nep-int New Economics Papers
on International Trade
Issue of 2007‒04‒14
nineteen papers chosen by
Martin Berka
Massey University

  1. Regionalization, Changes in Home Bias, and the Growth of World Trade By John Whalley; Xian Xin
  2. Market access and the evolution of within plant productivity in Chile By Maria Bas; Yvan Ledezma
  3. A Panel Analysis of the FDI Impact on International Trade By Manuela Magalhães; Ana Paula Africano
  4. Collateral Damage: Exchange Controls and International Trade By Shang-Jin Wei; Zhiwei Zhang
  5. Changes in the foreign trade structure of the Russian Far East under the process of transition toward a market economy By Hiraizumi, Hideki
  6. Free Trade between the EU and Russia - Sectoral Effects and Impacts on Northwest Russia By Ville Kaitila
  7. Trade and Agglomeration: the Strategic use of Protection Revisited By Thede, Susanna
  8. The Effect of Imports and Exports on Total Factor Productivity in Korea By Sangho KIM; Hyunjoon LIM; Donghyun PARK
  9. Multi-Product Firms and Flexible Manufacturing in the Global Economy By Carsten Eckel; J. Peter Neary
  10. Specialisation in Finnish Foreign Trade - Who Do We Compete With? (in Finnish with an English abstract/summary) By Ville Kaitila
  11. Remittances, Trade Liberalisation, and Poverty in Pakistan: The Role of Excluded Variables in Poverty Change Analysis By Rizwana Siddiqui; A. R. Kemal
  12. Trade impacts on skill formation: welfare improvements accompanied by rises in inequality By Yasuhiro Sato; Kazuhiro Yamamoto
  13. Trade Marks and Performance in UK Firms: Evidence of Schumpeterian Competition through Innovation By Christine Greenhalgh; Mark Rogers
  14. The foreign exchange rate rate exposure of nations By Entorf, Horst; Moeber, Jochen; Sonderhof, Katja
  15. Technical progress in North and welfare gains in South under nonhomothetic preferences By Lilas Demmou
  16. Poverty-reducing or Poverty-inducing? A CGE-based Analysis of Foreign Capital Inflows in Pakistan By Rizwana Siddiqui; A. R. Kemal
  17. Trade Liberalization, Financial Sector Reforms and Growth By Khan, M. Arshad; Qayyum, Abdul
  18. Why Isn’t the Doha Development Agenda More Poverty Friendly? By Hertel, Thomas; Keeney, Roman; Ivanic, Maros; Winters, Alan

  1. By: John Whalley; Xian Xin
    Abstract: In this paper we use numerical modeling methods to quantitatively assess the impacts of changes in home bias within regions on the growth of world trade among major blocs over the last three decades. Existing work focuses on the impacts of trade barrier, transport cost and income changes on trade growth, rather than preferences. Removing changes in home bias over the last three decades from our global general equilibrium model reduces world trade by 27% compared to actual world trade in 2004 in our central case scenario. These results support the view that world trade among major blocs has became more regionalized rather than internationalized which we suggest may be due to a proliferation of free trade agreements. We calibrate a simple global trade model of inter bloc trade to both 1975 and 2004 data and substitute different calibrated parameters from the two data sets between model parameterizations. Our results suggest that if changes over time in home bias involving different regionally sourced goods in a multi-region multi product model are removed, substantial effects follow for the growth of world trade in the last three decades. Home bias changes in developed and developing economies reduce world trade by 8% and 19% respectively, suggesting that regionalization is more pronounced in developing country trade. Our results also indicate that income growth, income convergence, and falling trade costs explain 76%, 4%, and 7% respectively of the growth of world trade over the last three decades.
