nep-int New Economics Papers
on International Trade
Issue of 2007‒06‒18
nine papers chosen by
Martin Berka
Massey University

  1. On Testing the Law of Comparative Advantage By Kozo Kiyota
  2. Development Through Synergistic Reform By James E. Rauch
  3. A Multivariate Causality Analysis of Export and Growth for Turkey By HALICIOGLU, Ferda
  4. International Specialization of Major Trading Countries in Global Trade of Sports Goods By Madeleine Andreff; Wladimir Andreff
  5. Issues of Fairness in International Trade Agreements By Andrew Brown; Robert Stern
  6. Estimation of Asian effective exchange rates: a technical note By San Sau Fung; Marc Klau; Guonan Ma; Robert N. McCauley
  7. Economic Effects of a Korea-U.S. Free Trade Agreement By Kozo Kiyota; Robert M. Stern
  8. James Meade By David Vines
  9. What Are the Issues in Using Trade Agreements for Improving International Labor Standards? By Andrew G. Brown; Robert M. Stern

  1. By: Kozo Kiyota (Research Seminar in International Economics, University of Michigan)
    Abstract: This paper reconsiders the law of comparative advantage (Deardorff, 1980, 1994) from an empirical point of view. I show that not only net exports valued at autarky prices but also those valued at free trade prices are needed to test the law of comparative advantage when trade is not balanced. This result brings into question the empirical success of the test of comparative advantage that Bernhofen and Brown (2004) have applied to Japan. I propose a more general test that is consistent with both balanced and unbalanced trade and apply it to Japan. The law of comparative advantage does not necessarily hold in Japan once trade imbalance is taken into account.
    Keywords: International Law of Comparative Advantage, Trade Imbalance
    JEL: F1
    Date: 2007–04
  2. By: James E. Rauch
    Abstract: Several studies suggest that production of high-quality output is a precondition for firms in less developed countries to participate in the export market. Institutional deficiencies that raise the costs of entry into high-quality production therefore limit the positive impact that trade liberalization can have on income or growth. Institutional reform that reduces the costs of entry into high-quality production and trade reform therefore have synergistic effects on income and, possibly, growth. In contrast, institutional reform that reduces the costs of entry into low-quality production (e.g., reforms targeted at small businesses) interferes with the impact of trade reform. The model that yields these results is also used to analyze impacts of foreign direct investment and of subsidies to entrepreneurship in the presence of unemployment.
    JEL: F43 O24 O43
    Date: 2007–06
  3. By: HALICIOGLU, Ferda
    Abstract: This study seeks to validity of the export-led growth hypothesis using quarterly data from 1980 to 2005. The bounds testing approach to cointegration is employed to test the causal relationship between industrial production, exports and terms of trade. An augmented form of Granger causality analysis is implemented to identify the direction of relationship among the variables both in the short-run and the long-run. The empirical findings suggest uni-directional causation from exports to industrial production.
    Keywords: Export-led growth; causality; cointegration; Turkey
    JEL: C22 F43 F14 C12
    Date: 2007
  4. By: Madeleine Andreff (University Marne-la-Vallée); Wladimir Andreff (University Paris 1 Panthéon Sorbonne)
    Abstract: The analysis of international trade in sports goods is still in its infancy. Only four articles dealing with the topic have appeared in economic literature so far. In order to alleviate the sports economists ignorance about international specialisation in sports goods trade, we started to build up an entirely new dataset based on extracting data available in Comtrade (the UN word trade data basis) at the most disaggregated level (6 digits). After resolving a number of classification and statistical tricks, we have built up a country and sports goods dataset (41 countries, 36 goods), which gathers 94-96% of sports goods global trade every sampled year (1994, 1997, 1999, 2002 and 2004). Our country sample is divided into five regional areas of the world economy: NAFTA, EU + Switzerland, Eastern Europe, Asia, other emerging countries. As a first step, our dataset enables us to precisely describe the major flows of sports goods global trade. Major trading areas are Asia, Europe and NAFTA while major exporters are China, Hong Kong, the US and France, and major importers are the US, Japan, Germany, France, the UK and Italy. A major market share in sports goods global trade is for sportswear, anoraks, and gymnastic equipment. Asia, Eastern Europe and emerging countries have an excess balance in sports goods trade whereas NAFTA and Europe are in deficit. Different assessments, including one of revealed comparative advantages and disadvantages and a competitiveness index, depict the following international specialisation: NAFTA and Europe are specialised in ‘equipment intensive’ sports goods whereas Asia, Eastern Europe and emerging countries are specialised in ‘trite’ sports goods and some less equipment intensive sports goods. NAFTA is competitive in not any sport good, Europe is competitive in skis, emerging countries and Eastern Europe in sportswear and anoraks, and Asia in sportswear, anoraks, rackets, balls, skates, and gymnastic equipment. A principal component analysis often groups ‘trite’ sports goods together as opposed to intensive-equipment sports goods in global trade. A hierarchical ascendant classification methodology shows that China is a quite specific (dominant) trade partner in the global market for sports goods trade, Indonesia and Pakistan are platform for (Nike’s) outward-processing trade, international specialisation differentiates countries where sports goods production was relocated from trade partners with big domestic markets for sports goods. \
    Keywords: sports economics, sports goods, international trade, international specialisation, globalisation, comparative advantage, competitiveness
    JEL: L83 Z19 F01 F14
    Date: 2007–06
  5. By: Andrew Brown; Robert Stern (Research Seminar in International Economics, University of Michigan)
