nep-int New Economics Papers
on International Trade
Issue of 2007‒10‒06
twenty papers chosen by
Martin Berka
Massey University

  1. How to Save Globalization from its Cheerleaders By Rodrik, Dani
  2. Trade Liberalization, Competition and Growth By Licandro, Omar; Navas-Ruiz, Antonio
  3. Testing the Linkages between Trade and Productivity Growth By Claire Economidou; Antu Panini Murshid
  4. Technology adoption and the selection effect of trade By Antonio Navas-Ruiz; Davide Sala
  5. Reconciling Trade Statistics from China, Hong Kong and Their Major Trading Partners--A Mathematical Programming Approach By Wang, Zhi; Gehlhar, Mark; Yao, Shunli
  6. Trade, demand spillovers, and industrialization : the emerging global middle class in perspective. By Alain Desdoigts; Fernando Jaramillo
  7. Opennes and industrialization in Turkey after the Customs Union By Tonus, Özgür
  8. Regional Integration, Sectoral Adjustments and Natural Groupings in East Asia By Hiro Lee; Dominique van der Mensbrugghe
  9. North-South Trade and Directed Technical Change By Alessandra Bonfiglioli; Gino Gancia
  10. The Endogeneity of Association Agreements and their Impact on Trade for Eastern Countries: Empirical Evidence for Romania By Christophe RAULT; Ana Maria SOVA; Robert SOVA
  11. Trade Restrictiveness and Deadweight Losses from U.S. Tariffs, 1859-1961 By Douglas A. Irwin
  12. Can Openness Deter Corruption? The Role of Foreign Direct Investment By Larrain B., Felipe; Tavares, José
  13. The Smuggling of Art, and the Art of Smuggling: Uncovering the Illicit Trade in Cultural Property and Antiques By Raymond Fisman; Shang-Jin Wei
  14. Stages of diversification and specialization in an Heckscher-Ohlin world, 1976-2000 By Catia Batista; Jacques Potin
  15. Globalization and Its Impact on Labour By Robert C. Feenstra
  16. Twin Deficits, Openness and the Business Cycle By Corsetti, Giancarlo; Müller, Gernot
  17. Heckscher-Ohlin Specialization and the Marginal Product of Capital, 1976-2000 By Catia Batista; Jacques Potin
  18. Anti-Dumping Sunset Reviews: The Uneven Reach of WTO Disciplines By Cadot, Olivier; de Melo, Jaime; Tumurchudur, Bolormaa
  19. Why How and When did GTAP Happen? What has it Achieved? Where is it Heading? By Powell, Alan
  20. The Antebellum U.S. Iron Industry: Domestic Production and Foreign Competition By Joseph H. Davis; Douglas A. Irwin

  1. By: Rodrik, Dani
    Abstract: The new conventional wisdom on globalization emphasizes that reaping the benefits of trade and financial integration is not automatic, and requires better domestic institutions, essentially improved safety nets in rich countries and improved governance in the poor countries. The prevailing strategy is predicated on the presumption that insufficiently open markets continue to pose an important constraint on the world economy. In reality, lack of openness is no longer the binding constraint for the global economy. The gains to be reaped by further liberalization of markets are meager for poor and rich countries alike. An alternative approach to globalization would focus on enhancing policy space rather than market access, and on devising the rules of the game to better manage the interface between national regulatory and social regimes. It is possible to envisage such rules without slipping back into protectionism.
    Keywords: globalization; policy space
    JEL: F02 F15 F33
    Date: 2007–09
  2. By: Licandro, Omar; Navas-Ruiz, Antonio
    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 two-country 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.
    Keywords: Competition and growth; R&D; Trade openness
    JEL: F13 F43 O3
    Date: 2007–09
  3. By: Claire Economidou; Antu Panini Murshid
    Abstract: We examine the effect of trade on productivity growth using data from nine manufacturing industries across twelve OECD countries over the period 1978-1997. Since causality between productivity growth and trade share runs both ways, geographical characteristics of countries are used to instrument for average bilateral trade volumes over the 20-year period. In addition, to exploit the time-series nature of the data, we construct a panel data set and employ dynamic panel data techniques. After controlling for industry-specific heterogeneity, our results indicate that increased exposure to trade, in particular higher import volumes, exerts a positive influence on industries’ productivity growth. However, the effect is rather small.
