nep-int New Economics Papers
on International Trade
Issue of 2007‒04‒21
24 papers chosen by
Martin Berka
Massey University

  1. Ruggedness: The Blessing of Bad Geography in Africa By Nunn, Nathan; Puga, Diego
  2. Trade, Knowledge, and the Industrial Revolution By Kevin H. O'Rourke; Ahmed S. Rahman; Alan M. Taylor
  3. Trade Liberalisation, Financial Development and Economic Growth By Muhammad Arshad Khan; Abdul Qayyum
  4. Effects of transboundary pollution on the mode of international trade of a polluting good By Kenji Fujiwara; Norimichi Matsueda
  5. Risk, Government and Globalization: International Survey Evidence By Anna Maria Mayda; Kevin H. O'Rourke; Richard Sinnott
  6. Gains from trade in a polluting product in the presence of transboundary stock pollution By Kenji Fujiwara; Norimichi Matsueda
  7. Unbalanced Trade By Robert Dekle; Jonathan Eaton; Samuel Kortum
  8. A Gravity approach to evaluate the significance of trade liberalization in vertically-related goods in the presence of non-tariff barriers By Ghazalian, Pascal; Tamini, Lota; Larue, Bruno; Gervais, Jean-Philippe
  9. Globalization, growth and distribution in Spain 1500-1913 By Joan R. Roses; Kevin H. O'Rourke; Jeffrey G. Williamson
  10. Simultaneous Causality in International Trade By Enzo Weber
  11. Domestic support and tariff reductions in the presence of non-tariff barriers: A gravity model for primary and processed agricultural products By Tamini, Lota; Ghazalian, Pascal; Gervais, Jean-Philippe; Larue, Bruno
  12. The Euro's Effect on Trade on a Dynamic Setting By Sergio de Nardis; Roberta De Santis; Claudio Vicarelli
  13. How May International Trade affect Poverty in a Developing Country Setup? The Inequality Channel By Mamoon, Dawood
  14. Trade Openness and Output Volatility By Bejan, Maria
  15. Should WTO Dispute Settlement Be Subsidized? By Sebastian Wilckens
  16. Some Business Cycles Consequences of Signing Trade Agreements: The Case of NAFTA By Bejan, Maria
  17. Local Firms in Latecomer Developing Countries amidst China's Rise -The case of Vietnam's motorcycle industry- By Fujita, Mai
  18. Intellectual Property Rights, Imitation, and Foreign Direct Investment: Theory and Evidence By Lee Branstetter; Raymond Fisman; C. Fritz Foley; Kamal Saggi
  19. Biases in calculating dumping Margins: The case of cyclical products By Rude, James; Gervais, Jean-Philippe
  20. The Effects of Trade Liberalization Between High and Low Cost Countries when Merger Behavior is Endogenous By CALMETTE, Marie-Françoise
  21. An endogenous timing analysis of international duopoly with transboundary stock pollution By Kenji Fujiwara; Norimichi Matsueda
  22. Borders and the Constraints of Globalization By Michele FRATIANNI
  24. Price undertakings, VERs, and foreign direct investment By Jota Ishikawa; Kaz Miyagiwa

  1. By: Nunn, Nathan; Puga, Diego
    Abstract: There is controversy about whether geography matters mainly because of its contemporaneous impact on economic outcomes or because of its interaction with historical events. Looking at terrain ruggedness, we are able to estimate the importance of these two channels. Because rugged terrain hinders trade and most productive activities, it has a negative direct effect on income. However, in Africa rugged terrain afforded protection to those being raided by slave traders. Since the slave trade retarded subsequent economic development, in Africa ruggedness also has had a historical indirect positive effect on income. Studying all countries worldwide, we find that both effects are significant statistically and that for Africa the indirect positive effect dominates the direct negative effect. Looking within Africa, we provide evidence that the indirect effect operates through the slave trade. We also show that the slave trade, by encouraging population concentrations in rugged areas, have also amplified the negative direct impact of rugged terrain in Africa.
    Keywords: Africa; economic development; geography; slave trades; terrain ruggedness
    JEL: N40 N50 O11 O13
    Date: 2007–04
  2. By: Kevin H. O'Rourke; Ahmed S. Rahman; Alan M. Taylor
    Abstract: Technological change was unskilled-labor-biased during the early Industrial Revolution of the late eighteenth and early nineteenth centuries, but is skill-biased today. This fact is not embedded in extant unified growth models. We develop a model of the transition to sustained economic growth which can endogenously account for both these facts, by allowing the factor bias of technological innovations to reflect the profitmaximising decisions of innovators. Endowments dictated that the initial stages of the Industrial Revolution be unskilled-labor biased. The transition to skill-biased technological change was due to a growth in “Baconian knowledge” and international trade. Simulations show that the model does a good job of tracking reality, at least until the mass education reforms of the late nineteenth century.