    Abstract: In this paper, we first describe the characteristics of the World Trade Organization (WTO) that are the basis of the framework of the multilateral trading system. We then provide an overview of concepts of fairness in trade agreements. Thereafter, we offer a critique of the efficiency criterion in assessing multilateral trade agreements, taking issue with T.N. Srinivasan’s (2006) analysis and then elaborate on our conception of fairness as reflected in agreements covering market access. We also address considerations of distributive justice, in contrast with Srinivasan’s contention that distributive justice has no role to play in the design and negotiation of multilateral trade agreements. Finally, we question bilateral trade agreements from the standpoint of fairness, drawing on the example of the U.S. bilateral FTA negotiated in 2005 with Central America and the Dominican Republic.
    Keywords: Fairness, Equality of Opportunity, Distributive Equity
    JEL: D63 F02 F10 F13
    Date: 2006–09
  6. By: San Sau Fung; Marc Klau; Guonan Ma; Robert N. McCauley
    Abstract: Discussion of exchange rate policy in Asia would benefit from appropriate measures of exchange rates on a multilateral basis. The purpose of this paper is to refine the construction of the effective exchange rates (EERs) for Asian economies, to make allowances for the role of Hong Kong SAR as an entrepôt and to reflect the fast-growing intra-regional trade. For the scenarios under consideration, it turns out that adjusting for re-export trade through Hong Kong SAR is generally more important in the determination of trade weights than updating the base year. The proposed refinements have important policy implications, particularly in estimating the relative sizes of currency blocs, should the region's exchange rate policies become more oriented to trade baskets than to bilateral dollar rates.
    Keywords: effective exchange rates, intra-regional trade
    JEL: F10 F31
    Date: 2006–10
  7. By: Kozo Kiyota; Robert M. Stern (Research Seminar in International Economics, University of Michigan)
    Abstract: This study presents an analysis of the bilateral free trade agreement (FTA) that is being negotiated between Korea and the United States. The bilateral FTA negotiations were notified to the U.S. Congress by the United States Trade Representative in February 2006, and formal negotiations began in May 2006.1 It is anticipated that the negotiations may be completed and the agreement signed before mid-2007, which is when the current U.S. presidential negotiating authority expires. Once signed, the implementing legislation can be introduced in the U.S. Congress at any time. In Chapter 1, we set out what appear to be the primary objectives of the United States and Korea in their pursuit of an FTA. In Chapter 2, we review the existing studies of a Korea-U.S. FTA that have been done to date. Chapter 3 is devoted to comparative static and dynamic analyses of the FTA. We first provide an overview of the features and benchmark data of the Michigan Model of World Production and Trade, which is the computational general equilibrium (CGE) modeling framework that we use to analyze the economic effects of a Korea-U.S. FTA. Thereafter, we present the comparative static modeling results for the bilateral removal of tariffs and other trade barriers for agricultural products, manufactures, services, and all of these combined. This is followed by presentation of results of some dynamic computational scenarios that are specially constructed to take into account possible changes in capital formation that may be generated by the Korea-U.S. FTA. We then draw together the main conclusions from the review of previous studies and our own computational work. In Chapter 4, we provide a broader perspective on a Korea-U.S. FTA that takes into account alternative negotiating options for the two nations. These options include computational analyses of the other FTAs that each nation has concluded in recent years and that are currently in process. We also calculate the potential effects of the unilateral removal of trade barriers by the United States and Korea and the effects of global free trade in which all countries or regions covered in the model are assumed to remove their existing trade barriers on a multilateral basis. In Chapter 5, we present conclusions and implications for further research and policy.
    Keywords: Free trade, Korea (South), Commercial treaties
    JEL: F13
    Date: 2007–04
  8. By: David Vines
    Abstract: This article explains the part that Meade played in the creation of Keynes`s General Theory, describes his work with Keynes during the Second World War in the creation of the IMF and the GATT, and summarizes the ideas in The Theory of International Economic Policy for which Meade was awarded the Nobel Prize in 1977. It also sets out the role that Meade played in the construction of the inflation-targeting regime which became the centrepiece of British macroeconomic policymaking in the 1990s.
    Keywords: Balance of Payments, Inflation Targeting, Heckscher-Ohlin Trade Theory, International Monetary Fund, World Trade Organisation
    JEL: E0 F0
    Date: 2007
  9. By: Andrew G. Brown; Robert M. Stern (Research Seminar in International Economics, University of Michigan)
    Abstract: This paper addresses the issues of whether the linking of core labor standards with multilateral or bilateral trade agreements is an effective way of promoting the improvement of labor standards. We review the determinants of core labor standards over time and conclude that efforts to improve these standards have to be tailored to the economic and social circumstances prevailing in a country at a specific time. Legalistic means to prod governments into revising their domestic laws or enforcing them will therefore be unsuccessful unless economic incentives can be changed to erode prevailing social norms and ease the way for the acceptance of new norms that will meet with public approval and be consonant with the distribution of political power. Moral suasion from both domestic and external sources may work more slowly than more legalistic means but is preferred because it contributes to altering the social norms that underlie and will reinforce the acceptance and effectiveness of labor standards.
    Keywords: International labor standards, social norms, trade agreements
    JEL: F1 F10 F13
    Date: 2007–05

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