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on International Trade |
| By: | Okubo, Toshihiro; Helble, Matthias |
| Abstract: | There is increasing empirical evidence that vertical product differentiation is an important determinant of international trade. However, the economic literature so far has solely focused on the case in which quality trade stems from differences between countries. No studies investigate the role of quality trade between similar economies. This paper first develops a simple theoretical trade model that includes vertical product differentiation in a heterogeneous-firm framework. The model yields three main predictions for trade between similar economies. First, exported goods are of higher quality than goods sold on the domestic market. Second, larger economies have on average higher export qualities compared with smaller economies. Third, with increasing trade costs higher quality goods are exchanged. For all three effects, strong empirical support is found using detailed export trade data of the United States and 15 European Union countries. |
| Keywords: | Economic Theory & Research,Markets and Market Access,Common Carriers Industry,Free Trade,Transport and Trade Logistics |
| Date: | 2008–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4550&r=int |
| By: | Susumu Imai; Hajime Katayama; Kala Krishna |
| Abstract: | This paper critically and selectively surveys the literature on protection for sale and discusses directions for future research in this area. It suggests that the standard approach needs to be augmented to provide more compelling tests of this model. |
| JEL: | D72 F13 F17 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13899&r=int |
| By: | Mauro Pisu (National Bank of Belgium, Research Department) |
| Abstract: | One of the most important predictions made in recent international trade literature based on heterogeneous firms concerns the within-industry job reallocation from firms not involved in international markets to those that are. This paper quantifies the extent of this reallocation using a dataset of Belgian manufacturing firms from 1998 to 2004 providing information on their international trading activities. The results suggest that, at three-digit industry levels, the shifts in employment between firms having different trading status account for 6 to 30 percent of total job reallocation. This effect is stronger for large than for small firms. |
| Keywords: | Heterogeneous firms, Job reallocation, Imports, Exports, FDI |
| JEL: | F16 J63 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:200803-17&r=int |
| By: | Maria Bas |
| Abstract: | This paper develops a trade model with heterogeneous firms introducing a fixed technology cost and different types of skilled labor. The main contribution is to explain the effects of trade integration on the extensive margin of technology adoption and its impact on wage inequalities. The originality of this paper is to combine skilled-biased technological change with international trade theory based on heterogeneous firms in a general equilibrium model. Moreover, it provides empirical evidence supporting the main assumption and predictions of the model using plant level panel data of Chilean's manufacturing sector for the period 1990-1999. The theoretical framework offers a possible explanation of the puzzle concerning the increase in the skill premium in developing countries. The H-O-S model predicts a reduction of inequalities after trade reforms in developing countries, while there is widespread empirical evidence of an increase in the skill premium in these countries. In our model the key mechanism is related to the effects of trade policy on the number of new firms upgrading technology and on the skill intensity. Trade liberalization increases export revenues raising the probability that the most productive exporters will upgrade technology. These firms will increase their relative demand of skilled labor, thereby enhancing the inequalities |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:pse:psecon:2008-06&r=int |
| By: | Paolo Epifani; Gino Gancia |
| Abstract: | This paper investigates the relationship between trade openness and the size of governments, both theoretically and empirically. We argue that openness can increase the size of governments through two channels: (1) a terms of trade externality, whereby trade lowers the domestic cost of taxation, and (2) the demand for insurance, whereby trade raises risk and public transfers. We provide a unified framework for studying and testing these two mechanisms. Our main theoretical prediction is that the relative strength of the two explanations depends on a key parameter, namely, the elasticity of substitution between domestic and foreign goods. Moreover, while the first mechanism is inefficient from the standpoint of world welfare, the second is instead optimal. In the empirical part of the paper, we provide new evidence on the positive association between openness and government size and we explore its determinants. Consistently with the terms of trade externality channel, we show that the correlation is contingent on a low elasticity of substitution between domestic and foreign goods. Our findings raise warnings that globalization may have led to inefficiently large governments. |
| Keywords: | Openness, Government Size, Terms of Trade Externality, Elasticity of Substitution between Imports and Exports |
