nep-int New Economics Papers
on International Trade
Issue of 2007‒07‒07
twenty papers chosen by
Martin Berka
Massey University

  1. Zeros, Quality and Space: Trade Theory and Trade Evidence By Baldwin, Richard; Harrigan, James
  2. Why are Trade Agreements Regional? By Ben Zissimos
  3. Firms in International Trade By Andrew B. Bernard; J. Bradford Jensen; Stephen Redding; Peter K. Schott
  4. Developing a Global Model for Trade, Finance and Income Distribution By Francis Cripps; Alex Izurieta; Terry McKinley
  5. Trade Growth under the African Growth and Opportunity Act By Garth Frazer; Johannes Van Biesebroeck
  6. Productivity Effects of International Outsourcing: Evidence from Plant Level Data By Görg, Holger; Hanley, Aoife; Strobl, Eric
  7. Why Are People More Pro-Trade than Pro-Migration? By Anna Maria Mayda
  8. The Debate on Labor Standards and International Trade: Lessons from Cambodia and Bangladesh By Gunseli Berik; Yana van der Meulen Rodgers
  9. Home Market Effect versus Multinationals By Eric Toulemonde
  10. Modelling intra- and extra-area trade substitution and exchange rate pass-through in the euro area By Alistair Dieppe; Thomas Warmedinger
  11. Offshoring: General Equilibrium Effects on Wages, Production and Trade By Richard E. Baldwin; Frédéric Robert-Nicoud
  12. Modeling International Trade Flows Between Eastern European Countries and OECD Countries By Christophe Rault; Robert Sova; Ana Maria Sova
  13. Producer Services, Manufacturing Linkages, and Trade By Joseph Francois; Julia Woerz
  14. Offshoring in a Ricardian World By Andrés Rodríguez-Clare
  15. Imports and Exports at the Level of the Firm: Evidence from Belgium By Mirabelle Muûls; Mauro Pisu
  16. What Are the Issues in Using Trade Agreements for Improving International Labor Standards? By Andrew G. Brown; Robert M. Stern
  17. Will the Doha Round Lead to Preference Erosion? By Amiti, Mary; Romalis, John
  18. Dynamic effects of European services liberalisation: more to be gained By Kox, Henk L.M>; Lejour, Arjan
  19. The Two Crises of International Economics By Michael P. Dooley; Peter M. Garber; David Folkerts-Landau
  20. Volatility, Labor Market Flexibility, and the Pattern of Comparative Advantage By Alejandro Cuñat; Marc J. Melitz

  1. By: Baldwin, Richard; Harrigan, James
    Abstract: Product-level data on bilateral U.S. exports exhibit two strong patterns. First, most potential export flows are not present, and the incidence of these "export zeros" is strongly correlated with distance and importing country size. Second, export unit values are positively related to distance. We show that every well-known multi-good general equilibrium trade model is inconsistent with at least some of these facts. We also offer direct statistical evidence of the importance of trade costs in explaining zeros, using the long-term decline in the relative cost of air shipment to identify a difference-in-differences estimator. To match these facts, we propose a new version of the heterogeneous-firms trade model pioneered by Melitz (2003). In our model, high quality firms are the most competitive, with heterogeneous quality increasing with firms’ heterogeneous cost.
    Keywords: Heterogeneous-firm trade models; QHFT model; Quality and trade; Testing trade theories
    JEL: F0 F11 F12
    Date: 2007–06
  2. By: Ben Zissimos (Vanderbilt University)
    Abstract: This paper shows how distance may be used to coordinate on a unique equilibrium in which trade agreements are regional. Trade agreement formation is modeled as coalition formation. In a standard trade model with no distance between countries, a familiar problem of coordination failure arises giving rise to multiple equilibria; any one of many possible trade agreements can form. With distance between countries, and through strategic interaction in tariff setting, regional trade agreements generate larger rent-shifting effects than non regional agreements, which countries use to coordinate on a unique equilibrium. Under naive best responses, regional agreements give way to free trade.