    Keywords: Productivity Growth, Trade, Gravity Model of Trade, Manufacturing Industries
    JEL: F14 F43
    Date: 2007–03
  4. By: Antonio Navas-Ruiz; Davide Sala
    Abstract: The reallocation of output across plants and the productivity growth at individual plants are both important sources of productivity growth at the industry level. Recent evidence has shown that trade liberalization is related to both effects. While a trade model with firm heterogeneity can account for the first effect, it can not explain the second effect. We add to this model the option for firms to costly adopt more productive technologies and show that plant productivity actually rises in response to lower trade costs. Following trade liberalization, selection into exporting raises the market share only for some exporters. Therefore, a greater scale of operation amplifies their return from costly productivity-enhancement investments and leads a greater proportion of them to implement a more innovative technology.
    Date: 2007–08
  5. By: Wang, Zhi; Gehlhar, Mark; Yao, Shunli
    Abstract: This paper develops a mathematical programming model to simultaneously estimate re-export markups and reconcile bilateral trade statistics between China, Hong Kong, and their trading partners. The model is applied to sector level trade flows to resolve discrepant reporting in an efficient manner. Adjustments in trade flows are based upon statistical reporters' reliability information. The program is implemented in GAMS and retains many desirable theoretical and empirical properties. Estimates are used for generating trade flows and markups for Hong Kong's re-exports used in the forthcoming version 7 GTAP database. The model's flexibility has potential for expanded use in other regions where re-exports and associated markup cause discrepant trade flows.
    Date: 2007
  6. By: Alain Desdoigts (Centre d'Economie de la Sorbonne); Fernando Jaramillo (Universidad del Rosario)
    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.
    JEL: F10 O11 O14
    Date: 2006–02
  7. By: Tonus, Özgür
    Abstract: The Customs Union between Turkey and the European Union was the milestone to complete the process of trade liberalization, which had already started in the early 1980s. Global economic environment and Turkey’s Structural Adjustment Programs, which has been supervised by International Monetary Found, had created transformation stage of Turkish manufacturing industry in the trade liberalization period in the late 1990s. The sector’s relative size to GDP has not changed remarkably during the last decade, while the Turkish manufacturing sectors production and export capacity have been growing. In this paper, we try to analyse the causal relationship between trade with European Union and Turkish manufacturing sector indicators over the period of 1996-2006.
    Keywords: Customs Union; trade liberalization; industrialization; Turkish manufacturing industry
    JEL: F14 O24 F43
    Date: 2007–04–01
  8. By: Hiro Lee (Osaka School of International Public Policy,Osaka University); Dominique van der Mensbrugghe (The World Bank)
    Abstract: Although East Asian countries were relatively inactive in signing free trade agreements (FTAs) until the end of 1990s, a number of FTAs involving East Asian countries have been signed since the turn of the century. Because sectoral interests can exert significant influence on policy negotiations, the sectoral results would be particularly important for political economy considerations. The objective of this study is to compare welfare gains and sectoral adjustments resulting from various FTA scenarios in East Asia using a dynamic global computable general equilibrium (CGE) model. The RCA rankings of commodities with various FTA scenarios and those with the global trade liberalization are correlated to examine how gnaturalh each grouping would be. The results suggest that the ASEAN+3 FTA, with relatively large welfare gains and small structural adjustments, could be a facilitating intermediate step towards global free trade. Some of the smaller FTAs, such as the ASEAN-China and ASEAN-Korea FTAs, would result in large structural adjustments for ASEAN countries.
    Keywords: Regional integration; FTA; RCA; East Asia; CGE model
    JEL: F13 F15
    Date: 2007–09
  9. By: Alessandra Bonfiglioli; Gino Gancia
    Abstract: In a world where poor countries provide weak protection for intellectual property rights (IPRs), market integration shifts technical change in favor of rich nations. Through this channel, free trade may amplify international income differences. At the same time, integration with countries where IPRs are weakly protected can slow down the world growth rate. An important implication of these results is that protection of intellectual property is most beneficial in open countries. This prediction, which is novel in the literature, is consistent with evidence from a panel of 53 countries observed in the years 1965-1990. The paper also provides empirical support for the mechanism linking North-South trade to the direction of technical change: an increase in import penetration from low-wage, low-IPRs, countries is followed by a sharp fall in R&D investment in a panel of US manufacturing sectors.
    Keywords: Economic Growth, North-South Trade, Directed Technical Change, Intellectual Property Rights, Cross-Country Income Differences.
    JEL: F14 F43 O33 O34 O41
    Date: 2007–09–15
  10. By: Christophe RAULT; Ana Maria SOVA; Robert SOVA
    Abstract: The main goal of regionalization is the creation of free trade areas and the guarantee for countries to accede to a widened market. Many studies dealing with the effects of regional free trade agreements on trade flows already exist in the economic literature and the explosion of regional agreements among nations has recently stressed the key role of regionalization. However, the effects of agreements on trade have not yet been clearly determined in those studies. Our research in this paper aims at reassessing the genuine role of associations. For this matter, we particularly study the association of Romania with European Union countries. Our econometric analysis based on qualitative choice models highlights in particular why European countries chose to conclude an association agreement with Romania, and stresses the fact that European Union countries select endogenously the conclusion of association agreements. We also find a 0.29 positive impact of the association agreement on Romanian export performances.