    Keywords: Endogenous growth, Demography, Trade
    Date: 2007–04–17
  3. By: Muhammad Arshad Khan (Pakistan Institute of Development Economics, Islamabad); Abdul Qayyum (Pakistan Institute of Development Economics, Islamabad)
    Abstract: This paper empirically investigates the impact of trade and financial liberalisation 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 economic growth in Pakistan in the long-run. However, the short-run responses of the real deposit rate and trade policy variables are very low, suggesting further acceleration of the reform process. The feedback coefficient suggests a very slow rate of adjustment towards long-run equilibrium. The estimated equation remains stable over the period of study as indicated by CUSUM and CUSUMQ stability tests.
    Keywords: Trade Liberalisation, Financial Development, Economic Growth, Bound Test
    JEL: F43 G10 O10 C22
    Date: 2007
  4. By: Kenji Fujiwara (School of Economics, Kwansei Gakuin University); Norimichi Matsueda (School of Economics, Kwansei Gakuin University)
    Abstract: This paper looks into potential determinants of the mode of international competition in a polluting good market by analyzing a strategic interaction between two environmentally concerned governments. From the equilibrium outcomes of our game based on an international duopoly model with transboundary pollution, we show how a resulting form of international competition can be influenced by, among other things, the magnitudes of the marginal damage cost and transboundary impact of pollution and also the degree of similarity between the two nations in these aspects.
    Keywords: international duopoly, transboundary pollution, gains from trade.
    JEL: F10 F12 Q20
    Date: 2007–04
  5. By: Anna Maria Mayda; Kevin H. O'Rourke; Richard Sinnott
    Abstract: This paper uses international survey data to document two stylized facts. First, risk aversion is associated with anti-trade attitudes. Second, this effect is smaller in countries with greater levels of government expenditure. The paper thus provides evidence for the microeconomic underpinnings of the argument associated with Ruggie (1982), Rodrik (1998) and others that government spending can bolster support for globalization by reducing the risk associated with it in the minds of voters.
    JEL: F13 P16
    Date: 2007–04
  6. By: Kenji Fujiwara (School of Economics, Kwansei Gakuin University); Norimichi Matsueda (School of Economics, Kwansei Gakuin University)
    Abstract: This paper examines how the opening of trade affects a countryfs welfare in the context of an international polluting duopoly model with transboundary stock pollution. In this framework, we show that trade liberalization can have quite different welfare implications, depending on the mode of international competition and the magnitudes of international transportation coefficients of pollutant emissions and decay rates of pollutant stocks in respective countries, as well as on the values of other environmental and economic variables.
    Keywords: gains from trade, international duopoly, Cournot-Nash competition, Stackelberg competition, transboundary stock pollution.
    JEL: F10 F12 Q20
    Date: 2007–04
  7. By: Robert Dekle; Jonathan Eaton; Samuel Kortum
    Abstract: We incorporate trade imbalances into a quantitative model of bilateral trade in manufactures, dividing the world into forty countries. Fitting the model to 2004 data on GDP and bilateral trade we calculate how relative wages, real wages, and welfare would differ in a counterfactual world with all current accounts balancing. Our results indicate that closing the current accounts requires modest changes in relative wages. The country with the largest deficit (the United States) needs its wage to fall by around 10 percent relative to the country with the largest surplus (Japan). But the prevalence of nontraded goods means that the real wage in Japan barely rises while the U.S. real wage falls by less than 1 percent. The geographic barriers implied by the current pattern of trade are sufficiently asymmetric that large bilateral deficits remain even after current accounts balance. The U.S. manufacturing trade deficit with China falls to $65 billion from its 2004 level of $167 billion.
    JEL: F17 F32 F41
    Date: 2007–04
  8. By: Ghazalian, Pascal; Tamini, Lota; Larue, Bruno; Gervais, Jean-Philippe
    Abstract: A gravity-based model is developed to explain bilateral trade flows in primary and processed agri-food commodities. It innovates by explicitly accounting for the vertical production linkages between primary and processed agri-food products, tariffs, and subsidies and by estimating the restrictiveness of non-tariff barriers in the upstream sector. Our application focuses on cattle/beef trade flows between forty-two countries. The structural parameters of the model are used to simulate trade flows under various scenarios of import tariffs and domestic and export subsidies reductions. The United States and Australia emerge as the exporting countries that stand to benefit the most from cuts in tariffs and subsidies as bovine meat imports in the European Union and Japan significantly increase. A bootstrap procedure is used to generate confidence intervals around predicted trade liberalization outcomes.
