nep-int New Economics Papers
on International Trade
Issue of 2007‒08‒14
twelve papers chosen by
Martin Berka
Massey University

  1. Trade and the Diffusion of the Industrial Revolution By Robert E. Lucas, Jr.
  2. Migration and trade with external economies of scale By Collie, David R.
  3. The Impact of GATT on International Trade: Evidence from Structural Break Analysis By Suleiman Abu-Bader; Aamer Abu-Qarn
  4. Big dragon, little dragons : China ' s challenge to the machinery exports of southeast Asia By Rahardja, Sjamsu
  5. Indirect Network Effects, Trade Liberalization, and Excess Standardization By Iwasa, Kazumichi; Kikuchi, Toru
  6. China, India, and the future of the world economy : fierce competition or shared growth? By Dimaranan, Betina; Ianchovichina, Elena; Martin, Will
  7. Fair Trade By Martin Richardson; Frank Staehler
  9. Improved Access to Foreign Markets Raises Plant-Level Productivity ... for Some Plants By Alla Lileeva; Daniel Trefler
  10. Watching more than the Discovery channel : export cycles and diversification in development By Brenton, Paul; Newfarmer, Richard
  11. Consumption efficiency hypothesis and the optimality of free trade policy in a small open economy By Chaudhuri, Sarbajit; Banerjee, Dibyendu
  12. Explaining High Economic Growth in Small Tourism Countries with a Dynamic General Equilibrium Model. By Carmen Álvarez-Albelo; Raúl Hernández-Martín

  1. By: Robert E. Lucas, Jr.
    Abstract: A model is proposed to describe the evolution of real GDPs in the world economy that is intended to apply to all open economies. The five parameters of the model are calibrated using the Sachs-Warner definition of openness and time-series and cross-section data on incomes and other variables from the 19th and 20th centuries. The model predicts convergence of income levels and growth rates and has strong but reasonable implications for transition dynamics.
    JEL: O0 O1 O19
    Date: 2007–08
  2. By: Collie, David R. (Cardiff Business School)
    Abstract: The analysis of migration in Findlay (1982) is extended by adding external economies of scale to the Ricardian model as in Ethier (1982). With external economies, the larger country always gains from trade but the smaller country may lose from trade unless the external economies of scale are sufficiently strong. The smaller country will always gain from emigration but the larger country may lose from immigration unless the external economies of scale are sufficiently strong. Both countries gain from complete economic integration (free labour migration with free trade). Finally, the optimal migration policies of the two countries are derived.
    Keywords: Immigration; emigration; international trade; factor mobility
    JEL: F22 F12 J61
    Date: 2007–08
  3. By: Suleiman Abu-Bader (Department of Economics, Ben-Gurion University of the Negev); Aamer Abu-Qarn (Department of Economics, Ben-Gurion University of the Negev)
    Abstract: In this study we test for structural changes in international trade patterns of 77 countries over the post-WWII period, to examine if they experienced a substantial increase in their trade ratios following major GATT rounds such as the Kennedy Round, or after joining GATT. Our results show that trade ratios of most of these countries exhibited structural breaks in their time paths, however, most of the postbreak paths were below the extrapolated prebreak paths. Furthermore, while the significant break years coincided closely with major regional and international events such as the oil shocks of the 70s and the East-Asian financial crisis in 1997, they occurred far before or after the time of a country's accession to GATT or the time of the major GATT rounds.
    Keywords: International Trade, Trade Liberalization, Structural Change, Oil Shocks, Kennedy Round, East Asia, Financial Crisis
    JEL: C22 F1 F13
    Date: 2007–07
  4. By: Rahardja, Sjamsu
    Abstract: This paper investigates the extent of China ' s export boom in machinery and analyzes trade in components and finished machinery between China and Southeast Asia. China has increased its world market share in machinery exports. The median relative unit value of its finished machinery exports has also risen. Yet the author finds no evidence that China ' s expansion in the world machinery market has squeezed the market shares of Southeast Asian machinery exports. Instead, components made by Southeast Asian countries are increasing in unit value and gaining market share in China.