| JEL: | F1 H1 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:359&r=int |
| By: | Fukushima, Marcelo; Kikuchi, Toru |
| Abstract: | This paper investigates the effects of competing communication networks on trade patterns in a Chamberlinian-Ricardian model of monopolistically competitive firms with a continuum of industries that require communication services in production. We conclude that intraindustry trade between different networks is determined by the relative size of networks and technological differences, and that a network will not have an incentive to expand indefi- nitely, despite network externalities. |
| JEL: | F12 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:7815&r=int |
| By: | Dimitra Petropoulou |
| Abstract: | This paper presents a pairwise matching model with two-sided information asymmetry to analyse the impact of information costs on endogenous network building and matching by information intermedairies. The framework innovates by examining the role of information costs on incentives for trade intermediation, thereby endogenising the pattern of direct and indirect trade. Intermediation is shown to unambiguously raise expected trade volume and social welfare by expanding the set of matching technologies available to traders. Moreover, convexity in network-building costs is necessary for both direct and indirect trade to arise in equilibrium while the pattern of trade is shown to depend on the level of information costs as well as the relative effectiveness of direct and indirect matching technologies with changing information costs. The model sheds light on the relationship between information frictions and aggregate trade volume, which may be non-monotonic as a result of conflicting effects of information costs on the incentives for direct and indirect trade. |
| Keywords: | International Trade, Pairwise Matching, Information Cost, Intermediation, Networks |
| JEL: | F10 C78 D43 D82 D83 L10 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:370&r=int |
| By: | Paul Sharp (Department of Economics, University of Copenhagen) |
| Abstract: | This paper documents the evolution of variables central to understanding the creation of an Atlantic Economy in wheat between the US and the UK in the nineteenth century. The cointegrated VAR model is then applied to the period 1838-1913 in order to find long-run relationships between these variables. The main result is that explanations for the expansion of trade based on falling barriers to trade need to be augmented by another factor: the expansion of US supply. This implies that the growth of the Atlantic Economy cannot wholly be attributed to the decline in transportation costs, as is usually considered to be the case. |
| Keywords: | grain invasion; wheat; globalization |
| JEL: | C5 F1 N7 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:0808&r=int |
| By: | Peter Eso; Volker Nocke; Lucy White |
| Abstract: | We show that the efficient allocation of production capacity can turn a competitive industry and downstream market into an imperfectly competitive one. Even though downstream firms have symmetric production technologies, the downstream industry structure will be symmmetric only if capacity is sufficiently scarce. Otherwise it will be asymmetric, with one large "fat" capacity-hoarding firm and a fringe of smaller "lean and fit" firms, so that Tobin`s Q varies inversely with firm size. This is so even if the number of firms is infinitely large. As demand or input quantity varies, the industry may switch between symmetric and asymmetric phases, generating predictions for firm size and costs across the business cycle. Surprisingly, an increase in available capacity resulting in such a switch can cause a reduction in total output and consumer surplus. |
| Keywords: | Multiproduct Firms, Firm Size Distribution, Trade Liberalization, Size Discount, Firm heterogeneity, Productivity |
| JEL: | F12 F15 L11 L25 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:365&r=int |
| By: | Dimitra Petropoulou |
| Abstract: | A two-sided, pair-wise matching model is developed to analyse the strategic interaction between two information intermediaries who compete in commission rates and network size, giving rise to a fragmented duopoly market structure. The model suggests that network competition between information intermediaries has a distinctive market structure, where intermediaries are monopolist service providers to some contacts but duopolists over contacts they share in their network overlap. The intermediaries` inability to price discriminate between the competitive and non-competitive market segments, gives rise to an undercutting game, which has no pure strategy Nash equilibrium. The incentive to randomise commission rates yields a mixed strategy Nash equilibrium. Finally, competition is affected by the technology of network development. The analysis shows that either a monopoly or a fragmented duopoly can prevail in equilibrium, depending on the network-building technology. Under convexity assumptions, both intermediaries invest in a network and compete over common matches, while randomising commission rates. In contrast, linear network development costs can only give rise to a monopolistic outcome. |
| Keywords: | International Trade, Pairwise Matching, Information Cost, Intermediation, Networks |
