nep-int New Economics Papers
on International Trade
Issue of 2007‒06‒30
nineteen papers chosen by
Martin Berka
Massey University

  1. Temporary Shocks and Offshoring: The Role of External Economies and Firm Heterogeneity By Devashish Mitra; Priya Ranjan
  2. Risk, Government and Globalization: International Survey Evidence By Mayda, Anna Maria; O'Rourke, Kevin H; Sinnott, Richard
  3. Globalization, Growth and Distribution in Spain 1500-1913 By O'Rourke, Kevin H; Rosés, Joan R.; Williamson, Jeffrey G
  4. Productivity and Trade Orientation in UK Manufacturing By Marian Rizov; Patrick Paul Walsh
  5. Inflation Dynamics and Trade Openness By Aron, Janine; Muellbauer, John
  6. Procompetitive Losses from Trade By Paolo Epifani; Gino Gancia
  7. The structure of import tariffs in the Russian Federation : 2001-05 By Tarr, David; Shepotylo, Oleksandr
  8. Export Entry, Export Exit, and Productivity in German Manufacturing Industries By Joachim Wagner
  9. On the Relationship Between RTA Expansion and Openness By Michele FRATIANNI; Ho CHANG HOON
  10. The Economic Community of West African States : fiscal revenue implications of the prospective economic partnership agreement with the European Union By Nielsen, Lynge; Zouhon-Bi, Simplice G.
  11. Trade Creation and Diversion Revisited: Accounting for Model Uncertainty and Natural Trading Partner Effects By Theo Eicher; Christian Henn; Chris Papageorgiou
  12. Smuggling and the Economic Welfare Consequences of an FTA: A Case Study of India-Bangladesh Trade in Sugar By GARRY PURSELL
  13. Comparative Advantage Structure of U.S. International Services By Makoto Hisanaga
  14. Does Trade and Technology Transmission Facilitate Inequality Convergence? An Inquiry into the Role of Technology in Reducing the Poverty of Nations By Gouranga Gopal Das
  15. On the Effects of Emission Standards as Technical Barriers to Trade: A Foreign Duopoly Case By Tsuyoshi Toshimitsu
  16. Three theorems on growth and competition By Arnold, Lutz G.; Bauer, Christian J.
  17. On the Origins of Border Effects: Insights from the Habsburg Customs Union By Schulze, Max Stephan; Wolf, Nikolaus
  18. Dual gravity : Using spatial econometrics to control for multilateral resistance By KOCH, Wilfried; ERTUR, Cem; BEHRENS, Kristian
  19. The cost of being landlocked : logistics costs and supply chain reliability By Marteau, Jean-Francois; Raballand, Gael; Arvis, Jean-Francois

  1. By: Devashish Mitra (Syracuse University, NBER and IZA); Priya Ranjan (University of California, Irvine)
    Abstract: We construct a model of offshoring with externalities and firm heterogeneity. Due to the presence of externalities, temporary shocks like the Y2K problem can have permanent effects, i.e., they can permanently raise the extent of offshoring in an industry. Also, the initial advantage of a country as a potential host for outsourcing activities can create a lock in effect, whereby late movers have a comparative disadvantage. Furthermore, the existence of firm heterogeneity along with externalities can help explain the dynamic process of offshoring, where the most productive firms offshore first and the others follow later. Finally, we work out some unexpected welfare implications which show that net industry profits can be lower in an outsourcing equilibrium than in a regime of no outsourcing. Consumer welfare rises, and under fairly plausible conditions this effect can offset the negative impact on profits.
    Keywords: offshoring, outsourcing, Y2K, complementarity
    JEL: F12 F23 O19
    Date: 2007–05
  2. By: Mayda, Anna Maria; O'Rourke, Kevin H; Sinnott, Richard
    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.
    Keywords: risk; trade attitudes
    JEL: F13 P16
    Date: 2007–06
  3. By: O'Rourke, Kevin H; Rosés, Joan R.; Williamson, Jeffrey G
    Abstract: The endogenous growth literature has explored the transition from a Malthusian world where real wages, living standards and labour 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 wage-rental 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.