    Keywords: Gravity model; cattle/beef trade
    JEL: Q17 F13
    Date: 2007–04–01
  9. By: Joan R. Roses; Kevin H. O'Rourke; Jeffrey G. Williamson
    Abstract: The endogenous growth literature has explored the transition from a Malthusian world where real wages, living standards and labor productivity are all linked to factor endowments, to one where (endogenous) productivity change embedded in modern industrial growth breaks that link. Recently, economic historians have presented evidence from England showing that the dramatic reversal in distributional trends – from a steep secular fall in wage-land rent ratios before 1800 to a steep secular rise thereafter – must be explained both by industrial revolutionary growth forces and by global forces that opened up the English economy to international trade. This paper explores whether and how the relationship was different for Spain, a country which had relatively poor productivity growth in agriculture and low living standards prior to 1800, was a late-comer to industrialization afterwards, and adopted very restrictive policies towards imports for much of the 19th century. The failure of Spanish wagerental ratios to undergo a sustained rise after 1840 can be attributed to the delayed fall in relative agricultural prices (due to those protective policies) and to the decline in Spanish manufacturing productivity after 1898.
    Date: 2007–04
  10. By: Enzo Weber
    Abstract: This paper proposes estimating causalities in bilateral international trade in simultaneous systems, including domestic and foreign GDP as well as mutual trade flows. Conventional macroeconomic theory mainly follows partial approaches like import functions or export-led growth. Focusing on the US relations with Euroland and Canada, cointegration analyses however reveal, that the system dynamics, and so both im- and exports, are simply governed by US GDP shocks. In conclusion, exploring sources and effects of international trade should be seen as an inherently empirical task.
    Keywords: Import, Export, Causality, Cointegration.
    JEL: F10 C32
    Date: 2007–04
  11. By: Tamini, Lota; Ghazalian, Pascal; Gervais, Jean-Philippe; Larue, Bruno
    Abstract: Agricultural trade liberalization negotiations are currently at a crossroads. Progress was made to eliminate export subsidies, but small open economies’ demand for lower domestic support and tariffs on agricultural goods do not find much support among large policy active countries. Many non-tariff barriers still also impede agricultural trade. This paper presents the theoretical foundations of a gravity model to explain trade flows of both primary agricultural commodities and processed foods. At the consumer level, commodities are differentiated according to their country of origin while primary agricultural goods are homogenous from the buyers’ perspective. However, primary goods can not be substituted costlessly across destinations from the sellers’ perspective due to differences in technical and sanitary regulations between countries. These assumptions yield well-behaved import demand functions at the consumer level and export supply functions at the producer level. Imperfect substitutability at the consumption and production levels is summarized in two important structural parameters. The role of these parameters in explaining bilateral trade patterns is illustrated for a three-country world market using a numerical example. The simulation investigates whether it is more important for a small open economy that large policy active countries reduce agricultural tariffs or domestic support. It also addresses the implications of tariff escalation on trade flows.
    Keywords: Agri-food trade liberalization; Gravity models; tariffs; domestic support; tariff escalation.
    JEL: Q17 F13
    Date: 2006–04–01
  12. By: Sergio de Nardis (ISAE - Institute for Studies and Economic Analyses); Roberta De Santis (ISAE - Institute for Studies and Economic Analyses); Claudio Vicarelli (ISAE - Institute for Studies and Economic Analyses)
    Abstract: This paper provides an update of de Nardis and Vicarelli (2003) estimates of the euro effect on trade integration of EMU economies, taking into account aggregate bilateral exports of 23 OECD countries for the sample period 1988-2003. In this paper we utilize the dynamic panel data estimator proposed by Blundell and Bond (1998) and introduce controls for heterogeneity. The results of our dynamic specification of the gravity equation lead to an estimate of the intra-Eurozone pro-trade effect, following the adoption of the single currency, as high as around 4%. This finding, slightly lower than our previous work results, is in line with very recent empirical literature using dynamic specification of gravity equation. It is also consistent with the already tight trade links characterizing the economies that embraced the euro and with the possibility that the trade impact involved the introduction of new goods rather than the expansion, due to lower transaction costs, of the incumbent products.
