nep-int New Economics Papers
on International Trade
Issue of 2007‒09‒24
twenty-two papers chosen by
Martin Berka
Massey University

  1. Europe and Global Imbalances By Philip R. Lane; Gian Maria Milesi-Ferretti
  2. Patterns of export diversification in developing countries: intensive and extensive margins By Alberto Amurgo-Pacheco Martha Denisse Pierola
  3. Labor Reallocation in Response to Trade Reform By Marc-Andreas Muendler
  4. Do Autocratic States Trade Less? By Aidt, T.S.; Gassebner, M.
  5. A Dynamic Chamberlin-Heckscher-Ohlin Model with Endogenous Time Preferences: A Note By Iwasa, Kazumichi; Kikuchi, Toru; Shimomura, Koji
  6. Trade liberalization, competition and growth By Omar Licandro; Antonio Navas-Ruiz
  7. Clothing and export diversification : still a route to growth for low-income countries ? By Hoppe, Mombert; Brenton, Paul
  8. On the Measurement of Changes in Product Quality in Marginal Intra-Industry Trade By A K M Azhar; Robert R J Elliott
  9. Role of Trade and Macroeconomic Policies in the Performance of Special Economic Zones (SEZs) By Morris Sebastian
  10. Which Reputations Does a Brand Owner Need? Evidence from Trade Mark Opposition By Georg von Graevenitz
  11. Comparative Advantage or Economic Policy? Stylized Facts and Reflections on Brazil´s Insertion in the World Economy - 1994 - 2005 By Armando Castelar Pinheiro; Regis Bonelli
  12. Trade, demand spillovers and industrialization : The emerging global middle class in perspective. By Alain Desdoigts; Fernando Jaramillo
  13. Trade and Workforce Changeover in Brazil By Marc-Andreas Muendler
  14. The effects of factor and sector biased technical change revisited By Robert Stehrer
  15. Free Trade Arrangement Between India and Japan:An Exploratory Analysis By Kaliappa Kalirajan
  16. The Rise of China and East Asian Export Performance: Is the Crowding-out Fear Warranted? By Prema-chandra Athukorala
  17. Trade and Revealed Comparative Advantage: Hungary, the Czech Republic, and the European Union By Kaitila , Ville
  18. The EU-ACP Economic Partnership Agreements What Impact on Development? By Brigid Gavin
  19. Distortions to Agricultural Incentives in Australia Since World War II By Anderson, Kym; Lloyd, Peter J; Maclaren, Donald
  20. EU – ASEAN free trade area: regional cooperation for global competitiveness By Botezatu, Elena
  21. Exports, Foreign Direct Investment and the Costs of Corporate Taxation By Christian Keuschnigg
  22. Subsidy Competition and the Role of Firm Ownership By Mittermaier, Ferdinand

  1. By: Philip R. Lane; Gian Maria Milesi-Ferretti
    Abstract: Although Europe in the aggregate is a not a major contributor to global current account imbalances, its trade and financial linkages with the rest of the world mean that it will still be affected by a shift in the current configuration of external deficits and surpluses. We assess the macroeconomic impact on Europe of global current account adjustment under alternative scenarios, emphasizing both trade and financial channels. Finally, we consider heterogeneous exposure across individual European economies to external adjustment shocks.
    Keywords: Financial integration, capital flows, external assets and liabilities
    Date: 2007–06–30
  2. By: Alberto Amurgo-Pacheco Martha Denisse Pierola (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: This paper uses highly disaggregated trade data to investigate geographic and product diversification patterns across a group of developing nations for the period from 1990 to 2005. The econometric investigation shows that the gravity equation fits the observed differences in diversification across nations. We find that exports at the intensive margin account for the most important share of overall trade growth. At the extensive margin, geographic diversification is more important than product diversification, especially for developing countries. Taking part in FTAs, thereby reducing trade costs, and trading with countries in the North are also found to have positive impacts on export diversification for developing countries.
    Keywords: export diversification, intensive margin, extensive margin
    JEL: F13 F14 F15
    Date: 2007–05
  3. By: Marc-Andreas Muendler (University of California, San Diego)
    Abstract: Tracking individual workers across employers and industries after Brazil's trade liberalization in the 1990's shows that foreign import penetration and tariff reductions trigger worker displacements but that neither comparative-advantage industries nor exporters absorb displaced workers for years. There are significantly more displacements and fewer accessions in comparative-advantage industries and at exporters. These findings are robust to instrumenting trade barriers and export status with product demand at Brazil's export destinations and real exchange rate components. Worker effects are important predictors of labor turnover. Trade liberalization is assoicated with significantly more transitions to informal work status and self-employment. Output is reallocated to more productive firms but, given fast labor-productivity growth, this product reallocationi is not accompanied by similar labor reallocation.
