nep-int New Economics Papers
on International Trade
Issue of 2007‒07‒13
fourteen papers chosen by
Martin Berka
Massey University

  1. The wise use of dummies in gravity models: export potentials in the Euromed region By Juan Ruiz; Josep M. Vilarrubia
  2. Trade and Capital Flows: A Financial Frictions Perspective By Pol Antràs; Ricardo J. Caballero
  3. India's Trade Practices in Livestock Sector By Shah, Deepak
  4. Productivity and Size of the Export Market Evidence for West and East German Plants, 2004 By Joachim Wagner
  5. Trade patterns, trade balances and idiosyncratic shocks By Claudia Canals; Xavier Gabaix; Josep M. Vilarrubia; David Weinstein
  6. Why more West than East German firms export By Joachim Wagner
  7. Does Trade Liberalization Increase the Labor Demand Elasticities? Evidence from Pakistan By Akhter, Naseem; Ali, Amanat
  8. A Contribution to the Theory of International Trade By Yiu, Kai Wing
  9. Exports and Productivity in Germany By Joachim Wagner
  10. The Internationalisation of Production, International Outsourcing and Employment in the OECD By Margit Molnar; Nigel Pain; Daria Taglioni
  11. Freedom Fries By Michaels, Guy; Zhi, Xiaojia
  12. Exporting, Linkages and Productivity Spillovers from Foreign Direct Investment By Girma, Sourafel; Görg, Holger; Pisu, Mauro
  13. Do Falling Import Prices Increase Market Demand for Domestically Produced Consumer Goods? By John J. Heim
  14. Does the Exchange Rate Really Affect Consumer Spending? By John J. Heim

  1. By: Juan Ruiz (Banco de España); Josep M. Vilarrubia (Banco de España)
    Abstract: In this paper, we estimate a gravity equation properly accounting for omitted exporter and importer’s overall trade resistance, through country yearly dummies for exporter and importer countries. We find that the omission of time varying multilateral trade resistance terms in the estimation of a gravity equation introduces important biases in the results, although correcting them means we can only compute differences between actual and predicted export shares, instead of levels, as usually done. An application to the calculation of trade potentials in the Euromed region (Southern and Eastern Mediterranean countries) shows that the omission of time varying multilateral trade resistance terms greatly influences the computation of export potentials as well as the estimated effect of signing a free trade agreement. Overall, we find that, except for Algeria, Jordan and Lebanon, Euromed countries’ share of exports to the EU as a whole is at, or slightly above, those predicted by a correctly specified gravity model, although the share of exports to some individual EU countries is significantly below the predictions of the gravity model. Except for those three countries, we find significant opportunities for export growth to the US, instead.
    Keywords: gravity model, trade potentials, export shares, Euromed
    JEL: F12 F14 F15
    Date: 2007–07
  2. By: Pol Antràs; Ricardo J. Caballero
    Abstract: The classical Heckscher-Ohlin-Mundell paradigm states that trade and capital mobility are substitutes, in the sense that trade integration reduces the incentives for capital to flow to capital-scarce countries. In this paper we show that in a world with heterogeneous financial development, the classic conclusion does not hold. In particular, in less financially developed economies (South), trade and capital mobility are complements. Within a dynamic framework, the complementarity carries over to (financial) capital flows. This interaction implies that deepening trade integration in South raises net capital inflows (or reduces net capital outflows). It also implies that, at the global level, protectionism may backfire if the goal is to rebalance capital flows, when these are already heading from South to North. Our perspective also has implications for the effects of trade integration on factor prices. In contrast to the Heckscher-Ohlin model, trade liberalization always decreases the wage-rental in South: an anti-Stolper-Samuelson result.
