nep-int New Economics Papers
on International Trade
Issue of 2007‒10‒13
fourteen papers chosen by
Martin Berka
Massey University

  1. Trade Shocks and Labor Adjustment: Theory By Stephen Cameron; Shubham Chaudhuri; John McLaren
  2. Trade Shocks and Labor Adjustment: A Structural Empirical Approach By Erhan Artuc; Shubham Chaudhuri; John McLaren
  3. The role of China in Asia: engine, conduit, or steamroller? By Jane T. Haltmaier; Shaghil Ahmed; Brahima Coulibaly; Ross Knippenberg; Sylvain Leduc; Mario Marazzi; Beth Anne Wilson
  4. Firm Performance and International Trade - evidence from a small open economy By Andersson, Martin; Johansson, Sara; Lööf, Hans
  5. Playful Dragon: Messing and missing trade By Beja, Jr., Edsel
  6. FDI-TRADE NEXUS: EMPIRICAL ANALYSIS ON ASEAN-5 By Kueh, Jerome Swee-Hui; Puah, Chin-Hong; Lau, Evan; Abu Mansor, Shazali
  7. Some Simple Analytics of Trade and Labor Mobility By Shubham Chaudhuri; John McLaren
  8. Trade Openness and Growth: Pursuing Empirical Glasnost By Andreas Billmeier; Tommaso Nannicini
  9. North American Integration and the Location of Foreign Direct Investment By Tekin-Koru, Ayca; Waldkirch, Andreas
  10. Phases of Imitation and Innovation in a North-South Endogenous Growth Model By Artatrana Ratha; Eungmin Kang
  11. Rules for Border-Crossing Factor Movements By Horst Siebert
  12. Testing the Keynesian Proposition of Twin Deficits in the Presence of Trade Liberalisation: Evidence from Sri Lanka after War: the case of a bridge too far? By Chowdhury, Khorshed; Saleh, Ali Salman
  13. The Welfare Economics of an Excise-Tax Exemption for Biofuels By de Gorter, Harry; Just, David R.
  14. What Drives China's Growing Role in Africa? By Jian-Ye Wang

  1. By: Stephen Cameron; Shubham Chaudhuri; John McLaren
    Abstract: We construct a dynamic, stochastic rational expectations model of labor reallocation within a trade model that is designed so that its key parameters can be estimated for trade policy analysis. A key feature is the presence of time-varying idiosyncratic moving costs faced by workers. As a consequence of these shocks: (i) Gross flows exceed net flows (an important feature of empirical labor movements); (ii) the economy features gradual and anticipatory adjustment to aggregate shocks; (iii) wage differentials across locations or industries can persist in the steady state; and (iv) the normative implications of policy can be very different from a model without idiosyncratic shocks, even when the aggregate behaviour of both models is similar. It is shown that the equilibrium solves a particular planner's problem, thus facilitating analytical results, econometric estimation, and simulation of the model for policy analysis.
    JEL: F16 F42 J60 K11
    Date: 2007–10
  2. By: Erhan Artuc; Shubham Chaudhuri; John McLaren
    Abstract: The welfare effects of trade shocks depend crucially on the nature and magnitude of the costs workers face in moving between sectors. The existing trade literature does not directly address this, assuming perfect mobility or complete immobility, or adopting reduced-form approaches to estimation. We present a model of dynamic labor adjustment that does, and which is, moreover, consistent with a key empirical fact: that intersectoral gross flows greatly exceed net flows. Using an Euler-type equilibrium condition, we estimate the mean and the variance of workers' switching costs from the U.S. March Current Population Surveys. We estimate high values of both parameters, implying both slow adjustment of the economy, and sharp movements in wages, in response to a trade shock. Simulations of a trade liberalization indicate that despite the high estimated adjustment cost, in terms of lifetime welfare, the liberalization is Pareto-improving. The explanation for this surprising finding -- which would be missed by a reduced-form approach -- is that the high variance to costs ensures high rates of gross flow; this helps spread the liberalization's benefits around.
    JEL: F16 J60
    Date: 2007–10
  3. By: Jane T. Haltmaier; Shaghil Ahmed; Brahima Coulibaly; Ross Knippenberg; Sylvain Leduc; Mario Marazzi; Beth Anne Wilson
    Abstract: This paper assesses China's role in Asia as an independent engine of growth, as a conduit of demand from the industrial countries, and as a competitor for export markets. We provide both macroeconomic and microeconomic evidence. The macroeconomic analysis focuses on the impact of U.S. and Chinese demand on the output of the Asian economies by estimating growth comovements and VARs. The results suggest an increasing role of China as an independent source of growth. The microeconomic analysis decomposes trade into basic products, parts and components, and finished goods. We find a large role for parts and components trade consistent with China playing an important and increasing role as a conduit. We also estimate some regressions that show that China's increasing presence in export markets has had a negative effect on exports of some products for some other Asian economies, but not for other products, including those of the important electronic high-technology industry.