    Keywords: Coalition, Coordination, Trade Liberalization, Trade Agreement, Regionalism
    JEL: F02 F13 F15 C73
    Date: 2007–06
  3. By: Andrew B. Bernard; J. Bradford Jensen; Stephen Redding; Peter K. Schott
    Abstract: Despite the fact that importing and exporting are extremely rare firm activities, economists generallydevote little attention to the role of firms when discussing international trade. This paper summarizeskey differences between trading and non-trading firms, demonstrates how these differences present achallenge to standard trade models and shows how recent "heterogeneous-firm" models ofinternational trade address these challenges. We then make use of transaction-level U.S. trade data tointroduce a number of new stylized facts about firms and trade. These facts reveal that the extensivemargins of trade - that is, the number of products firms trade as well as the number of countries withwhich they trade - are central to understanding the well-known role of distance in dampeningaggregate trade flows.
    Keywords: Economic Geography, International Trade
    JEL: F12 F14 O10
    Date: 2007–05
  4. By: Francis Cripps (Alphametrics Co.); Alex Izurieta (University of Cambridge); Terry McKinley (International Poverty Centre)
    Abstract: .
    Keywords: Developing, Global, Model, Trade, Finance, Income, Distribution
    Date: 2007–02
  5. 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 as 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.
    JEL: F13 F14 F15 O19
    Date: 2007–07
  6. By: Görg, Holger; Hanley, Aoife; Strobl, Eric
    Abstract: We investigate the impact of international outsourcing on productivity using plant level data for Irish manufacturing. Specifically, we distinguish the effect of outsourcing of materials from services inputs. Moreover, we examine whether the impact on productivity is different for plants being more embedded in international markets through exporting or being part of a multinational. Our results show robust evidence for positive effects from outsourcing of services inputs for exporters, either domestic- or foreign-owned. By contrast, we find no statistically significant evidence of an impact of international outsourcing of services on productivity for firms not operating on the export market.
    Keywords: exporting; International outsourcing; multinational enterprises; productivity
    JEL: F14 F23 L23
    Date: 2007–06
  7. By: Anna Maria Mayda (Georgetown University, CEPR, CReAM and IZA)
    Abstract: I analyze individual attitudes towards trade and immigration in comparative terms. I find that individuals are on average more pro-trade than pro-immigration across several countries. I identify a key source of this difference: the cleavage in trade preferences, absent in immigration attitudes, between individuals working in traded as opposed to non-traded sectors.
    Keywords: immigration attitudes, trade attitudes, political economy
    JEL: F22 F1 J61
    Date: 2007–06
  8. By: Gunseli Berik; Yana van der Meulen Rodgers
    Abstract: This study examines the nature and enforcement mechanisms of labor standards in two Asian economies (Cambodia and Bangladesh) that are experiencing strong pressures to cut labor costs and improve the price competitiveness of their textile and garment exports. Analysis of survey, interview, and compliance data indicate differing trajectories in compliance with basic labor standards. While problems persist in Bangladesh, compliance has improved in Cambodia following a trade agreement with the United States that linked positive trade incentives with labor standards enforcement. These contrasting experiences present important lessons for the debate on enforcing standards that protect female workers in formal-sector jobs.
    Keywords: Working conditions, enforcement, labor laws, female workers, gender and trade
    Date: 2007–03
  9. By: Eric Toulemonde (FUNDP, University of Namur, CORE, Université catholique de Louvain and IZA)
    Abstract: We develop a model with two asymmetric countries. Firms choose the number and the location of plants that they operate. The production of each firm increases when trade costs fall. The fall also induces multinationals to repatriate their production into a single country, which is likely to be the large country because of the home market effect. The net effect on total output is favorable in the large country and ambiguous in the small country. We extend the model to endogenize country sizes and we show that in an equilibrium with multinationals only, a rent can be taxed by governments.
    Keywords: globalization, economic geography, trade costs, multinational firms, home market effect
    JEL: F12 F15 F23 R12 R30
    Date: 2007–06
  10. By: Alistair Dieppe (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Thomas Warmedinger (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: The paper proposes a modelling approach for euro area goods and services trade volumes and prices on the basis of a break-down of trade data into their intra- and extra-area components. Using the evidence from the newly estimated trade equations, the paper gives new insights into two important issues. The first issue concerns the exchange-rate pass-through (ERPT) to euro area import prices. The second issue relates to substitution effects between intra- and extra-area trade. These issues are further elaborated through simulation analyses using the ECB’s area-wide model (AWM). The simulations illustrate the impact of external and domestic shocks to trade in the euro area, in particular on intra- and extra-area trade. The richer dynamics from this disaggregated perspective provide additional insights and elucidate transmission channels of shocks that are not detectable from an aggregate (i.e. total trade) perspective. For instance, one interesting finding is that an appreciation of the euro has a significant downward impact on intra euro area trade. JEL Classification: E31, F17, C5.