    JEL: F1
    Date: 2007–04
  2. By: Maria Bas; Yvan Ledezma
    Abstract: This paper studies the impact of trade reforms on the evolution of plant's productivity. We use plant level panel data of Chilean’s manufacturing for the period 1979-2000. The main contribution of the paper is to construct detailed measures of trade liberalization disentangling the impact of export and import oriented policies. Firstly, we estimate the production functions to obtain factor contributions and to compute plant's TFP controlling for firm heterogeneous productivity which is unobservable and evolves over the time. Secondly, we construct a measure of market access as an outcome of trade policies by estimating the difficulties to trade (border effects) between Chile and its main trading partners at the industry level and across time using a gravity model. Finally, we estimate the impact of trade reform on plant's productivity using the border effects estimated in the previous step. We find evidence of a positive impact of export oriented policies on productivity of traded sectors relative to non traded. On the other hand, relative to the latter, the reduction of import barriers has a positive impact on productivity in export oriented sectors, but it hurts local firms in import competing ones probably due to the existence of increasing returns.
    Date: 2007
  3. By: Manuela Magalhães (Universidade do Minho - NIPE); Ana Paula Africano (Universidade do Porto)
    Abstract: This paper examines the relationship between Foreign Direct Investment (FDI) and international trade. Specifically, the relationship between the stock of outward FDI, and inward FDI and Imports and Exports in the Portuguese economy. This paper also studies some technical problems associated with panel data 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 exist a country-specific effect on the corrected panel data of heteroscedasticity and correltion and a complementary relationship between trade and inward stock of FDI.
    Keywords: FDI, Trade, Gravity Analysis, Panel Data
    JEL: F1 F4
    Date: 2007
  4. By: Shang-Jin Wei; Zhiwei Zhang
    Abstract: While new conventional wisdom warns that developing countries should be aware of the risks of premature capital account liberalization, the costs of not removing exchange controls have received much less attention. This paper investigates the negative effects of exchange controls on trade. To minimize evasion of controls, countries often intensify inspections at the border and increase documentation requirements. Thus, the cost of conducting trade rises. The paper finds that a one standard-deviation increase in the controls on trade payment has the same negative effect on trade as an increase in tariff by about 14 percentage points. A one standard-deviation increase in the controls on FX transactions reduces trade by the same amount as a rise in tariff by 11 percentage points. Therefore, the collateral damage in terms of foregone trade is sizable.
    JEL: F1 F31 F36
    Date: 2007–04
  5. By: Hiraizumi, Hideki
    Keywords: Centrally planned economy (CPE), Process of transition towards the market economy, The role of foreign trade, International trade, Transition to market economy, Local economy, Russia
    JEL: F1
    Date: 2007–03
  6. By: Ville Kaitila
    Abstract: We analyse the implications of free trade between the EU25 and Russia using GTAP, a computable general equilibrium model. We review the sectoral effects by countries and make a tentative assessment of the impact on the regions in Northwest Russia. Free trade on its own would have a negative terms-of-trade effect in Russia and cause a small decline in welfare. If coupled with an increase in productivity, welfare would increase. This emphasises the importance of reforms in the Russian economy. The quantity of production in Russia in ferrous and non-ferrous metallurgy, machine building and metal working, and wood and paper are the principal declining sectors with free trade. Production in capital goods, fuel industry, and services increases. Thus there are some symptoms of Dutch disease. Due to its production structure the northwest would seem to benefit slightly less than Russia on average in terms of the volume of gross regional product. In this respect there are differences between the regions of northwest Russia.
    Keywords: EU, Russia, free trade, integration
    JEL: F15 F17
    Date: 2007–04–10
  7. By: Thede, Susanna (Department of Economics, Lund University)
    Abstract: The purpose of this paper is to examine whether the strategic motive for protection present in trade and agglomeration models, in the so-called new economic geography framework, is sensitive to the standard assumption that there is a sole agglomeration industry. We first investigate unilateral trade policy effects on the international production and trade pattern and the resulting national welfare levels in a new economic geography model including several agglomeration industries. The strategic use of trade policy is then examined by identifying optimal policy positions as well as equilibrium policy strategies in a Nash policy game between the trade partners. Our results show that the strategic use of protection and the resulting "tariff war" outcome prevalent in standard trade and agglomeration models is sensitive to the inclusion of several agglomeration industries. Specifically, trade liberalising policies are optimal and free trade equilibria result from the Nash game unless there is a too wide industry gap in agglomeration economies. Our results show that the case for free trade can be directly attributed to either a relatively strong direct policy impact on national real income (working through raised import prices and reduced import volumes) or similar agglomeration economies in the two industries. The results of this paper jointly suggest that the stark argument for the strategic use of protection present in standard new economic geography models can be attributed to overemphasised gains from agglomeration and/or the lack of industries with similar agglomeration economies.