    Keywords: international trade, factor reallocation, labor demand and turnover, linked employer-employee data,
    Date: 2007–02–01
  4. By: Aidt, T.S.; Gassebner, M.
    Abstract: The paper analyzes whether the political regime of a country inuences its involvement in international trade. Firstly, we develop a theoretical model that predicts that autocracies trade less than democracies. Secondly, we test the predictions of the model empirically using a panel of more than 130 countries for the years 1962 to 2000. In contrast to the existing literature, we use data on individual importing and exporting countries, rather than a dyadic set-up. In line with the model, we and that autocracies import substantially less than democracies, even after controlling for official trade policies. This finding is very stable and does not depend on a particular set-up or estimation technique. Key words: International trade; democracy; autocracy; gravity model.
    JEL: F13 F14 O24 P45 P51
    Date: 2007–08
  5. By: Iwasa, Kazumichi; Kikuchi, Toru; Shimomura, Koji
    Abstract: This note formulates a dynamic two-country (developed and developing countries) Chamberlin-Heckscher-Ohlin model of trade with endogenous time preferences a la Uzawa (1968). We examine the relationship between initial factor endowment differences and trade patterns in the steady state. In particular, to highlight the integration of developing countries (e.g., China) into the world trading system, we concentrate on the case of asymmetric size of two countries (in terms of population). It will be shown that (i) given that the representative household in each country supplies an equal amount of labor, only intra-industry trade occurs in the steady state irrespective of differences in the number of representative households and that (ii) the number of households being equal, the country with less labor efficiency becomes the net exporter of the capital-intensive good.
    Keywords: trade patterns; dynamic trade model; endogenous time preferences
    JEL: F12
    Date: 2007–09
  6. By: Omar Licandro; Antonio Navas-Ruiz
    Abstract: The aim of this paper is to understand whether international trade may enhance innovation and growth through an increase in competition. We develop a twocountry endogenous growth model, both countries producing the same set of goods, with firm specific R&D and a continuum of oligopolistic sectors under Cournot competition. Since countries produce the same set of goods, trade openness makes markets more competitive, reducing prices and raising the incentives to innovate. More general, a reduction on trade barriers enhances growth by reducing domestic firms`market power.
    Date: 2007–09
  7. By: Hoppe, Mombert; Brenton, Paul
    Abstract: Can the clothing sector be a driver of export diversification and growth for today ' s low-income countries as it was in the past for countries that have graduated into middle income? This paper assesses this issue taking into account key changes to the market for clothing: the emergence of India and especially China as exporting countries; the rise of global production chains; the removal of quotas from the global trading regime but t he continued presence of high tariffs and substantial trade preferences; the increasing importance of large buyers in developed countries and their concerns regarding risk and reputation; and the increasing importance of time in defining sourcing decisions. To assess the importance of the factors shaping the global clothing market, the authors estimate a gravity model to explain jointly the propensity to export clothing and the magnitude of exports from developing countries to the E U and US markets. This analysis identifies the quality of governance as an important determinant of sourcing decisions and that there appears to be a general bias against sourcing apparel from African countries, which is only partially overcome by trade preferences.
    Keywords: Economic Theory & Research,Free Trade,Trade Policy,Emerging Markets,Transport Economics Policy & Planning
    Date: 2007–09–01
  8. By: A K M Azhar; Robert R J Elliott
    Abstract: There is a long established thread of the international trade literature concerned with the measurement of intra-industry trade (IIT). Two distinct strands of the literature have developed: First, measures of marginal IIT that are concerned with the adjustment implications of volume-based changes in IIT; second, measures of vertical and horizontal IIT that are concerned with quality-based differences in IIT. This paper marries the two literatures to provide a new perspective on the smooth adjustment hypothesis debate and suggests the use of the marginal product quality index, a new measure of changes in quality in matched trade changes that complements dynamic measures of volume-based IIT.