    JEL: E2 F1 F2 F3 F4
    Date: 2007–07
  3. By: Shah, Deepak
    Abstract: India is known for its livestock wealth and ranks high among the nations having bovine population. However, despite having huge livestock population, India stands insignificant in the world trade of livestock products. The recent concerted efforts made by the government in the era of liberalization after opening of the national economy to the international market have certainly boosted India’s export trade of livestock products to newer heights. The findings of this study show considerable increase in the export trade of India in meat and meat products and also in respect of milk and milk products, both in quantity and value terms. The export trade of India in milk and milk products got a real boost only after the early nineties period, i.e., in the era of liberalization. The estimates in this study also show an increasing trend in export trade of India in processed livestock products. The increase in livestock exports of India witnessed after the early nineties period is chiefly because of liberalization of trade and several trade policy changes coupled with surge in international prices of many livestock based products. The upswing in livestock exports of India in due course of time has also filtered into significant increase in her share not only in Asia but also in world export trade. But, the results of this study still indicate a marginal presence of India in world trade of majority of the livestock products. It is only in the case of bovine meat and also sheep and goat meat that India has shown a considerable share in the global trade of the same. The findings of this study also indicate that there will neither be any exportable surplus for milk nor meat and eggs in the near future. However, India still has enormous untapped potential in its livestock sector which if tapped in the desired manner and direction can lead us to emerge as the leading producer of milk and meat in the world in the years to come, but not in exports.
    Keywords: Trade India Livestock Sector
    JEL: F10 F1
    Date: 2007–07–05
  4. By: Joachim Wagner (University of Lueneburg, Institute of Economics; Institute for the Study of Labor (IZA), Bonn; Max Planck Institute of Economics, Jena)
    Abstract: Using unique recently released nationally representative high-quality data at the plant level, this paper presents the first comprehensive evidence on the relationship bet ween productivity and size of the export market for Germany, a leading actor on the world market for manufactured goods. It documents that firms that export to countries inside the euro-zone are more productive than firms that sell their products in Germany only, but less productive than firms that export to countries outside the euro-zone, too. This is in line with the hypothesis that export markets outside the euro-zone have higher entry costs that can only by paid by more productive firms.
    Keywords: Exports, productivity, micro data, Germany
    JEL: F14 D21
    Date: 2007–07–02
  5. By: Claudia Canals (La Caixa); Xavier Gabaix (Massachusetts Institute of Technology (MIT) - Department of Economics); Josep M. Vilarrubia (Banco de España); David Weinstein (Columbia University - Department of Economics)
    Abstract: International Macroeconomics has long sought an explanation for current account fluctuations that matches the data. The approaches have typically focused on better models and new macroeconomic variables. We demonstrate the limitations of this approach by showing that idiosyncratic shocks are an important cause of macroeconomic volatility even for large countries. When explaining these fluctuations, standard macroeconomic models generally assume that firms are small and that their microeconomic shocks cancel out. We show that the high degree of concentration of bilateral trade flows means that idiosyncratic shocks can have a significant impact on aggregate economic fluctuations. We theoretically develop a descomposition components. Taking the model to data on bilateral trade flows from 1970 to 1997, we find that the most comprehensive macroeconomic model can only account for at most half of the observed variance in trade account volumes of each country. Thus, this paper highlights the importance of considering disaggregated data when modeling the current account.
    Keywords: trade balance, trade concentration, firms, empirical
    JEL: F41 F32
    Date: 2007–07
  6. By: Joachim Wagner (University of Lueneburg, Institute of Economics; Institute for the Study of Labor (IZA), Bonn; Max Planck Institute of Economics, Jena)
    Abstract: Using unique new data and a recently introduced non-linear decomposition technique this paper shows that the huge difference in the propensity to export between West and East German plants is to a large part due to differences in firm size and human capital intensity.