    Keywords: distribution; globalization; growth; Spain
    JEL: F1 N7 O4
    Date: 2007–06
  4. By: Marian Rizov (Middlesex University Business School and Trinity College Dublin); Patrick Paul Walsh (Trinity College Dublin and IZA)
    Abstract: Within a structural model we explicitly allow for the trade orientation of companies to estimate productivity dynamics within 4-digit UK manufacturing industries. We use the FAME data on UK companies over the period 1994-2003. Following Ackerberg et al. (2005) we adjust the algorithm in Olley and Pakes (1996) by augmenting investment and exit decisions to allow for exogenous demand shocks by trade orientation, assuming that labour and capital are state variables, and productivity follows a first-order Markov process. We extend the framework further by allowing exporting to be an additional control variable that is driven by lagged productivity as in Melitz (2003), leading productivity to follow a second-order Markov process. We find that over the period of introduction of the Euro improvements in aggregate productivity were driven by exporters - mainly by market share reallocations away from inefficient and towards efficient export companies. Aggregate productivity also benefited from improvements in productivity of non-exporters but was driven by improvements within companies rather than by market share reallocations. In a period of sustained real exchange rate appreciation both export cleansing and competitive pressure on non-exporters seem to have contributed to improvements of productivity in the UK manufacturing.
    Keywords: productivity dynamics, structural model, trade orientation, manufacturing companies, UK
    JEL: F14 D24
    Date: 2007–05
  5. By: Aron, Janine; Muellbauer, John
    Abstract: It is difficult to obtain reliable measures of evolving openness to trade, despite its relevance to models of growth, inflation and exchange rates. Our innovative technique measures trade openness encompassing both observable trade policy (tariffs and surcharges) and unobservable trade policy (quotas and other non-tariff barriers), and such factors as capital controls, sanctions and dual exchange rates (often used in composite trade measures). The share of manufactured imports in home demand for manufactured goods is estimated in STAMP (Koopman et al., 2000) using measured trade policy and controlling for fluctuations in domestic demand, relative prices of imports and the exchange rate. The unmeasured trade policy component is captured by a smooth non-linear stochastic trend. The two elements of openness, the stochastic trend and the rates of tariffs and surcharges, are included in a model of wholesale price inflation in South Africa. The evidence suggests that increased openness has significantly reduced the mean inflation rate and has reduced the exchange rate pass-through into wholesale prices.
    Keywords: inflation dynamics; modelling inflation; trade openness
    JEL: C22 E31 F13 F41
    Date: 2007–06
  6. By: Paolo Epifani; Gino Gancia
    Abstract: We argue that the procompetitive effect of international trade may bring about significant welfare costs that have not been recognized. We formulate a stylized general equilibrium model with a continuum of imperfectly competitive industries to show that, under plausible conditions, a trade-induced increase in competition can actually amplify monopoly distortions. This happens because trade, while lowering the average level of market power, may increase its cross-sectoral dispersion. Using data on US industries, we document a dramatic increase in the dispersion of market power overtime. We also show evidence that trade might be responsible for it and provide some quantifications of the induced welfare cost. Our results suggest that, to avoid some unpleasant effects of globalization, trade integration should be accompanied by procompetitive reforms (i.e., deregulation) in the nontraded sectors.
    Keywords: Markups, Dispersion of Market Power, Procompetitive Effect, Trade and Welfare
    JEL: F12 F15
    Date: 2007–06
  7. By: Tarr, David; Shepotylo, Oleksandr
    Abstract: The Russian tariff structure contains over 11,000 tariff lines of which about 1,700 use the so-called " combined " tariff rate system. For the combined system tariff lines, the actual tariff applied by Russian customs is the maximum of the ad valorem or specific tariff. The lack of available data and the difficulty in calculating the ad valorem equivalence of the specific tariffs have resulted in some previous efforts that have simply ignored the specific tariffs. This is the first paper to accurately assess the tariff rates. The authors show that ignoring the specific tariffs results in an underestimate of the actual tariff rates by about 1 to 3 percentage points, depending on the year. The average tariff in Russia has increased between 2001 and 2003 from about 11.5 to between 13 and 14.5 percent, but it has held steady in 2004 and 2005. This places Russia ' s tariffs at a level slightly higher than other middle-income countries and considerably higher than the OECD countries. The trade weighted standard deviation of the tariff approximately doubled from 9.5 percent in 2001 to 18 percent in 2003, but then fell to 15.2 percent by 2005. The food sector and light industry are the aggregate sectors with the highest tariff rates-their tariff rates in 2005 were 23.1 percent and 19.5 percent on a trade-weighted basis, but the increase in their tariffs has not led to an increase in their output.
    Keywords: International Trade and Trade Rules,Free Trade,Export Competitiveness,Trade Policy,Contract Law
    Date: 2007–06–01
  8. By: Joachim Wagner (Institute of Economics, Leuphana University of Lüneburg)
    Abstract: This paper contributes to the flourishing literature on exports and productivity by using a unique newly available panel of exporting establishments from the manufacturing sector of Germany from 1995 to 2004 to test three hypotheses derived from a theoretical model by Hopenhayn (Econometrica 1992): (H1) Firms that stop exporting in year t were in t-1 less productive than firms that continue to export in t. (H2) Firms that start to export in year t are less productive than firms that export both in year t-1 and in year t. (H3) Firms from a cohort of export starters that still export in the last year of the panel were more productive in the start year than firms from the same cohort that stopped to export in between. While results for West Germany support all three hypotheses, this is only the case for (H1) and (H2) in East Germany.