    Keywords: Intra-industry trade, adjustment costs, quality, product differentiation
    JEL: F19
    Date: 2007–08
  9. By: Morris Sebastian
    Abstract: Special economic zones following the enormous success of China have been widely imitated. But it is to be entirely anticipated that the results would vary greatly. Earlier avatars of SEZs in the form of Foreign Trade Zones (FTZs) and Export Promotion Zones (EPZs) were important in the export led growth of east Asia especially South Korea. But more than SEZs or EPZs per se it is the pursuit of “export led growth policies” which underlie the success of exporting and hence of SEZs. SEZz / EPZs can be seen as a (not necessary) microeconomic and spatial initiative in the pursuit of ELG under rather special circumstances by China, and South Korea and Taiwan to more limited extent in their early phases of transformation. In other countries not pursuing ELG the success of SEZs/EPZs has been rather modest. The roles played by the SEZs/ EPZs etc whatever their original purpose were constrained and determined by the macroeconomic policies, trade policies, and regional alignments. There is little meaning in studying SEZs beyond their layout and design without reference to these broader trade and macroeconomic policies. Thus early pioneers like India could make little out of their EPZs since the policies are severely biased against exports. We characterise export led growth (ELG) as the strategy that has allowed the late twentieth century industrialisations, which is far from both import substitution (as conventionally understood) and laissez faire, and to be the simultaneous pursuit of both IS and EP. With this framework we are able to understand the role and evolution of SEZs in a wide variety of countries. These help us to explain and anticipate that unless the policy turns sharply to favour exports (more correctly tradables over non tradables) the success of Indian SEZs would be modest and nowhere near that registered in China. Following from our characterisation of Import Substitution, Export Led Growth and Laissez Faire we also bring out the nature and performance of “special zones” when these are promoted under the very same regimes.
    Keywords: Special Economic Zones, SEZ, trade-strategy, export, infrastructure, Export-Led-Growth, China, India, Macroeconomic policy, trade theory, monetary trade theory, industrial-location, FDI, Fiscal-incentives
    JEL: F01
    Date: 2007–09–06
  10. By: Georg von Graevenitz (Georg von Graevenitz,, INNO-tec, Munich School of Management, Kaulbachstraße 45, D 80539,Munich.)
    Abstract: At least two: the reputation of their brand and a reputation for being tough on imitators of this brand. Sustaining a brand requires both investment in its reputation amongst consumers and the defence of the brand against followers that infringe upon it. I study the defence of trade marks through opposition at a trade mark office. A structural model of opposition and adjudication of trade mark disputes is presented. This is applied to trade mark opposition in Europe. Results show that brand owners can benefit from a reputation for tough opposition to trade mark applications. Such a reputation induces applicants to settle trade mark opposition cases more readily.
    Keywords: trade marks, opposition, intellectual property rights, reputation
    JEL: K41 L00 O31 O34
    Date: 2007–07
  11. By: Armando Castelar Pinheiro; Regis Bonelli
    Abstract: This paper analyzes export performance in Brazil, discussing the roles played by export diversification, productivity enhancements, policy, and natural resource endowments. First, we provide a brief account of Brazil?s recent export performance and analyze changes in the competitiveness of Brazilian exports in a long-term perspective. This is done by evaluating actual sector export patterns vis-à-vis the rest of the world in an attempt to grasp a broad picture of comparative export behavior. We proceed to evaluate changes in exports competitiveness as described by shifts in the country?s revealed export behavior compared to the rest of the world, for which we rely on a traditional Constant-Market-Share (CMS) decomposition and on an extension of Hummels and Klenow?s approach. Next, we analyze agricultural exports, a discussion followed by an evaluation of the role of trade policy, and in particular export promotion instruments and institutions. Among the conclusions we highlight that there are several commonalities between the present and previous export booms, in the sense that: a) it reinforced the country?s diversified trade relations, with additional exports concentrated in non-traditional markets such as China, Russia, Africa, and South and Central American, non-Mercosur member countries; b) it did not change the relative share of manufactures in Brazil?s export basket, despite the excellent performance of agro-based exports since the early 1990s; and c) both agricultural and manufacture exports have experienced an increasing product diversification. Yet, innovations, defined as new goods entering the export basket, were relatively unimportant, except for some specific markets.
