nep-int New Economics Papers
on International Trade
Issue of 2007‒06‒23
seventeen papers chosen by
Martin Berka
Massey University

  1. Corruption and trade protection: evidence from panel data By Subhayu Bandyopadhyay; Suryadipta Roy
  2. Competing in Organizations: Firm Heterogeneity and International Trade By Marin, Dalia; Verdier, Thierry
  3. Trade Growth under the African Growth and Opportunity Act By Garth Frazer; Johannes Van Biesebroeck
  4. Openness to Trade and Industry Cost Dispersion: Evidence from a Panel of Italian Firms By Del Gatto, Massimo; Ottaviano, Gianmarco I P; Pagnini, Marcello
  5. Nash equilibrium tariffs and illegal immigration: an analysis of preferential trade liberalization By Subhayu Bandyopadhyay; Ryo Takashima
  6. On the Relationship Between RTA Expansion and Openness By Michele Fratianni; Chang Hoon Oh
  7. Trade and child labor: a general equilibrium analysis By Subhayu Bandyopadhyay; Sudeshna C. Bandyopadhyay
  8. Impact on Intra-European Trade Agreements, 1990-2005: Policy Implications for the Western Balkans and Ukraine By Zhaogang Qiao; Han Herderschee
  9. Oil Shocks and External Balances By Lutz Kilian; Alessandro Rebucci; Nikola Spatafora
  10. Foreign aid and export performance: a panel data analysis of developing countries By Jonathan Munemo; Subhayu Bandyopadhyay; Arabinda Basistha
  11. The Bilateral J-curve: Turkey versus her 13 Trading Partners By HALICIOGLU, Ferda
  12. RTAs and WTO compatibility: Catch me if you can? The case of EPA negotiations By Cernat, Lucian; Onguglo, Bonapas; Ito, Taisuke
  13. Trade Reform in the CEMAC: Developments and Opportunities By Charalambos G. Tsangarides; Jan Kees Martijn
  14. Power in the Multinational Corporation in Industry Equilibrium By Marin, Dalia; Verdier, Thierry
  15. Do Unit Value Export, Import, and Terms of Trade Indices Represent or Misrepresent Price Indices? By Mick Silver
  16. Exprots, FDI, and Productivity: Evidence from Japanese Manufacturing Firms By Hyeog Ug Kwon
  17. Disaggregate Productivity Comparisons: Sectoral Convergence in OECD Countries By Johannes Van Biesebroeck

  1. By: Subhayu Bandyopadhyay; Suryadipta Roy
    Abstract: This paper provides new estimates of the effects of corruption and poor institutions on trade protection. It exploits data on several measures of trade protection including import duty, international trade taxes, and the trade-GDP ratio. The paper complements the literature on the relationship between corruption and trade reform. It deviates from the previous literature in several ways. First, unobserved heterogeneity among countries have been controlled with properly specified fixed effects exploiting the time dimension present in the dataset. Secondly, instead of using tariff and non-tariff barriers, more general measures of trade protection have been used. The issue of endogeneity of corruption with respect to trade policy has been addressed using proper instruments for corruption used in previous studies. Moreover, two separate institutional measures have been used in the same regression to estimate their comparative impacts on trade policy. In general, we find that corruption and lack of contract enforcement have strong impacts to increase trade protection and negative effects on trade openness.
    Keywords: Tariff ; International trade
    Date: 2007
  2. By: Marin, Dalia; Verdier, Thierry
    Abstract: This paper develops a theory which investigates how firms' choice of corporate organization is affecting firm performance and the nature of competition in international markets. We develop a model in which firms' organisational choices determine heterogeneity across firms in size and productivity in the same industry. We then incorporate these organisational choices in a Krugman cum Melitz and Ottaviano model of international trade. We show that the toughness of competition in a market depends on who - headquarters or middle managers - have power in firms. Furthermore, we propose two new margins of trade adjustments: the monitoring margin and the organizational margin. International trade may or may not lead to an increase in aggregate productivity of an industry depending on which of these margins dominate. Trade may trigger firms to opt for organizations which encourage the creation of new ideas and which are less well adapt to price and cost competition.
