nep-int New Economics Papers
on International Trade
Issue of 2007‒12‒19
eleven papers chosen by
Martin Berka
Massey University

  1. A Simple Model of The Juggernaut Effect of Trade Liberalisation By Baldwin, Richard; Robert-Nicoud, Frédéric
  2. The Gravity Equation in International Trade By Michele FRATIANNI
  3. Offshoring and Heterogeneous Firms: One Job Offshored, One Job Lost? By Nana Bourtchouladze
  4. Path Interdependence in a Dynamic Two Country Heckscher-Ohlin Model By Beatriz Gaitan; Terry L. Roe
  5. Trade, Diffusion and the Gains from Openness By Andrés Rodríguez-Clare
  6. Trade Policy and Market Power: The Case of the US Steel Industry By Bruce A. Blonigen; Benjamin H. Liebman; Wesley W. Wilson
  7. Subsidy Competition and the Mode of FDI: Acquisition vs Greenfield By Facundo Albornoz
  8. Globalization of International Relationships By Drobot, Elena
  9. Poverty Impacts of Increased Openness and Fiscal Policies in a Dollarized economy: A CGE-Micro Approach for Ecuador By Sara Wong; Ricardo Arguello; Ketty Rivera
  10. Are Trade Blocs Building or Stumbling Blocks? New Evidence By Baldwin, Richard; Seghezza, Elena
  11. Learning by Exporting: Do Firm Characteristics Matter? Evidence from Argentinian Panel Data By Facundo Albornoz; Marco Ercolani

  1. By: Baldwin, Richard; Robert-Nicoud, Frédéric
    Abstract: This paper posits a formal political economy model where the principle of reciprocity in multilateral trade talks results in the gradual elimination of tariffs. Reciprocity trade talks turn each nation’s exporters into anti-protectionists at home; they lower foreign tariffs by convincing their own government to lower home tariffs. Due to the new array of political forces, each government finds it politically optimal to remove tariffs that it previously found politically optimal to impose. The one-off global tariff cut then reshapes the political economy landscape via entry and exit – reducing the size/influence of import-competing sectors and increasing that of exporters. In the next round of trade talks governments therefore find it politically optimal to cut tariffs again. The process may continue until tariffs are eliminated.
    Keywords: Lobbying; Multilateral Trade Negotiations
    JEL: F13 F15
    Date: 2007–12
  2. By: Michele FRATIANNI (Indiana University, Graduate School of Business Bloomington)
    Abstract: This chapter offers a selective survey of the gravity equation (GE) in international trade. This equation started in the Sixties as a purely empirical proposition to explain bilateral trade flows, without little or no theoretical underpinnings. At the end of the Seventies, the GE was "legitimized" by a series of theoretical articles that demonstrated that the basic GE form was consistent with various models of trade flows. Empirical applications of GE expanded to cover a variety of issues, such as the impact of regional trade agreements, national borders and currency unions on trade, as well as the use of the equation to sort out the relative merit of alternative trade theories. A new wave of studies is now concentrating on the general equilibrium properties of the GE and finer econometrics points. The renewed interest of the academic profession in the development of the GE is undoubtedly driven by the equation's empirical success.
    Keywords: borders, currency unions, gravity equation, regional trade agreement, trade theories
    JEL: E58 F15 F33 G15
    Date: 2007–12
  3. By: Nana Bourtchouladze (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: Offshoring has gained a significant momentum in recent years. Firm size appears to be the leading factor differentiating firms that offshore from those that do not. We present a model that blends offshoring, or trade in tasks, with a Melitz-style model of monopolistic competition with heterogeneous firms and show that this is indeed the case. Accounting for firm heterogeneity offers new tools for analyzing the effects of offshoring on the employment dynamics within an individual firm and at the aggregate sector level. We show that offshoring unambiguously reduces per-firm labour demand in smaller firms, but has ambiguous effects in larger firms. As a result, irrespective of whether or not the number of firms operating in the offshoring nation increases, the overall sector employment may increase or decrease. Policies promoting free trade have a significant role to play in job creation. The model also permits a straightforward derivation of positive and normative effects of offshoring: trade in tasks increases productivity of active firms and improves welfare in the offshoring nation.
    Keywords: Trade in tasks, offshoring, heterogeneous firms, employment, productivity, welfare
    JEL: F12 F16 F29
    Date: 2007–12
  4. By: Beatriz Gaitan; Terry L. Roe
    Abstract: The closed economy neoclassical model predicts lung-run convergence in per-capita income. We show, within a neoclassical framework, that international trade among two countries differing only in their initial capital endowment generates long-run income differences. Our results suggests that trade creates opposite incentives to accumulate capital. Transitionally, the returns to investment with trade are smaller for countries initially less endowed with capital as when compared to their autarchic situation, while the reverse happens for those countries most endowed with capital. Thus, countries starting with relatively less (more) capital end, in the long run, with less (more) capital than in autarchy.
    Keywords: International trade; Development; Multiple Equilibria
    JEL: O41 F43 F11
    Date: 2007–09
  5. By: Andrés Rodríguez-Clare
    Abstract: Building on Eaton and Kortum's (2002) model of Ricardian trade, Alvarez and Lucas (2005) calculate that a small country representing 1% of the world's GDP experiences a gain of 41% as it goes from autarky to frictionless trade with the rest of the world. But the gains from openness, which includes not only trade but all the other ways through which countries interact, are arguably much higher than the gains from trade. This paper presents and then calibrates a model where countries interact through trade as well as diffusion of ideas, and then quantifies the overall gains from openness and the role of trade in generating these gains. Having the model match the trade data (i.e., the gravity equation) and the observed growth rate is critical for this quantification to be reasonable. The main result of the paper is that, compared to the model without diffusion, the gains from openness are much larger (206%-240%) and the gains from trade are smaller (13%-24%) when diffusion is included in the model. This last result is a consequence of a novel feature of the model, namely that trade and diffusion are substitutes, implying that trade generates smaller gains when diffusion is present.
    JEL: F1 F43
    Date: 2007–11
  6. By: Bruce A. Blonigen; Benjamin H. Liebman; Wesley W. Wilson
    Abstract: A primary function of trade policy is to restrict imports to benefit the targeted domestic sector. However, a well-established theoretical literature highlights that the form of trade policy (e.g., quotas versus tariffs) can have a significant impact on how much trade policy affects firms’ abilities to price above marginal cost (i.e., market power). The US steel industry provides an excellent example to study these issues, as it has received many different types of trade protection over the past decades. We model the US steel market and then use a panel of data on major steel products from 1980 through 2006 to examine the effects of various trade policies on the steel market. We find that the US steel market is very competitive throughout our sample with the exception of the period in which they received comprehensive voluntary restraint agreements (i.e., quotas) and were able to price substantially above marginal cost. All other forms of protection were in tariff form and had little effect on market power, consistent with prior theoretical literature on the nonequivalence of tariffs and quotas. We also find evidence that market power eroded over time in steel products where mini-mill producers gained sizeable market share, highlighting the role of technology in the market as well.
    JEL: F13 F23 L11 L61
    Date: 2007–11
  7. By: Facundo Albornoz
    Abstract: We model subsidy competition for a foreign MNC’s investment in two potential PTA partners. Taking into account acquisitions as an alternative investment mode weakens the case for subsidising greenfield investment. Competition between countries results in welfare losses, even more so if spillovers from the MNC’s presence exist. Hence in many cases a ban on subsidies may increase welfare. In addition, we show how trade integration affects the prospects for social waste.
    Keywords: Subsidy Competition, FDI, Greenfield Investment, Mergers and Acquisitions, Regional Integration, Spillovers
    JEL: F15 F21 F23
    Date: 2007–08
  8. By: Drobot, Elena
    Abstract: Globalization means enormous increase in scales of world trade and other processes of international exchange in open, integrated, borderless world economy. Thus, it means not only traditional overseas trade of goods and services, but also currency flows, capital movement, exchange of technology, information and know-how, migration. What consequences will globalization lead to in prospect? What positive consequences (the advantages) of global processes can we single out? And what are the threats of globalization for different cultures, nations and states? This scope of questions is discussed in the article.
    Keywords: Globalization; Globalism; types of global connectivity; liberalization; anti-globalization
    JEL: F50
    Date: 2007–12–14
  9. By: Sara Wong; Ricardo Arguello; Ketty Rivera
    Abstract: We quantify the effects on poverty and income distribution in Ecuador of bilateral trade liberalization with the US and a budget-neutral value added tax increase which seeks to compensate tariff revenue losses. We stress the study of fiscal policies that the government could tap in order to compensate for tariff revenue loss. This is a very important issue for Ecuador because this country adopted the US dollar as its currency in 2000, forgiving the use of important policy instruments. To study these issues we combine a reduced-form micro household income and occupational choice model (using 2005/6 data from the Ecuadorian LSMS) with a standard single-country computable general equilibrium model (employing a 2004 SAM). We follow a sequential approach that simulates the full distributional impact of trade and tax policies. We find that the impact of these policy changes on extreme poverty and income distribution is small but positive.
    Date: 2007–11–25
  10. By: Baldwin, Richard; Seghezza, Elena
    Abstract: The stumbling-block argument asserts that regionalism hinders MFN tariff cutting. If this was of first-order importance over previous decades, we should see a negative relationship between the level of MFN and preferential tariffs, i.e. MFN and PTA tariffs should be substitutes. Using tariff line data for 23 large trading nations (over one million observations) we find exactly the opposite. MFN and PTA tariffs are complements, not substitutes since margins of preferences tend to be low or zero for products where nations apply high MFN tariffs. One interpretation is that regionalism is neither a building nor a stumbling block. Sectoral vested interests are a ‘third factor’ that generates the positive correlation between MFN and PTA tariff levels.
    Keywords: Building blocks; Political economy of tariffs; Regionalism; Stumbling blocks
    JEL: F1 F13 F15
    Date: 2007–12
  11. By: Facundo Albornoz; Marco Ercolani
    Abstract: We identify characteristics that affect firms' ability to learn from their export activities. Our analysis is based on a panel of Argentinian firms spanning 1992-2001 and we employ Granger causality tests, propensity score matching techniques and GMM regressions. The characteristics we find to be important are: foreign ownership, intensive use of imported inputs, a skilled workforce and small firm size. Finally, firms that are new to exporting seem to experience particularly high productivity gains but begin enjoying them before entering into the export market.
    Keywords: Exporting, Learning by Exporting, Productivity, Absorptive Capacity, Argentina
    JEL: F14 D21 D24
    Date: 2007–09

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