nep-int New Economics Papers
on International Trade
Issue of 2007‒12‒01
twenty-two papers chosen by
Martin Berka
Massey University

  1. International trade in durable goods: understanding volatility, cyclicality, and elastics By Charles Engel; Jian Wang
  2. How Remote is the Offshoring Threat? By Keith Head; Thierry Mayer; John Ries
  3. Migration and Trade in a World of Technological Differences: Theory with an Application to Eastern-Western European Integration By Susana Iranzo; Giovanni Peri
  4. Trade, Productivity and Institutional Quality: Issues and Empirics By Martínez-Zarzoso, Inmaculada; Doyle, Eleanor
  5. Impact of Trade on Productivity of Skilled and Unskilled Intensive Industries: A Cross-Country Investigation By Sohrab Abizadeh; Manish Pandey; Mehmet Serkan Tosun
  6. Buyer Power in International Markets By Horst Raff; Nicolas Schmitt
  7. Technology, International Trade, and Pollution from U.S. Manufacturing By Arik Levinson
  8. The Transmission of Domestic Shocks in Open Economies By Erceg, Christopher; Gust, Christopher; López-Salido, J David
  9. Goods Trade and International Equity Portfolios By Fabrice Collard; Harris Dellas; Behzad Diba; Alan Stockman
  10. The Role of Extensive and Intensive Margins and Export Growth By Tibor Besedes; Thomas J. Prusa
  11. Strategic Shirking in Bilateral Trade By Christoph Luelfesmann
  12. The Effect of Tax Treaties on Multinational Firms: New Evidence from Microdata By Davies, Ronald; Norback, Pehr-Johan; Tekin-Koru, Ayca
  13. Export Diversification: What’s behind the Hump? By Cadot, Olivier; Carrère, Céline; Strauss-Kahn, Vanessa
  14. China and India in International Trade: from Laggards to Leaders? By Francoise Lemoine; Deniz Unal-Kesenci
  15. International Trade Patterns over the Last Four Decades: How does Portugal Compare with other Cohesion Countries? By Amador, João; Cabral, Sónia; Ramos Maria, José
  16. Determinants of French and Spanish Relative Export Strength By Sebastian Vollmer; Inmaculada Martínez-Zarzoso; Felicitas Nowak-Lehmann D.
  17. After the Doha: Evolution or Revolution in the World Trading System? By Garhy Hufabeur; Costantino Poschedda
  18. Information-based trade By Philip Bond; Hulya Eraslan
  19. Using Complex Network Analysis to Assess the Evolution of International Economic Integration: The cases of East Asia and Latin America By Javier Reyes; Stefano Schiavo; Giorgio Fagiolo
  20. MIRAGE, Updated Version of the Model for Trade Policy Analysis Focus on Agriculture and Dynamics By Yvan Decreux; Hugo Valin
  21. China: Export Market Prospects and Alberta's Agriculture Sector By Cheryl Davie; Michele Veeman
  22. The Canada -- U.S. Softwood Lumber Agreement of 2006: The Experience of the Western Canadian Industry under the Softwood Lumber Agreement of 2006 By Helmut Mach; Williams J. Shaw

  1. By: Charles Engel; Jian Wang
    Abstract: Data for OECD countries document: 1. imports and exports are about three times as volatile as GDP; 2. imports and exports are pro-cyclical, and positively correlated with each other; 3. net exports are counter-cyclical. Standard models fail to replicate the behavior of imports and exports, though they can match net exports relatively well. Inspired by the fact that a large fraction of international trade is in durable goods, we propose a two-country two-sector model, in which durable goods are traded across countries. Our model can match the business cycle statistics on the volatility and comovement of the imports and exports relatively well. In addition, the model with trade in durables helps to understand the empirical regularity noted in the trade literature: home and foreign goods are highly substitutable in the long run, but the short-run elasticity of substitution is low. We note that durable consumption also has implications for the appropriate measures of consumption and prices to assess risk-sharing opportunities, as in the empirical work on the Backus-Smith puzzle. The fact that our model can match data better in multiple dimensions suggests that trade in durable goods may be an important element in open-economy macro models.
    Keywords: Durable goods, Consumer ; International trade
    Date: 2007
  2. By: Keith Head; Thierry Mayer; John Ries
    Abstract: Advances in communication technology make it possible for workers in India to supply business services to head offices located anywhere. This has the potential to put high-wage workers in direct competition with much lower paid Indian workers. Service trade, however, like goods trade, is subject to strong distance effects, implying that the remote supply of services remains limited. We investigate this proposition by deriving a gravity-like equation for service trade and estimating it for a large sample of countries and different categories of service trade. We find that distance costs are high but are declining over time. Our estimates suggest that delivery costs create a significant advantage for local workers relative to competing workers in distant countries.