    Keywords: Intra-/ extra-area trade, euro area, competitiveness and trade substitution, exchange-rate passthrough, pricing-to-market.
    Date: 2007–06
  11. By: Richard E. Baldwin; Frédéric Robert-Nicoud
    Abstract: A simple model of offshoring is used to integrate the complex gallery of results that exist in thetheoretical offshoring/fragmentation literature. The paper depicts offshoring as 'shadowmigration' and shows that this allows straightforward derivation of the general equilibriumeffects on prices, wages, production and trade (necessary and sufficient conditions are provided).We show that offshoring requires modification of the four HO theorems, so econometricians whoignore offshoring might reject the HO theorem when a properly specified version held in the data.We also show that offshoring is an independent source of comparative advantage and can lead tointra-industry trade in a Walrasian setting.
    Keywords: Offshoring, Shadow migration, Inter-industry trade, Intra-industry trade, Tradetheorems
    JEL: F02 F12 L22 R11
    Date: 2007–05
  12. By: Christophe Rault (LEO, University of Orleans and IZA); Robert Sova (CES, Sorbonne University and A.S.E); Ana Maria Sova (CES, Sorbonne University and A.S.E)
    Abstract: Our paper deals with econometric developments for the estimation of the gravity model which lead to convergent parameter estimates even when a correlation exists between the explanatory variables and the specific unobservable characteristics of each unit. We implement panel data econometric techniques to characterize bilateral trade flows between heterogeneous economies. Our econometric results based on a sample of Eastern European countries (EEC) and OECD countries over a 18 year period highlight the importance of the taking into account of unobservable heterogeneity to obtain a specification in accordance with data properties and unbiased coefficients. The fixed effect factor decomposition (FEVD) technique appears the more suitable for this purpose. We focus more specifically on EEC countries belonging to the last wave of adhesion (Bulgaria and Romania). Since 1990, these countries have moved towards a market economy and more democracy. Our econometric results provide clear evidence in favor of the traditional trade theory based on comparative advantage which suggests a reallocation of labor intensive industry towards EEC generating a complementary specialization.
    Keywords: gravity models, unobserved effects, panel data models, international trade, comparative advantage
    JEL: F13 F15 C23
    Date: 2007–06
  13. By: Joseph Francois (Erasmus Universiteit Rotterdam, Joh. Kepler University (Linz), and CEPR (London)); Julia Woerz (The Vienna Institute for International Economic Studies (WIIW))
    Abstract: Working with a mix of panel data on goods and services trade for the OECD for 1994-2004, combined with social accounts data (i.e. data on intermediate linkages) for 78 countries benchmarked to the panel midpoint, we examine the role of services as inputs in manufacturing, with a particular focus on indirect exports of services through merchandise exports, and also on the related interaction between service sector openness and the overall pattern of manufacturing exports. From the cross-section, we also develop a set of stylized facts linking services to level of development and the density of intermediate linkages. We find significant and strong positive effects from increased business service openness (i.e. greater levels of imports) on industries like machinery, motor vehicles, chemicals and electric equipment, supporting the notion that off-shoring of business services may promote the competitiveness of the most skill and technology intensive industries in the OECD. Conversely, we find evidence of negative general equilibrium effects for sectors that are less service intensive.
    Keywords: producer services; linkages; manufacturing exports; service imports; multiplier effects
    JEL: F14 L8 O11
    Date: 2007–06–11
  14. By: Andrés Rodríguez-Clare
    Abstract: Falling costs of coordination and communication have allowed firms in rich countries to fragment their production process and offshore an increasing share of the value chain to low-wage countries. Popular discussions about the aggregate impact of this phenomenon on rich countries have stressed either a (positive) productivity effect associated with increased gains from trade, or a (negative) terms of trade effect linked with the vanishing effect of distance on wages. This paper proposes a Ricardian model where both of these effects are present and analyzes the effects of increased fragmentation and offshoring in the short run and in the long run (when technology levels are endogenous). The short-run analysis shows that when fragmentation is sufficiently high, further increases in fragmentation lead to a deterioration (improvement) in the real wage in the rich (poor) country. But the long-run analysis reveals that these effects may be reversed as countries adjust their research efforts in response to increased offshoring. In particular, the rich country always gains from increased fragmentation in the long run, whereas poor countries see their static gains partially eroded by a decline in their research efforts.