    Keywords: firm heterogeneity; international trade with endogenous firm organizations; productivity; theory of the firm; trade adjustment
    JEL: D23 F12 F14 L22
    Date: 2007–06
  3. By: Garth Frazer; Johannes Van Biesebroeck
    Abstract: This paper explores whether one of the most important U.S. policies towards Africa of the past few decades achieved its desired result. In 2000, the United States dropped trade restrictions on a broad list of products through the African Growth and Opportunity Act (AGOA). Since the Act was applied to both countries and products, we estimate the impact with a triple difference-in-differences estimation, controlling for both country and product-level import surges at the time of onset. This approach allows us to better address the ‘endogeneity of policy’ critique of standard difference-in-differences estimation than if either a country or a product-level analysis was performed separately. Despite the fact that the AGOA product list was chosen to not include ‘import-sensitive’ products, and despite the general challenges of transaction costs in African countries, we find that AGOA has a large and robust impact on apparel imports into the U.S., as well as on the agricultural and manufactured products covered by AGOA. These import responses grew over time and were the largest in product categories where the tariffs removed were large. AGOA did not result in a decrease in exports to Europe in these product categories, suggesting that the U.S.-AGOA imports were not merely diverted from elsewhere. We discuss how the effects vary across countries and the implications of these findings for aggregate export volumes.
    Keywords: trade liberalization; sub-Saharan Africa; policy evaluation
    JEL: F13 F14 F15 O19
    Date: 2007–06–18
  4. By: Del Gatto, Massimo; Ottaviano, Gianmarco I P; Pagnini, Marcello
    Abstract: We use Italian firm-level data to investigate the impact of trade openness on the distribution of firms across marginal cost levels. In so doing, we implement a procedure that allows us to control not only for the standard transmission bias identified in firm-level TFP regressions but also for the omitted price bias due to imperfect competition. We find that more open industries are characterized by a smaller dispersion of costs across active firms. Moreover, in those industries the average cost is also smaller.
    Keywords: Cost dispersion; firm selection; firm-level data; openness to trade; total factor productivity
    JEL: F12 F15 R13
    Date: 2007–06
  5. By: Subhayu Bandyopadhyay; Ryo Takashima
    Abstract: We use a version of the small-union Meade model to consider the effects of interdependent import tariffs in the presence illegal immigration. First, we analyze the condition under which illegal immigration is likely to increase (or decrease) in response to reciprocal trade liberalization between the source and host nations (of illegal immigration). Next we describe the Nash equilibrium in tariffs between these nations and discus how a liberalization of tariffs starting from this Nash equilibrium is likely to affect their utility. Finally, we consider the effect of the host nation's liberalization of the import tariff (imposed on its imports from a third nation). We show that strategic considerations regarding the effect of this tariff liberalization on the Nash equilibrium tariffs can modify the traditional (trade creating/diverting) gains from such liberalization.
    Keywords: Trade ; Immigrants
    Date: 2007
  6. By: Michele Fratianni (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Chang Hoon Oh (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: We test the relationship between the size of regional trade agreements (RTA) and openness using a gravity equation with multilateral trade factors on a large sample of 143 countries over period 1980-2003. Our sample includes eleven RTAs, seven with constant membership and four with an expanding membership. In the first group, there are more stumbling blocs than building blocs to freer global trade. In the second group, the opposite holds. We also find that regional trade bias declines with the size of the club and that three of the four expanding RTAs have already surpassed their ‘optimal’ size.
    Keywords: gravity equation, plurilateral RTAs, size, trade creation, trade diversion
    JEL: F13
    Date: 2007–06
  7. By: Subhayu Bandyopadhyay; Sudeshna C. Bandyopadhyay
    Abstract: This paper augments the existing literature on trade and child labor by exploring the effects of terms of trade changes in the context of a three good general equilibrium model, where one of the goods is a non-traded good. We find that under quasi-linear preferences the effect of the terms of trade on child labor depends critically on the pattern of substitutability (or complimentarity) in the excess demand functions between the export good and the non-traded good. We extend the analysis to the case where factors move freely between the three goods as in a Heckscher-Ohlin type framework. Finally, we show that a balanced budget policy of taxing the education of skilled families and subsidizing the education of unskilled families must reduce child labor without any impact on aggregate welfare.
