade liberalization, Uganda , poverty
    Date: 2007–04–04
  22. By: Suguta Marjit; Saibal Kar
    Abstract: Studies on formal-informal interactions in the labor markets of developing countries claim that economic reform increases the level of informal activity. Although the extent of such claims differs across countries, it is generally believed that reform is likely to depress informal wage by contracting the formal sector and driving labor onto its informal counterpart. However, available empirical evidence suggests that real wage and real fixed assets in the informal manufacturing sector have risen significantly across most states in post-liberalization India. Using this as a benchmark, we formalize a general equilibrium model of inter-sectoral capital mobility and informal wage to argue that, with limited degree of capital mobility, trade reform reduces the informal wage. This is the convetional wisdom usually obtained under a partial equilibrium framework. However, with increased mobility of capital this result is reversed. We offer detailed emmpirical evidence on the movements of real wage in the informal sector in India and how this affects poverty at the state level. The basic result on income mobility is corroborated by a primary survey in the province of West Bengal, for which we offer descriptive analysis on household income levels in the province's informal manufacturing and service sectors.
    Keywords: Informal Wage, Capital Mobility, Trade Reform, Poverty, India
    JEL: F13 F16 O17 J21 J31
    Date: 2007
  23. By: Haufler, Andreas; Wooton, Ian
    Abstract: We set up a model of generalised oligopoly where two countries of different size compete for an exogenous, but variable, number of identical firms. The model combines a desire by national governments to attract internationally mobile firms with the existence of location rents that arise even in a symmetric equilibrium where firms are dispersed. As economic integration proceeds, equilibrium taxes decline, switching from positive to negative levels, and then rise as trade costs fall even further. A range of trade costs is identified where economic integration raises the welfare of the small country, but lowers welfare in the large country.
    Keywords: tax and subsidy competition; oligopolistic markets
    JEL: H25 H73 F15
    Date: 2007–03
  24. By: Ramos Mabugu; Margaret Chitiga
    Abstract: There is an important debate going on in South Africa on whether to apply safeguard trade barriers to protect textiles. This presents an interesting case of how a country might use safeguard trade barriers in order to better achieve a domestic policy objective. Much of the current discourse on textiles protection focuses on static effects of protection. The aim of this paper is to take this discussion a step further by introducing the effect of textiles protection on poverty and its dynamics. To assess these effects of protection, a sequential dynamic computable general equilibrium model linked to a nationally representative household survey of 2000 is used. The simulation involves a doubling of the import tariffs on textiles. The textile sector is, obviously, the biggest winner, followed by the service sector, which sells more than half of its production as inputs for the textile sector. All other sectors experience falling output with the worst affected being the export-oriented sectors. Because the protected sectors are relatively more labour intensive, wages increase in both the short and long terms. Capital returns are sector specific in the short run and go up markedly for textiles and services but decline for all the other sectors. Overall, welfare falls both in the short and long term as the rise in factor prices is completely offset by the increase in consumer prices. The proportion of people living below US$2 per day increases marginally in the short run following increased textiles protection because of the observed increase in consumer price index that is higher than the increase in consumption for most households. Unskilled Indians are the only group to experience a reduction in poverty and welfare increases in the short run. The average poverty gap and the squared poverty gap also follow the same pattern as poverty headcount because most households are being pushed into poverty./L'Afrique du Sud représente un cas idéal pour évaluer la pertinence de mettre en place des barrières commerciales de sauvegarde pour protéger le secteur des textiles. Cette étude évalue les impacts de la protection tarifaire du secteur sud-africain des textiles au moyen d'un modèle d'équilibre général calculable dynamique, de nature séquentielle, lié aux micro données provenant de l'enquête nationale auprès des ménages de 2000. Les résultats de la simulation démontrent que le secteur des textiles est le plus grand bénéficiaire de cette mesure, suivi du secteur des services. Tous les autres secteurs enregistrent une décroissance de leur production et, parmi eux, ceux à vocation exportatrice s'avèrent être les plus sévèrement touchés. Les salaires augmentent à court et à long terme. Le capital étant immobile à court terme entre les secteurs, son rendement augmente sensiblement dans les activités de production des textiles et des services, mais diminue dans les autres activités. Le bien-être diminue à la fois à court et à long terme alors que la pauvreté augmente de façon significative à court terme.
    Keywords: Sequential dynamic CGE, microsimulation, textiles, protection, poverty, welfare, growth, South Africa/Équilibre général calculable, MEGC dynamique séquentiel, micro simulation, textiles, protection, pauvreté, bien-être, croissance, Afrique du Sud
    JEL: D58 E27 F17 I32 O15 O55
    Date: 2006

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