nep-int New Economics Papers
on International Trade
Issue of 2007‒05‒04
eleven papers chosen by
Martin Berka
Massey University

  1. Firms in International Trade By Bernard, Andrew; Jensen, J Bradford; Redding, Stephen J; Schott, Peter
  2. Evaluating the trade effect of developing regional trade agreements : a semi-parametric approach By Coulibaly, Souleymane
  3. Trade Facilitation and the EU-ACP Economic Partnership Agreements: Who Has the Most to Gain? By Persson, Maria
  4. Can Regional Integration Accelerate Development in Africa? CGE Model Simulations of the Impact of the SADC FTA on the Republic of Madagascar By Jean-Jacques Hallaert
  5. Trade Adjustment and Human Capital Investment: Evidence from Indian Tariff Reform By Petia Topalova; Eric V. Edmonds; Nina Pavcnik
  6. Trade Policy with Heterogeneous Traders: Do Quotas Get a Bum Rap? By Kala Krishna; Ling Hui Tan
  7. Effects of Globalization on Labor's Share in National Income By Anastasia Guscina
  8. Offshoring as a Survival Strategy in Globalizing Industries: New Evidence from Belgian Manufacturing By Coucke, K.; Sleuwaegen, L.
  9. Will a Regional Bloc Enlarge? By Giorgia Albertin
  10. The Rise of Foreign Investment in China's Banks: Taking stock By Richard Podpiera; Lamin Leigh
  11. Tax reform and labour-market performance in the euro area - a simulation-based analysis using the New Area-Wide Model By Günter Coenen; Peter McAdam; Roland Straub

  1. By: Bernard, Andrew; Jensen, J Bradford; Redding, Stephen J; Schott, Peter
    Abstract: Despite the fact that importing and exporting are extremely rare firm activities, economists generally devote little attention to the role of firms when discussing international trade. This paper summarizes key differences between trading and non-trading firms, demonstrates how these differences present a challenge to standard trade models and shows how recent 'heterogeneous-firm' models of international trade address these challenges. We then make use of transaction-level U.S. trade data to introduce a number of new stylized facts about firms and trade. These facts reveal that the extensive margins of trade - that is, the number of products firms trade as well as the number of countries with which they trade - are central to understanding the well-known role of distance in dampening aggregate trade flows.
    Keywords: heterogeneous firms; international trade; new trade theory; old trade theory
    JEL: F10 F11 F12
    Date: 2007–04
  2. By: Coulibaly, Souleymane
    Abstract: Many recent papers have pointed to ambiguous trade effects of developing regional trade agreements (RTAs), calling for a reassessment of their economic merits. The author focuses on seven such agreements currently in force in Sub-Saharan Africa (ECOWAS and SADC), Asia (AFTA and SAPTA) and Latin America (CACM, CAN, and MERCOSUR), estimating their impacts on their members ' trade flows. Instead of the usual dummy variables for RTAs, he proposes a variable taking into account the number of years of membership. He then combines a gravity model with kernel estimation techniques to capture the non-monotonic trade effects while imposing minimal structure on the model. The results indicate that except for SAPTA, these RTAs have had a positive impact on their members ' intra-trade over the estimation period (1960-99). AFTA seems to be the most successful among them, with an estimated positive impact on its members ' imports from the rest of the world (hence no trade diversion), but its impact on their exports to the rest of the world is rather limited. During its first 10 years of existence, ECOWAS appears to have had a positive impact on its members ' imports from the rest of the world (hence no trade diversion), but this positive impact vanished over time. SAPTA ' s negative impact on its members ' intra-trade is probably an implicit effect of the India-Pakistan tensions over the estimation period.
