nep-int New Economics Papers
on International Trade
Issue of 2008‒02‒16
twenty papers chosen by
Martin Berka
Massey University

  1. Estimating Cross-Country Differences in Product Quality By Juan Carlos Hallak; Peter K. Schott
  2. Inventories, Lumpy Trade, and Large Devaluations By George Alessandria; Joseph Kaboski; Virgiliu Midrigan
  3. Trade Liberalization, Competition and Growth By Omar Licandro; Antonio Navas-Ruiz
  4. Analyzing Economy Wide Effects of Trade Liberalisation on Vietnam using a Dynamic Computable General Equilibrium Model By Richard G. Harris; Peter E. Robertson; Melissa Wong
  5. Macroeconomic Interdependence and the International Role of the Dollar By Linda S. Goldberg; Cédric Tille
  6. International Trade in Durable Goods: Understanding Volatility, Cyclicality, and Elasticities By Charles Engel; Jian Wang
  7. Composition of Trade between Australia and Latin America: Gravity Model By Cortes, Maria
  8. Trade in the greenhouse: efficient policy in a global model By Geraint Johnes
  9. Egyptian Foreign trade status with special focus on USA and EU as Egypt’s major trading partners By Melad, Khaled
  10. Exporting Processing Zones, Industrial Upgrading and Economic Development: A Survey By William Milberg
  11. Does a Unilateral Policy Change Promote Trade? The Case of African Growth and Opportunity Act. By Bichaka Fayissa; Badassa Tadasse; Andrew McColley
  12. An Empirical Test of Trade Gravity Model Criteria for the West African Monetary Zone (WAMZ) By Balogun, Emmanuel Dele
  14. Structural Change and Trade Integration on EU-NIS Borders By Peter Havlik
  15. The Effect of Trade Liberalization on Industrial Segregation and Wage Determination: Evidence from Egypt By Fatma El-Hamidi; Fatma El-Hamidi
  16. The Euro-Mediterranean Trade relations By Melad, Khaled
  17. China and the Future of Asian Electronics Trade By Byron Gangnes; Ari Van Assche
  18. Finance-Openness Nexus and Financial Institutions: A Case of Pakistan By Shahbaz Akmal, Muhammad; Naveed, Aamir
  19. Moldova: Structural Change, Trade Specialization and International Integration By Alexander Libman
  20. Income Maximization and the Selection and Sorting of International Migrants By Jeffrey Grogger; Gordon H. Hanson

  1. By: Juan Carlos Hallak; Peter K. Schott
    Abstract: We develop a method for decomposing countries' observed export prices into quality versus quality-adjusted-price components using information contained in their trade balances. Holding observed export prices constant, countries with surpluses are inferred to offer higher quality than countries running deficits. Our method accounts for variation in trade balances induced by horizontal and vertical differentiation. We use our method to examine manufacturing product quality among the world's top exporters from 1989 to 2003. We find that the initial quality gap between high- and low-income countries is smaller than their initial income gap, and that the former narrows considerably faster over time.
    JEL: F1 F2 F4
    Date: 2008–02
  2. By: George Alessandria; Joseph Kaboski; Virgiliu Midrigan
    Abstract: Fixed transaction costs and delivery lags are important costs of international trade. These costs lead firms to import infrequently and hold substantially larger inventories of imported goods than domestic goods. Using multiple sources of data, we document these facts. We then show that a parsimoniously parameterized model economy with importers facing an (S, s)-type inventory management problem successfully accounts for these features of the data. Moreover, the model can account for import and import price dynamics in the aftermath of large devaluations. In particular, desired inventory adjustment in response to a sudden, large increase in the relative price of imported goods creates a short-term trade implosion, an immediate, temporary drop in the value and number of distinct varieties imported, as well as a slow increase in the retail price of imported goods. Our study of 6 current account reversals following large devaluation episodes in the last decade provide strong support for the model's predictions.
    JEL: E31 F12
    Date: 2008–02
  3. 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 speciffic R&D and a continuum of oligopolistic sectors under Cournot competition. Since countries produce the same setof 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.
