nep-int New Economics Papers
on International Trade
Issue of 2007‒11‒10
twelve papers chosen by
Martin Berka
Massey University

  1. East Asia FTA and Kansai-Areafs Trade By Sumie Sato; Mototsugu Fukushige
  2. The Tariff Equivalent and Forgone Trade Effects of Prohibitive Technical Barriers to Trade By Yue, Chengyan; Beghin, John C.
  3. The Influence of Intra-Industry Trade on Export Sensitivity to Exchange Rates By Yoko Oguro
  4. Modelling multilateral trade resistance in a gravity model with exchange rate regimes By Christopher Adam; David Cobham
  5. International Competition in Vertically Differentiated Markets with Innovation and Imitation: Trade Policy versus Free Trade By Eugen Kovac; Kresimir Zigic
  6. Offshoring and Manufacturing Employment: A General Equilibrium Analysis By Cosimo Beverelli
  7. Trade and Migration in an Enlarged European Union: A Spatial Analysis By Justin B. May
  8. The Impacts of Renminbi Appreciation on Trades Flows and Reserve Accumulation in a Monetary Trade Model By Li Wang; John Whalley
  9. Trade and the (Dis)Incentive to Reform Labor Markets: The Case of Reform in the European Union By George Alessandria; Alain Delacroix
  10. Does Financial Openness Promote Economic Integration? By Fabrizio Carmignani; Abdur Chowdhury
  11. Sectoral Distortions and Service Protection in Russia. A Comparison with Benchmark Emerging Markets and EU Accession Candidates By Rolf J. Langhammer
  12. International Financial Volatility and Commodity Exports: Evidence from the Thai Agricultural Sector By Justin B. May

  1. By: Sumie Sato (Graduate School of Economics, Kobe University); Mototsugu Fukushige (Graduate School of Economics, Osaka university)
    Abstract: This paper attempts to forecast the changes in the Kansai-Areafs import and export when the East Asia Free Trade Agreements (FTA) is concluded among several countries in East and South-East Asia. We simulate the changes in the Kansai-Areafs trade in the following manner. First, we survey the simulation studies that forecast the changed in Japanfs national level trades by industries under the FTA. Second, we estimate a link model between the Japanfs national level and Kansai-Areafs import and export by commodities. Finally, we forecast the changes in the Kansai-Areafs import and export by extrapolating the estimated link models with the changes in the national level import and export. The result implies that the FTA promotes the Kansai-Areafs trade totally and expands the regional trade surplus.
    Keywords: Free Trade Agreements, regional trade, Kansai-Area
    JEL: F13 F17 R11
    Date: 2007–10
  2. By: Yue, Chengyan; Beghin, John C.
    Abstract: We derive a method to econometrically estimate the tariff equivalent and foregone trade effects of a prohibitive technical barrier to trade (TBT) based on Wales and Woodland’s Kuhn-Tucker approach to corner solutions in consumer choice. The method overcomes the lack of observed data on bilateral trade flows and accounts for differentiated goods by place of origin. We apply the derived random utility model to international trade in apples to identify the tariff equivalent of prohibitive nontariff trade barriers imposed by Australia on potential imports of New Zealand apples. We estimate the forgone apple trade between the two countries, the implied trade injury imposed by Australia on New Zealand, and the welfare loss to Australia. The removal of the TBTs would induce net welfare gains around US$50 million annually for Australia.
    Keywords: Corner solution, Kuhn-Tucker model, New Zealand apples, nontariff barrier, Australian technical barrier to trade, prohibitive, tariff equivalent TBT, NTB
    JEL: F1
    Date: 2007–10–30
  3. By: Yoko Oguro
    Abstract: The role of exchange rates is central to the literature on the determinants of trade, and is currently receiving much attention in the framework of global imbalances. This paper adds to the literature that suggests that exports will be less sensitive to exchange rate movements under certain circumstances. This is the first study, to my knowledge, which empirically investigates the sensitivity of export quantities to exchange rates in the context of Intraindustry trade (IIT). I assume that higher IIT implies the smaller elasticity of substitution among differentiated products and vice versa. The model presented in this paper suggests that the difference in production costs has an influence on IIT as well. I investigate six cross-country industry-panels for the bilateral trade of eight East Asian countries, Japan, and the United States with EU, East Asia, Japan, and North America. The empirical results confirm that export sensitivity to exchange rates declines as the extent of IIT increases. An obvious policy implication of the findings is that the effectiveness of exchange rates as a policy tool for addressing trade imbalances will diminish when substantial IIT exists.