    Date: 2007
  4. By: Andersson, Martin (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Johansson, Sara (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper presents a comprehensive description and analysis of the international trading activities of firms based on novel detailed Swedish data. As a small open economy with a limited domestic market, Sweden constitutes an interesting contrast to existing evidence. We show that much of the stylized facts from large countries (specifically the US) about firms’ participation in international trade also pertain to a small open economy. We provide robust evidence of selection operating from market to market which is consistent with that low productive firms are confined to markets with low productivity thresholds. We further show that selection also applies to number of products traded. Both export and import productivity premiums increase in number of markets and number of products traded, respectively. There is a substantial heterogeneity among exporters and importers in terms of the number of markets they trade with and in terms of the number of products they trade.
    Keywords: international trade; exports; imports; firm heterogeneity; productivity; import premium; export premium
    JEL: D21 D24 F14 F23
    Date: 2007–10–03
  5. By: Beja, Jr., Edsel
    Abstract: An examination of available data reveals large trade misinvoicing between the People’s Republic of China and identified trade partners. The analysis finds a net trade misinvoicing of US$ 287.6 billion between 2000 and 2005, while the full magnitude of unrecorded trade is estimated at US$ 1.4 trillion. Further analysis also finds that there is an accounted misinvoicing or missing trade of US$ 53.7 billion for the same period. China needs to have more effective management of its trade flows. At the same time, the international community needs to contribute to put up more effective governance mechanisms to address trade misinvoicing.
    Keywords: International trade; trade misinvoicing; China
    JEL: F14
    Date: 2007–10–05
  6. By: Kueh, Jerome Swee-Hui; Puah, Chin-Hong; Lau, Evan; Abu Mansor, Shazali
    Abstract: This paper investigates the dynamic linkages between FDI and trade of ASEAN-5 countries using the Autoregressive Distributed Lag (ARDL) bounds testing approach. Empirical results suggest that FDI and import are complement to each other in long run but import tends to substitute FDI in short run. Conversely, export tends to substitute FDI in long run, however, complementary linkage was found between FDI and export in short run.
    Keywords: FDI; Trade; Autoregressive Distributed Lag (ARDL)
    JEL: F40 C32
    Date: 2007–10–09
  7. By: Shubham Chaudhuri; John McLaren
    Abstract: We study a simple, tractable model of labor adjustment in a trade model that allows us to analyze the economy's dynamic response to trade liberalization. Since it is a neoclassical market-clearing model, we can use duality techniques to study the equilibrium, and despite its simplicity a rich variety of properties emerge. The model generates gross flows of labor across industries, even in the steady state; persistent wage differentials across industries; gradual adjustment to a liberalization; and anticipatory adjustment to a pre-announced liberalization. Pre-announcement makes liberalization less attractive to export-sector workers and more attractive to import-sector workers, eventually making workers unanimous either in favor of or in opposition to liberalization. Based on these results, we identify many pitfalls to conventional methods of empirical study of trade liberalization that are based on static models.
    JEL: F16 F23 J60 J7
    Date: 2007–10
  8. By: Andreas Billmeier; Tommaso Nannicini
    Abstract: Studies of the impact of trade openness on growth are based either on cross-country analysis-which lacks transparency-or case studies-which lack statistical rigor. We apply transparent econometric methods drawn from the treatment evaluation literature to make the comparison between treated (i.e., open) and control (i.e., closed) countries explicit while remaining within a unified statistical framework. First, matching estimators highlight the rather far-fetched country comparisons underlying common cross-country results. When appropriately restricting the sample, we confirm a positive and significant effect of openness on growth. Second, we apply synthetic control methods-which account for endogeneity due to unobservable heterogeneity-to countries that liberalized their trade regime and we show that trade liberalization has often had a positive effect on growth.
    Keywords: Working Paper , Trade policy , International trade , Economic growth , Economic models ,
    Date: 2007–07–13
  9. By: Tekin-Koru, Ayca; Waldkirch, Andreas
    Abstract: We investigate how the North American Free Trade Agreement (NAFTA) has altered the pattern of foreign direct investment (FDI) in North America. The theoretical analysis suggests that NAFTA affects the incentives of U.S. and non-U.S. firms locating in Mexico differently and may lead to investment diversion from the U.S. Combining U.S. and Mexican FDI data and using a difference-in-differences estimator, we find that U.S. FDI in Mexico has increased since the inception of NAFTA in a manner that cannot be explained entirely by the usual FDI determinants. Other countries have been using Mexico as an export platform since before NAFTA with no discernible positive effect from the agreement. We find little evidence that inward U.S. FDI has been diverted. The results are robust to a number of different model and econometric specifications as well as the skill data used.