| JEL: | F10 C78 D43 D82 D83 L10 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:371&r=int |
| By: | Morley, Samuel; Nakasone, Eduardo; Pineiro, Valeria |
| Abstract: | "In this paper we develop a dynamic CGE model to examine the impact of CAFTA on production, employment and poverty in Honduras. We model four aspects of the agreement: tariff reductions, quotas, changes in the rules of origin for maquila and more generous treatment of foreign investment. We first show that trade liberalization under CAFTA has a positive effect on growth, employment and poverty but the effect is small. What really matters for Honduras is the assembly (maquila) industry. CAFTA liberalized the rules of origin for imports into this industry. That raises the growth rate of output by 1.4% and reduces poverty by 11% in 2020 relative to what it would otherwise have been. Increasing capital formation through an increase in foreign investment in response to CAFTA has an even larger impact on growth, employment and poverty. These simulations say something important about the growth process in a country like Honduras in which it seems reasonable to assume that there is underemployed, unskilled labor willing and able to work more at a fixed real wage. In such an economy changing the structure of demand in favor of sectors that use a lot of unskilled labor will have a big impact on growth. That is what the maquila simulation does, because maquila uses a lot of unskilled labor relative to skilled labor and capital. Alternatively the supply of capital can be increased by increasing the rate of capital formation. Either of these two has a far larger impact on growth and poverty than tariff reductions alone." from Authors' Abstract |
| Keywords: | CAFTA, Growth, Poverty, CGE model, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:748&r=int |
| By: | Zhao, Longyue; Wang, Yan |
| Abstract: | In 2007, the United States Department of Commerce altered a 23-year old policy of not applying the countervailing duty law to non-market economies, and initiated eight countervailing and antidumping duty investigations on Chinese imports. The change brings heated debate on trade remedy policies and issues of non-market economies. This study focuses on the first countervailing duty case on imported coated free sheet paper from China and analyzes the implications of this test case for United States-China bilateral trade, and industrial policies in transitioning market economies. The paper also provides a brief review of the economics of subsidies, World Trade Organization rules on subsides and countervailing measures, and United States countervailing duty laws applied to non-market economies. While recently acceded countries should review their domestic development policies from the perspective of economic efficiency and comply with the World Trade Organization rules, it is also important to further clarify the issues of non-market economies under the multilateral trading system, and pay keen attention to the rules negotiations in the current World Trade Organization Doha Development Round. |
| Keywords: | Economic Theory & Research,Trade Law,Emerging Markets,Markets and Market Access,Debt Markets |
| Date: | 2008–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4560&r=int |
| By: | Judith M. Dean; Mary E. Lovely |
| Abstract: | Trade growth for a relatively poor country is thought to shift the composition of industrial output towards dirtier products, aggravating environmental damage. China's rapidly growing trade and serious environmental degradation appear to be no exception. However, much of China's trade growth is attributable to the international fragmentation of production. This kind of trade could be cleaner, if fragmented production occurs in cleaner goods, or if China specializes in cleaner stages of production within these goods. Using Chinese official environmental data on air and water pollution, and official trade data, we present evidence that (1) China's industrial output has become cleaner over time, (2) China's exports have shifted toward relatively cleaner, highly fragmented sectors, and (3) the pollution intensity of Chinese exports has fallen dramatically between 1995 and 2004. We then explore the role of fragmentation and FDI in this trend toward cleaner trade. Beginning with a standard model of the pollution intensity of trade, we develop a model that explicitly introduces production fragmentation into the export sector. We then estimate this model using pooled data on four pollutants over ten years. Econometric results support the view that increased FDI and production fragmentation have contributed positively to the decline in the pollution intensity of China's trade, as has accession to the WTO and lower tariff rates. |
| JEL: | F1 F14 F18 F2 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13860&r=int |
| By: | Mirabelle Muuls; Dimitra Petropoulou |
| Abstract: | This paper develops an infinite-horizon, political agency model with a continuum of political districts, in which incumbent politicians can improve their re-election probability by attracting swing voters in key states through strategic trade protection. A unique equilibrium is shown to exist where incumbents build a reputation of protectionism through their policy decisions. We show that strategic trade protection is more likely when protectionist swing voters have a lead over free-trade supports in states with relatively strong electoral competition that represent a larger proportion of Electoral College votes. US data is used to test the hypothesis that industrial concentration in swing and decisive states is an important determinant of trade protection of that industry. The empirical findings provide support for the theory and highlight an important, and previously overlooked, determinant of trade protection in the US Electoral College. |