    Keywords: Services; distance; gravity; trade
    JEL: F10 F14 F15 F16
    Date: 2007–11
  3. By: Susana Iranzo; Giovanni Peri
    Abstract: Two prominent features of globalization in recent decades are the remarkable increase in trade and in migratory flows between industrializing and industrialized countries. Due to restrictive laws in the receiving countries and high migration costs, the increase in international migration has involved mainly highly educated workers. During the same period, technology in developed countries has become progressively more skill-biased, increasing the productivity of highly educated workers more than less educated workers. This paper extends a model of trade in differentiated goods to analyse the joint phenomena of migration and trade in a world where countries use different skill-specific technologies and workers have different skill levels (education). We calibrate the model to match the features of the Western European countries (EU-15) and the new Eastern European members of the EU. We then simulate the effects of freer trade and higher labor mobility between the two regions. Even in a free trade regime the removal of the restrictions on labor movements would benefit Europe as a whole by increasing the GNP of Eastern and Western Europe. Interestingly, we also find that the resulting skilled migration (the so-called "brain drain") from Eastern European countries would not only benefit the migrants but, through trade, could benefit the workers remaining in Eastern Europe as well.
    JEL: F16 F22 J31 J61 O52
    Date: 2007–11
  4. By: Martínez-Zarzoso, Inmaculada; Doyle, Eleanor
    Abstract: We estimate the relationship between productivity and trade for a panel of countries over the period 1980 to 2000 using instrumental-variables estimation of a productivity equation. We note that some estimates of productivity gains attributed to trade capture instead the roles of institutions and geography. The endogeneity of trade and institutional quality is accounted for by using instruments. We extend the Frankel and Romer (1999) specification, using real openness to measure trade (following Alcala and Ciccone, 2004), which allows for identification of channels through which trade and production scale affect productivity. The trade instrument is based on a ‘theoretically motivated’ gravity equation. The instruments for institutional quality come from Gwartney, Holcombe and Lawson (2004). Contrary to Alcala and Ciccone, our results suggest no robust relationship between real openness and labour productivity in the 1980s. Conversely, the relationship between productivity and real openness appears to be robust from 1990 onwards and similarly in the case of institutional quality. We also find evidence implying that countries with low-quality institutions are also able to benefit from openness to trade.
    JEL: F14 F43 O40
    Date: 2007
  5. By: Sohrab Abizadeh (Department of Economics, University of Winnipeg); Manish Pandey (Department of Economics, University of Winnipeg); Mehmet Serkan Tosun (University of Nevada, Reno)
    Abstract: This paper examines the effect of trade openness on the productivity of skilled labor intensive and unskilled labor intensive industries in the group of 20 OECD countries. Using panel data and fixed effects approach, we find that skilled workers’ relative gains in productivity exceed those of their unskilled counterpart. Given this differential impact of trade openness on the relative productivity of the skilled and unskilled intensive industries, our findings lend support to the conclusions of past studies that skilled labor is likely to be more pro trade than unskilled labor.
    Keywords: Trade openness; Skilled intensive industries; Unskilled intensive industries; Productivity
    JEL: F16
    Date: 2007–11
  6. By: Horst Raff (Christian-Albrechts-Universität zu Kiel); Nicolas Schmitt (Simon Fraser University)
    Abstract: This paper investigates the implications for international markets of the existence of retailers/wholesalers with market power. Two main results are shown. First, in the presence of buyer power trade liberalization may lead to retail market concentration. Due to this concentration retail prices may be higher and welfare may be lower in free trade than in autarky, thus reversing the standard e¤ects of trade liberalization. Second, the pro-competitive effects of trade liberalization are weaker under buyer power than under seller power.
    Keywords: buyer power, retailing, international trade.