    Keywords: Regionalization, European integration, Qualitative choice models, Probit
    JEL: E61 F13 F15 C25
    Date: 2007–04–01
  11. By: Douglas A. Irwin
    Abstract: This paper uses detailed tariff data to calculate the Anderson-Neary trade restrictiveness index (TRI) for the United States in 1859 and annually from 1867 to 1961. The TRI is defined as the uniform tariff that yields the same welfare loss as an existing tariff structure. The import-weighted average tariff understates the TRI by about 70 percent over this period. This approach also yields annual estimates of the static welfare loss from the tariff structure; the largest losses occur in the early 1870s (about one percent of GDP) but they fall almost continuously thereafter to less than one-tenth of one percent of GDP by the early 1960s. On average, import duties produced a welfare loss of 40 cents for every dollar of revenue generated, slightly higher than contemporary estimates of the marginal welfare cost of taxation.
    JEL: F13 N71 N72
    Date: 2007–09
  12. By: Larrain B., Felipe; Tavares, José
    Abstract: The economics literature provides ample evidence that higher corruption discourages FDI inflows. In this paper we address, for the first time in the literature in a systematic way, the exact reverse link, i.e., the empirical effect of FDI inflows on corruption. We present a simple model that illustrates the two-way relationship between foreign direct investment and corruption, identifying exactly the direction of causality that we address: how do “exogenous“ variations in FDI affect the degree of corruption in the host country. Our dataset covers a wide group of countries for the period 1981 – 2000, and we confront the issue of causality by constructing an original set of instrumental variables relying on geographical and cultural distance between FDI source and host countries to measure exogenous time-varying changes in FDI inflows. We find that FDI inflows (as a share of GDP) significantly decrease corruption in the host country. The quantitative impact of FDI inflows on corruption is stronger than the impact of trade openness and tariff rates on corruption and is validated by the use of instrumental variables. The results are robust to the inclusion of several determinants of openness, in addition to trade intensity and the average tariff level, including dependence on natural resources, ethnic fractionalization, size of the economy and government expenditure. Quantitatively, the impact of FDI inflows on corruption is of the same order of magnitude as the impact of per capita income on corruption.
    Keywords: Corruption; Foreign Direct Investment; Instrumental Variables; International Trade; Tariffs
    JEL: E5 F10 F13 F30 H10
    Date: 2007–09
  13. By: Raymond Fisman; Shang-Jin Wei
    Abstract: We empirically analyze the illicit trade in cultural property and antiques, taking advantage of different reporting incentives between source and destination countries. We thus generate a measure of illicit trafficking in these goods based on the difference between imports recorded in United States' customs data and the (purportedly identical) trade as recorded by customs authorities in exporting countries. We find that this reporting gap is highly correlated with the corruption level of the exporting country as measured by commonly used survey-based indicies, and that this correlation is stronger for artifact-rich countries. As a placebo test, we do not observe any such pattern for U.S. imports of toys from these same exporters. We report similar results for four other Western country markets. Our analysis provides a useful framework for studying trade in illicit goods. Further, our results provide empirical confirmation that survey-based corruption indicies are informative, as they are correlated with an objective measure of illicit activity.
    JEL: F1 K42 O1 Z11
    Date: 2007–09
  14. By: Catia Batista; Jacques Potin
    Abstract: Recent research has documented a U-shaped industrial concentration curve over an economy`s development path. How far can neoclassical trade theory take us in explaining this pattern? Building on Schott (2003), we estimate the production side of the Heckscher-Ohlin (HO) model with industry data on 50 developed and developing countries covering the period 1976-2000. We allow for multiple cones of specialization, and give special attention to intra-industry factor heterogeneity and to the potentially indeterminate nature of production. For each year, national industries are grouped in one of two HO aggregates: an aggregate of labor-intensive industries and an aggregate of capital-intensive industries. Decomposing changes in industrial concentration over time, we show that at least 30% of these changes seems to be explained by the diversification or concentration patterns at the HO-aggregate level. As the combined effect on specialization of changes in technology and relative prices seems to be small, the mechanism we identify is the textbook Rybcynski effect: poor countries accumulating capital have diversified their industrial production by producing more capital-intensive goods, while rich countries accumulating capital have made their production more concentrated by specializing in the production of capital-intensive goods.