    JEL: F10 F15
    Date: 2007–06
  15. By: Mirabelle Muûls; Mauro Pisu
    Abstract: This paper explores a newly-available panel data set merging balance sheet and international tradetransaction data for Belgium. Both imports and exports appear to be highly concentrated among fewfirms and seem to have become more so over time. Focusing on manufacturing, we find that factspreviously reported in the literature for exports only actually apply to imports too. We note that thenumber of trading firms diminishes as the number of export destinations or import origins increases.The same is true if we consider the number of products traded. With regard to productivitydifferentials, firms that both import and export appear to be the most productive, followed, indescending order, by importers only, exporters only and non-traders. These results point to thepresence of fixed costs; not only of exporting, but also of importing and to a process of self-selectionin both export and import markets. Also, the productivity advantage of exporters reported in theliterature may be overstated because imports were not considered.
    Keywords: exports, imports, productivity, firms
    JEL: F10 F16 J21
    Date: 2007–06
  16. 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
  17. By: Amiti, Mary; Romalis, John
    Abstract: This paper assesses the effects of reducing tariffs under the Doha Round on market access for developing countries. It shows that for many developing countries, actual preferential access is less generous than it appears because of low product coverage or complex rules of origin. Thus lowering tariffs under the multilateral system is likely to lead to a net increase in market access for many developing countries, with gains in market access offsetting losses from preference erosion. Furthermore, comparing various tariff-cutting proposals, the research shows that the largest gains in market access are generated by higher tariff cuts in agriculture.
    Keywords: developing countries; market access; preference erosion; tariffs; WTO
    JEL: F12 F13 F15
    Date: 2007–06
  18. By: Kox, Henk L.M>; Lejour, Arjan
    Abstract: Europe’s market for services is fragmented by many regulatory barriers. The Services directive proposed by the European Commission aims to integrate national services markets by reducing these barriers. Several studies indicate that bilateral trade and foreign direct investment in services could boost substantially. GDP and consumption could increase by 0.5% to about 1% on average in Europe. The effects for the Member States vary depending on the size of the barriers in their services markets and specialization. These results take account of scale effects, and forward and backward linkages in the economy, but ignore the effects of more competition on productivity and innovation in the long term. This paper assesses the channels though which an integrated European services market may generate these dynamic gains. Improved market access will stimulate competitive selection and productivity growth. Through trade and investment, knowledge spillovers will increase and innovation will be fostered. These channels are illustrated with quantitative evidence.
    Keywords: trade openess; services; dynamic effects; European Union
    JEL: F4 L8 F43 F15 O4 L11
    Date: 2006–09
  19. By: Michael P. Dooley; Peter M. Garber; David Folkerts-Landau
    Abstract: In this essay, we argue that key assumptions in international macroeconomic theory, though useful for understanding the economic relationships among developed countries, have been pushed beyond their competence to include relationships between developed economies and emerging markets. The Achilles heel of this extended development model is the assumption that threats to deprive the debtor countries of gains from trade provide incentives for poor countries to repay more than trivial amounts of international debt. Replacing this assumption with the idea that collateral is required to support gross international capital flows suggests that the pattern of current account balances seen in recent years is a sustainable equilibrium.
    JEL: F02 F21 F32 F33 F4
    Date: 2007–06
  20. By: Alejandro Cuñat; Marc J. Melitz
    Abstract: This paper studies the link between volatility, labor market flexibility, and international trade.International differences in labor market regulations affect how firms can adjust to idiosyncraticshocks. These institutional differences interact with sector specific differences in volatility (thevariance of the firm-specific shocks in a sector) to generate a new source of comparative advantage.Other things equal, countries with more flexible labor markets specialize in sectors with highervolatility. Empirical evidence for a large sample of countries strongly supports this theory: the exportsof countries with more flexible labor markets are biased towards high-volatility sectors. We show howdifferences in labor market institutions can be parsimoniously integrated into the workhorse model ofRicardian comparative advantage of Dornbush, Fisher and Samuelson (1977). We also show how ourmodel can be extended to multiple factors of production.
    Keywords: comparative advantage
    JEL: F1
    Date: 2007–06

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