    Keywords: Trade, Exchange rates, Intra-industry trade
    JEL: F00 F10 F14 F19
    Date: 2007–10
  4. By: Christopher Adam; David Cobham
    Abstract: In estimating a gravity model it is essential to analyse not just bilateral trade resistance, the barriers to trade between a pair of countries, but also multilateral trade resistance (MTR), the barriers to trade that each country faces with all its trading partners. Without correctly modelling MTR, it is impossible either to obtain accurate estimates of the effects on trade of exchange rate regimes and other variables or to perform accurate counterfactual simulations of trade patterns under other assumptions about exchange rate regimes or other variables. In this paper we implement a number of different ways of modelling MTR – both for a standard gravity model and for an extended model which includes a full range of bilateral exchange rate regimes – notably several variants of the technique developed by Baier and Bergstrand (2006), which turn out to produce broadly similar results. We then illustrate our preferred approach by carrying out simulations of the effects of the creation of an East African currency union and the effects of a withdrawal from EMU by Italy.
    Keywords: gravity, geography, trade, exchange rate regime, currency union, transactions costs, multilateral trade resistance.
    JEL: F10 F33 F49
    Date: 2007–11
  5. By: Eugen Kovac; Kresimir Zigic
    Abstract: The important characteristic of international competition between developed and less developed countries is vertical product differentiation, where firms' quality choices represent strategic decisions. Unlike the previous literature, we allow for a leadership in quality choice and the possibility of imitation and learning by the domestic firm. We compare both positive and normative aspects of this setup in the free trade and the strategic trade policy regime and show that the value of leadership may change dramatically when moving from free trade to trade policy. We also identify conditions under which trade policy can initiate the change in the quality ladders (known as quality reversal) and demonstrate that such a policy has a somewhat limited scope to achieve it. Thus, free trade can still be an optimal trade arrangement.
    Keywords: Vertical differentiation, free trade, strategic trade policy, quality rever-sal, leadership, imitation.
    JEL: D43 F12 F13 L13
    Date: 2007–08
  6. By: Cosimo Beverelli (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: We study the incidence of offshoring, or trade in tasks, on firms' productivity and on manufacturing employment in a standard economic-geography model with iceberg trade costs and a continuum of tasks. In a two-countries world where one country has a Hick's neutral technological edge over the other, tasks in which the productivity edge more than offsets offshoring costs get offshored, giving rise to global disintegration of the production process. Offshoring raises firms' productivity and the number of manufacturing firms in the offshoring countries, thereby reducing costs of living. The general equilibrium incidence of offshoring on labor demand is shown to depend on offshoring costs and trade costs. For high enough offshoring costs, interior equilibria where both countries still produce manufactured goods are likely to be sustained. In this case, offshoring will boost labor demand for low enough trade costs. If, on the other hand, offshoring costs are low enough, core-periphery equilibria with all manufacturing in the offshoring country are likely to emerge. In this case, manufacturing labor demand is positively affected by offshoring as long as offshoring costs are not too low. In a three-countries extension, we show that a country would suffer welfare and employment losses from the adoption of policies that limit its firms' possibility to go offshore while similar countries allow offshoring.
    Keywords: International Economics, Exchange Rates, Trade
    JEL: F12 F16 F29
    Date: 2007–10–11
  7. By: Justin B. May (Department of Economics, College of William and Mary)
    Abstract: One of the most prominent features in the evolution of the European Union (EU) has been its geographical expansion. Using a dynamic general equilibrium approach, this paper predicts the effects of future eastward expansions of the EU on both inter- and intra-national flows of trade and labor. Underlying the simulations is a spatial model of the EU incorporating heterogeneous firms, intra-industry trade, iceberg trade costs, and many possible locations. Locations are populated by a large number of potential firms, and these firms employ labor that varies across countries in its relative skill. The dynamics of the model are such that unprofitable firms are forced to exit in the long run, and workers have the opportunity to migrate in response to steep gradients in real compensation. Novel features of the data used here are that locations are defined in a very precise way and that the simulations take as their starting point a proxy for the actual distribution of economic activity across the European landmass. The model is calibrated to match aggregate trade and migration data from the 2004 enlargement as well as data on exporter characteristics. Simulations of enlargement predict an increase in aggregate exports of potential new members to the previous EU-15 of 4.8 percent of GDP in the five-year period following adoption of the acquis communautaire and net migration flows from potential new members to the previous EU-15 of 1.1 percent of aggregate acceding country population over the same period. Moreover, the simulations deliver many of the stylized facts of economic geography.
    Keywords: Dynamic General Equilibrium, Enlargement, European Union, Migration, Spatial, Trade
    JEL: F12 F15 F16 F22
    Date: 2007–10–31
  8. By: Li Wang; John Whalley
    Abstract: Given the rapidly growing reserves in Asia (China, Japan, Korea, Taiwan) and the pressures from trading partners to revalue, there is a need to examine commercial policy in more than a pure barter model. Here we evaluate the joint impacts of exchange rate appreciation on trade flows and country surpluses using a general equilibrium trade model with a simple monetary structure in which the trade surplus is endogenously determined in the exchange rate setting country and the exchange rate is exogenous. We illustrate its application to the Chinese case using calibration to 2005 data. Our results, while elasticity dependent, suggest that the impacts of Renminbi (RMB) revaluation on the surplus are proportionally larger than on trade flows, and that changes in trade flows can be substantial. Different treatments of China's processing trade have small impact on changes in China's trade flow under RMB appreciation, but significant impacts on the change in the surplus. Results are elasticity dependent; larger substitution elasticities in preferences yield larger effects on trade flows and the surplus.