    Keywords: New economic geography; input-output linkages; strategic trade policy; Nash policy game.
    JEL: F12 F13 R12 R13
    Date: 2007–04–04
  8. By: Sangho KIM; Hyunjoon LIM; Donghyun PARK
    Abstract: We investigate the effect of imports and exports on total factor productivity in Korea during 1980-2003. We find Granger causality from imports to total factor productivity (TFP) growth, but no causality from exports to TFP growth. We then investigate the impact of trade and other variables on TFP growth. According to our results, imports have a significant positive effect on TFP growth but exports do not. In addition, our results indicate that the positive impact of imports arises not only from the competitive pressures associated with the imports of consumer goods but also from technological transfers embodied in imports of capital goods from developed countries.
    Date: 2007–04
  9. By: Carsten Eckel; J. Peter Neary
    Abstract: We present a new model of multi-product firms (MPFs) and flexible manufacturing and explore its implications in partial and general equilibrium. International trade integration affects the scale and scope of MPFs through a competition effect and a demand effect. We demonstrate how MPFs adjust in the presence of single-product firms and in heterogeneous industries. Our results are in line with recent empirical evidence and suggest that MPFs in conjunction with flexible manufacturing play an important role in the impact of international trade on product diversity.
    Keywords: Multi-Product Firms, Flexible Manufacturing, General Oligopolistic Equilibrium (GOLE), International Trade, Product Diversity
    JEL: F12 L13
    Date: 2006
  10. By: Ville Kaitila
    Abstract: We analyse the exports of industrialised countries in the 1996-2006 period. First, there is a short discussion of the theory of international trade and its recent theoretical developments. After that we have analysed the long-run development of the structure of Finnish exports, and its structure relative to that of other industrialised countries after 1996. The export structure of Sweden is by far the most similar with that of Finland. We also ana-lysed Finland’s share in the total exports of industrialised countries and Finland’s share in the total exports in terms of its most important export products. Finland’s share in total exports has declined a little, but within the group of “old industrialised countries” its share has remained unchanged. Using the Lafay index, we determine that Finland is strongly specialised in the exports of mobile phones and paper products. Furthermore, Finland is specialised in the exports of high-tech products as determined by the OECD. The share of mobile phones in these exports is 70 per cent, however. Finally, we have studied how the share of value added in the value of production in Finnish manufacturing sectors has changed between the 1970s and 2005. On average the ratio has remained relatively stable, but during the past few years it has declined somewhat. There are significant differences between the manufacturing sectors in this respect.
    Keywords: foreign trade, specialisation
    JEL: F14
    Date: 2007–04–10
  11. By: Rizwana Siddiqui (Pakistan Institute of Development Economics, Islamabad); A. R. Kemal (Pakistan Institute of Development Economics, Islamabad)
    Abstract: This study attempts to assess the impact of two shocks-trade liberlisation and a decline in remittances from abroad-on poverty in Pakistan using a CGE framework. It is found that tariff reducation in the absesnce of a decline in remittances reduces poverty, as measured by the head count, poverty gap, and severity ratios (FGT indicators) in both the rural and urban areas of Pakistan. In terms of welfare, all households appear to gain. The results show that the gain in welfare is larger for urban households than for rural households. We conclude from this that trade liberalisation reduces the gap between urban and ruralhouseholds. In a second set of experiments, it was found that trade liberlisation in the presence of a decline in remittances reduced welfare in urban households but rural households still show an increase over the base year. According to all FGT indicators, poverty increases in urban households but not in rural households. the combined shock is more harmful to households in the urban areas than for households in the rural areas. However, this welfare gain and reduction in poverty level in rural households in less than the welfare gain and poverty reduction in the presence of trade liberlisation only. Aggregate statistics show that the negative impact of remittance decline dominates the positive impact of trade liberlisation in urban areas. On the other hand, in the case of rural areas, the posve impact of trade liberlisation dominates the negative impact of a decline in remittances. It shows that teh decline in remittance inflows is a major contributory factor in explaining the increase in poverty in pakistan.