    Date: 2008–01
  4. By: Richard G. Harris (Department of Economics, Simon Fraser University); Peter E. Robertson (School of Economics, The University of New South Wales); Melissa Wong (School of Economics, The University of New South Wales)
    Abstract: Since its reform process in the late 1980s, Vietnam has emerged as a rapidly growing economy with growth rates surpassing its more developed ASEAN neighbours. This paper aims to consider the economy wide impacts of trade liberalisation on Vietnam. We approach this by way of multi-region, multi-good, dynamic growth computable general equilibrium (DCGE) model. We find that trade liberalisation has caused a large fall in wage inequality thus increasing the welfare of unskilled workers in Vietnam. There is also evidence of a shift away from agriculture towards low-tech and intermediate manufacturing sectors. Additionally, there are significant gains in terms of large physical and human capital accumulation.
    Date: 2007–08
  5. By: Linda S. Goldberg; Cédric Tille
    Abstract: The U.S. dollar holds a dominant place in the invoicing of international trade, along two complementary dimensions. First, most U.S. exports and imports invoiced in dollars. Second, trade flows that do not involve the United States are also substantially invoiced in dollars, an aspect that has received relatively little attention. Using a simple center-periphery model, we show that the second dimension magnifies the exposure of periphery countries to the center's monetary policy, even when direct trade flows between the center and the periphery are limited. When intra-periphery trade volumes are sensitive to the center's monetary policy, the model predicts substantial welfare gains from coordinated monetary policy. Our model also shows that even though exchange rate movements are not fully efficient, flexible exchange rates are a central component of optimal policy.
    JEL: F3 F4
    Date: 2008–02
  6. 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.
    JEL: E32 F3 F4
    Date: 2008–02
  7. By: Cortes, Maria (Universidad Del Valle)
    Abstract: This paper aims to analyse the value of merchandise through a broad category of trade between Australia and nine selected Latin American countries by using a gravity model focusing on the period from 1998 to 2004. The traditional cross-sectional data is a useful tool to understand this bilateral trade focusing on exports and imports through primary products, manufactured products, and total merchandise trade. The general thrust of the analysis regarding trade composition implies that Australian trade with Latin America has been shaped by political and economic variables. The trade of primary products is explained by economic distance, openness, population, and political influence. Economic mass along with economic distance are significant explanatory variables in the trade of manufactured products. Political influence on bilateral trade has been significant in most Latin American countries – captured by a dummy for presidential changes – exceptions are: Argentina, Chile, and Uruguay.
    Keywords: trade, gravity model, Latin America, Australia, cross-sectional data.
    JEL: F14 F15 F41
    Date: 2007
  8. By: Geraint Johnes
    Abstract: The impact of environmental Kuznets curve (EKC) effects is evaluated in the context of a full model of production and trade within and between rich and poor economies. The shape of iso-emissions curves, defined in tariff and emissions tax space, is evaluated both in the presence and in the absence of an EKC. Gains in the income of developing countries are possible without compromising on emissions where there are inefficiencies in policy. However, where policy is efficient there exists an important trade-off, evaluated here, between emissions and developing country income.
    Keywords: Trade, Environment
    Date: 2008
  9. By: Melad, Khaled
    Abstract: Despite Egypt’s adoption of an “open-door” policy since the 1970s and a rapid expansion of world trade in recent decades, the openness indicator, nearly halved from 1980 (46%) to 2000 (24%), with the same trend recorded for services. Since 2001, a number of trade liberalization and reform measures, although falling short of opening Egypt’s protected market, contributed to enhancing exports to the global market place. The pace of liberalization received a boost with the new government’s reinforcement of export -oriented policies.