| Keywords: | Political Economy, Elections, Electoral College, Swing States, Trade Policy |
| JEL: | D72 D78 F13 R12 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:372&r=int |
| By: | Jansen, Hans G.P.; Morley, Samuel; Kessler, Gloria; Pineiro, Valeria; Sánchez, Marco; Torero, Maximo |
| Abstract: | "While the Central America Free Trade Agreement (CAFTA) remains a hotly debated issue in all five Central American countries that are part of the treaty, most discussions are based on preconceived opinions rather than grounded in research-based results. The point of departure of the paper is that the provisions in the agreement concerning the textile maquila industry are likely to have a significant impact on household welfare, despite the already existing preferential access of textile maquila exports to the U.S. market under the rules of origin set by the Caribbean Basin Initiative (CBI) and the U.S.–Caribbean Basin Trade Partnership Act (CBTPA). What CAFTA does for maquila production in Central America is to make permanent and expand the liberalized rules of origin (granted temporarily and unilaterally by the United States and likely to be revoked in 2008) for inputs to the maquila industry. Therefore, to assess the true impact of the maquila provisions in CAFTA, we need to compare the situations without CAFTA or the CBI/CBTPA with the situation that includes CAFTA, instead of the situations before and after CAFTA. The objectives of the paper are to analyze the likely impacts of CAFTA on the apparel value chain in Central America; assess the bottlenecks and constraints to productivity growth in the apparel industry; and identify the requirements for continuing success in the value chain. In researching the paper, we made use of a variety of methodologies, including literature review, Internet sourcing, field visits, and personal interviews with key players in the sector in all five Central American CAFTA countries. We also used computable general equilibrium (CGE) models and combined these with microsimulations based on household surveys, in order to quantify the likely effect of the maquila provisions in CAFTA on economic growth, employment, and poverty. The results suggest that, depending on the country, the maquila provisions in CAFTA add between 0.01% and 1.4% to annual economic growth and between 0.005% and 1.4% per year to employment of particularly female unskilled labor. As a result and depending on the specific country, the rate of total poverty is likely to fall by between virtually zero (Costa Rica) and 0.73% (Honduras) per year relative to a situation without CAFTA's maquila provisions. However, the model-based analyses do not take account of the fact that the quota system for textiles and clothing (the so-called Agreement on Textiles and Clothing, or ATC) expired January 1, 2005, greatly improving the access of China and other low-cost exporters to the U.S. market. Although China has so far voluntarily restricted its apparel exports to the U.S. market, in the longer term market share will increasingly go to countries with the highest comparative advantage. The qualitative analysis in the paper suggests that a survival strategy for the Central American maquila industry should consist of two main elements. First, and in order to make maximum use of the liberalized rules of origin under CAFTA, countries should increasingly move toward full-package production instead of pure assembly. Second, identification of market niches that demand higher-quality apparel produced by firms that respect socially responsible production conditions and are able to deliver fast responsiveness is a crucial means by which the Central American textile industry can develop a comparative advantage vis-à-vis Asian suppliers, needed to survive in an increasingly competitive export market." from Authors' Abstract |
| Keywords: | Apparel industry, Central America Free Trade Agreement (CAFTA), CGE model, Maquila, International agreements, |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:720&r=int |
| By: | Gruere, Guillaume; Bouet, Antoine; Mevel, Simon |
| Abstract: | "Genetically modified (GM) food crops have the potential to raise agricultural productivity in Asian countries, but they are also associated with the risk of market access losses in sensitive importing countries. We study the potential effects of introducing GM food crops in Bangladesh, India, Indonesia, and the Philippines in the presence of trade-related regulations of GM food in major importers. We focus on GM field crops (rice, wheat, maize, soybeans, and cotton) resistant to biotic and abiotic stresses, such as drought-resistant rice, and use a multi-country, multi-sector computable general equilibrium model. We build on previous international simulation models by improving the representation of the productivity shocks associated with GM crops, and by using an improved representation of the world