    Keywords: Markets and Market Access,Economic Theory & Research,Free Trade,General Manufacturing,Debt Markets
    Date: 2007–08–01
  5. By: Iwasa, Kazumichi; Kikuchi, Toru
    Abstract: Indirect network effects exist when the utility of consumers is increasing in the variety of complementary software products available for use with an electronic hardware device. In this study, we examine how trade liberalization affects production structure in the presence of indirect network effects. For these purposes we construct a simple two-country model of trade with two incompatible hardware technologies. It is shown that, given that both types of hardware exist before trade liberalization, liberalization may reduce the variety of hardware technology via intensified network effects. It is also shown that, contrary to the findings of previous studies, some consumers may become worse off as the result of trade. In other words, trade liberalization,which forms the basis for a greater variety of software products, may work as a catalyst for excess hardware standardization.
    Keywords: Indirect Network Effects; Trade Liberalization
    JEL: F12
    Date: 2007
  6. By: Dimaranan, Betina; Ianchovichina, Elena; Martin, Will
    Abstract: Although both China and India are labor-abundant and dependant on manufactures, their export mixes are very different. Only one product-refined petroleum-appears in the top 25 products for both countries, and services exports are roughly twice as important for India as for China, which is much better integrated into global production networks. Even assuming India also begins to integrate into global production chains and expands exports of manufactures, there seems to be opportunity for rapid growth in both countries. Accelerated growth through efficiency improvements in China and India, especially in their high-tech industries, will intensify competition in global markets leading to contraction of the manufacturing sectors in many countries. Improvement in the range and quality of exports from China and India has the potential to create substantial welfare benefits for the world, and for China and India, and to act as a powerful offset to the terms-of-trade losses otherwise associated with rapid export growth. However, without efforts to keep up with China and India, some countries may see further erosio n of their export shares and high-tech manufacturing sectors.
    Keywords: Economic Theory & Research,Trade Policy,Free Trade,Emerging Markets,Currencies and Exchange Rates
    Date: 2007–08–01
  7. By: Martin Richardson; Frank Staehler
    Abstract: This paper deals with the behavior of fair trade organizations in an oligopolistic setting in which the vertically integrated fair trade firm produces a commodity which is a weak substitute for another commodity. Profit-maximizing oligopolists are vertically disintegrated and produce for both markets and the fair trade firm can charge a premium to consumers due to a "warm glow effect" that depends on the wage paid to fair trade producers. We show that trade integration will unambiguously increase the size of the fair trade firm. However, the relative size compared to oligopolists shrinks with integration. The effect of a change in substitutability between the two commodities on markets shares depends on the relative market potential. Furthermore, we show that the warm glow effect does not support an expansion of the volume of fair trade.
    JEL: F12
    Date: 2007–06
  8. By: Maria Berrittella; Katrin Rehdanz; Richard S.J. Tol (Economic and Social Research Institute, Dublin, Ireland); Jian Zhang
    Abstract: We used that GTAP-W model – GTAP5 with water resources added – to estimate the impact of hypothetical Doha-like liberalization of agricultural trade on water use. Three conclusions emerge. First, the change in regional water use is less than 10%, even if agricultural tariffs are reduced by 75%. Second, patterns are non-linear. Water use may go up for partial liberalization, and down for more complete liberalization. This is because different crops respond differently to tariff reductions, but also because trade and competition matter too. Third, trade liberalization tends to reduce water use in water scarce regions, and increase water use in water abundant regions, even though there no water markets in most countries.