    Keywords: International Trade, Currency Unions, Gravity models, Dynamic Panel Data
    JEL: F14 F15 F4 F33 C33
    Date: 2007–04
  13. By: Mamoon, Dawood
    Abstract: Recently there has been an influx of literature which tries to find out relationship between trade and poverty. Right is of the view that more international trade is good for the poor whereas left is quite skeptical of pro poor effects of trade. The paper provides a comprehensive review of recent literature on the topic in order to reach some neutral grounds. The paper finds out that though trade might carry positive affects for the poor in developing countries through growth, such gains are not equally distributed among the rich and the poor. The paper identifies at least 8 different effects of international trade which result in unequal outcomes and thus defies Heckscher-Ohlin-Samuelson theorem in a developing country set up. Since per decomposition, poverty is affected by growth or inequality, evidence of unequal gains from trade does imply that the relationship between trade and poverty is not as simple as the right seems to suggest. To this effect, the paper calls for more empirical work on trade and inequality especially as single country case studies.
    Keywords: Economic Integration; Welfare and Poverty
    JEL: F15 F16 F11 I30
    Date: 2007
  14. By: Bejan, Maria
    Abstract: This paper studies the effect of trade openness on output volatility. We find that trade openness generally increased output volatility, although this effect was stronger and more significant during 1950-1975 than during 1975-2000. However, if we split the sample into developed and developing countries, we observe that more openness increased volatility in developing countries, while it helped smooth output in developed countries. We also find that the size of the government may have increased volatility in less developed countries. Part of the positive relation between openness and volatility may be explained by the positive relation between openness and government size. Another important finding of this paper is that once we control for government size and some measures of external risk, such as terms of trade volatility and export concentration index, the effect of openness on the output volatility turns out to be negative.
    Keywords: Trade; Openness; Volatility
    JEL: F40 F01 N10
    Date: 2006–02
  15. By: Sebastian Wilckens
    Abstract: This paper develops a model of the WTO dispute settlement process (DSP) to study the recent proposal by legal scholars to subsidize litigation costs. The high cost of litigation, so the argument, is a major obstacle for developing countries to using the DSP to enforce developed countries’ compliance with WTO rules. The paper shows that this proposal may be misguided. In particular, a reduction of litigation costs may lead large countries to impose larger trade impediments where before they may have raised barriers only a little. Thus, a cost reduction may even weaken the smaller countries’ position in the DSP. Moreover, the model sheds light on the structure of the dark figure of un-accused offenses, suggesting that the observed record of disputes notified to the WTO is systematically biased.
    Keywords: Developing Countries, Dispute Settlement, GATT/WTO, Tariff Retaliation, Trade Disputes
    JEL: F13
    Date: 2007–04–12
  16. By: Bejan, Maria
    Abstract: This paper investigates the effects of signing a trade agreement on the correlations of the business cycle fluctuations of consumption, investment and output between two countries. We construct an international business cycle model with trade costs and we calibrate it to the United States and Mexico in order to estimate the impact of NAFTA on their co-movements. Although there exist some discrepancies between the theory and data in the degree of correlation, the direction of change corresponds to the one in the data.
    Keywords: International Business Cycles; Trade Agreements; International Co-movements
    JEL: F15 F11 E32
    Date: 2006–08
  17. By: Fujita, Mai
    Abstract: This paper examines the impact of China’s recent rise on the development of local firms in latecomer developing countries. Based on a detailed analysis of Vietnam’s motorcycle industry, the paper argues that China’s impact may go beyond what a trade analysis suggests. Indeed, China’s rise induced a dynamic transformation in the structure of value chains within Vietnam’s motorcycle industry, bringing about far-reaching consequences on the development and upgrading trajectories of local firms. The implications of the case study for the wider “global value chain†approach is also discussed.
    Keywords: Global value chain, Motorcycle industry, Vietnam, China, Upgrading, Motorcycles
    JEL: F23 L22 L62
    Date: 2007–03
  18. By: Lee Branstetter; Raymond Fisman; C. Fritz Foley; Kamal Saggi
    Abstract: This paper theoretically and empirically analyzes the effect of strengthening intellectual property rights in developing countries on the level and composition of industrial development. We develop a North-South product cycle model in which Northern innovation, Southern imitation, and FDI are all endogenous. Our model predicts that IPR reform in the South leads to increased FDI in the North, as Northern firms shift production to Southern affiliates. This FDI accelerates Southern industrial development. The South's share of global manufacturing and the pace at which production of recently invented goods shifts to the South both increase. Additionally, the model also predicts that as production shifts to the South, Northern resources will be reallocated to R&D, driving an increase in the global rate of innovation. We test the model's predictions by analyzing responses of U.S.-based multinationals and domestic industrial production to IPR reforms in the 1980s and 1990s. First, we find that MNCs expand the scale of their activities in reforming countries after IPR reform. MNCs that make extensive use of intellectual property disproportionately increase their use of inputs. There is an overall expansion of industrial activity after IPR reform, and highly disaggregated trade data indicate an increase in the number of initial export episodes in response to reform. These results suggest that the expansion of multinational activity more than offsets any decline in the imitative activity of indigenous firms.