    Keywords: Foreign Direct Investment; Multinationals; Export Platform; NAFTA
    JEL: F15 F23 F21
    Date: 2007–07
  10. By: Artatrana Ratha; Eungmin Kang (Department of Economics, st Cloud State University)
    Abstract: Using an error correction version of an autoregressive distributed lag model, we investigate the dynamics of the Korean J-Curve against her eight trading partners. The strict version of the J-Curve is observed with a few major Korean trading partners, such as the U.S. and Indonesia. The estimation results from the Trade Balance Model and the Error Correction Model confirm that, after a depreciation of the Korean won, there has been a long-run adjustment toward the improvement of Korean trade balance against most trading partners. The findings are consistent over different sample periods, including before and after the financial crisis in 1997, and with different trading partners. After the Asian financial crisis, we find that the J-Curve relationship with Korean trading partners has become much more apparent than it was before the crisis.
    Keywords: Bilateral Trade, J-Curve, Currency Crisis
    JEL: F1 F3 F4
    Date: 2007–07
  11. By: Horst Siebert
    Abstract: This paper analyzes rules for international factor movements, i.e. real capital flows together with the relocation of firms, the flow of technology and the migration of people. These rules have to make sure that individuals, individual countries as well as the world economy benefit from factor flows. They also define whether factors are accumulated, for instance whether new technology is found. Except for TRIMS, an international investment code has not been established. Conventions have been introduced to ease patent applications. TRIPS protects intellectual property. Rules for labor migration relate to the right of exit and to conditions of entry. Factor movements are interdependent among themselves and with trade. This implies a pecking order between trade, capital flows and migration.
    Keywords: International rules, institutional arrangements, capital flows, technology, patents, intellectual property rights, migration, pecking order between trade and factor flows
    JEL: F2 K O3 P
    Date: 2007–10
  12. By: Chowdhury, Khorshed (University of Wollongong); Saleh, Ali Salman (University of Wollongong)
    Abstract: This paper examines the long-run and short-run relationships between the current account deficit, budget deficit, savings and investment gap and trade openness in Sri Lanka using the autoregressive distributive lagged (ARDL) approach. The time series properties of the variables, in the presence of endogenous structural breaks, was previously analysed using Perron’s (1997) additive outlier (AO) and innovational outlier (IO) models. The empirical analysis supports the Keynesian view that a link exists between the current account, budget deficit and savings and investment gap. We found that trade openness has a positive effect on the current account deficit, but is statistically insignificant, and offer some strategies to stabilise the budget deficit and current account deficits in Sri Lanka.
    Keywords: twin deficit, structural change, unit roots, ARDL
    JEL: E60 E62 C22 F41
    Date: 2007
  13. By: de Gorter, Harry; Just, David R.
    Abstract: A general theory is developed to analyze the efficiency and income distribution effects of a biofuel consumer tax credit and the interaction effects with a price contingent farm subsidy. Using the U.S. ethanol market as a stylized example, ethanol prices rise above the gasoline price by the amount of the tax credit. Corn farmers therefore gain directly while gasoline consumers only gain from any reduction in world oil prices due to the extra ethanol production and domestic oil producers lose. Because increased ethanol production improves the terms of trade in both the export of corn and the import of oil, we determine the optimal tax credit and the conditions affecting it. Historically, the intercept of the ethanol supply curve is above the gasoline price. Hence, part of the tax credit is redundant and represents ‘rectangular’ deadweight costs. The tax credit reduces the tax costs of price supports but incurs tax costs itself and increases consumer costs of corn. Price supports eliminate, create, have no effect or have an ambiguous effect on rectangular deadweight costs, depending on whether there is ex ante or ex post water in the tax credit. There are situations where ethanol production occurs only because of price supports. A stylized empirical model of the U.S. corn market is calibrated to illustrate the welfare effects of a tax credit. Net social costs of the tax credit averaged $683 million. Rectangular deadweight costs averaged $1,056 mil., more than offsetting the improved terms of trade and reduced price contingent farm subsidies, and representing over 50 percent of the tax cost of the tax credit.
    Keywords: biofuels; tax exemption; rectangular deadweight costs; price subsidies; welfare economics
    JEL: Q18 Q42 Q17 F13
    Date: 2007–09
  14. By: Jian-Ye Wang
    Abstract: What role does China play in Africa's development? What drives China's increasing economic involvement in the continent? This paper attempts to provide a quantified assessment of China's multifaceted influence as market, donor, financer and investor, and contractor and builder. Though in the past official development aid predominated, the paper argues that government policies, markets for each other's exports, Africa's demand for infrastructure, and differences in China's approach to financing have together moved commercial activities-trade and investment-to the center of China-Africa economic relations. While China's public sector, state financial institutions in particular, has been instrumental in the process, the influence of its private sector is increasing. Implications for the future of China-Africa economic relations are briefly noted.
    Keywords: Trade , China , Africa , Development assistance , Capital flows , Working Paper ,
    Date: 2007–08–30

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