    Date: 2007–04
  12. By: Alain Desdoigts (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I]); Fernando Jaramillo (Universidad del Rosario - [Facultad de Economia])
    Abstract: Will the integration of BRIC (Brazil, Russia, India and China) into the global economy provide the biggest boost to the world economy since the industrial revolution ? In this paper, we investigate international demand spillovers brought about by an emerging global middle class and their impact on the international structure of production. We put forth a many-industry and two-country trade model featuring international competition, non-homothetic preferences and country-specific asymmetries in income distribution, productivity and population size. Its key characteristic is the introduction of demand complementarities propagating increasing returns across industries and national boundaries, which eventually translate into a global profit-multiplier.
    Keywords: Horizontal complementarities, hierarchic preferences, world middle class, deindustrialization, trade.
    Date: 2007–09–18
  13. By: Marc-Andreas Muendler (University of California, San Diego)
    Abstract: Linked employer-employee data for Brazil over a period of large-scale trade liber- alization document two salient workforce changeovers. Within the traded-goods sector, there is a marked occupation downgrading and a simultaneous education upgrading by which employers ¯ll expanding low-skill intensive occupations with increasingly educated jobholders. Between sectors, there is a labor demand shift towards the least and the most skilled, which can be traced back to rela- tively weaker declines of traded-goods industries that intensely use low-skilled labor and to relatively stronger expansions of nontraded-output industries that intensely use high-skilled labor. Whereas these observations are broadly consis- tent with predictions of Heckscher-Ohlin trade theory for a low-skill abundant economy, classic trade theory is a less useful guide to the observed reallocation pattern. Establishment-level regressions show that exporters exhibit signi¯cant employment downsizing. Workforce changeovers are neither achieved through worker reassignments to new tasks within employers nor are they brought about by reallocations across employers and traded-goods industries. Instead, trade- exposed industries shrink their workforces by dismissing less-schooled workers more frequently than more-schooled workers especially in skill-intensive occupa- tions, while most displaced workers shift to nontraded-output industries or out of recorded employment. It remains an important task for research to analyze the impact of economic reform on worker separations, accessions and spell durations outside employment at the individual worker level.
    Keywords: international trade, labor demand and turnover, linked employer-employee data,
    Date: 2007–01–16
  14. By: Robert Stehrer (wiiw)
    Abstract: In the trade-technology-wage debate, the effects of the various forms of technical progress on relative factor prices have been addressed in a number of contributions over the past decade. However, the existing literature is far from conclusive. The various contributions have either relied on specific assumptions, such as Leontief technologies or Cobb-Douglas demand, that have been decisive for the respective conclusions, or they used a more general framework, arriving at ambiguous results in many cases. In this paper we analyse a general equilibrium framework with CES production and CES demand functions, which allows for any discrete number of sectors and countries integrated via trade flows. Technologies are country- and sector-specific and endowment structures differ across countries. The necessary and sufficient conditions under which the relative wage rates are rising or falling in the domestic and foreign economies are derived. This is done for various types of factor- and sector-biased technical change taking place in a particular sector in either the home or foreign country. The conditions - depending on the relative skill intensity of the innovating sector, the elasticities of substitution in demand and supply, the relative factor endowment and the prevailing (equilibrium) relative wage rate - allow for straightforward economic interpretations. This permits to solve the cases classified as ambiguous in the existing literature and provides clear-cut conditions which are important for modelling and empirical research. Furthermore, the results are interpreted with respect to recent empirical studies where special emphasis is given to the sector-biased versus factor-biased hypothesis.
    Keywords: Trade, technology, wage debate, wage, CES production, CES demand, CES, trade flows, general equilibrium, skill intensity, skill, factor endowment
  15. By: Kaliappa Kalirajan
    Date: 2007
  16. By: Prema-chandra Athukorala
    Abstract: This paper examines the effects of China’s rapid integration into the global economy on export performance of its East Asian neighbours against the backdrop of ongoing changes in patterns of international production. Following a stage-setting overview of trends and patterns of China’s export performance since the early 1990s, it probes two key themes central to the current policy debate, namely China competition in third country markets and emerging patterns of East Asian exports to China. The statistical analysis places particular emphasis on the supply-side complementarities between China and its East Asian neighbours resulting from China’s rapid integration into regional production networks. The findings suggest that the fear of export crowding-out has been vastly exaggerated in the contemporary policy debate on the implications of China’s rise.
