nep-int New Economics Papers
on International Trade
Issue of 2008‒03‒15
nineteen papers chosen by
Martin Berka
Massey University

  1. Global Rebalancing with Gravity: Measuring the Burden of Adjustment By Robert Dekle; Jonathan Eaton; Samuel Kortum
  2. Globalization and the Great Divergence: Terms of Trade Booms and Volatility in the Poor Periphery 1782-1913 By Jeffrey G. Williamson
  3. International Economic Policy: Was There a Bush Doctrine? By Barry Eichengreen; Douglas A. Irwin
  4. Trade Policy and Innovation By Huasheng Song; Hylke Vandenbussche
  5. Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneity By Felbermayr, Gabriel; Prat, Julien; Schmerer, Hans-Jörg
  6. North-South Technology Spillovers: The Relative Impact of Openness and Foreign R&D By Schiff, Maurice; Wang, Yanling
  7. Is it Punishment? Sovereign Defaults and the Decline in Trade By Jose Vicente Martinez and Guido Sandleris
  8. On the Use of Border Taxes in Developing Countries By Knud J., MUNK
  9. Unemployment and interactions between trade and labour market institutions By Hervé Boulhol
  10. Productivity Differences in an Interdependent World By Fadinger, Harald
  11. The sustainable cooperative tariffs : a political economy perspective By Racem Mehdi
  12. Higher Wages in Exporting Firms: Self-Selection, Export Effect, or Both? First Evidence from German Linked Employer-Employee Data By Schank, Thorsten; Schnabel, Claus; Wagner, Joachim
  13. Analyzing Poverty Impact of Trade Liberalization Policies in CGE Models: Theory and Some Policy Experiments in Agricultural and Non-agricultural Sectors in South Asia By Khan, haider
  14. Effects of political-economic integration and trade liberalization on exports of Italian Quality Wines Produced in Determined Regions (QWPDR) By Seccia, Antonio; Santeramo, Fabio Gaetano; De Blasi, Giuseppe; Carlucci, Domenico
  15. Integration of markets vs. integration by agreements By Ng, Francis; Fung, K.C.; Aminian, Nathalie
  16. Swapping Print The Impact of Immigration and the Internet on International Trade in Newspapers By Hisham Foad
  17. Globalization and the WTO Dispute Settlement Mechanism: Making a Rules-based Trading Regime Work By Khan, Haider; Liu, Yibei
  18. Examining Patterns of Bilateral Trade between Australia and Colombia by Using Cointegration Analysis and Error-Correction Models By Cortes, Maria
  19. Brain Drain and Productivity Growth: Are Small States Different? By Schiff, Maurice; Wang, Yanling

  1. By: Robert Dekle; Jonathan Eaton; Samuel Kortum
    Abstract: We use a forty-two country model of production and trade to assess the implications of eliminating current account imbalances for relative wages, relative GDP's, real wages, and real absorption. How much relative GDP's need to change depends on flexibility of two forms: factor mobility and the adjustment in sourcing of imports, with more flexibility requiring less change. At the extreme, US GDP falls by 30 percent relative to the world's. Because of the pervasiveness of nontraded goods, however, most domestic prices move in parallel with relative GDP, so that changes in real GDP are small.
    JEL: F10 F32 F41
    Date: 2008–03
  2. By: Jeffrey G. Williamson
    Abstract: W. Arthur Lewis argued that a new international economic order emerged between 1870 and 1913, and that global terms of trade forces produced rising primary product specialization and de-industrialization in the poor periphery. More recently, modern economists argue that volatility reduces growth in the poor periphery. This paper assess these de-industrialization and volatility forces between 1782 and 1913 during the Great Divergence. First, it argues that the new economic order had been firmly established by 1870, and that the transition took place in the century before, not after. Second, based on econometric evidence from 1870-1939, we know that while a terms of trade improvement raised long run growth in the rich core, it did not do so in the poor periphery. Given that the secular terms of trade boom in the poor periphery was much bigger over the century before 1870 than after, it seems plausible to infer that it might help explain the great 19th century divergence between core and periphery. Third, the boom and its de-industrialization impact was only part of the story; growth-reducing terms of trade volatility was the other. Between 1820 and 1870, terms of trade volatility was much greater in the poor periphery than the core. It was still very big after 1870, certainly far bigger than in the core. Based on econometric evidence from 1870-2000, we know that terms of trade volatility lowers long run growth in the poor periphery, and that the negative impact is big. Given that terms of trade volatility in the poor periphery was even bigger during the century before 1870, it seems plausible to infer that it also helps explain the great 19th century divergence between core and periphery.