    JEL: F12 F15 L13
    Date: 2007–10
  7. By: Arik Levinson
    Abstract: Total pollution emitted by U.S. manufacturers declined over the past 30 years by about 60 percent, even though real manufacturing output increased 70 percent. This improvement must result from a combination of two trends: (1) changes in production or abatement processes ("technology"); or (2) changes in the mix of goods manufactured in the United States, which itself may result from increased net imports of pollution-intensive goods ("international trade"). I first show that most of the decline in pollution from U.S. manufacturing has been the result of changing technology, rather than changes in the mix of goods produced, although the pace of that technology change has slowed over time. Second, I present evidence that increases in net imports of pollution-intensive goods are too small to explain more than about half of the pollution reductions from the changing mix of goods produced in the United States. Together, these two findings demonstrate that shifting polluting industries overseas has played at most a minor role in the cleanup of U.S. manufacturing.
    JEL: D57 F18 Q55 Q56
    Date: 2007–11
  8. By: Erceg, Christopher; Gust, Christopher; López-Salido, J David
    Abstract: This paper uses an open economy DSGE model to explore how trade openness affects the transmission of domestic shocks. For some calibrations, closed and open economies appear dramatically different, reminiscent of the implications of Mundell-Fleming style models. However, we argue such stark differences hinge on calibrations that impose an implausibly high trade price elasticity and Frisch elasticity of labour supply. Overall, our results suggest that the main effects of openness are on the composition of expenditure, and on the wedge between consumer and domestic prices, rather than on the response of aggregate output and domestic prices.
    Keywords: imported intermediate inputs; open economy Phillips Curve; variable markups
    JEL: E52 F41 F47
    Date: 2007–11
  9. By: Fabrice Collard; Harris Dellas; Behzad Diba; Alan Stockman
    Abstract: We show that international trade in goods is the main determinant of international equity portfolios and offers a compelling -- theoretically and empirically -- resolution of the portfolio home bias puzzle. The model implies that investors can achieve full international risk diversification if the share of wealth invested in foreign equity matches their country's degree of openness (the imports to GDP share). The empirical evidence strongly supports this implication.
    JEL: F21 F3
    Date: 2007–11
  10. By: Tibor Besedes; Thomas J. Prusa
    Abstract: We investigate and compare countries' export performance based on their performance at the extensive and intensive export margins. We decompose these margins into three distinct components: establishing new partners and markets, having relationships survive or persist, and deepening existing relationships. We show that despite the large number of new exporting relationships, differences along the extensive margin have very little impact on long-run export growth. By contrast, we find developing countries would have had significantly higher export growth were they able to improve their performance with respect to the two key components of the intensive margin: survival and deepening.
    JEL: F1
    Date: 2007–11
  11. By: Christoph Luelfesmann (Simon Fraser University)
    Abstract: This paper explores a version of the canonical holdup model where agents undertake specific investments prior to their transaction. In this setting, we identify a novel reason for contractual inefficiency. An investing party (here, the seller) may shirk for strategic reasons, in particular, exert an effort so low that subsequent trade becomes inefficient. We first show that under a fixed-price contract which would otherwise be optimal and induce trade, strategic shirking can arise irrespective of the precontracted trade price. We then establish that if strategic shirking arises under a fixed-price contract, no general mechanism exists which restores efficient trade. Finally, we show that the defection issue is more severe when the parties trade after the buyer's valuation was realized, as compared to a scenario where the trade transaction is finalized in a state of uncertainty.
    Keywords: Bilateral Trade, Hold-Up, Specific Investments, Shirking.
    JEL: D23 H57 L51
    Date: 2007–10
  12. By: Davies, Ronald; Norback, Pehr-Johan; Tekin-Koru, Ayca
    Abstract: This paper uses affiliate level data from Swedish multinationals to examine the impact of tax treaties on both overall affiliate sales and the composition of those sales. In line with previous results, we find little evidence for an effect of treaties on the level of total sales. We do, however, find that a tax treaty increases the probability of investment by a firm in a given country. In addition, we find that a treaty reduces exports to the parent but increases imports of intermediate inputs from the parent. This is consistent with treaties increasing the effective host tax. This suggests that tax treaties impact the behavior of multinationals along some dimensions but not along others.
    Keywords: Tax Treaties; Multinational Firms; Foreign Direct Investment
    JEL: F23 H25 F21
    Date: 2007
  13. By: Cadot, Olivier; Carrère, Céline; Strauss-Kahn, Vanessa
    Abstract: The paper explores the evolution of export diversification patterns along the economic development path. Using a large database with 159 countries over 17 years at the HS6 level of disaggregation (4’998 product lines) we look for action at the “intensive” and “extensive” margins (diversification of export values among active product lines and by addition of new product lines respectively) using various export concentration indices and the number of active export lines. We also look at new product introduction as an indicator of “export-entrepreneurship”. We find a hump-shaped pattern of export diversification similar to what Imbs and Wacziarg (2003) found for production and employment. Low and Middle income countries diversify mostly along the extensive margin whereas high income countries diversify along the intensive margin and ultimately re-concentrate their exports towards fewer products. Such hump-shaped pattern is consistent with the conjecture that countries travel across diversification cones as discussed in Schott (2003, 2004) and Xiang (2007).