    Keywords: China, export performance, production fragmentation
    JEL: F14 F23 O53
    Date: 2007
  17. By: Kaitila , Ville (BOFIT)
    Abstract: This study analyses the trade of Hungary and the Czech Republic with the European Union in 1997. After a general introduction, the focus turns to the extent of intra-industry trade (IIT) and its horizontal and vertical components. The extent of IIT is also analysed in light of the flows of foreign direct investment (FDI) from the European Union to Hungary and the Czech Republic. This is followed by an analysis of revealed comparative advantage (RCA) in trade between the EU and the two Central European countries. The CN4-digit trade data is divided into two groups according to whether a country enjoys a revealed comparative advantage in a given market area or not. Statistical tests are performed to determine the extent to which the RCA structures of each pair of countries are dependent. The analysis also takes into account the volumes of trade flows.
    Keywords: revealed comparative advantage; intra-industry trade; Hungary; Czech Republic; EU
    Date: 2007–09–14
  18. By: Brigid Gavin
    Abstract: The European Union is currently concluding negotiations for Economic Partnership Agreements with 77 developing countries in the African, Caribbean and Pacific (ACP) regions. The dilemma at the heart of those negotiations is how to reconcile the goal of poverty reduction and development with the substantial trade liberalisation involved. ACP counties have become marginalised in world trade over the past three decades while at the same time they have adopted outward–oriented trade policies and their economies have become increasingly open. Therefore, further trade liberalisation is unlikely to contribute much to development in any major way. Instead ACP countries should focus on domestic growth strategies. Each ACP region should identify its own priority growth sectors and adapt its own specific growth.
    Keywords: development, trade liberalisation, regional integration
    Date: 2007–06–22
  19. By: Anderson, Kym; Lloyd, Peter J; Maclaren, Donald
    Abstract: Australia’s lacklustre economic growth performance in the first four decades following World War II was in part due to an anti-trade, anti-primary sector bias in government assistance policies. This paper provides new annual estimates of the extent of those biases since 1946 and their gradual phase-out during the past two decades. In doing so it reveals that the timing of the sectoral assistance cuts was such as sometimes to improve but sometimes to worsen the distortions to incentives faced by farmers. Also, the changes increased the variation of assistance rates within agriculture during the 1950s and 1960s, reducing the welfare contribution of those programs in that period. While the assistance pattern within agriculture appears not to have been strongly biased against exporters, its reform has coincided with a substantial increase in export orientation of many farm industries. The overall pattern for Australia is contrasted with that revealed by comparable new estimates for other high-income countries.
    Keywords: agricultural assistance; Distorted incentives; manufacturing protection; trade policy reform
    JEL: F13 F14 Q17 Q18
    Date: 2007–08
  20. By: Botezatu, Elena
    Abstract: The recent interest shown by the European Union towards the countries in South-east Asia, as well as the initiatives for setting up free trade areas in the region, come to confirm the uneasiness that portrays the situation at home, as well as the efforts that it set out to make in order to maintain its competitiveness on a global scale. Particularly, the attention that the EU has given to bi-regional cooperation, initiating talks for a free trade area with ASEAN, rather than with its member countries, strengthens the belief that the EU is currently seeking to consolidate its position in South-east Asia and to counter the increasing influence of China and Japan.
    Keywords: European Union; regional cooperation; competitiveness; free trade area
    JEL: F59
    Date: 2007–05–25
  21. By: Christian Keuschnigg (wiiw)
    Abstract: This paper develops a model of a monopolistically competitive industry with extensive and intensive business investment and shows how these margins respond to changes in average and marginal corporate tax rates. Intensive investment refers to the size of a firm's capital stock. Extensive investment refers to the firm's production location and reflects the trade-off between exports and foreign direct investment as alternative modes of foreign market access. The paper derives comparative static effects of the corporate tax and shows how the cost of public funds depends on the measures of effective marginal and average tax rates and on the behavioral elasticities of extensive and intensive investment.
    Keywords: Competitiveness, competitive model, industry, monopol, business investment, tax rates, corporate taxation, capital stock, effective average tax rate, effective marginal tax rate, elasticities of investment, FDI
  22. By: Mittermaier, Ferdinand
    Abstract: This paper addresses the role that foreign vs. domestic ownership of companies plays for governments in asymmetric countries' competition for a multinational's subsidiary. I argue that equilibrium subsidies as well as a foreign investor's location decision in policy competition between these countries critically depend on the ownership structure of incumbent firms. This shows that small countries with few national incumbents in an industry may be successful in attracting multinationals.
    Keywords: Subsidy competition; foreign direct investment; regional location
    JEL: F12 F23 H25 L13
    Date: 2007–09

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