    JEL: F01 N7 O2
    Date: 2008–03
  3. By: Barry Eichengreen; Douglas A. Irwin
    Abstract: While many political scientists and diplomatic historians see the Bush presidency as a distinctive epoch in American foreign policy, we argue that there was no Bush Doctrine in foreign economic policy. The Bush administration sought to advance a free trade agenda but could not avoid the use of protectionist measures at home -- just like its predecessors. It foreswore bailouts of financially-distressed developing countries yet ultimately yielded to the perceived necessity of lending assistance -- just like its predecessors. Not unlike previous presidents, President Bush also maintained a stance of benign neglect toward the country's current account deficit. These continuities reflect long-standing structures and deeply embedded interests that the administration found impossible to resist. We see the next administration as having to address many of the same problems subject to the same constraints. The trade policy agenda will evolve slowly, with questions about the viability of multilateral liberalization under the WTO and the degree to which labor and environmental conditions can be included in trade agreements. Policy toward China will continue to confront difficult choices: even if it succeeds in pressuring the country to reduce its accumulation of dollar reserves, thereby easing the current account imbalance with the United States, this may only imply a more difficult market for U.S. Treasury debt and higher interest rates at home. Continuity will therefore remain the rule.
    JEL: F0
    Date: 2008–03
  4. By: Huasheng Song; Hylke Vandenbussche
    Abstract: This paper develops a model where firms across countries differ in their capacity to innovate. Our main goal is to study firm level innovation under various trade policy shocks. We consider two countries where firms across countries are heterogeneous in their innovation efficiencies. We find that the benefits of trade liberalization and trade protection differ across firms. One of the main results we obtain is that trade protection hurts the productivity of highly efficient firms while it increases the productivity of lowly efficient firms. The predictions of our model are in line with recent empirical evidence that while trade protection fosters the productivity of lowly efficient firms, it reduces productivity of highly efficient firms.
    Keywords: Trade Policy, Innovation, Exports
    JEL: F12 F13 L13
    Date: 2008
  5. By: Felbermayr, Gabriel (University of Tuebingen); Prat, Julien (University of Vienna); Schmerer, Hans-Jörg (University of Tuebingen)
    Abstract: We introduce search unemployment à la Pissarides into Melitz’ (2003) model of trade with heterogeneous firms. We allow wages to be individually or collectively bargained and analytically solve for the equilibrium. We find that the selection effect of trade influences labor market outcomes. Trade liberalization lowers unemployment and raises real wages as long as it improves aggregate productivity net of transport costs. We show that this condition is likely to be met by a reduction in variable trade costs or the entry of new trading countries. On the other hand, the gains from a reduction in fixed market access costs are more elusive. Calibrating the model shows that the positive impact of trade openness on employment is significant when wages are bargained at the individual level but much smaller when wages are bargained at the collective level.
    Keywords: trade liberalization, unemployment, search model, firm heterogeneity
    JEL: F12 F15 F16
    Date: 2008–02
  6. By: Schiff, Maurice (World Bank); Wang, Yanling (Carleton University)
    Abstract: This paper examines the relative contribution of openness and the R&D content of trade to TFP growth for North-South trade-related technology diffusion. The measure of foreign R&D used in the literature on trade-related technology diffusion imposes identical contributions of openness and the R&D content of trade to TFP. We allow these contributions to differ and show that openness has a greater impact on TFP growth than R&D. These results imply that the impact of openness on TFP in developing countries is larger than previously obtained in this literature. In other words, developing countries can obtain larger productivity gains from trade liberalization than previously thought.