    Keywords: Export entry, export exit, productivity
    JEL: F14 L60
    Date: 2007–06
  9. By: Michele FRATIANNI (Indiana University, Graduate School of Business Bloomington); Ho CHANG HOON (Indiana University, Kelley School of Business, Bloomington USA)
    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
  10. By: Nielsen, Lynge; Zouhon-Bi, Simplice G.
    Abstract: This paper applies a partial equilibrium model to analyze the fiscal revenue implications of the prospective economic partnership agreement between the Economic Community of West African States (ECOWAS) and the European Union. The authors find that, under standard import price and substitution elasticity assumptions, eliminating tariffs on all imports from the European Union would increase ECOWAS ' imports from the European Union by 10.5-11.5 percent for selected ECOWAS countries, namely Cape Verde, Ghana, Nigeria, and Senegal. This increase in imports would be accompanied by a 2.4-5.6 percent decrease in total government revenues, owing mainly to lower fiscal revenues. Tariff revenue losses should represent 1 percent of GDP in Nigeria, 1.7 percent in Ghana, 2 percent in Senegal, and 3.6 percent in Cape Verde. However, the revenue losses may be manageable because of several mitigating factors, in particular the likelihood of product exclusions, the length of the agreement ' s implementation period, and the scope for reform of exemption regimes. The large country-by-country differences in fiscal revenue loss suggest that domestic tax reforms and fiscal transfers within ECOWAS could be important complements to the agreement ' s implementation.
    Keywords: Free Trade,Economic Theory & Research,Trade Policy,International Trade and Trade Rules,Trade Law
    Date: 2007–06–01
  11. By: Theo Eicher; Christian Henn; Chris Papageorgiou
    Abstract: Trade theories covering Preferential Trade Agreements (PTAs) are as diverse as the literature in search of their empirical support. To account for the model uncertainty that surrounds the validity of the competing PTA theories, we introduce Bayesian Model Averaging (BMA) to the PTA literature. BMA minimizes the sum of Type I and Type II error, the mean squared error, and generates predictive distributions with optimal predictive performance. Once model uncertainty is addressed as part of the empirical strategy, we report clear evidence of Trade Creation, Trade Diversion, and Open Bloc effects. After controlling for natural trading partner effects, Trade Creation is weaker – except for the EU. To calculate the actual effects of PTAs on trade flows we show that the analysis must be comprehensive: it must control for Trade Creation and Diversion as well as all possible PTAs. Several prominent control variables are also shown to be robustly related to Trade Creation; they relate to factor endowments and economic policy.
    Date: 2007–05
    Date: 2007
  13. By: Makoto Hisanaga (Institute of Economic Research, Kyoto University)
    Abstract: This paper is an investigation of the comparative advantage structure of United States (U.S.) international trade in services. It appears conclusively that the U.S. has a strong comparative advantage in knowledge-based services. For this study, the author adopts the Revealed Comparative Advantage (RCA) index to analyze the structure, and demonstrates that the variances in the RCA deviations indicate a similarity in the export structure between the U.S. and the world. The focus of this study is also on the role of the multinational companies. This view links microeconomic entities and the macroeconomic surroundings.
    Keywords: Trade in Services, Intellectual Property Rights, Comparative Advantage, Competitive Advantage, Revealed Comparative Advantage (RCA), Multinational Companies, Offshoring
    JEL: C02 F01 F23
    Date: 2007–06
  14. By: Gouranga Gopal Das
    Abstract: Based on stylized evidence showing variation of the Gini coefficient of income inequality across skill cohorts and on the rapid rise in trade in technology-intensive goods, the ripple effects of technology transmission and income inequality are explored in a global Computable General Equilibrium (CGE) framework. An exogenous technology shock transmitted via trade from the United States induces productivity growth in developing regions. This spillover capture-aided by absorptive capability, better governance and institutions, technological symmetry and social acceptance-causes income to increase and income inequality to decline. The conjoined parameters retard growth's inequality-enhancing effect and thus facilitate long-run convergence of inequality between nations.
    Keywords: Fiscal policy , Risk management , Government expenditures , Bond markets , Emerging markets ,
    Date: 2007–01–31
  15. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: Employing an environmentally differentiated duopoly model, we analyze how emission standards affect imports, the environment, and social welfare. We show that a strict emission standard is not necessarily import-restrictive, whereas it may possibly degrade the environment. Furthermore, we present evidence that the effect of emission standards on net social surplus depends on the mode of market competition and the degree of marginal social valuation of environmental damage.