    Keywords: Computable General Equilibrium, Trade Liberalization, Water Policy, Water Scarcity
    JEL: D58 F13 Q17 Q25
    Date: 2007–08
  9. By: Alla Lileeva; Daniel Trefler
    Abstract: We weigh into the debate about whether rising productivity is ever a consequence rather than a cause of exporting. Exporting and investing to raise productivity are complimentary activities. For lower-productivity firms, incurring the fixed costs of such investments is justifiable only if accompanied by the larger sales volumes that come with exporting. Lower foreign tariffs will induce these firms to simultaneously export and invest in productivity. In contrast, lower foreign tariffs will induce higher-productivity firms to export without investing, as in Melitz (2003). We model this econometrically using a heterogeneous response model. Unique 'plant-specific' tariff cuts serve as our instrument for the decision of Canadian plants to start exporting to the United States. We find that those lower-productivity Canadian plants that were induced by the tariff cuts to start exporting (a) increased their labor productivity, (b) engaged in more product innovation, and (c) had high adoption rates of advanced manufacturing technologies. These new exporters also increased their domestic (Canadian) market share at the expense of non-exporters, which suggests that the labor productivity gains reflect underlying gains in TFP. In contrast, we find no effects for higher-productivity plants, just as predicted by our complementarity theory.
    JEL: F1
    Date: 2007–08
  10. By: Brenton, Paul; Newfarmer, Richard
    Abstract: This paper examines the export performance of 99 countries over 1995-2004 to understand the relative roles of export growth through " discovery " of new products and growth during post-discovery phases of the export product cycle -- acceleration and maturation -- in existing markets and expansion into new geographic markets. The authors find that expanding existing products in existing markets (growth at the intensive margin) has greater weight in export growth than diversification into new products and new geographic markets (growth at the extensive margin). Moreover, growth into new geographic markets appears to be more important than discovery of new export products in explaining export growth. Of particular importance is whether an exporting country succeeds in reaching more national markets that are already importing the product it makes. This geographic index of market penetration is a powerful explanatory variable of export performance. This suggests that governments should not focus solely or even primarily on the discovery channel, but also seek to identify and address market failures that are constraining exporters in subsequent phases of the export cycle.
    Keywords: Economic The ory & Research,Emerging Markets,Markets and Market Access,Free Trade,Debt Markets
    Date: 2007–08–01
  11. By: Chaudhuri, Sarbajit; Banerjee, Dibyendu
    Abstract: The paper is designed to examine the optimality of the free trade policy in a small poor economy incorporating the consumption efficiency hypothesis in the simple two-by-two Heckscher-Ohlin-Samuelson (HOS) framework. It finds that the protectionist policy in the form of a tariff on the capital-intensive import-competing sector may improve social welfare and unambiguously raise the economy-wide effective employment.
    Keywords: Consumption efficiency hypothesis; Optimality of free trade; Protectionist policy; Heckscher-Ohlin-Samuelson model; Effective employment.
    JEL: J41 O15
    Date: 2007–07–12
  12. By: Carmen Álvarez-Albelo (Grup de Recerca en Economia del Benestar (CREB), Department of Economic Analysis, University of La Laguna); Raúl Hernández-Martín (Department of Applied Economics, University of La Laguna)
    Abstract: This paper shows that tourism specialisation can help to explain the observed high growth rates of small countries. For this purpose, two models of growth and trade are constructed to represent the trade relations between two countries. One of the countries is large, rich, has an own source of sustained growth and produces a tradable capital good. The other is a small poor economy, which does not have an own engine of growth and produces tradable tourism services. The poor country exports tourism services to and imports capital goods from the rich economy. In one model tourism is a luxury good, while in the other the expenditure elasticity of tourism imports is unitary. Two main results are obtained. In the long run, the tourism country overcomes decreasing returns and permanently grows because its terms of trade continuously improve. Since the tourism sector is relatively less productive than the capital good sector, tourism services become relatively scarcer and hence more expensive than the capital good. Moreover, along the transition the growth rate of the tourism economy holds well above the one of the rich country for a long time. The growth rate differential between countries is particularly high when tourism is a luxury good. In this case, there is a faster increase in the tourism demand. As a result, investment of the small economy is boosted and its terms of trade highly improve.
    Keywords: High growth, Small tourism countries, Terms of trade, Luxury good, Dynamic general equilibrium.
    JEL: F43 O33 O41
    Date: 2007–07

This nep-int issue is ©2007 by Martin Berka. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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