    Keywords: technology diffusion, R&D, openness, North-South
    JEL: F10 F15
    Date: 2008–03
  7. By: Jose Vicente Martinez and Guido Sandleris
    Abstract: Sovereign defaults are associated with declines in defaulting countries trade. Are these declines the result of trade sanctions as the trade sanctions argument of sovereign borrowing would suggest? We devise an empirical strategy to evaluate this issue based on the idea that if trade sanctions are causing the declines, bilateral trade with creditor countries should fall more than trade with other countries. We nd that this is not the case. The analysis does not yield evidence of broader punishment strategies including a league of major creditors either. These results contradict the predictions of the trade sanctions theory of sovereign borrowing.
    Date: 2008
  8. By: Knud J., MUNK
    Abstract: Contrary to what is implied by the so called “Wahsington consensus”, Stiglitz (2003) has argued that in the least developed countries border taxes are superior to VAT. However, supported by much respectable research, the IMF and World Bank’s recommend that developing countries substitute VAT for border taxes. The present paper provides an easy to implement parameterised general equilibrium model which may be used as the basis for empirical research, required to reach a consensus opinion within the profession on the issue. The model allows for the fact that different tax systems are associated with different administrative costs, and represents the informal sector as a parameterisation, the CES-UT, of a utility function with explicit representation of the use of time. By means of a quantitative example, it illustrates, on the one hand, that a large informal sector in itself does not justify the use of border taxes, but, on the other hand, when administrative costs of taxation are taken into account, that the size of the informal sector, as claimed as Stiglitz (2003), is indeed important for whether the use of border taxes is desirable or not.
    Keywords: Optimal trade policy, VAT, tax-tariff reform, costs of tax administration, informal sector, developing countries
    JEL: F11 F13 H21
    Date: 2008–02–20
  9. By: Hervé Boulhol (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Ecole d'économie de Paris - Paris School of Economics - Université Panthéon-Sorbonne - Paris I)
    Abstract: There is ample evidence that a country's labour market institutions are important determinants of unemployment. This study generalises Davis' (1998) idea according to which the institutions of the trade partners matter also for a country's equilibrium unemployment rate as they generate comparative advantages. Moreover, the empirical investigation provides some evidence that the interactions between bilateral trade and relative labour market regulations affect the equilibrium unemployment rate. Given data limitations in this area, the ambition of this paper is merely to draw the attention to the general relevance of these interactions as complementing factors to other explanations of unemployment. Another interesting finding is that a fairly low regulated country like Canada can be negatively affected because its main trading partner is even less regulated, while a high regulated country like Germany appears rather sheltered because its trading partners are also highly regulated.
    Keywords: Unemployment; trade; labour market institutions.
    Date: 2008–01
  10. By: Fadinger, Harald
    Abstract: This paper studies cross country differences in productivity from an open economy perspective by using a Helpman-Krugman-Heckscher-Ohlin model. This allows to combine tools from development accounting and the trade literature. When simultaneously fitting data on income, factor prices and the factor content of trade, I find that rich countries have far higher productivities of human capital than poor ones, while differences in physical capital productivity are not systematically related to income per worker. I estimate an aggregate elasticity of substitution between human and physical capital that is significantly below one, clearly rejecting a world that consists of a collection of Cobb-Douglas economies and also one where Heckscher-Ohlin trade is important.