    JEL: F23 O33 O34
    Date: 2007–04
  19. By: Rude, James; Gervais, Jean-Philippe
    Abstract: A dumping investigation involves comparing export prices with a “normal value” loosely defined as the price in the exporter’s domestic market observed in the course of normal trade. However, domestic sales with prices below production costs are excluded from the computation of a normal value; thus increasing the probability products with cyclical prices will get caught with positive dumping margins although there are no intentions to dump. The objective of the paper is to illustrate how price cycles impact the magnitude of estimated dumping margins. The empirical analysis focuses on Canadian hog exports to the U.S. and U.S. potato exports to Canada. The period and amplitude of each price cycles are estimated. The analysis starts with the assumption that export and domestic prices are equal so no true dumping occurs. Margins are then calculated based on rules that exclude below cost sales. The resulting average dumping margins for Canadian hogs and U.S. potato exports are respectively 11.5 and 5.9 percent. Biases in dumping margins depend on the nature of the cycle, the period of investigations, and the estimate of the cost of production.
    Keywords: Anti-dumping; frequency estimation; price cycles; hog/pork trade disputes; potato antidumping case
    JEL: Q17 C22 F13
    Date: 2007–03–14
  20. By: CALMETTE, Marie-Françoise
    JEL: F15 F23 L13 R38
    Date: 2007
  21. By: Kenji Fujiwara (School of Economics, Kwansei Gakuin University); Norimichi Matsueda (School of Economics, Kwansei Gakuin University)
    Abstract: This paper looks into potential determinants of the mode of international competition in a polluting good market by analyzing a so-called timing game between two environmentally concerned governments. From the equilibrium results of our intergovernmental game based on an international duopoly model with transboundary stock pollution, we show how an exact form of international competition depends on the magnitudes of international transportation coefficients of pollutant emissions and decay rates of pollutant stocks in respective countries as well as on other environmental and economic variables.
    Keywords: international duopoly, transboundary pollution, stock pollution, gains from trade, endogenous timing.
    JEL: F10 F12 Q20
    Date: 2007–04
  22. By: Michele FRATIANNI (Indiana University, Graduate School of Business Bloomington)
    Abstract: National borders are a big hurdle to the expansion of the open economy. Integration today remains imperfect because national borders translate into trading costs, including differences in monetary regimes. Political borders shelter many goods and services from external competition and, consequently, represent a critical exogenous force in the integration process. Borders are thicker for the small countries than the large countries. Regional trade arrangements have softened or, in some cases, pushed outward national borders, but in the process new borders have emerged. Borders affect also finance and monies. While the speed of financial integration suggests currency consolidation and a decline in the ratio of independent monies to sovereign nations, the formation of multilateral monetary unions pushes the ratio towards unity.
    Keywords: borders, gravity model, integration, monetary unions, rta
    JEL: E58 F15 F33 G15
    Date: 2007–04
  23. By: Katja Zajc Kejžar
    Abstract: This paper examines the role of inward foreign direct investment (FDI) in firm selection processes in the Slovenian manufacturing sector in the 1994-2003 period by assessing the impact of the entry and presence of foreign firms on a domestic firm’s probability of exiting. The results confirm that not only do foreign entrants tend to be above-average productive but they also find it easier to exit (particularly those entering in the form of acquisitions). Further, the least efficient firms are found to experience a drop in their survival probability upon a foreign firm’s entry. In addition, a foreign firm’s entry seems to stimulate the selection process not only within the industry but also through backward linkages in the upstream supplying industries. Regarding the productivity spillover effects from foreign to local firms the results suggest that they mostly operate through vertical linkages rather than within the same industry.
    Keywords: foreign direct investment, firm selection process, crowding out, productivity spillovers, Slovenia
    JEL: F23 L11 L25 C23
    Date: 2006–09–01
  24. By: Jota Ishikawa; Kaz Miyagiwa
    Abstract: We compare the relative effect of a voluntary export restraint (VER) and a price undertaking on foreign firms’ incentive to engage in FDI. We emphasize foreign rivalry as a determinant of FDI. We show, in a model that has two foreign firms competing with a home firm in the home country, that a price undertaking induces more FDI than a VER. The home country government, operating under the constraint to protect the home firm, is generally better off settling an antidumping case with a VER than with a price undertaking.
    Date: 2006–11

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