    Date: 2007
  8. By: Zhaogang Qiao; Han Herderschee
    Abstract: The paper provides quantitative estimates of the impact of the European trade agreements on trade flows. It applies both static and dynamic panel estimation techniques. The results are useful to policymakers because new intra-European trade agreements are being negotiated. In the absence of a further expansion of the European Union, estimates of alternative policies may help to clarify the policy debate. The paper also illustrates that the performance of individual countries under the trade agreements can be explained in terms of their macroeconomic environment. The conclusions are likely to be relevant to the western Balkan countries and Ukraine.
    Date: 2007–05–31
  9. By: Lutz Kilian; Alessandro Rebucci; Nikola Spatafora
    Abstract: This paper studies the effects of demand and supply shocks in the global crude oil market on several measures of countries' external balance, including the oil and non-oil trade balances, the current account, and changes in net foreign assets (NFA) during 1975-2004. We explicitly take a global perspective. In addition to the U.S., the Euro area and Japan, we consider a number of country groups including oil exporters and middle-income oil-importing economies. We find that the effect of oil shocks on the merchandise trade balance and the current account, which depending on the source of the shock can be large, depends critically on the response of the nonoil trade balance, and differs systematically between the U.S. and other oil importing countries. Using the Lane-Milesi-Ferretti NFA data set, we document the presence of large and systematic (if not always statistically significant) valuation effects in response to oil shocks, not only for the U.S., but also for other oil-importing economies and for oil exporters. Our estimates suggest that increased international financial integration will tend to cushion the effect of oil shocks on NFA positions for major oil exporters and the U.S., but may amplify it for other oil importers.
    Date: 2007–05–07
  10. By: Jonathan Munemo; Subhayu Bandyopadhyay; Arabinda Basistha
    Abstract: The effect of foreign aid on economic activity of a country can be dampened due to potentially adverse effects on exports through a real exchange rate appreciation. In this study we examine the long-term relationship between export performance and foreign aid in developing countries while accounting for other factors. The estimates of direct effect of foreign aid on exports are imprecise. However, the effect of the quadratic term of foreign aid on exports is negative and precise. This implies large amount of foreign aid does adversely affect export performance. The results are robust to the use of two different export performance measures and different sub-samples.
    Keywords: Developing countries - Economic conditions ; Exports
    Date: 2007
  11. By: HALICIOGLU, Ferda
    Abstract: This study empirically analyses bilateral J-curve dynamics of Turkey with her thirteen trading partners using quarterly time series data over the period 1985-2005. Previous studies on the J-curve of Turkey are based on only aggregate data and they reveal mixed results. Short and long-run impacts of the depreciation of Turkish lira on the trade balance between Turkey and her thirteen trading partners are estimated from the bound testing approach and error correction modeling. The empirical results indicate that whilst there is no J-curve effect in the short-run, but in the long-run, the real depreciation of the Turkish lira has positive impact on Turkey’s trade balance in couple of countries. The stability of the long-run trade balance equations is also checked through CUSUM and CUSUMSQ stability tests.
    Keywords: J-curve; co-integration; stability tests; Turkey
    JEL: C22 F31 F14
    Date: 2007
  12. By: Cernat, Lucian; Onguglo, Bonapas; Ito, Taisuke
    Abstract: There is an ongoing debate about best ways to assess the compatibility of RTAs with WTO rules and the possible negative impact that the proliferation of RTA formation may have on individual members and on the stability of the multilateral trading system as a whole. Therefore, rules defining the WTO compatibility of RTAs are one of the issues under in the WTO Doha negotiations. Taking the current EPA negotiations between ACP and EU as an example, this paper examines two sorts of questions: (i) the implications for developing country members of the current proposals to tighten the rules on WTO compatibility of RTAs; (ii) the impact that the proliferation of RTA formation may have on non-RTA members and on the stability of the multilateral trading system as a whole. More specifically, the paper assesses quantitatively using a partial equilibrium framework the implications for ACP countries of some of the proposals to reform GATT Art. XXIV, in particular the “substantially all trade” criteria. Based on a CGE approach, the paper then looks at the implications of EPA negotiations on third countries and its linkages with the ongoing Doha negotiations, in particular on how the future EPA agreements could be non-trade diverting, in line with Ohyama-Panagariya-Krishna version of the Kemp-Wan theorem.