    Keywords: Free Trade,Trade Law,Trade Policy,Economic Theory & Research,Trade and Regional Integration
    Date: 2007–05–01
  3. By: Persson, Maria (Department of Economics, Lund University)
    Abstract: The aim of the paper is to assess the potential benefits from trade facilitation in terms of increased trade flows both on average and specifically for the six regional groupings of ACP countries negotiating Economic Partnership Agreements (EPAs) with the EU. We use data from the World Bank’s Doing Business Database on the time required to export or import as indicators of cross-border transaction costs. A gravity model on two-way bilateral trade between 22 EU countries and 106 developing countries is estimated using a sample selection approach. We find that time delays both on the part of the exporter and the importer on average significantly decrease trade flows. We also find that this relationship is not linear: an extra day of waiting has smaller marginal effects if the time requirements are already high. On average, lowering border delays in the exporting country with one day from the sample mean would yield an export increasing effect of about 1 percent, while the same reduction in the importing country would give an import increase of about 0.5 percent. More specifically, we also find that countries negotiating in the EPA groups for SADC, West Africa, Eastern and Southern Africa (ESA), and the Caribbean have negative and significant effects from export transaction costs, as do EU and non-ACP developing countries. The effects for the SADC, West Africa and ESA groups are the largest. Countries in the Pacific, SADC, West Africa and the EU have significantly negative effects from import transaction costs, with the effects being largest for the two former groups. The results are generally robust to a number of alternative estimation methods such as Poisson estimation, IV estimation and the sample selection approach suggested by Helpman, Melitz and Rubinstein (2007).
    Keywords: Trade Facilitation; EU; ACP; Economic Partnership Agreements; Gravity Model; Sample Selection
    JEL: C21 F15 O24
    Date: 2007–04–24
  4. By: Jean-Jacques Hallaert
    Abstract: Madagascar plans to start phasing out its customs tariffs on imports from the Southern African Development Community in 2007. This paper uses a CGE model to evaluate the impact of the SADC FTA on Madagascar economy. The results suggest that the SADC FTA would only have a limited impact on Madagascar's real GDP because the liberalization affects only a small share of its total imports. However, Madagascar's trade and production pattern would change and benefit the textile and clothing sector. Removing rigidities in the labor and capital market would increase the gains but they would remain limited. Gains from the SADC FTA become substantial only when the regional liberalization is accompanied by a multilateral liberalization.
    Keywords: Trade Policy , CGE , Regional integration , SADC , Madagascar , International trade agreements , Madagascar , Trade policy , Southern African Development Community , Africa , Trade liberalization , Economic models ,
    Date: 2007–03–22
  5. By: Petia Topalova; Eric V. Edmonds; Nina Pavcnik
    Abstract: Do the short and medium term adjustment costs associated with trade liberalization influence schooling and child labor decisions? We examine this question in the context of India's 1991 tariff reforms. Overall, in the 1990s, rural India experienced a dramatic increase in schooling and decline in child labor. However, communities that relied heavily on employment in protected industries before liberalization do not experience as large an increase in schooling or decline in child labor. The data suggest that this failure to follow the national trend of increasing schooling and diminishing work is associated with a failure to follow the national trend in poverty reduction. Schooling costs appear to play a large role in this relationship between poverty, schooling, and child labor. Extrapolating from our results, our estimates imply that roughly half of India's rise in schooling and a third of the fall in child labor during the 1990s can be explained by falling poverty and therefore improved capacity to afford schooling.
    Keywords: Child labor , literacy , trade liberalization , India ,
    Date: 2007–04–18
  6. By: Kala Krishna; Ling Hui Tan
    Abstract: This paper considers the effects of trade policy-tariffs and quotas-when importing is done by competitive traders who are identical ex ante but differ ex post. We show that the standard equivalence results no longer hold and the conventional ranking of tariffs and quotas is turned on its head: quotas are not as bad for welfare as previously believed, while tariffs may restrict trade by more than originally intended. Furthermore, the allocation of property rights (quota licenses) has real effects beyond the distribution of rents; this, in turn, has implications for the effects of corruption on welfare.
    Keywords: Trade policy , trariffs , quotas , firm heterogeneity , entry ,
    Date: 2007–04–17
  7. By: Anastasia Guscina
    Abstract: The past two decades have seen a decline in labor's share of national income in several industrial countries. This paper analyzes the role of three factors in explaining movements in labor's share--factor-biased technological progress, openness to trade, and changes in employment protection--using a panel of 18 industrial countries over 1960-2000. Since most studies suggest that globalization and rapid technological progress (associated with accelerated information technology development) began in the mid-1980s, the sample is split in 1985 into preglobalization/pre-IT revolution and postglobalization/post-IT revolution eras. The results suggest that the decline in labor's share during the past few decades in the OECD member countries may have been largely an equilibrium, rather than a cyclical, phenomenon, as the distribution of national income between labor and capital adjusted to capital-augmenting technological progress and a more globalized world economy.