    Keywords: EU; TIFA; QIZ; trade; liberalization; partnership agreement
    JEL: F15 F13
    Date: 2008–02–09
  10. By: William Milberg (New School for Social Research, New York, NY)
    Keywords: export processing zones; EPZ; industrial upgrading; trade
    Date: 2007–10–28
  11. By: Bichaka Fayissa; Badassa Tadasse; Andrew McColley
    Abstract: In recent years, development co-operations that seek to promote trade flows between countries have continued to emerge from the notion that trade has a positive impact on economic growth. We evaluate the impact of one such initiative, the African Growth and Opportunity Act (AGOA), on the eligible Sub-Saharan African (SSA) countries’ exports to the U.S. We find that the implementation of the AGOA has contributed to the initiation of new and the intensification of existing SSA countries’ exports to the U.S. across several sectors. Our results imply that the contribution of such development and cooperation efforts to enhance the long-term economic growth of the parties involved through increased trade flows depends on the ability of policy makers in building upon the trade-initiation impetus generated by the policy change.
    Keywords: AGOA, Trade liberalization, Development Cooperation
    JEL: F13 F14 F15
    Date: 2008–01
  12. By: Balogun, Emmanuel Dele
    Abstract: This study gauged the effects of output co-variability, intra-industry intensity of trade and endogenous features of the countries such as common language, border, or colonizer, etc. on bilateral trade. The results confirm that similarities in business cycles influence bilateral trade among the countries. While the positive effects of the real GDP variable coefficient estimate confirms the assertion in the literature that larger countries exert a greater gravitational pull on imports and push to exports (Nigeria accounts for approximately 60 per cent of the GDP, land mass and population of the group), the negative sign of the per capita income variable coefficient estimate is also consistent with expectation that poorer countries (in per capita terms) tend to have lesser trade. Also, the coefficient estimates of the intra-industry trade intensity variables were significant. While the positive sign of the intra-industry trade in agricultural commodities suggest that it can, ceteris paribus, lead to trade creation within the region, the negative sign of the agricultural and mineral commodities is reflective of the Krugman’s specialization effects arising from the fact that Nigeria is a major exporter of crude oil. It was inferred that these results portends that improvements in per capita incomes of WAMZ countries could invariably be associated with greater trade in the absence of trade barriers and if supported with common currency. This was confirmed by the significance of the trade dummies included in the model.
    Keywords: Exchange rate policy; export trade; panel data regression model; WAMZ
    JEL: F36
    Date: 2008–02–09
  13. By: Filippo Reganati; Rosanna Pittiglio
    Abstract: Economic interactions among high-income developed countries are characterized by high degrees of both intra-industry trade and intra-industry affiliate production and sales. Similar high-income countries both heavily trade with and invest into each other. This paper examines the determinants of Italian intra-industry trade and intra-industry production with most European trading partners using a dataset where variables are different not only between countries but also between sectors of the same country. Using different econometric methods, the results obtained suggest that intra-industry trade and intra-industry production tend to share the same determinants; in particular they are higher as the two partner countries are more similar in relative factor endowments (physical and technological capital), in relative country size and are less geographically distant.
    Keywords: intra-industry trade, intra-industry foreign direct investment.
    JEL: F13 F23
    Date: 2007–10
  14. By: Peter Havlik (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This paper investigates the process of trade integration between the enlarged European Union and the Newly Independent States (NIS), focusing on the new EU member states (NMS) and selected NIS (Russia, Ukraine, Belarus, Moldova and Kazakhstan). The paper analyses the evolution of the regional and commodity composition of trade in the countries concerned. A detailed market share analysis reveals the emerging trade specialization patterns. There has been a general trade reorientation of both NMS and (less so) the NIS towards the West. The recent trade developments on EU¿NIS borders indicate a closer trade integration among the NMS, declining trade integration among the NIS, as well contradictory shifts in NMS¿NIS exports and imports. The importance of the NIS as export markets for the NMS is growing, in particular for the NIS neighbours. The bulk of EU exports is made up of manufacturing products. By contrast, EU imports from the NMS and NIS display a much more diversified pattern. The key NMS manufacturing export commodities to the NIS are chemicals, machinery & equipment, motor vehicles and food products, whereas NMS manufacturing imports from the NIS are dominated by basic metals, refined petroleum, chemicals and fabricated metal products, and there is a high concentration on just a few basic manufactures. The NMS increasingly specialize on high-tech and medium-high-tech products. The wide-ranging modernization and industrial restructuring in the NMS has been facilitated by the process of EU integration and by massive inflows of FDI whereas in the NIS the resource specialization generally increased as reforms and restructuring were delayed. It is questionable whether the NIS will be able to revamp their industrial structure without significantly stepping up reform efforts, trade integration and attracting more FDI.