market, accounting for the effects of GM food labeling policies in major importers and the possibility of segregation for non-GM products going toward sensitive importing countries. The results of our simulations first show that the gains associated with the adoption of GM food crops largely exceed any type of potential trade losses these countries may incur. Adopting GM crops also allows net importing countries to greatly reduce their imports. Overall, we find that GM rice is bound to be the most advantageous crop for the four countries. Second, we find that segregation of non-GM crops can help reduce any potential trade loss for GM adopters, such as India, that want to keep export opportunities in sensitive countries, even with a 5 percent segregation cost. Lastly, we find that the opportunity cost of segregation is much larger for sensitive importing countries than for countries adopting new GM crops, which suggests that sensitive importers will have the incentive to invest in separate non-GM marketing channels if exporting countries like India decide to adopt GM food crops." from Authors' Abstract |
| Keywords: | Genetically modified food, International trade, Developing countries, Segregation, |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:740&r=int |
| By: | WAKASUGI Ryuhei; ITO Banri; TOMIURA Eiichi |
| Abstract: | Japanese shares of export and manufacturing value added in the global market have declined significantly, whereas those in China have risen sharply. Recent increase of global offshoring is noteworthy as a factor to cause changes in the structure of international trade and the production-depth. This paper examines how recent increase of offshoring by Japanese firms relates to the changes in the composition of export and manufacturing value added among Japan, China, East Asian countries, the US, and European countries, on the basis of our original survey of Japanese firmfs offshoring and the statistics of export and manufacturing production of these countries. It also discusses how the net cost saving of offshoring due to wage differentials and institutional factors will affect the sustainability of Japanese offshoring. |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:08009&r=int |
| By: | Leandro Antonio Serino |
| Keywords: | economic growth, resource curse, pattern of trade specialization, returns to scale. |
| JEL: | F43 O13 O47 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:iss:wpaper:455&r=int |
| By: | Gonzalez, Julio A.; Guasch, Jose Luis; Serebrisky, Tomas |
| Abstract: | Access to basic infrastructure services - roads, electricity, water, sanitation - and the efficient provision of the services, is a key challenge in the fight against poverty. Many of the poor (and particularly the extreme poor) in rural communities in Latin America live on average 5 kilometers or more from the nearest paved road, which is almost twice as far as non-poor rural households. There have been major improvements in access to water, sanitation, electricity, telecommunications, ports, and airports, but road coverage has not changed much, although some effort and resources have been invested to improve the quality of road networks. This paper focuses on the main determinants of logistics costs and physical access to services and, whenever possible, provides evidence of the effects of these determinants on competitiveness, growth, and poverty in Latin American economies. The analysis shows the impact of improving infrastructure and logistics costs on three fronts - macro (growth), micro (productivity at the firm level), and poverty (the earnings of poor/rural people). In addition, the paper provides recommendations and solutions that encompass a series of policies to reduce the prevalent high logistics costs and limited access to services in Latin America. The recommendations rely on applied economic analysis on logistics and trade facilitation. |
| Keywords: | Transport Economics Policy & Planning,Economic Theory & Research,E-Business,Banks & Banking Reform,Transport and Trade Logistics |
| Date: | 2008–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4558&r=int |
| By: | Das, Bhagaban; Shil, Nikhil Chandra; Pramanik, Alok Kumar |
| Abstract: | The importance of SMEs in any economy cannot be overlooked as they form a major chunk in the economic activity of nations. India has nearly three million SMEs, which account for almost 50 per cent of industrial output. However, SMEs which form the backbone of industrial development in India are not export competitive and contribute only about 34 percent of exports. It is this feature of the SMEs that make it an ideal target to realize its potential export competitive. Drawing from the experiences of countries that have successfully promoted the export competitiveness of SMEs, this paper has identified ways in which SMEs in India can have an access to external markets through exports, which include simplification of procedures, incentives for higher production, preferential treatments to SMEs in the market development fund, linking up SMEs with Transnational Companies or large domestic exporting firms; and formation of clusters and networks in order to reinforce their external competitiveness. |
| Keywords: | Small and Medium Enterprises (SMEs); SWOT Analysis; Export; India |
| JEL: | F2 |
| Date: | 2007–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:7800&r=int |