    Keywords: Labor's share , capital's share , globalization , productivity , trade , labor protection , bargaining power , compensation share , national income , employment share , the Heckscher-Ohlin Theorem , Labor , National income accounts , Globalization , Labor productivity , Employment policy , Trade policy ,
    Date: 2007–01–08
  8. By: Coucke, K.; Sleuwaegen, L.
    Abstract: This paper analyzes the impact of globalization on the exit behavior of manufacturing firms in one of the world’s most open economies: Belgium. We find that imports from low-wage countries exert a strong competitive effect that lowers a firm’s chances of survival. This competitive effect is found to arise mainly in industries where intra-industry trade, an indicator of product differentiation, is relatively low. As an offensive strategy to cope with the rising competitive pressure from imports, we find that firms exploiting opportunities afforded by globalization, in particular the off-shoring of activities, are able to improve their chances of survival. Making a distinction between domestic firms and subsidiaries of multinational firms, we also find that domestic firms face a higher risk of exit when multinational firms compete in their relevant input and output markets. Finally, we show that subsidiaries of multinational firms are better adapted to cope with globalization forces, and we find them to be less sensitive to domestic market conditions in the host country.
    Keywords: Exit, Off-shoring, Sourcing, Globalization
    JEL: F1 F23 L2
    Date: 2007–04–23
  9. By: Giorgia Albertin
    Abstract: This paper investigates whether a regional bloc would enlarge or remain stagnant in size using a model where enlargement is the endogenous outcome of the interaction between the supply of and demand for membership. We show that a maximum size of the bloc exists beyond which the regional policy-maker will be unwilling to enlarge further, and that either the supply side or the demand side of membership might be binding in the determination of the equilibrium size of the bloc. Furthermore, we analyze how the deepening of integration within a regional bloc affects its width. We show that deeper integration may lead to wider integration when the demand side of membership is binding in the determination of the equilibrium size of the bloc, while the equilibrium size of the bloc will be unaffected when the supply side of membership is binding.
    Keywords: Regional trading bloc , enlargement , supply of membership , International trade agreements , Membership , Trade relations ,
    Date: 2007–03–29
  10. By: Richard Podpiera; Lamin Leigh
    Abstract: The recent wave of foreign investment in China's banks and the prospects of further opening of the banking sector under the WTO agreement suggest that foreign banks are likely to play an increasingly important role in China. This paper takes stock of the involvement of foreign banks in the Chinese banking sector in the perspective of international experience. While in most other countries foreign bank entry took the form of direct takeover or majority shareholding, foreign investments in China's banks have been minority shareholdings with very limited management involvement. The paper concludes that China appears to be well positioned to benefit from further opening of the banking sector to foreign investors. International experience suggests that greater competition from and participation of foreign banks can in general bring important benefits if appropriate incentives and sufficient opportunities are created.
    Keywords: Foreign investment , China , banks , WTO , banking reforms , Foreign investment , China , Banks , Bank reforms , World Trade Organization ,
    Date: 2007–01–08
  11. By: Günter Coenen (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Peter McAdam (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Roland Straub (Directorate General International and European Relations, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: In this paper, we employ a calibrated two-country version of the New Area-Wide Model (NAWM) currently under development at the European Central Bank to examine the potential benefits and spillovers of reducing labour-market distortions caused by euro area tax structures. Our analysis shows that lowering tax distortions to levels prevailing in the United States would result in an increase in hours worked and output by more than 10 percent. At the same time, tax reductions would have positive spillovers to the euro area’s trade partners, bolstering the case for tax reforms from a global perspective. Finally, we illustrate that, in the presence of heterogeneous households, distributional effects may be of importance when gauging the impact of tax reforms. JEL Classification: E32, E62.
    Keywords: DSGE modelling, limited asset-market participation, fiscal policy, tax reform, euro area.
    Date: 2007–04

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