    Keywords: EU integration, foreign trade, EU New Member States, Newly Independent States, Russia, Ukraine, Belarus, Moldova, Kazakhstan.
    JEL: F14 F15 F59 L60 P52
    Date: 2007–05
  15. By: Fatma El-Hamidi; Fatma El-Hamidi
    Abstract: . . .
    Date: 2007–02
  16. By: Melad, Khaled
    Abstract: In fact The EU is the most important trading partner for the Mediterranean countries accounting for about 45% of both MED exports (€40 billion) and imports (€42 billion) in 2004. This corresponds to approximately 5% of both the EU’s imports and exports, where The most important EU exports to the Mediterranean countries are in machinery and mechanical appliances (15%), electrical machinery (11%)and vehicles (8%),while EU imports from Med countries are dominated by fuels and oil (40%) and to a lesser extent by textiles (10%).
    Keywords: foreign trade; EU; EU-Mediteraneean countries agreements
    JEL: F15 F13
    Date: 2008–02–09
  17. By: Byron Gangnes; Ari Van Assche
    Abstract: China’s emergence as a key player in the global electronics industry has ignited concerns among its East Asian neighbors. Upper and middle-income economies fear that China’s rise is hollowing out their electronics industrial base. Lower-income economies worry that they cannot compete with China’s seemingly endless supply of cheap labor. In this chapter, we describe the forces behind China’s rise in electronics, and we consider the implications for regional electronics trade and production patterns. Using a unique world electronics production data set, we investigate the upgrading trajectories of East Asian economies within the industry. Consistent with the theory of international production fragmentation, we find that Japan and the NIEs have a more sophisticated production mix than their lower-income neighbors. These latter economies, however, are upgrading their electronics industries more rapidly. <P>L'émergence de la Chine comme étant un joueur clé dans l'industrie électronique mondiale a suscité de l’inquiétude parmi ses voisins de l'Asie de l'Est. Les économies à revenus élevé et moyen craignent que la montée de la Chine nuise à leur centre industriel électronique. Les économies plus pauvres, pour leur part, s'inquiètent du fait qu'elles ne pourront pas être compétitives face à la main d’œuvre bon marché sans limite de la Chine. Dans ce chapitre, nous décrivons les forces à l’origine de la montée de la Chine dans le domaine de l'électronique, et en étudions les conséquences pour le commerce électronique régional et les modèles de production. Employant une banque de données unique sur la production électronique mondiale, nous examinons les trajectoires de perfectionnement des économies de l’Asie de l’Est dans l’industrie. En accord avec la théorie de fragmentation de la production internationale, nous trouvons que le Japon et les nouvelles économies industrialisées détiennent une combinaison de production plus sophistiquée que leurs voisins à faible revenu. Ces derniers, cependant, voient leurs industries de l'électronique progresser plus rapidement.