    Keywords: emission standards, environmentally differentiated duopoly, green market
    JEL: D43 F12 F13 L52 Q28
    Date: 2007–06
  16. By: Arnold, Lutz G.; Bauer, Christian J.
    Abstract: This paper proves three theorems on growth and competition in a standard increasing variety endogenous growth model and draws conclusions for second-best competition policies. First, no growth may be better than some growth, since modest positive growth potentially requires sizeable static welfare losses. Second, the economy may converge to a steady state with zero growth, even though another (saddle-point stable) steady state with positive growth exists if the initial share of "cheap" competitive markets is sufficiently high, as this implies a relatively low demand for "expensive" innovative goods. Third, such a "no-growth trap" may happen in a world economy made up of several countries engaged in free trade with each other. As for competition policy, this implies that growth-enhancing policies maybe misguided and that quick deregulation as well as quick trade liberalization can lead to stagnation in the long term.
    Keywords: endogeneous growth; competition; deregulation; poverty trap; trade liberalization; Armutsfalle; Handelsliberalisierung; Endogenes Wirtschaftswachstum; Wettbewerb; Deregulierung
    JEL: O41 O34 O31 F43 F15
    Date: 2007–06–20
  17. By: Schulze, Max Stephan; Wolf, Nikolaus
    Abstract: This paper examines the emergence and dynamics of border effects over time. We exploit the unique historical setting of the multinational Habsburg Empire prior to the Great War to explore the hypothesis that border effects emerged as a result of persistent trade effects of ethno-linguistic networks within an overall integrating economy. While markets tended to integrate, the process was strongly asymmetric and shaped by a simultaneous rise in national consciousness and organisation among Austria-Hungary’s different ‘nationalities’. We find that the political borders which separated the empire’s successor states after the First World War became visible in the price dynamics of grain markets already 25-30 years before the First World War. This effect of a ‘border before a border’ cannot be explained by factors such as physical geography, changes in infrastructure or patterns of asymmetric integration with neighbouring regions outside of the Habsburg customs and monetary union. However, controlling for the changing ethno-linguistic composition of the population across the regional capital cities of the empire does explain most of the estimated border effects.
    Keywords: border effects; Habsburg Empire; market integration; networks; pre-1914 Europe
    JEL: F15 N13 Z13
    Date: 2007–06
  18. By: KOCH, Wilfried (LEG - CNRS UMR 5118 - Université de Bourgogne); ERTUR, Cem (LEO - Université d'Orléans); BEHRENS, Kristian
    Abstract: We propose a quantity-based "dual" version of the gravity equation that yields an estimating equation with both cross-sectional interdependence and spatially lagged error terms. Such an equation can be concisely estimated using spatial econometric techniques. We illustrate this methodology by applying it to the Canada-U.S. data set used previously, among others, by Anderson and van Wincoop (2003) and Feenstra (2002, 2004). Our key result is to show that controlling directly for spatial interdependence across trade flows, as suggested by theory, significantly reduces border effects because it captures "multilateral resistance". Using a spatial autoregressive moving average specification, we find that border effects between the U.S. and Canada are smaller than in previous studies : about 8 for Canadian provinces and about 1.3 for U.S. states. Yet, heterogeneous coefficient estimations reveal that there is much variation across provinces and states.
    Keywords: gravity equations, multi-region general equilibrium trade models, spatial econometrics, border effects
    Date: 2007–03
  19. By: Marteau, Jean-Francois; Raballand, Gael; Arvis, Jean-Francois
    Abstract: A large proportion of the least developed countries are landlocked and their access to world markets depends on the availability of a trade corridor and transit systems. Based on empirical evidence from World Bank projects and assessments in Africa, Central Asia, and elsewhere, this paper proposes a microeconomic quantitative description of logistics costs. The paper theoretically and empirically highlights that landlocked economies are primarily affected not only by a high cost of freight services but also by the high degree of unpredictability in transportation time. The main sources of costs are not only physical constraints but widespread rent activities and severe flaws in the implementation of the transit systems, which prevent the emergence of reliable logistics services. The business and donor community should push toward implementation of comprehensive facilitation strategies, primarily at the national level, and the design of robust and resilient transport and transit regimes. A better understanding of the political economy of transit and a review of the implementation successes and failures in this area are needed.
    Keywords: Transport Economics Policy & Planning,Transport and Trade Logistics,Common Carriers Industry,Economic Theory & Research,Rural Roads & Transport
    Date: 2007–06–01

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