    Keywords: Exports, micro data, West Germany, East Germany
    JEL: F14
    Date: 2007–02–02
  7. By: Akhter, Naseem; Ali, Amanat
    Abstract: This study measure the linkage of trade liberalization and labor demand elasticities. Using Pakistan firm-level data, spanning the course of trade liberalization, study try to determine whether the trade liberalization increase the own price labor demand elasticities in the manufacturing sector of Pakistan. Elasticities are measure for production workers and non-production workers for major eleven industries at individual level at first and later elasticities are measured by pooling data across the industries at aggregate level. However, in most of the industries, study unable to find any empirical support for the hypothesis of no relationship between trade liberalization and labor demand elasticities in case of Pakistan.
    Keywords: Trade liberalization; elasticities; Production and non Production worker; Pakistan
    JEL: F16
    Date: 2007–06
  8. By: Yiu, Kai Wing
    Abstract: Existing trade theories almost exclusively rest on different kinds of products. They seldom consider consider difference in saving ratios across nations and cross-ownership of capital stock, which are two crucial components of the model presented in this paper. According to the model in this paper, imbalanced trade should persist in general when multiple trading economies reach their equilibrium. United States' prolonged trade deficit could possibly be explained under this framework. As a low saving nation, it is undergoing a necessary process to 'slim up' its wealth and run a persistent trade surplus at equilibrium provided that its savings ratio remains to be substantially lower than other nations.
    JEL: E2 F1
    Date: 2007–06–29
  9. By: Joachim Wagner (University of Lueneburg, Institute of Economics; Institute for the Study of Labor (IZA), Bonn; Max Planck Institute of Economics, Jena)
    Abstract: Using unique recently released nationally representative high-quality longitudinal data at the plant level, this paper presents the first comprehensive evidence on the relationship between exports and productivity for Germany, a leading actor on the world market for manufactured goods. It applies and extends the now standard approach from the international literature to document that the positive productivity differential of exporters compared to non-exporters is statistically significant, and substantial, even when observed firm characteristics and unobserved firm specific effects are controlled for. For West German plants (but not for East German plants) some empirical evidence for self-selection of more productive firms into export markets is found. There is no evidence for the hypothesis that plants which start to export perform better in the three years after the start than their counterparts which do not start to sell their products on the world market. Results for West Germany support the hypothesis that the productivity differential between exporters and non-exporters is at least in part the result of a market driven selection process in which those export starters that have low productivity at starting time fail as a successful exporter in the years after the start, and only those that were more productive at starting time continue to export.
    Keywords: Exports, productivity, micro data, Germany
    JEL: F14 D21
    Date: 2007–07–02
  10. By: Margit Molnar; Nigel Pain; Daria Taglioni
    Abstract: This paper reviews some of the possible changes that may occur in the national labour markets of many OECD countries as a result of international trade and the internationalisation of production by multinational companies, with a particular focus on the impact of outward foreign direct investment (FDI) from OECD countries on employment in the home country of the investing firms. Existing studies suggest that the overall impact of trade and the internationalisation of production on aggregate labour market outcomes has been comparatively small, although particular skill and occupational groups have been affected more strongly. The empirical findings in the paper suggest that the aggregate employment impact of outward FDI varies across industries and countries. For manufacturing industries with strong commercial links with the non-OECD economies, there is evidence that domestic employment has become more sensitive to movements in domestic labour costs. At the country level, the growth of outward investment is found to have a significant positive effect on domestic employment growth in the United States. In contrast, there is a negative association in Japan, especially from outward investment in China. <P>L’internationalisation de la production, délocalisations et emploi dans les pays de l’OCDE <BR>Ce papier présente quelques uns des changements possibles résultant du commerce international et de l’internationalisation de la production des firmes multinationales, qui ont pu affecter les marchés du travail de plusieurs pays de l’OCDE. Un intérêt particulier est porté sur l’impact des flux d’investissement direct étrangers sortants des pays de l’OCDE sur l’emploi dans le pays d’origine des firmes qui investissent. Les études existantes concluent que l’effet global du commerce et de l’internationalisation de la production sur le marché du travail a été limité. Toutefois, certaines catégories socioprofessionnelles et certains savoirs ont été touchés plus sensiblement. Les résultats empiriques du papier indiquent que l’impact sur l’emploi agrégé des flux d’investissement direct étrangers sortants est différent selon les pays et les industries. Pour les entreprises du secteur manufacturier qui ont des liens commerciaux forts avec les pays non-OCDE, on trouve que l’emploi est devenu plus sensible aux mouvements des coûts salariaux domestiques. Au niveau des pays, on trouve que la croissance des flux d’investissement sortants a un effet significatif positif sur le taux de croissance de l’emploi aux Etats-Unis. En revanche, cet effet est négatif au Japon, notamment pour les flux d’investissement vers la Chine.