    Keywords: China, trade, technological upgrading, electronics, Chine, commerce, perfectionnement technologique, électronique
    JEL: F14 O30 L63
    Date: 2008–02–01
  18. By: Shahbaz Akmal, Muhammad; Naveed, Aamir
    Abstract: There is scantiness of empirical research on the specific relationship between financial institutions, capital account liberalization and trade-openness but there is no particular study in the case of Pakistan. This study investigates the importance of financial institutions, net financial capital inflows and trade-openness for financial sector’s development in a small developing economy like Pakistan. Further, it also examines the hypothesis (Zingales and Rajan, 2003), predicts combined influence of capital account liberalization and trade openness on financial sector’s efficiency but insignificant. We employed three approaches (Johansen Test, DOLS and ARDL bounds testing) for the robustness of long run relationships among the variables utilizing the annual data for the period 1971-2006. We found that, under the investigation of three new alternative techniques, results are robust for long run relationships in the case of Pakistan. Coefficient of net capital inflows is having positive impact on financial development in the long run but insignificant in short run. Trade openness is the main source of financial sector’s development both in long run as well as in short run. On the other hand, financial institutions and economic growth also help to improve the development of financial markets in both the periods. Finally, rise in inflation reduces the efficiency of financial markets through its detrimental channels in the economy in short run as well in long run
    Keywords: Capital Account Liberalization; Financial development; Trade Openness
    JEL: F10 F1 F43 F36
    Date: 2007–10–15
  19. By: Alexander Libman
    Abstract: After fifteen years of economic transformation, Moldova still remains a mostly agrarian country. The industrial sector is only successful in connection with agriculture (such as the production of food or beverages). The country's agrarian structure seems to be a legacy of Moldova's former role in the division of labour within the Soviet Union. Although the absence of the 'resource curse' facilitated Moldova's relative success in economic and political institutional reforms, there are still significant drawbacks in the quality of the economic order which prevent the institutional factor from compensating the 'geographical' deficits. An additional problem is the Transdniestrian conflict, which has resulted in the existence of a 'split state' and a 'split society'. High labour emigration in the wake of rising poverty, deficits of the labour market and the advantages of social integration within the post-Soviet space have a twofold effect on economic transformation: they reduce internal demand and workforce potential, but also create a permanent and significant inflow of migrants' transfers and establish opportunities for learning effects. Moldova's geographical structure of trade is still dominated by the CIS. The European vector of its foreign trade remains underdeveloped, partly because of EU agricultural trade restrictions, but to a great extent because of internal trade barriers. Moldova's major comparative advantage (with respect to both the CIS and the EU, as well as globally) lies in agricultural production - food, beverages, tobacco, animal and vegetable oils - which is reflected in a very low diversification of exports. Imports are by far more diversified; the major imported goods are fuels, machinery and equipment. The energy intensity of the Moldovan economy makes the country extremely dependent on Russian gas and oil. In order to achieve positive structural shifts and move away from agricultural specialization, Moldova needs to continue economic and political reforms and improve the quality of the investment climate in order to attract FDI. A peaceful resolution of the Transdniestrian conflict is of vital importance from the point of view of investment risks. Further consolidation of democracy could help to reduce rent-seeking and state capture (which is still very high in the republic). The evolution of the Communist administration since 2001 has been very promising in this respect. Moldova seems to be a natural benefactor of 'open regionalism' solutions in the Eurasian space, which could give it an opportunity to simultaneously improve its trade relations with the EU, the CIS and Southeast Europe. The EU Neighbourhood Policy could act as a trigger for internal reforms and as a factor of external re-orientation (if major problems such as Transdniestria could be resolved). On the other hand, Moldova could benefit from a redesigning of post-Soviet integration to make it compatible with the Western vector of integration, reduce political aspects of the 'protective integration' currently inherent in the CIS and similar groups, and focus on the opportunities of open regionalism solutions.
    Keywords: economic transition, restructuring, foreign trade, integration
    JEL: F14 F5 J21 J61 L66 O11 P5
    Date: 2007–12
  20. By: Jeffrey Grogger; Gordon H. Hanson
    Abstract: Two prominent features of international labor movements are that more educated individuals are more likely to emigrate (positive selection) and more-educated migrants are more likely to settle in destination countries with high rewards to skill (positive sorting). Using data on emigrant stocks by schooling level and source country in OECD destinations, we find that a simple model of income maximization can account for both phenomena. Results on selection show that migrants for a source-destination pair are more educated relative to non-migrants, the larger is the skill-related difference in earnings between the destination country and the source. Results on sorting indicate that the relative stock of more-educated migrants in a destination is increasing in the level earnings difference between high and low-skilled workers. We use our framework to compare alternative specifications of international migration, estimate the magnitude of migration costs by source-destination pair, and assess the contribution of wage differences to how migrants sort themselves across destination countries.
    JEL: F22 J61
    Date: 2008–02

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