    Keywords: Export diversification; International trade; Latin America
    JEL: F1 O11
    Date: 2007–11
  14. By: Francoise Lemoine; Deniz Unal-Kesenci
    Abstract: China and India are demographic giants which have become big economic powers before getting rich. Their rise in international trade has created two symmetric shocks, on the supply of manufactured goods and the demand of primary goods, contributing to a reversal in world relative prices. They have kept traditional specialisation in textiles but have developed new outward-oriented sectors linked to new technology. Foreign firms, through offshoring and outsourcing, have played a critical part in turning China into a global export platform for electronic products, and India into a global centre for ICT services. Beyond the question of their technological catch-up, the challenge is now their quality upgrading, especially for China. In the two countries, there is a debate about the necessary changes to make long term growth sustainable. Their successful integration in world trade has not solved the problem of their overall oversupply of labour, but has accentuated the shortage of highly-skilled personnel.
    Keywords: China; India; foreign trade; technology; terms of trade
    JEL: F14 F15
    Date: 2007–11
  15. By: Amador, João; Cabral, Sónia; Ramos Maria, José
    Abstract: This paper compares the international trade pattern of Portugal with the other three EU15 Cohesion countries - Spain, Greece and Ireland - over the last forty years. The paper adopts a fact-finding approach, investigating the degree of openness of these economies and making extensive use of the standard Balassa (1965) index to assess the technological content of these countries' manufacturing trade. In order to infer on international trade specialization and on the persistence of trade patterns, the paper provides empirical evidence on the shape of the cross-sector distribution of 120 manufacturing exports and examines the intra-distribution dynamics. The Balassa index is also computed using import data, which allows for an assessment on the similitude of relative import structures and a crude identification of major vertical specialization activities. The paper concludes that there was a significant increase in the degree of openness of all economies, particularly in Ireland. Over the last four decades, Portugal shows a tendency to reduce its overall extent of export specialization, but significant differences with the world average still remain. The same behaviour is found in Greece and, more strongly, in Spain, which is the least specialized country. Conversely, Ireland shows the strongest export specialization and there is evidence of an increase in the last twenty years. The overall degree of specialization is higher on the export than on the import side, as the four countries analyzed show an import structure very close to the world average in the 2000-04 period. In the Portuguese case, we also find evidence that the degree of persistence of export patterns is higher than that of imports, in particular over longer horizons.
    Keywords: International Trade; Export Specialization; Import; Balassa Index; Distribution Dynamics.
    JEL: C14 F14 O52
    Date: 2007–09
  16. By: Sebastian Vollmer (Ibero-America Institute, University of Goettingen / Germany); Inmaculada Martínez-Zarzoso (Ibero-America Institute, University of Goettingen / Germany); Felicitas Nowak-Lehmann D. (Ibero-America Institute, University of Goettingen / Germany)
    Abstract: In this paper we assess the current relevance of Ricardian theory. Relative prices, labor costs, and productivity are evaluated as determinants of a country’s international competitiveness at the industry level. Working with detailed data on unit values and with industry data on productivity, we empirically implement a MacDougall-type model for Spanish and French trade to Brazil, China, Japan, and the U.S.. The period under study is 1980 to 2001 and we distinguish in our analysis between homogenous, reference-priced, and differentiated goods. Our results indicate that Ricardian theory is currently only valid for explaining trade with developing countries while other factors are of importance for developed economies. Overall price competitiveness is of importance, but for differentiated goods, factors distinct from prices seem to determine export success.
    Date: 2007–10–10
  17. By: Garhy Hufabeur (Peterson Institute for International Economics); Costantino Poschedda (Peterson Institute for International Economics)
    Abstract: The Doha Development Round of multilateral trade negotiations (often referred as the DDR) came to a halt in July 2006. This break followed several unsuccessful attempts to agree on modalities for reducing agricultural subsidies and protection. At Davos, in January 2007, world leaders pledged to resurrect the DDR talks and reach a successful agreement. Yet, in February 2007, the outcome remains in doubt. It seems most unlikely that a robust DDR agreement will be concluded – even though, with much effort, a shallow deal is still in sight. In this brief, we start with a short overview of the world trading system since the Second World War, emphasizing the contribution that trade liberalization makes to world growth. Next we summarize the causes of the DDR breakdown. This is followed by an examination of three different scenarios for the future of the world trading system, highlighting risks and opportunities associated with each. We conclude with bold predictions.