    Keywords: ACP; EPA; Kemp-Wan; partial equilibrium analysis; CGE; GATT Art XXIV
    JEL: F17 F13 F15 F1
    Date: 2007–04–16
  13. By: Charalambos G. Tsangarides; Jan Kees Martijn
    Abstract: This paper provides an update on the main elements of the reform agenda concerning the CEMAC trade regime as well as a tentative quantitative assessment of selected effects on tariff revenues and trade patterns. Notwithstanding data limitations, the key messages from the analysis are as follows. First, there is a need for a renewed political commitment to regional integration. In addition, key measures for improving compliance with the requirements for a customs union need to be introduced, including limiting tariff exemptions, phasing out remaining surcharges, strengthening the determination of products' country origin, and enhancing customs administration. There is also a need to improve transportation infrastructure and organization. Finally, there is a strong case for tariff reduction, with or without an EPA. Trade liberalization would help boost economic growth and poverty alleviation and limit risks of trade diversion with an EPA. Tariff reform should be complemented by improvements in domestic revenue mobilization.
    Date: 2007–06–12
  14. By: Marin, Dalia; Verdier, Thierry
    Abstract: Recent theories of the multinational corporation introduce the property rights model of the firm and examine whether to integrate our outsource firm activities locally or to a foreign country. This paper focus instead on the internal organization of the multinational corporation by examining the power allocation between headquarters and subsidiaries. We provide a framework to analyse the interaction between the decision to serve the local market by exporting or FDI, market access and the optimal mode of organization of the multinational corporation. We find that subsidiary managers are given most autonomy in their decision how to run the firm at intermediate levels of local competition. We then provide comparative statistics for changes in fixed FDI entry costs and trade costs, information technology, the number of local competitors, and in the size of the local market.
    Keywords: foreign direct investment; international organization of production; power allocation in the firm
    JEL: D23 F1 F2
    Date: 2007–06
  15. By: Mick Silver
    Abstract: Unit value export and import indices compiled from returns to customs authorities are often used as surrogates for price indices in the measurement of inflation transmission, terms of trade (effects), and to deflate import and export value series to derive volume series. Their widespread use is mainly due to their relatively low cost compared with establishment price surveys. This paper provides evidence of substantial bias in their representation of such price changes. Their continued use would mislead economic analysis. The paper considers the efficacy of alternative strategies for their improvement, and argues for a move to establishment-based price surveys.
    Date: 2007–05–21
  16. By: Hyeog Ug Kwon
    Abstract: This paper employs nonparametric tests and Japanese firm level data to examine the hypothesis put forward by Helpman, Melitz and Yeaple (2003) and Head and Ries (2003) that firms engaging in FDI are more productive than other firms. We find that the productivity distribution of foreign firms operating in Japan dominates that of Japanese multinationals, which dominates that of exporters, which in turn dominates that of non-exporters, thus confirming the theoretical predictions.
    Keywords: Export, FDI, TFP, nonparametric Kolmogorov-Smirnov test
    JEL: F14 F23 D21
    Date: 2007–06
  17. By: Johannes Van Biesebroeck
    Abstract: International comparisons of productivity have used exchange rates or purchasing power parity (PPP) to make output comparable across countries. While aggregate PPP holds well in the long run, sectoral deviations are very persistent. It raises the need for a currency conversion factor at the same level of aggregation as the output that is compared. Mapping prices from household expenditure surveys into the industrial classification of sectors and adjusting for taxes and international trade, I obtain an expenditure-based sector-specific PPP. Using detailed price data for 1985, 1990, 1993, and 1996, I test whether the sectoral PPPs adequately capture differential changes in relative prices between countries. For agriculture and the majority of industrial sectors, but not for most service sectors, sectoral PPP is preferred over aggregate PPP. Using the most appropriate conversion factor for each industry, productivity convergence is found to be taking place in all but a few industries for a group of 14 OECD countries. The results are robust to the base year used for the currency conversion.
    Keywords: PPP; sectoral comparison; base year
    JEL: D24 F14 F31 O47
    Date: 2007–06–18

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