    Keywords: Heckscher-Ohlin; Productivity Differences; Development Accounting; Open Economy Growth
    JEL: O11 O41 O47 F11 F43
    Date: 2008–03
  11. By: Racem Mehdi (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, ESSECT - Université de Tunis)
    Abstract: The purpose of this paper is to examine the international trade cooperation in order to determine the sustainable cooperative tariff rates in a political economy perspective. This paper establishes a tariff-setting game among two countries as a two-phase game : negotiation phase and implementation phase. Our results show the following points. First, the sustainable cooperative tariff rate depends on the political weight placed by government on domestic import-competing industry, on the political influence of the foreign export industry and on the economic stakes of domestic tariff policy in these two sectors. Second, international cooperation is sustainable when governments involved in tariff negotiation are patient enough. Third, difference in patience affects the relative bargaining power of governments.
    Keywords: Trade negotiation, political economy, repeated game.
    Date: 2008–03
  12. By: Schank, Thorsten (University of Erlangen-Nuremberg); Schnabel, Claus (University of Erlangen-Nuremberg); Wagner, Joachim (University of Lüneburg)
    Abstract: While it is a stylized fact that exporting firms pay higher wages than non-exporting firms, the direction of the link between exporting and wages is less clear. Using a rich set of German linked employer-employee panel data we follow over time plants that start to export. We show that the exporter wage premium does already exist in the years before firms start to export, and that it does not increase in the following years. Higher wages in exporting firms are thus due to self-selection of more productive, better paying firms into export markets; they are not caused by export activities.
    Keywords: exports, wages, exporter wage premium, Germany
    JEL: F10 D21 J31
    Date: 2008–02
  13. By: Khan, haider
    Abstract: The paper uses a dualistic, compact and “generic” (macroeconomic) computable general equilibrium (CGE) model specially constructed for the purpose of investigating the implications of trade liberalization for poverty reduction in South Asia. The model is a stylized representation of economies with large populations including large numbers of both urban and rural poor as in India, Pakistan or Bangladesh. The current “generic” model uses CES production functions and Harris-Todaro type migration model together with representative data to generate economy wide results. It is found that a dualistic production structure with sufficient details on the labor markets and household side can capture some of the effects of trade liberalization on poverty reduction. The model’s general equilibrium results suggest that trade liberalization can complement other specific policy interventions for poverty reduction.
    Keywords: Poverty; Trade Liberalization; Dualism; CGE model; Agriculture Informal; Urban Informal sector.
    JEL: F16 D31 C68 A10 D43 A11
    Date: 2008–03
  14. By: Seccia, Antonio; Santeramo, Fabio Gaetano; De Blasi, Giuseppe; Carlucci, Domenico
    Abstract: The aim of this work is to explain the magnitude of the trade flows for high quality wine from Italy to its main importing countries. This objective has been reached by establishing an appropriate econometric model derived from an extended form of the “Gravity Model”. This model has been broadly applied to the analysis of international trade because it provides robust estimates. The results obtained and the model itself are useful in forecasting potential trends in the exportation of high quality Italian wines. In particular, these estimates give a quantitative evaluation of the export gains that could result from the enlargement of the EU and from an increasing liberalization in international trade. Moreover, it is possible to identify the growing markets where Italian ventures could exploit certain promotional and communication strategies.
    Keywords: Italy; Exports; QWPDR; Integration; Gravity Model
    JEL: Q18
    Date: 2007–06
  15. By: Ng, Francis; Fung, K.C.; Aminian, Nathalie
    Abstract: This paper provides an analysis of the two channels of regional integration: integration via markets and integration via agreements. Given that East Asia and Latin America are two fertile regions where both forms of integrations have taken place, the authors examine the experiences of these two areas. There are four related results. First, East Asia had been integrating via markets long before formal agreements were in vogue in the region. Latin America, by contrast, has primarily used formal regional trade treaties as the main channel of integration. Second, despite the relative lack of formal regional trade treaties until recently, East Asia is more integrated among itself than Latin America. Third, from a purely economic and trade standpoint, the proper sequence of integrations seems to be first integrating via markets and subsequently via formal regional trade agreements. Fourth, regional trade agreements often serve multiple constituents. The reason why integrating via markets first can be helpful is because this can give stronger political bargaining power to the outward-looking economic-oriented forces within the country.