    JEL: E5 F3 F43
    Date: 2007–11
  9. By: George Alessandria; Alain Delacroix
    Abstract: In a closed economy general equilibrium model, Hopenhayn and Rogerson (1993) find large welfare gains to removing firing restrictions. We explore the extent to which international trade alters this result. When economies trade, labor market policies in one country spill over to other countries through their effect on the terms of trade. A key finding in the open economy is that the share of the welfare gains from domestic labor market reform exported substantially exceeds the share of goods exported. In our baseline case, 105 percent of the welfare gains are exported even though the domestic economy only exports 30 percent of its goods. Thus, with international trade a country receives little to no benefit, and possibly even loses, from unilaterally reforming its labor market. A coordinated elimination of firing taxes yields considerable benefits. We find the welfare gains to the U.K. from labor market reform by its continental trading partners of 0.21 percent of steady state consumption. This insight provides some explanation for recent efforts toward labor market reform in the European Union.
    Keywords: Firing Costs, International Trade, Labor Market Reform
    JEL: D78 E24 E61 F16 F42 J65
    Date: 2007
  10. By: Fabrizio Carmignani (United Nations Economic Commission for Africa); Abdur Chowdhury (United Nations Economic Commission for Europe)
    Abstract: The effect of financial openness on economic integration for two clusters of countries is estimated: the formerly planned economies of Eastern Europe and central Asia (emerging market economies) and some western advanced economies. We focus on two dimensions of economic integration: convergence of per-capita incomes across countries and trade integration. We employ both single equation estimation and system estimation to account for endogenous links between trade integration and income convergence. Results show that in the cluster of emerging market economies, financial openness is a powerful instrument of economic integration. In the group of advanced economies, financial openness effectively facilitates income convergence, but its impact on trade integration is ambiguous.
    Keywords: financial openness, economic integration, transition economies, east Europe
    JEL: F36 P33
    Date: 2007–06
  11. By: Rolf J. Langhammer
    Abstract: Recent empirical research on efficiency gains for Russia from WTO membership concludes that service trade liberalization especially through allowing foreign suppliers to invest in Russian service industries promises the largest gains. This points to sizable efficiency deficits in the Russian service sector. This paper departs from the question whether both the Russian sectoral protection structure and the effective rates of protection (ERPs) differ from structures and rates in benchmark countries if tax equivalents for intermediate services are taken into account. The result is that almost all Russian service industries get effectively taxed and not protected once not only tax equivalents of intermediate goods but also those of intermediate services are included in ERP calculation. Variance among industries and peak taxes in service industries are significantly higher than in a median emerging country taken as benchmark. These findings support the key role of intermediate services liberalization for the expansion of a viable Russian service sector. Results from comparing Russian effective rates of protection with those of the EU accession countries Bulgaria and Romania are not inclusive. Tax levels of the two accession countries are also high and variant and thus cannot serve as a proxy for the “economic distance of Russia to Brussels”. Lessons for European Neighborhood Policy point to the requirement for the EU to liberalize bilateral service trade (through mode 3 supply: commercial presence ) on a quid pro quo base: without opening EU markets for Russian companies in specific services (i.e., energy distribution), Russia will probably not open its service sector for EU suppliers more than is required in order to comply with minimum WTO accession prerequisites.
    Keywords: Service Trade, Liberalization, Russia, European Neighborhood
    JEL: F13 F15
    Date: 2007–10
  12. By: Justin B. May (Department of Economics, College of William and Mary)
    Abstract: While the demise of many tightly-managed exchange rate regimes has meant that exchange rate volatility has risen for most developing countries in the past few decades, there exists little consensus on the ramifications of that volatility for real sectoral performance. Using production and export data from the Bank of Thailand, this paper measures the effect of real exchange rate volatility on Thai production and export of five key agricultural commodities. I measure volatility as the moving average standard deviation of the daily real value of the baht, the residual of an ARMA(5,4) process of the monthly real value of the baht, the residual of an ARIMA(2,1,3) process of the daily real value of the baht, and as the conditional time variance of the GARCH(2,1) process of the monthly real value of the baht. I then estimate the effects of real currency fluctuations across the agricultural sectors, controlling for both the level of the real exchange rate and foreign incomes. Point estimates of the effect of real exchange rate volatility on the volume of exports are consistently negative and often statistically significant lending support to a range of theoretical models that predict such an effect. Further, I find no significant relationship between production and lagged values of real exchange rate volatility and the control variables, suggesting that volatility is not an important determinant of agricultural supply. These results are robust to the choice of any of the measures of volatility considered here.
    Keywords: Agriculture, Exchange Rate Volatility, Exports, Thailand, Trade
    JEL: F14 O13 O24
    Date: 2007–10–31

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