    Keywords: Economic Growth and International Trade, Heckscher-Ohlin, Multiple Cones, Diversification, Specialization, Industrial Concentration, Structural Change
    JEL: F11 O40
    Date: 2007
  15. By: Robert C. Feenstra (University of California at Davis)
    Abstract: This is the text of Professor Robert Feenstra's 'Global Economy Lecture' which he delivered in February 2007. It is part of a lecture series organized jointly by the Vienna Institute for International Economic Studies (wiiw) and the Austrian National Bank (OeNB). In this lecture, Professor Feenstra covers a wide range of issues related to the ongoing discussion of the impact of global economic integration upon labour markets: the impact of outsourcing upon wage structures and upon productivity, the effects of NAFTA upon the US, Mexican and Canadian economies, the issue of outsourcing in services, the impact of international migration flows, etc.
    Keywords: globalization and labour markets, outsourcing, trade vs. technology, outsourcing in services, migration, production-nonproduction workers
    JEL: F16 F21 F22 F15
    Date: 2007–07
  16. By: Corsetti, Giancarlo; Müller, Gernot
    Abstract: In this paper, we study the co-movement of the government budget balance and the trade balance at business cycle frequencies. In a sample of 10 OECD countries we find that the correlation of the two time series is negative, but less so in more open economies. Moreover, for the US the cross-correlation function is S-shaped. We analyze these regularities taking the perspective of international business cycle theory. First, we show that a standard model delivers predictions broadly in line with the evidence. Second, we show that conditional on spending shocks the model predicts a perfect correlation of the budget balance and the trade balance. Yet, the effect of spending shocks on the trade balance is contained if an economy is not very open to trade.
    Keywords: Business Cycle; Fiscal Policy; Openness; Twin Deficits
    JEL: E32 F41 F42
    Date: 2007–09
  17. By: Catia Batista; Jacques Potin
    Abstract: This paper estimates the Heckscher-Ohlin (HO) model of international specialization with a panel of 44 developing and developed countries between 1976 and 2000. As Schott (2003), our empirical model includes multiple cones and recasts industry-level data in theoretically appropriate "HO aggregates", i.e. sets of goods with similar factor intensities. The time dimension enables us to obtain better estimates of international total factor productivity differences and of the development path of each country. We correct for international differences in factor qualities and prices. For capital, we use the results of Eaton-Kortum (2001) who find a higher cost of capital in poor countries. Consistent with neoclassical theory, the estimated values for the marginal product of capital are on average higher in poorer countries. Nevertheless, once we adjust for the fact that capital is more expensive in these countries, we find that the financial rate of return of capital investment is rather similar in rich and poor countries, thereby explaining the Lucas (1990) paradox.
    Keywords: Economic Growth and International Trade, Heckscher-Ohlin, Multiple Cones, Marginal Product of Capital, Specialization
    JEL: F11 O40
    Date: 2007
  18. By: Cadot, Olivier; de Melo, Jaime; Tumurchudur, Bolormaa
    Abstract: The paper uses a new database on Anti-Dumping measures worldwide to assess whether the 1995 Uruguay Round Agreement on AD sunset reviews had any effect. Estimates from a count of revocations for a panel of AD-using countries over 1979-2005 show that a five-year cycle is more apparent after the WTO agreement than before, with the marginal propensity to revoke AD measures at five years jumping from 0-2% to 45%. A survival analysis of AD measures confirms that those covered by the agreement stick on average for shorter periods, but a semi-parametric difference-in-difference approach suggests that compliance was at least partly voluntary rather than forced by the agreement’s discipline. Moreover, much of the adjustment to the WTO’s new rules on sunset reviews came from small and new users of Anti-Dumping rules rather than the traditional and large ones.
    Keywords: Antidumping; sunset reviews; survival analysis; WTO
    JEL: F13
    Date: 2007–09
  19. By: Powell, Alan
    Abstract: Special Paper Commissioned for the Plenary Session on: "Future Directions for the Global Trade Analysis Project"
    Date: 2007
  20. By: Joseph H. Davis; Douglas A. Irwin
    Abstract: This paper presents new annual estimates of U.S. production of pig iron and imports of pig iron products dating back to 1827. These estimates are used to assess the vulnerability of the antebellum iron industry to foreign competition and the role of the tariff in fostering the industry's early development. Domestic pig iron production is found to be highly sensitive to changes in import prices. Although import price fluctuations had a much greater impact on U.S. production than changes in import duties, our estimates suggest that the tariff permitted domestic output to be about thirty to forty percent larger than it would have been without protection.
    JEL: F13 F17 N11 N61
    Date: 2007–09

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