    Keywords: International Trade, Free Trade, Doha Development Agenda,
    JEL: F13
    Date: 2007–04
  18. By: Philip Bond; Hulya Eraslan
    Date: 2007–11–19
  19. By: Javier Reyes; Stefano Schiavo; Giorgio Fagiolo
    Abstract: Over the past four decades the High Performing Asian Economies (HPAE) have followed a development strategy based on the exposure of their local markets to the presence of foreign competition and on an outward oriented production. In contrast, Latin American Economies (LATAM) began taking steps in this direction only in the late eighties and early nineties, but before this period these countries were more focused in the implementation of import substitution policies. These divergent paths have led to sharply different growth performance in the two regions. Yet, standard trade openness indicators fall short of portraying the peculiarity of the Asian experience, and to explain why other emerging markets with similar characteristics have been less successful over the last 25 years. This paper offers an alternative perspective on the issue by exploiting recently-developed indicators based on weighted network analysis. This allows us to investigate the whole structure of international trade relationships and to determine both the position of HPAE countries in the network and its evolution over time. We show that HPAE countries are more integrated into the world economy, as they have moved -over the past 25 years- from the periphery of the network towards its core. In contrast, the LATAM region seems to be loosing presence within the network or, at best, its integration process has remained stagnant.
    Keywords: International trade, High Performing Asian Economies, Latin American Economies, Development, Growth, Networks, Complex Weighted Networks, World Trade Web, Centrality
    Date: 2007–11–25
  20. By: Yvan Decreux; Hugo Valin
    Abstract: MIRAGE is a multi-region, multi-sector computable general equilibrium model, devoted to trade policy analysis. It incorporates imperfect competition, horizontal and vertical product differentiation, and foreign direct investment, in a sequential dynamic set-up where installed capital is assumed to be immobile. Adjustment inertia is linked to capital stock reallocation. MIRAGE draws upon a very detailed measure of trade barriers and of their evolution under given hypotheses, thanks to the MAcMap database. The most recent version, presented in this document, offers improvements in the modelling of agriculture policy and dynamics.
    Keywords: Computable general equilibrium model; trade policy; agriculture; dynamics; foreign direct investment; imperfect competition
    JEL: D58 F12 F13 Q17
    Date: 2007–10
  21. By: Cheryl Davie (Western Centre for Economic Research, School of Business, University of Alberta); Michele Veeman (Western Centre for Economic Research, School of Business, University of Alberta)
    Abstract: The emergence of China as one of the world’s largest potential markets has led to this nation becoming the focus of increasing attention for economists, marketers and politicians. Reflecting anticipations of China’s expected role as the world’s future largest market for food, this paper focuses on the identification of opportunities and constraints to Alberta’s expansion of agricultural-based exports to China. The analysis is based on: collection and assessment of data relating to China’s importation of these agri-food products during the five year period from 2001 to 2005; analysis based on export values and market shares of Alberta and major competitors; overviews of some relevant literature; and insights from interviews with a small number of selected, knowledgeable North American exporters.
    Keywords: Farm produce--Alberta--Marketing, Produce trade--Alberta, Alberta--Commerce--China, China--Commerce--Alberta
    JEL: Q17
    Date: 2007–05
  22. By: Helmut Mach (Western Centre for Economic Research, School of Business, University of Alberta); Williams J. Shaw (Western Centre for Economic Research, School of Business, University of Alberta)
    Abstract: On April 11, 2007, the Western Centre for Economic Research organized and hosted a CN Canada-U.S. Trade Forum on the Canada-U.S. Softwood Lumber Agreement of 2006 at the School of Business, University of Alberta, Edmonton. The Forum brought together former Canadian and U.S. federal government softwood lumber negotiators, representatives of the Western Canadian softwood lumber industry, provincial government representatives, industry representatives, academics and students to review the experience of the Western Canadian softwood lumber industry after the first six months of operation and implementation of the Canada-U.S. Softwood Lumber Agreement, which came into force on October 11, 2006.
    Keywords: Softwood industry--Government policy--Canada, Softwood industry--Government policy--United States, Softwood industry--Canada, Softwood industry--United States
    JEL: F13
    Date: 2007–06

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