    Keywords: Trade Law,Free Trade,Trade and Regional Integration,Trade Policy,Emerging Markets
    Date: 2008–03–01
  16. By: Hisham Foad (Department of Economics, San Diego State University)
    Abstract: Why is there international trade in newspapers? Why do even very small countries both import from and export to large nations? New trade models founded on transport costs and increasing returns fail to explain the high degree of bilateral trade in cultural goods like newspapers and periodicals. I argue that immigration is complementary to newspaper trade, with small cosmopolitan countries having the largest trade as a percentage of GDP. These predictions are empirically confirmed, with a 10% increase in bilateral immigration inducing a 4.4% increase in newspaper trade between nations. While increased immigration has lead to greater trade, this effect is decreasing in internet usage. The trade-immigration elasticity is 8.5% smaller for high-internet usage countries, reflecting the fact that immigrants increasingly get their foreign news fix online. These results suggest that cultural goods need not be protected from trade as a country’s economic presence on the global stage creates a market for its products.
    Date: 2007–03
  17. By: Khan, Haider; Liu, Yibei
    Abstract: We discuss thje role of the dispute settlement mechanism (DSM) of the World Trade Organization (WTO) in the context of a complex characterization of globalization.The dispute settlement mechanism (DSM) of the World Trade Organization (WTO) is at present a controversial exercise at the international level. Reasonable people disagree as to whether it has enhanced and maintained equality between developing and developed countries. Through examining its concrete provisions, procedures and several important factors such as resource availability and political influence outside the WTO, it can be found that there are conditions under which the new rule-based DSM can indeed contribute to promoting developing countries’ status in the system . Consequently, it can provide them with more power to defend their own interests. However, the DSM still does not eliminate the power-based relationships among countries. Developing countries are still affected by biases, which stem from several sources such as high financial and legal resource costs, political pressure generated outside the WTO, declarative WTO legal provisions, etc..A reformed WTO with less asymmetry of power will result in a higher level of global social welfare.
    Keywords: dispute settlement mechanism (DSM);World Trade Organization (WTO) ;Globalization
    JEL: F15 F13 F10
    Date: 2008
  18. By: Cortes, Maria (Universidad Del Valle)
    Abstract: The main objective of this paper is to understand whether there is a long-term relationship between Australia and Colombian imports by using macroeconomic fundamentals such as the real exchange rate, income, population and openness. We use multivariate cointegration techniques and error correction models along with time-series data (1960-2005). We focus on testing for cointegration in the presence of structural breaks. The findings suggest that the value of Australian imports from Colombia is cointegrated with three economic series: income of both participating countries and the Colombian population. The real value of Colombian imports from Australia is cointegrated with the real bilateral exchange rate and total Colombian world imports. The relationship between the value of bilateral imports and the cointegrated series can be seen as long-running bilateral import elasticities. High coefficients of the cointegrated variables indicate that opportunities exist to improve long-term trade relationships between the two countries.
    Keywords: trade, gravity model, Latin America, Australia, cross-sectional data.
    JEL: F10 F14 F17
    Date: 2007
  19. By: Schiff, Maurice (World Bank); Wang, Yanling (Carleton University)
    Abstract: This paper examines the impact of North-South trade-related technology diffusion on TFP growth in small and large states in the South. The main findings are: i) TFP growth increases with North-South trade-related technology diffusion, with education, and with the interaction between the two, and it decreases with the emigration of skilled labor (brain drain); ii) these effects are substantially (over three times) larger in small states than in large ones. Small states also exhibit a much higher brain drain level. Consequently, the brain drain generates greater losses in terms of TFP growth both because of its greater sensitivity to the brain drain and because the brain drain is substantially larger in small than in large states.
    Keywords: trade, technology diffusion, brain drain, productivity growth
    JEL: F22 J61
    Date: 2008–02

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