nep-int New Economics Papers
on International Trade
Issue of 2008‒04‒12
23 papers chosen by
Martin Berka
Massey University

  1. The Rise of China: Prospects of Regional Trade Policy By Filip Abraham; Jan Van Hove
  2. Heterogeneous Responses of Firms to Trade Protection By Konings, Jozef; Vandenbussche, Hylke
  3. Trading Population for Productivity: Theory and Evidence By Galor, Oded; Mountford, Andrew
  4. Civil Wars and International Trade By Martin, Philippe; Mayer, Thierry; Thoenig, Mathias
  5. Sources of Comparative Advantages in Brazil By Beatriz Muriel; Cristina Terra
  6. Corporate Hierarchies and the Size of Nations: Theory and Evidence By Marin, Dalia; Verdier, Thierry
  7. The Challenge of Reducing International Trade and Migration Barriers By Anderson, Kym; Winters, L Alan
  8. Macroeconomic interdependence and the international role of the dollar By Linda Goldberg; Cédric Tille
  9. Can a Preferential Trade Agreement Benefit Neighbor Countries without Compensating Them? By Masahiro Endoh; Koichi Hamada; Koji Shimomura
  10. Does German Development Aid Promote German Exports? By Inmaculada Martínez Zarzoso; Felictas Nowak-Lehmann D.; Stephan Klasen; Mario Larch
  11. Trade and Poverty in Latin American Countries: Conceptual and Methodological Challenges By Renato Galvão Flôres Junior
  12. The impact of trade integration and agglomeration economies on tax interactions: evidence from OECD countries By Nelly Exbrayat
  13. Disentangling Market Access Effects for ASEAN Members Under an ASEAN-EU FTA By Carrère, Céline; de Melo, Jaime; Tumurchudur, Bolormaa
  14. Illusory Revenues: Tariffs in Resource-Rich and Aid-Rich Economies By Collier, Paul; Venables, Anthony J.
  15. Tariffs, Trains, and Trade: The Role of Institutions versus Technology in the Expansion of Markets By Keller, Wolfgang; Shiue, Carol Hua
  16. Bairoch revisited : tariff structure and growth in the late 19th century By Antonio Tena Junguito
  17. Efficient Consumer Altruism and Fair Trade By David Reinstein; Joon Song
  18. The Dynamics of Industrial Markups in Two Small Open Economies: Does National Competition Policy Matter ? By Jozef Konings; Patrick Van Cayseele; Frederic Warzynski
  19. Dictatorship in a Single Export Crop Economy By Lode Berlage; Bart Capeau; Philip Verwimp
  20. Dynamic Price Adjustment in Spatially Separated Food Markets with Transaction Costs By Stefan Dercon; Bjorn Van Campenhout
  21. Interest Group Politics in a Federation By Guriev, Sergei; Yakovlev, Evgeny; Zhuravskaya, Ekaterina
  22. Takeoffs By Joshua Aizenman; Mark M. Spiegel
  23. International Competitiveness, Job Creation and Job Destruction - An Establishment Level Study of German Job Flows By Moser, Christoph; Urban, Dieter M; Weder di Mauro, Beatrice

  1. By: Filip Abraham; Jan Van Hove
    Abstract: China now engages in multilateral trade liberalization as a new member of the WTO. Concurrently, the number of regional trade agreements is increasing worldwide. China and its trading partners would benefit from increased regional liberalization. Using a gravity equation for 23 Asia-Pacific countries between 1992 and 2000, we show that ASEAN and APEC currently have small effects on Asia-Pacific exports, which are mainly influenced by growth, trade barriers and common language. However, we find that China’s participation in regional agreements has large export potentials, not only with respect to ASEAN, but also in a broad agreement including South- and East-Asian countries.
    Date: 2008–03
  2. By: Konings, Jozef; Vandenbussche, Hylke
    Abstract: This paper uses EU firm-level panel data to estimate the effect of Antidumping (AD) protection on the productivity of EU domestic firms in import-competing industries. We find that firms with relatively low initial productivity - laggard firms - have productivity gains during AD protection, while firms with high initial productivity - frontier firms - experience productivity losses. While the productivity of the average firm is moderately improved during AD protection, productivity remains below that of firms never involved in AD cases, thus questioning the desirability of protection. Our empirical results are consistent with recent theoretical work supporting the view that trade policy can have a differential effect on firms depending on their initial productivity.
    Keywords: antidumping protection; firm heterogeneity; total factor productivity
    JEL: C2 F13 L41
    Date: 2008–02
  3. By: Galor, Oded; Mountford, Andrew
    Abstract: This research argues that the differential effect of international trade on the demand for human capital across countries has been a major determinant of the distribution of income and population across the globe. In developed countries the gains from trade have been directed towards investment in education and growth in income per capita, whereas a significant portion of these gains in less developed economies have been channelled towards population growth. Cross-country regressions establish that indeed trade has positive effects on fertility and negative effects on education in non-OECD economies, while inducing fertility decline and human capital formation in OECD economies.
    Keywords: Demographic Transition; Growth; Human Capital; International Trade
    JEL: F11 F43 J10 N30 O40
    Date: 2008–02
  4. By: Martin, Philippe; Mayer, Thierry; Thoenig, Mathias
    Abstract: This paper analyzes empirically the relationship between civil wars and international trade. We first show that trade destruction due to civil wars is very large and persistent and increases with the severity of the conflict. We then test the presence of two effects that trade can have on the risk of civil conflicts: it may act as a deterrent if trade gains are put at risk during civil wars but it may also act as an insurance if international trade provides a substitute to internal trade during civil wars. We find support for the presence of these two mechanisms and conclude that trade openness may deter the most severe civil wars (those that destroy the largest amount of trade) but may increase the risk of lower scale conflicts.
    Keywords: civil war; globalization; trade
    JEL: F10 F51 F52 F59
    Date: 2008–01
  5. By: Beatriz Muriel (PUC-Rio); Cristina Terra (THEMA - Université de Cergy-Pontoise - EPGE - Fundação Getulio Vargas)
    Abstract: Based on the Heckscher-Ohlin-Vanek model, this paper investigates relative factor abundance in Brazil, as revealed by its international trade. We study two different time periods: one characterized by high trade barriers (1980 to 1985) and the trade liberalization period (1990 to 1995). Two alternative methodologies are used: the estimation of factor intensity regressions on net exports and the direct computation of factor content in net exports. In the factor intensity regression, we incorporate techno- logical changes that might have occurred over time, and those turned out to be significant. Both methods yield the same results: the Brazilian in- ternational trade reveals relative abundance in capital, land and unskilled labor, and scarcity in skilled labor, with qualitatively equivalent results for the two time periods studied.
    JEL: F11 F14
    Date: 2008
  6. By: Marin, Dalia; Verdier, Thierry
    Abstract: Corporate organization varies within a country and across countries with country size. The paper starts by establishing some facts about corporate organization based on unique data of 660 Austrian and German corporations. The larger country (Germany) has larger firms with flatter and more decentralized corporate hierarchies compared to the smaller country (Austria). Firms in the larger country change their organization less fast than firms in the smaller country. Over time firms have been introducing less hierarchical organizations by delegating power to lower levels of the corporation. We develop a theory, which explains these facts and which links these features to the trade environment that countries and firms face. We introduce firms with internal hierarchies in a Krugman(1980) cum Melitz and Ottaviano (2007) model of trade. We show that international trade and the toughness of competition in international markets induce a power struggle in firms, which eventually leads to decentralized corporate hierarchies. We offer empirical evidence, which is consistent with the models predictions.
    Keywords: corporate organization in similar countries; empirical test of the theory of the firm; endogenous congruence in the firm; international trade with endogenous firm organizations
    JEL: D23 F12 F14 L22
    Date: 2008–03
  7. By: Anderson, Kym; Winters, L Alan
    Abstract: While barriers to trade in most goods and some services including capital flows have been reduced considerably over the past two decades, many remain. Such policies harm most the economies imposing them, but the worst of the merchandise barriers (in agriculture and textiles) are particularly harmful to the world’s poorest people, as are barriers to worker migration across borders. This paper focuses on how costly those anti-poor trade policies are, and examines possible strategies to reduce remaining distortions. Two opportunities in particular are addressed: completing the Doha Development Agenda process at the World Trade Organization (WTO), and freeing up the international movement of workers. A review of the economic benefits and adjustment costs associated with these opportunities provides the foundation to undertake benefit/cost analysis required to rank this set of opportunities against those aimed at addressing the world’s other key challenges as part of the Copenhagen Consensus project. The paper concludes with key caveats and suggests that taking up these opportunities could generate huge social benefit/cost ratios that are considerably higher than the direct economic ones quantified in this study, even without factoring in their contribution to alleviating several of the other challenges identified by that project, including malnutrition, disease, poor education and air pollution.
    Keywords: Doha Development Agenda; international migration; trade policy reform
    JEL: F02 F13 F15 F17 F22
    Date: 2008–03
  8. By: Linda Goldberg; Cédric Tille
    Abstract: The U.S. dollar plays a key role in international trade invoicing along two complementary dimensions. First, most U.S. exports and imports are invoiced in dollars; second, trade flows that do not involve the United States are often invoiced in dollars, a fact 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 although exchange rate movements are not fully efficient, flexible exchange rates are a central component of optimal monetary policy.
    Keywords: Dollar, American ; Monetary policy ; International trade ; International finance ; Foreign exchange
    Date: 2008
  9. By: Masahiro Endoh; Koichi Hamada; Koji Shimomura
    Date: 2008–04–08
  10. By: Inmaculada Martínez Zarzoso (Universität Göttingen); Felictas Nowak-Lehmann D. (Universität Göttingen); Stephan Klasen (Universität Göttingen); Mario Larch (Ifo Institute)
    Abstract: This paper uses a static and dynamic gravity model of trade to investigate the link between German development aid and exports from Germany to the recipient countries. The findings indicate that in the long run,German aid is associated with an increase in exports of goods that is larger than the aid flow, with a point estimate of 140 percent of the aid given. In addition, the evolution of the estimated coefficients over time shows an effect that is consistently positive but which oscillates over time. Interestingly, in the period from 2001 to 2005, a steady increase in the effect of aid on trade can be observed following a decrease in this phenomenon in the second half of the nineties. The paper also distinguishes among recipient countries and finds that the return on aid measured by German exports is higher for aid to countries considered “strategic aid recipients” by the German government.
    Keywords: International Trade; Foreign Aid; Germany
    JEL: F10 F35
    Date: 2008–04–10
  11. By: Renato Galvão Flôres Junior (EPGE/FGV)
    Date: 2008–02
  12. By: Nelly Exbrayat (CREUSET - Centre de Recherche Economique de l'Université de Saint-Etienne - CNRS : FRE2938 - Université Jean Monnet - Saint-Etienne)
    Abstract: In average, statutory tax rates in OECD countries fell over 34,84% between 1982 and 2005. While the seminal papers on tax competition explain this fall in corporate tax rates by greater capital mobility, we build on the New Economic Geography literature to investigate empirically the impact of trade integration on tax competition. We use the disaggregated Trade and Production Database of the CEPII to build an index of trade phi-ness following the method of Head and Mayer (2004a). Firstly, we show that trade integration matters for the tax policy through two channels: (i) on the one hand trade integration reinforces tax interactions and accelerates the race to the bottom in corporate taxe rates, but (ii) on the other hand trade integration makes it possible for countries to set higher corporate tax rates as it improves their market access. We show that the second e¤ect becomes insigni…cant when we control for the …rst one. This indicates that the overall impact of trade integration on corporate tax rates is negative and could explain the negative relationship between trade integration and corporate tax rates that we observed in OECD countries between 1983 and 1999. Secondly, we show that countries do not have the same ability to limit their dependence on other countries’…scal policy. More precisely, the ability of a country to set a high corporate tax rate increases with its market size and its market access, but decreases with the degree of its government involvement in the wage-setting.
    Date: 2008–01–31
  13. By: Carrère, Céline; de Melo, Jaime; Tumurchudur, Bolormaa
    Abstract: The paper develops two synthetic measures at the HS-10 level to depict effective market access for a country receiving preferential access and applies these to the market access ASEAN members would receive on impact following the implementation of an FTA with the EU. These measures reveal quite a different picture than one that would be gleaned from the more usual ex-ante aggregate approaches. First, the measures show that current effective market access for ASEAN EBA members is cut in half by the preferences granted by the EU to countries that compete with these countries in the EU markets. Second, the small value of preferences is reflected in the pattern of preferential margins, the “significant” preferential margins almost always being for products that account for less than 1/10 of 1 percent of exports at the HS-10 level. Third the measures show that about one quarter of the preferential margin under the proposed FTA for EBA members would be lost as a result of preferential access granted to ASEAN GSP members. Fifth, disaggregated calculations on the restrictiveness of rules of origin not only confirm that rules are more restrictive for products with higher preferential margins, but also that, for a given preferential margin in the EU market, due to the product composition of their exports to the EU, ASEAN countries usually face tougher rules of origin in the EU.
    Keywords: ASEAN-EU FTA; Free Trade Agreements; Market Access; Rules of Origin
    JEL: F13 F15
    Date: 2008–03
  14. By: Collier, Paul; Venables, Anthony J.
    Abstract: Where imports are financed predominantly by rents from resource extraction or aid, the revenue generated by tariffs is illusory. Revenue earned by the tariff is offset by a reduction in the real value of aid and resource rents. Revenue is however moved between accounts in the government budget, which, in the case of aid, may reduce the burden of donor conditionality. We demonstrate this proposition and its qualifications analytically and by simulating the effects of tariffs on revenue, real income, and export diversification for a range of cases. Whereas countries in which tariff revenue is illusory should adopt more liberal trade regimes, we show that currently there is no such tendency.
    Keywords: Aid; import tariffs; natural resources
    JEL: F1 F35 Q3
    Date: 2008–02
  15. By: Keller, Wolfgang; Shiue, Carol Hua
    Abstract: We study the relative importance of technology and institutions as factors determining the size of markets. The setting of 19th century Europe presents a unique opportunity to address this issue, since it witnessed fundamental change in both dimensions. First, Germany went from around 1,800 customs borders to none through the Zollverein customs treaties. Second, it moved from a situation of monetary disorder to currency unification. And third, the 19th century saw the introduction of steam trains, the key technology that revolutionized transportation between markets. Changes in market integration are studied in terms of the spatial dispersion of grain prices in 68 markets with more than 10,000 observations, located in five different countries and fifteen different German states. We find that the emergence of integrated commodity markets in 19th century Europe is in major part due to the transportation revolution in form of the railways. There is evidence that also customs liberalizations and, more so, currency agreements improved trade possibilities. However, the impact of trains was larger than the effect of these institutions: about three times larger over the long horizon, and around 50% larger for the relatively short time horizon of twenty-five years. These results suggest that as significant as institutional factors were for the expansion of markets, technology factors may have been even more important.
    Keywords: Currency Agreement; Customs Liberalization; Market Size; Steam Train; Trade; Transportation Technology
    JEL: F1 F3 N10 O3
    Date: 2008–03
  16. By: Antonio Tena Junguito
    Abstract: This paper revisits Bairoch’s hypothesis that tariffs were positively associated with growth in the late 19th century, as confirmed recently by a new generation of quantitative studies (see O`Rourke (2000), Jacks (2006) and Clements- Williamson (2002, 2004)). This paper highlights the importance of the structure of protection in the relation between trade policy and growth and its potential growth-promoting impact. Evidence is based in a new data base on industrial tariffs for the 1870`s. First results, based on these findings, show that protection was only positive for a “rich club” if we include in this group New Settler countries which grew rapidly in the late 19th century. Leaving out these countries, which protected mainly for fiscal reasons, the evidence shows that more protection, indicated by total average and manufacture tariff average, implied more un-skilled inefficient protection and less growth and this is especially true for the poor countries in the late 19th century.
    Keywords: Tariffs and growth, Tariff structure, Late 19th Century
    JEL: F13 N70
    Date: 2008–03
  17. By: David Reinstein; Joon Song
    Abstract: Consumers have shown willingness to pay a premium for products labeled as "Fair Trade" and to prefer retailers that are seen as more generous to their suppliers and employees. We define a fair trade product as a bundle of a consumption good and a donation. An altruistic consumer will only choose this bundle over its separate elements if the bundle is less expensive. Thus, for fair trade to be sustainable in a competitive equilibrium, an efficiency must be generated. In general, the first-best level of investment (to reduce the retailer's cost or boosts quality) cannot be achieved when it is non-verifiable. However, the altruism of the consumer facilitates a more efficient contract: by paying the supplier more, the retailer can both extract more consumer surplus and increase the level of contracted investment, while preserving incentive compatibility. We provide empirical and anecdotal evidence for the assumptions and predictions of this model, focusing on the coffee industry.
    Date: 2008–03–27
  18. By: Jozef Konings; Patrick Van Cayseele; Frederic Warzynski
    Abstract: In this paper, we estimate markup ratios using firm-level data according to the techniques developed by Hall (1986, 1988) and Domowitz et al. (1988) for the Dutch and Belgian manufacturing industry from 1992 to 1997, to determine whether competition policy affects the pricing behaviour of firms. Competition law was applied less toughly in the Netherlands until January 1998. We find evidence of large markup ratios in the manufacturing industry as a whole and in a lot of 2-digit industries. The markup ratio did not decline in Belgium following the creation of a national competition policy authority. However we show that the markup ratio is higher in the Netherlands than in Belgium in the whole manufacturing industry but also in most smaller subsets. In addition, the import penetration ratio positively influences the markup ratio in the Netherlands, meaning that imports do not discipline the industry. Together these findings support the hypothesis that competition is useful to correct allocative inefficiencies.
    Date: 2008–03
  19. By: Lode Berlage; Bart Capeau; Philip Verwimp
    Abstract: Is it a matter of pure altruism or shortsightedness when a dictator spends an increasing amount of his revenues for the population, while cutting on own consumption? In order to be able to consume, the dictator first has to stay in power. We present a formal model of a power maximizing dictator. His revenues depend on the exports of a single crop. With the export earnings the dictator buys loyalty from the producers of the export crop by setting the domestic producer price. Revenues resulting from the di®erence between the international and the domestic price of the crop are used to finance a repressive apparatus. We characterize the optimal trade-o® between buying more loyalty and adapting the level of repression. The model is illustrated with a case study of Rwanda under president Habyarimana (1973-94).
    Keywords: dictatorship, political economy, co®ee, Rwanda.
    JEL: D72 H30 H56
    Date: 2008–03
  20. By: Stefan Dercon; Bjorn Van Campenhout
    Abstract: This paper presents an alternative technique to analyze market integration using price data, linking the cointegration version of Ravallion's dynamic model with the recent switching regression approaches as in Baulch's Parity Bounds Model. The Band- Threshold Autogression (Band-TAR) model allows for dynamic analysis of the adjustment process as well as for trade discontinuities and transaction costs, thereby avoiding some of the unrealistic assumptions of both approaches. We apply the model to the same rice price data on the Philippines as Baulch and find that, contrary to Baulch, the efficient arbitrage conditions are often not satisfied and unexploited profits are common, albeit relatively small. At least on one important trade route, we find evidence of substantial inefficiences.
    Date: 2008–03
  21. By: Guriev, Sergei; Yakovlev, Evgeny; Zhuravskaya, Ekaterina
    Abstract: The optimal degree of decentralization depends on the importance of inter-state externalities of local policies. We show that inter-state externalities are determined by spatial distribution of interest groups within the country. Interest groups who have multi-state scope internalize inter-state externalities to a larger extent than the lobbyists with interests within a single state. We use variation in the geographic boundaries of politically-powerful industrial interests to estimate the effect of inter-state externalities on firm performance. Using firm-level panel data from a peripheralized federation, Russia in 1996-2003, we show that, controlling for firm fixed effects, the performance of firms substantially improves with an increase in the number of neighbouring regions under influence of multi-regional business groups compared to the number influenced by local business groups. Our findings have implications for the literatures on federalism and on international trade as trade restrictions are a common source of inter-state externalities.
    Keywords: Federalism; Inter-jurisdictional externalities; Inter-state trade barriers; Interest groups; Multinational firms
    JEL: D78 F15 F23 H77 P26
    Date: 2008–02
  22. By: Joshua Aizenman; Mark M. Spiegel
    Abstract: This paper identifies factors associated with takeoff--a sustained period of high growth following a period of stagnation. We examine a panel of 241 "stagnation episodes" from 146 countries, 54% of these episodes are followed by takeoffs. Countries that experience takeoffs average 2.3% annual growth following their stagnation episodes, while those that do not average 0% growth; 46% of the takeoffs are "sustained," i.e. lasting 8 years or longer. Using probit estimation, we find that de jure trade openness is positively and significantly associated with takeoffs. A one standard deviation increase in de jure trade openness is associated with a 55% increase in the probability of a takeoff in our default specification. We also find evidence that capital account openness encourages takeoff responses, although this channel is less robust. Measures of de facto trade openness, as well as a variety of other potential conditioning variables, are found to be poor predictors of takeoffs. We also examine the determinants of nations achieving sustained takeoffs. While we fail to find a significant role for openness in determining whether or not takeoffs are sustained, we do find a role for output composition: Takeoffs in countries with more commodity-intensive output bundles are less likely to be sustained, while takeoffs in countries that are more service-intensive are more likely to be sustained. This suggests that adverse terms of trade shocks prevalent among commodity exports may play a role in ending long-term high growth episodes.
    Keywords: Economic conditions
    Date: 2007
  23. By: Moser, Christoph; Urban, