nep-int New Economics Papers
on International Trade
Issue of 2008‒02‒09
eighteen papers chosen by
Martin Berka
Massey University

  1. Globalization and Innovation in Emerging Markets By Gorodnichenko, Yuriy; Svejnar, Jan; Terrell, Katherine
  2. Good jobs, bad jobs, and trade liberalization By Donald R. Davis; James Harrigan
  3. Does exporting lead to productivity spillovers in horizontal or vertical industries? Evidence from Indonesia By Prasanna Guru Sethupathy
  4. Product Quality at the Plant Level: Plant Size, Exports, Output Prices and Input Prices in Colombia By Maurice Kugler; Eric A. Verhoogen
  5. Related variety, trade variety and regional growth in Italy By Ron Boschma; Simona Iammarino
  6. What Accounts for the Rising Sophistication of China's Exports? By Zhi Wang; Shang-Jin Wei
  7. Trade and Sectoral Productivity By Fadinger, Harald; Fleiss, Pablo
  8. Trade, quality upgrading and wage inequality in the Mexican manufacturing sector By Eric Verhoogen
  9. Geography of Trade Costs in Italy By Michele Fratianni; Francesco Marchionne
  10. China's Impact on the Exports of Other Asian Countries: A Note By Kumakura, Masanaga; Kuroko, Masato
  11. Trade Liberalization in Latin America and Eastern Europe: The Cases of Ecuador and Slovenia By Sang-Wook Stanley Cho; Julian P. Diaz
  12. Water Policy Briefing: Does food trade save water?: The potential role of food trade in water scarcity mitigation By International Water Management Institute
  13. How sensitive are Latin American exports to Chinese competition in the U.S. market ? By Molina, Danielken; Micco, Alejandro; Lopez-Cordova, J. Ernesto
  14. Resolving the Paradox of Social Standards and Export Competitiveness By Stephen B. DeLoach; Jayoti Das
  15. Trading Profiles and Developing Country Participation in the WTO Dispute Settlement System By Francois, Joseph; Horn, Henrik; Kaunitz, Niklas
  16. A Wave of Protectionism? An Analysis of Economic and Political Considerations By Philipp Maier
  18. International Competition and U.S. R&D Subsidies: A Quantitative Welfare Analysis By Giammario Impullitti

  1. By: Gorodnichenko, Yuriy (University of California, Berkeley); Svejnar, Jan (University of Michigan); Terrell, Katherine (University of Michigan)
    Abstract: Globalization brings opportunities and pressures for domestic firms in emerging market economies to innovate and improve their competitive position. Using recent data on firms in 27 transition economies, we test for the effects of globalization through the impact of increased competition and foreign direct investment on domestic firms’ efforts to raise their capability (innovate) by upgrading their technology or their product/service (improving quality or developing a new one), taking into account firm heterogeneity. We find support for the prediction that competition has a negative effect on innovation, especially for firms further from the frontier, and that the supply chain of multinational enterprises and international trade are important channels for domestic firm innovation. We do not find support for the inverted U effect of competition on innovation. There is partial support for the hypothesis that firms in a more pro-business environment invest more in innovation and are more likely to display the inverted U relationship between competition and innovation.
    Keywords: competition, innovation, emerging markets, spillovers
    JEL: F23 O16
    Date: 2008–01
  2. By: Donald R. Davis (Department of Economics, Columbia University); James Harrigan (Federal Reserve Bank of New York)
    Abstract: Globalization threatens "good jobs at good wages", according to overwhelming public sentiment. Yet professional discussion often rules out such concerns a priori. We instead offer a framework to interpret and address these concerns. We develop a model in which monopolistically competitive firms pay efficiency wages, and these firms differ in both their technical capability and their monitoring ability. Heterogeneity in the ability of firms to monitor effort leads to different wages for identical workers - good jobs and bad jobs - as well as equilibrium unemployment. Wage heterogeneity combines with differences in technical capability to generate an equilibrium size distribution of firms. As in Melitz (2003), trade liberalization increases aggregate efficiency through a firm selection effect. This efficiency-enhancing selection effect, however, puts pressure on many "good jobs", in the sense that the high-wage jobs at any level of technical capability are the least likely to survive trade liberalization. In a central case, trade raises the average real wage but leads to a loss of many "good jobs" and to a steady-state increase in unemployment.
    Date: 2007
  3. By: Prasanna Guru Sethupathy (Columbia University)
    Abstract: This paper investigates the presence of productivity spillovers due to exporting. In particular, it examines whether productivity gains from exporting spill over upstream (to suppliers), downstream (to customers) or horizontally (to competitors). Using plant-level data on Indonesian manufacturing sectors, we find productivity gains to downstream firms of approximately 2.5-3.5% during the period 1990-1996. We do not find the presence of spillovers upstream or horizontally.
    Date: 2007
  4. By: Maurice Kugler (Harvard University - John F. Kennedy School of Government); Eric A. Verhoogen (Columbia University - Department of Economics)
    Abstract: This paper uses uniquely rich and representative data on the unit values of outputs (products)and inputs of Colombian manufacturing plants to draw inferences about the extent of quality differentiation at the plant level. We extend the Melitz (2003) framework to include heterogeneity of inputs and a complementarity between plant productivity and input quality in producing output quality and we show that the resulting model carries distinctive implications for two simple reduced-form correlations ¿ between output prices and plant size and between input prices and plant size ¿ and for how those correlations vary across sectors. We then document three plantlevel facts: (1) output prices are positively correlated with plant size within industries, on average;(2) input prices are positively correlated with plant size within industries, on average; and (3) both correlations are more positive in industries with more scope for quality differentiation, as measured by the advertising and R&D intensity of U.S. firms. The correlations between export status and input and output prices are similar to those for plant size. These facts are consistent with our model of quality differentiation of both outputs and inputs, and difficult to reconcile with models that assume homogeneity or symmetry of either set of goods. Beyond recommending an amendment of the Melitz (2003) model, the results highlight shortcomings of standard methods of productivity estimation, generalize and provide an explanation for the well-known employer size-wage effect, and suggest new channels through which liberalization of trade in output markets may affect input markets and vice-versa.
    Date: 2007
  5. By: Ron Boschma; Simona Iammarino
    Abstract: This paper makes an attempt to estimate the impact of regional variety and trade linkages on regional economic growth by means of export and import data by Italian province (NUTS 3) and sector (3-digit) for the period 1995-2003. Our results show strong evidence of related variety contributing to regional economic growth, no matter how growth is defined. Thus, Italian regions well endowed with sectors that are complementary in terms of competences (i.e. having related variety) perform better. The paper also assesses the effects of the breadth and relatedness of international trade linkages on regional growth, as it may bring new and related variety in the region. Our analysis demonstrates that regional growth is not affected by being well connected to the outside world per se, or having a high variety of knowledge flowing into the region. When the extra-regional knowledge originated from sectors the region is already specialised in, it did not positively impact on regional economic growth either. We found, however, some evidence of related extra-regional knowledge sparking off inter-sectoral learning across regions. With respect to employment growth, we could demonstrate that a region benefits from extra-regional knowledge when it originates from sectors that are related, but not similar to the sectors present in the region. Apparently, when the cognitive proximity between the extra-regional knowledge and the knowledge base of the region is neither too small nor too large, real learning opportunities are present, and the external knowledge contributes to regional employment growth.
    Keywords: related variety, agglomeration economies, trade linkages, regional growth, Italy
    JEL: R11 R12 O18
    Date: 2008–01
  6. By: Zhi Wang; Shang-Jin Wei
    Abstract: Chinese exports have become increasingly sophisticated. This has generated anxiety in developed countries as competitive pressure may increasingly be felt outside labor-intensive industries. Using product-level data on exports from different cities within China, this paper investigates the contributing factors to China's rising export sophistication. Somewhat surprisingly, neither processing trade nor foreign invested firms are found to play an important role in generating the increased overlap between China’s export structure and that of high-income countries. Instead, improvement in human capital and government policies in the form of tax-favored high-tech zones appear to be the key to the country's evolving export structure. On the other hand, processing trade, foreign invested firms, and government-sponsored high-tech zones all have contributed significantly to raising the unit values of Chinese exports within a given product category.
    JEL: F1 O1
    Date: 2008–02
  7. By: Fadinger, Harald; Fleiss, Pablo
    Abstract: Even though differences in sectoral total factor productivity are at the heart of Ricardian trade theory and many models of growth and development, very little is known about their size and their form. In this paper we try to fill this gap by using a Hybrid-Ricardo-Heckscher-Ohlin trade model and bilateral sectoral trade data to overcome the data problem that has limited previous studies, which have used input and output data to back out productivities, to a small number of OECD economies. We provide a comparable set of sectoral productivities for 24 manufacturing sectors and more than sixty countries at all stages of development. Our results show that TFP differences in manufacturing sectors between rich and poor countries are substantial and far more pronounced in skill and R\&D intensive sectors. We also apply our productivity estimates to test theories on development that have implications for the patterns of sectoral productivities across countries.
    Keywords: Sectoral Productivity Differences; Trade and Production Data; Ricardo; Heckscher-Ohlin; Comparative Advantage.
    JEL: O11 O47 F11 F12
    Date: 2008–01
  8. By: Eric Verhoogen (Columbia University - Department of Economics)
    Abstract: This paper proposes a new mechanism linking trade and wage inequality in developing countries ¿ the quality-upgrading mechanism ¿ and investigates its empirical implications in panel data on Mexican manufacturing plants. In a model with heterogeneous plants and quality-differentiated goods, only the most productive plants in a country like Mexico enter the export market, they produce higher-quality goods to appeal to richer Northern consumers, and they pay high wages to attract and motivate a high-quality workforce. An exchange-rate devaluation leads initially more-productive, higher-wage plants to increase exports, upgrade quality, and raise wages relative to initially less-productive, lower-wage plants within each industry. Using the late-1994 peso crisis as a source of variation and a variety of proxies for plant productivity, I find that initially more-productive plants increased the export share of sales, white-collar wages, blue-collar wages, the relative wage of whitecollar workers, and ISO 9000 certification more than initially less-productive plants during the peso crisis period, and that these differential changes were greater than in periods without devaluations before and after the crisis period. A factor-analytic strategy that relies more heavily on the theoretical structure and avoids the need to construct proxies finds similar results. These findings support the hypothesis that differential quality upgrading induced by the exchange rate shock tended to increase within-industry wage inequality.
    Date: 2007
  9. By: Michele Fratianni (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Francesco Marchionne (Universita Politecnica delle Marche)
    Abstract: We show that economic development is associated with lower trade costs by applying a gravity equation to exports from 103 Italian provinces to 188 countries over the period 1995-2004. Italian provinces are heterogeneous with respect to trade costs.
    Keywords: trade costs, distance, heterogeneity, gravity equation
    JEL: F10 F14
    Date: 2008–01
  10. By: Kumakura, Masanaga; Kuroko, Masato
    Abstract: Despite widespread interest in China's growing trade surplus and its impact on other countries, empirical research in these issues is handicapped by the lack of reliable statistics on aggregate import and export prices. Although researchers estimate the trade volumes of China and other East Asian countries using a variety of surrogate price indices, an inappropriate deflator can give rise to a significant bias in econometric analysis. This paper discusses the potential seriousness of this problem by examining recent studies on the export competition between China and other Asian countries.
    Keywords: China, East Asia, Trade Price Index, Electronics, Exports, Trade problem
    JEL: F14 F31
    Date: 2007–12
  11. By: Sang-Wook Stanley Cho (School of Economics, The University of New South Wales); Julian P. Diaz (Bowdoin College)
    Abstract: This paper analyzes the potential effects of two ongoing trade liberalization experiences: Ecuador signing a Free Trade Agreement with the United States and Slovenia joining the European Union as a full member. We construct a static Applied General Equilibrium Model and perform a numerical experiment that consists on eliminating all import tariffs that Ecuador and Slovenia impose on the United States and European Union, respectively. To calibrate our models, we work with Input-Output tables and construct a Social Accounting Matrix for each country. We perform additional numerical experiments, such as sensitivity analysis on the import and export elasticities of substitution, a partial liberalization scenario, the fiscal impact of eliminating the tariff revenues and how this loss can be compensated with other taxes, and an alternative trade liberalization framework for Slovenia. We find that both countries benefit from these trade liberalization reforms, with prices falling in the import sector and production rising in the export sector. However, different forms of trade liberalization (free trade agreement vs. customs union) have different implications on the patterns of trade and welfare.
    Keywords: Trade Liberalization; Free Trade Agreement; Customs Union; Fiscal Policy; Social Accounting Matrix; Ecuador; Slovenia
    JEL: F14 F15
    Date: 2007–08
  12. By: International Water Management Institute (International Water Management Institute)
    Keywords: Food production/ Trade/ Water conservation
    Date: 2007
  13. By: Molina, Danielken; Micco, Alejandro; Lopez-Cordova, J. Ernesto
    Abstract: This paper estimates the elasticity of substitution of U.S. imports using detailed trade data over the 1990-2003 period. The authors use a two-stage least squares framework in order to identify the elasticity parameter of interest. The authors use the elasticity estimates to assess the extent to which Latin American and Chinese goods compete in the U.S. market by providing forecasts of how alternative policy scenarios may affect exports to the United States. The analysis considers the following scenarios: (i) currency revaluation in China; (ii) elimination of U.S. tariffs on Latin American exports un der a hemispheric free trade agreement; and (iii) the elimination of quotas on apparel and textile exports under the Multi-Fiber Agreement. The findings show that a 20-percent appreciation of the renminbi reduces Chinese exports to the United States by a fifth, although since other regions increase sales to that market (0.5 percent for Latin America), U.S. imports decline by only 1.7 percent. Hemispheric free trade would increase Latin America ' s exports to the United States by around 3 percent. The removal of the quotas would lead to a sharp increase in Chinese sales to the United States (40 percent), but Latin America would see its share of the U.S. market decline by around 2 percent (2.5 percentage points). China ' s gains would come mainly at the expense of other regions of the world.
    Keywords: Economic Theory & Research,Free Trade,Markets and Market Access,Trade Policy,Debt Markets
    Date: 2008–01–01
  14. By: Stephen B. DeLoach (Department of Economics, Elon University); Jayoti Das (Department of Economics, Elon University)
    Abstract: Over the last decade there has been increasing international pressure on countries to raise social standards (i.e., production standards based on environmental and labor conditions). Currently, the World Trade Organization does not allow countries to impose minimum standards on imports based on environmental or labor standards because it is assumed to undermine competition. There is no consensus in the empirical literature, however, to support this claim. In fact, the evidence suggests that while stronger environmental standards hurt competitiveness, stronger labor standards do the opposite. This paper offers one possible explanation for this paradox. In a simple model of incomplete information, externally-imposed standards may either increase or decrease the competitiveness of infant firms from developing countries depending on the degree of complementarity between the standard and the production of high-quality goods.
    JEL: F18 Q56 D82 L15
    Date: 2008–03
  15. By: Francois, Joseph (Johannes Kepler University, Linz); Horn, Henrik (Research Institute of Industrial Economics (IFN)); Kaunitz, Niklas (Research Institute of Industrial Economics (IFN))
    Abstract: It has been alleged since its inception that the WTO Dispute Settlement (DS) mechanism is biased against developing countries, as manifested in e.g. allegedly too low rates of dispute initiation. To shed light on this issue, this study analyses the determinants of developing country participation in the DS system, using bilateral industry-level trade data, and a data set on dispute initiation that is significantly richer than what has been employed in the literature. But the study also points to a number of fundamental conceptual and data problems that beset the whole empirical literature that seeks to draw policy conclusions based on country participation in the DS system. While perhaps appreciated by researchers working in this area, these problems appear to go unnoticed by practitioners drawing on this literature.
    Keywords: WTO; Dispute Settlement; Developing Countries; Dispute Initiation
    JEL: F13 F53 O19
    Date: 2008–01–31
  16. By: Philipp Maier
    Abstract: In light of the U.S. current account deficit, pressure is high on Asian countries to revalue their currencies. The calls from some U.S. policymakers for tariffs on imports from China has sparked fears that this could trigger a world-wide surge in protectionism. This study evaluates the risk of protectionism, considering two dimensions: first, the economic effects of tariffs; second, the incentives for policymakers to adopt tariffs. Following the political economy literature, we distinguish 'benevolent' policymakers - who care about long-term GDP - and 'myopic' policymakers, for whom short-term considerations are important. An analysis of the economic effects using the Bank of Canada's <em>Global Economy Model</em> shows that the gains from import tariffs are small: in the short-term, tariffs raise the price of imports and shift consumption toward domestically-produced goods; but they also lead to a real appreciation. This improves the terms of trade, but falling export volumes lead to a reduction in GDP in the long-run. As regards the political dimension, we conclude that a 'benevolent' policymaker would not adopt tariffs, because of negative long-term economic consequences, but 'myopic' policymakers might be tempted to exploit short-term political gains. Given the potentially high costs of protectionist trade policies, protectionism is therefore rightly viewed as an important risk.
    Keywords: International topics; Recent economic and financial developments; Regional economic developments
    JEL: E66 F32 F47
    Date: 2008
  17. By: Fugarolas Álvarez-Ude, Guadalupe; Mañalich Gálvez, Isis; Matesanz Gómez, David
    Abstract: This paper seeks to investigate whether the balance of payments has been a key determinant of the Cuban long-term economic growth during different commercial policy regimes spanning over the period 1960 to 2004. We focus here on built the impact of terms of trade movements into a specification of Thirlwall’s hypothesis. Cointegration multivariate tests for non-stationary series reveal that economic growth, exports of goods and services and terms of trade are driven by a common stochastic trend and finding support for an economic growth path constrained by the country own external demand position
    Keywords: Cuba; Thirlwall’s model and cointegration
    JEL: C32 C22 F31 F43
    Date: 2008–02–04
  18. By: Giammario Impullitti
    Abstract: The geographical distribution of R&D investment changes dramatically in the 1970s and 1980s. In the early 1970s U.S. firms are the uncontested world leaders in R&D investment in most manufacturing sectors. Later, led by Japan and Europe, foreign firms start challenging American R&D leadership in many sectors of the economy. In this period of increasing competition we also observe a substantial increase in the U.S. R&D subsidy. In a version of the multi-country quality ladder growth model I study the effects of foreign R&D competition on domestic welfare and on the optimal R&D subsidy. I build a new empirical index of international R&D rivalry that can be used to perform quantitative analysis in this type of frameworks. In a calibrated version of the model I focus on the period 1979-1991 and perform the following quantitative exercises: first, I evaluate the quantitative effects of the observed increase in foreign R&D competition on U.S. welfare. I find that the positive growth effect and the negative business-stealing effect of foreign competition on U.S. welfare substantially balance each other, and the overall welfare effect of competition is negligible - less then 1 percent of per-capita consumption. Moreover, using estimates of the effective U.S. R&D subsidy rate, I compute the distance from optimality of the observed subsidy at each level of competition. I find that international competition increases the optimal subsidy and that, surprisingly, the U.S. subsidy observed in the data is fairly close to the optimal subsidy.
    Keywords: international competition, R&D-driven growth theory, strategic R&D policy, international trade and growth
    JEL: F12 F13 O41
    Date: 2008

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