    Keywords: Trade, Remittances, Poverty, Pakistan
    JEL: F10 F16 I32 J61
    Date: 2006
  12. By: Yasuhiro Sato (Graduate School of Environmental Studies, Nagoya University (Japan)); Kazuhiro Yamamoto (Graduate School of Economics, Osaka University, (Japan))
    Abstract: In this paper, we focus on the skill formation when considering the trade impacts on labor markets. Although workers are identical as unskilled labor, they differ in their productivity as skilled. Workers become skilled by incurring the training costs. Introducing the above settings into a trade model with monopolistic competition, we show that trade opening enhances skill formation. This is because trade enriches the varieties of di?erentiated goods and raises the utility of a worker for a given income. This effect works stronger for the skilled than for the unskilled although it makes all agents better off, leading to higher skill formation. However, it may be accompanied by rises in the real wage disparity between skilled and unskilled workers and by rises in the skilled wage inequality. Finally, we examine the possible effects of foreign direct investment on the labor market structure as well.
    Keywords: test statistic; trade, skill formation, monopolistic competition, wage inequality, FDI
    JEL: F12 F16 F23 J24 J31
    Date: 2007–04
  13. By: Christine Greenhalgh; Mark Rogers
    Abstract: This paper uses novel data on trade mark activity of UK manufacturing and service sector firms to investigate whether trade marks improve the profitability and productivity of firms. We first analyse Tobin`s q, the ratio of stock market value to book value of tangible assets. We then investigate the relationship between trade mark activity and productivity, using a value added production function. Finally we examine interactions between firms IP activity, to explore creative destruction and growth via innovation. We find trade marks are positively related to both Tobin`s q and to productivity. Also in the short run greater IP activity by other firms in the industry reduces the value added of the firm, but this same competitive pressure has later benefits via productivity growth, also reflected in higher stock market value. This describes the Schumpeterian process of competition through innovation, restraining profit margins while increasing product variety and quality.
    Keywords: Trade Marks, Market Value, Productivity, Manufacturing, Services
    JEL: O30 L60 L80
    Date: 2007
  14. By: Entorf, Horst; Moeber, Jochen; Sonderhof, Katja
    Abstract: Following the well-known approach by Adler and Dumas (1984) we evaluate the foreign exchange rate exposure of nations. Results based on data from 27 countries show that national foreign exchange rate exposures are significantly related to the current trade balance variables of corresponding economies.
    Keywords: Exchange rate exposure, international trade, current trade balance
    JEL: F31 G15
    Date: 2007
  15. By: Lilas Demmou
    Abstract: The paper proposes a theoretical model investigating the welfare consequences of technological shocks in a Ricardian framework (a la Dornbush, Fisher and Samuelson, 1977). Contrary to existing literature, the model incorporates a nonhomothetic demand function whose price and income elasticities are endogenously determined by technology. The model is applied to the case of trade between two economies with different development levels. It is shown in particular that the developing country can experience a fall in utility as a result of technical progress in the developed country. This result depends on the type of technological shock assumed (biased vs uniform technical progress), as well as on the size of the development gap.