    Keywords: trade, employment, emploi, foreign direct investment, investissement direct étranger, commerce
    JEL: F16 F23 J23
    Date: 2007–07–04
  11. By: Michaels, Guy; Zhi, Xiaojia
    Abstract: Do firms choose inputs that minimize their cost of production, ignoring the attitudes of their owners and employees? We examine this question using an episode of worsening relations between the US and France: from February 2002 to March 2003, France's favourability rating in US public opinion polls fell from 83 percent to 35 percent. Very negative attitudes towards France became common even among college educated Americans with high levels of income, so they were likely prevalent among managers. Using data from 1999-2005, we find that the worsening relations reduced US imports from France by about 15 percent and US exports to France by about 8 percent, compared to other Eurozone or OECD countries. This decline was due in large part to a fall in France's share of the quantity of inputs traded between the Eurozone and the US; this decline is significant even after we control for changes in the product composition of trade flows. We also find that the decline in trade was accompanied by a similar drop in both business trips and tourist visitations of US residents to France compared to Western Europe. Taken together, our findings suggest that competition cannot eliminate the effect of attitudes on firms' choice of inputs.
    Keywords: Discrimination; Trade
    JEL: F14 J15
    Date: 2007–07
  12. By: Girma, Sourafel; Görg, Holger; Pisu, Mauro
    Abstract: In this paper we analyse productivity spillovers from foreign direct investment using firm level panel data UK manufacturing industries from 1992 to 1999. We investigate spillovers through horizontal, backward and forward linkages, distinguish spillovers from export oriented vs domestic market oriented FDI, and allow for differing effects depending on domestic firms’ export activities. The results suggest that the mechanisms through which spillovers affect domestic firms are very complex and that there are substantial differences in spillover benefits for domestic exporters and non-exporters, and from different types of inward investment.
    Keywords: absorptive capacity; exporting; foreign direct investment; linkages; productivity spillovers
    JEL: F1 F2
    Date: 2007–07
  13. By: John J. Heim (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA)
    Abstract: Rising exchange rates can lower prices on imported consumer goods. The lower prices have two effects. A substitution effect shifts in demand from domestically produced goods to imports. An income effect also allows more import purchases. It also allows some income previously spent on imports to be shifted to domestic spending. This shift may or may not increase total demand for U.S. consumer goods. This paper finds it does, and that increases in demand for domestically produced consumer goods and services are about five times as large as the increase in demand for imported consumer goods and services. The paper also finds that the increase in demand for domestic goods is about three times as large as the increase in the trade deficit resulting from the higher exchange rate.
    JEL: E00 F40
    Date: 2007–07
  14. By: John J. Heim (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA)
    Abstract: This paper examines the extent to which changes in imports or exports of U.S. consumer goods and services occurs in response to a change in the exchange rate, 1960 -2000. The data used are taken from the Economic Report of the President, 2002. The findings indicate that an increase in the trade weighted exchange rate of about one percent is associated with an increase in imports of consumer goods of approximately $1 billion dollars the year after the change. The same level increase seems associated with a decline in con-sumer goods exports of about $0.75 billion dollars.
    JEL: F00 F40 F43
    Date: 2007–07

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