nep-int New Economics Papers
on International Trade
Issue of 2007‒10‒27
eight papers chosen by
Martin Berka
Massey University

  1. Trade Liberalization, Competition and Growth By Omar Licandro; Antonio Navas-Ruiz
  2. The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism By Itai Agur
  3. Trade, Foreign Investment and Myanmar’s Economic Development during the Transition to an Open Economy By Kudo, Toshihiro; Mieno, Fumiharu
  4. Efficiency Gains from Trade Reform: Foreign Technology or Import Competition? Evidence from South Africa’s Manufacturing Sector By Riham Shendy
  5. Twin Deficits, Openness and the Business Cycle By Giancarlo Corsetti; Gernot J. Mueller
  6. Economic Implications of an Association Agreement between the European Union and Central America By Luis Rivera; Hugo Rojas-Romagosa
  7. Export Dynamics in Colombia: Firm-Level Evidence By Jonathan Eaton; Marcela Eslava; Maurice Kugler; James Tybout
  8. The Effect of FDI on Child Labor By Ronald B. Davies; Annie Voy

  1. 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 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: Trade openess, competition and growth, R&D
    JEL: F13 F43 O3
    Date: 2007
  2. By: Itai Agur
    Abstract: This paper argues that the growing US trade de.cit has caused the decline of the WTO and the rise of regional trade agreements. A country in de.cit prefers to retain market power against countries with a large surplus. Multilateral cooperation restricts its choice. This notion is formalized in a three-country game in which countries negotiate multilaterally and, if that fails, bilaterally. The multilateral agreement only holds for sufficiently even trade balances. When one country's deficit grows too large, a regionalist equilibrium emerges. A VAR analysis shows that the US trade balance explains over 50% of the variation in regional trade agreements.
    Keywords: Regionalism, RTA, Multilateralism, WTO, Trade balance, US trade deficit
    JEL: C72 C73 F13 F32
    Date: 2007
  3. By: Kudo, Toshihiro; Mieno, Fumiharu
    Abstract: Throughout the 1990s and up to 2005, the adoption of an open-door policy substantially increased the volume of Myanmar’s external trade. Imports grew more rapidly than exports in the 1990s owing to the release of pent-up consumer demand during the transition to a market economy. Accordingly, trade deficits expanded. Confronted by a shortage of foreign currency, the government after the late 1990s resorted to rigid controls over the private sector’s trade activities. Despite this tightening of policy, Myanmar’s external sector has improved since 2000 largely because of the emergence of new export commodities, namely garments and natural gas. Foreign direct investments in Myanmar significantly contributed to the exploration and development of new gas fields. As trade volume grew, Myanmar strengthened its trade relations with neighboring countries such as China, Thailand and India. Although the development of external trade and foreign investment inflows exerted a considerable impact on the Myanmar economy, the external sector has not yet begun to function as a vigorous engine for broad-based and sustainable development.
    Keywords: Myanmar (Burma), International trade, Cross-border trade, Foreign direct investment, Economic development, Development cooperation, Foreign investments
    JEL: F14 F21 P28
    Date: 2007–08
  4. By: Riham Shendy
    Abstract: The empirical trade literature examining the effect of tariff reductions on productivity commonly proxies the former with Nominal Tariff Rates (NTR) and estimates the latter as the production function residual. In the context of the South African trade reform experience we examine the different channels by which tariff cuts affect productivity growth. Using industry level data for the manufacturing sector and covering the reform period from 1994 to 2004, we disentangle the differential effect of increased foreign competition, proxied by reductions in NTR, and that of the imported technology, proxied by the reductions in Input Tariff Rates (ITR), on productivity growth. Our measure of efficiency growth controls for the effect of tariff reductions on markups. The results suggest that the efficiency difference between foreign and domestic inputs have the major effect on productivity gains. Declines in ITR significantly raise productivity growth compared to an insignificant effect for NTR. Additionally, we find that higher protection rates are associated with higher markups, albeit this finding is not robust across all specifications.
    Keywords: Productivity, Trade Reform, Tariffs, Manufacturing, South Africa
    JEL: F12 F14 O55
    Date: 2007
  5. By: Giancarlo Corsetti; Gernot J. Mueller
    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 crosscorrelation 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: Fiscal Policy, Twin deficits, Openness, Business Cycle
    JEL: F41 F42 E32
    Date: 2007
  6. By: Luis Rivera (CLACDS-INCAE); Hugo Rojas-Romagosa (CPB (the Hague))
    Abstract: Using a global CGE model, we assess the potential macro-economic effects of a future European Union - Central American Association Agreement (EU-CAAA). Currently, many agricultural products from Central America (CA) enter duty-free to the European Union (EU); with two notable exceptions: bananas and sugar. We find that liberalizing the access to both products will bring significant gains to CA, while excluding them from the negotiations will bring no static gains. If trade facilitation mechanisms are implemented and we allow for the expected increase in FDI inflows to CA, welfare gains improve for all scenarios but are conditions on the level of EU agricultural liberalization.
    Keywords: EU-CAAA FTA, trade policy, free trade agreement, CGE models, bananas, sugar
    JEL: F13 F15 C68
    Date: 2007–10
  7. By: Jonathan Eaton; Marcela Eslava; Maurice Kugler; James Tybout
    Abstract: Using transactions-level customs data from Colombia, we study firm-specific export patterns over the period 1996-2005. Our data allow us to track firms' entry and exit into and out of individual destination markets, as well as their revenues from selling there. We find that, in a typical year, nearly half of all Colombian exporters were not exporters in the previous year. These new exporters tend to be extremely small in terms of their overall contribution to export revenues, and most do not continue exporting in the following year. Hence export sales are dominated by a small number of very large and stable exporters. Nonetheless, out of each cohort of new exporters, a fraction of firms go on to expand their foreign sales very rapidly, and over the period of less than a decade, these successful new exporters account for almost half of total export expansion. Finally, we find that new exporters begin in a single foreign market and, if they survive, gradually expand into additional destinations. The geographic expansion paths they follow, and their likelihood of survival as exporters, depend on their initial destination market.
    JEL: F10
    Date: 2007–10
  8. By: Ronald B. Davies (University of Oregon Economics Department); Annie Voy (University of Oregon Economics Department)
    Abstract: This paper examines the extent to which foreign direct investment (FDI) affects child labor. Using 1995 data for 145 countries, we find that, contrary to common fears, FDI is negatively correlated with child labor. This effect, however, disappears when controlling for per capita income. After doing so, we find no robust effect of either FDI or international trade on child labor. This result is robust to corrections for the endogeneity of FDI, trade, and income. Furthermore, this result is confirmed when using data from earlier years and when using fixed effects. This suggests that the impact of FDI and trade on child labor, if any, is the increases in income they generate.
    Keywords: Child Labor, Foreign Direct Investment, International Trade
    JEL: F14 F16 F23
    Date: 2006–10–01

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