    Date: 2007
  16. By: Rizwana Siddiqui (Pakistan Institute of Development Economics, Islamabad); A. R. Kemal (Pakistan Institute of Development Economics, Islamabad)
    Abstract: Foreign capital inflows (FKI) help an economy by financing the imbalance between income and expenditure. However, their impact on poverty in the recipient economy is a controversial issue. In this study, we examine the impact on poverty in two different scenarios (1) labour is homogeneous (2) labour is heterogeneous. The Computable General Equilibrium model for Pakistan is used to conduct simulations in order to assess the impact of an increase in foreign capital on poverty both in the presence and in the absence of trade liberalisation. Several interesting results emerge from the study. First, FKI tends to reduce poverty in the presence as well as in the absence of trade liberalisation when labour is homogeneous. However, poverty reduction appears to be larger in the presence of trade liberalisation. Second, when labour is differentiated according to qualification and is assumed to be sector-specific, in the absence of trade liberalisation a higher proportion of benefits of FKI accrue to skilled labour and poverty increases by all measures for both urban and rural households. In the presence of trade liberalisation, FKI benefits unskilled labour more, and poverty is decreased irrespective of the choice of poverty indicators
    Keywords: Capital inflow, Poverty, Pakistan
    JEL: F F3 F32
    Date: 2006
  17. By: Khan, M. Arshad; Qayyum, Abdul
    Abstract: This paper empirically investigates the impact of trade and financial liberalization on economic growth in Pakistan using annual observations over the period 1961-2005. The analysis is based on the bound testing approach of cointegration advanced by Pesaran et al (2001). The empirical findings suggest that both trade and financial policies play an important role in enhancing growth in Pakistan in the long-run. However, the short-run response of real deposit rate and trade policy variable is very low, suggesting further acceleration of reform process. The feedback coefficient suggests a very slow rate of adjustment towards long-run equilibrium. The estimated short-run dynamics are stable as indicated by CUSUMQ test.
    Keywords: Financial Sector Reforms; Trade Liberalization; Growth; Pakistan
    JEL: G28 O53
    Date: 2006
  18. By: Hertel, Thomas; Keeney, Roman; Ivanic, Maros; Winters, Alan
    Abstract: The breakdown of the WTO negotiations under the Doha Development Agenda has inspired critics to highlight the lack of effort on the part of rich countries to reform their agricultural policies. In this paper, we focus instead the poverty impacts of developing country tariff cuts - particularly those in agriculture. We argue that the Doha Development Agenda is fundamentally less poverty-friendly than it could be -- in large part due to the absence of tariff cuts on staple food products in developing countries. Such cuts would give the poor access to food at world prices, thereby reducing the cost of living at the poverty line. We also explore the contention that such tariff cuts will hurt the poor working in agriculture. Based on our analysis of the impacts of multilateral trade policy reforms on a sample of fifteen developing countries, we find there is some evidence of poverty increases in agriculture. However, such effects are minimized by ensuring that agricultural tariffs are cut in all developing countries. Overall, the poverty-reducing impact of lower food prices dominates; we conclude that the Doha Development Agenda would be more poverty friendly if it were to include deeper cuts in developing country agricultural tariffs. This contrasts sharply with calls for special products exemptions by many developing country advocates.
    Date: 2007
  19. By: Yusuf, Adesina Sulaiman; Edom, Cyprian .O
    Abstract: Abstract This study analyzed the factors influencing the exports of timber in Nigeria with the aid of Error Correction Model (ECM) representation procedures. The analysis was carried out with the data collected on roundwood and sawnwood over 33 years (1970 – 2003) using the long run restricted ECM. The statistical significance of the ECM terms for roundwood (-1.110) and sawnwood (-1.772) validates the existence of relationship among the variables. This suggests the short run dynamic effect of the changes in export quantities of roundwood are determined by one-year lagged export quantity of roundwood & domestic output-consumption ratio of roundwood, domestic output-consumption ratio of roundwood and domestic-international price ratio of roundwood, while that of sawnwood is determined by lagged values of the official exchange rate, domestic consumption-output, domestic consumption-output and world export-output ratios of the sawnwood. Efforts to boost timber export from Nigeria needs to incorporate policy measures that will improve the quantity and quality of timber products in order to meet the local and foreign demands.
    Keywords: Roundwood; Sawnwood; Nigeria; Exports; Co-integration and Error-correction model
    JEL: F4
    Date: 2007–04–01

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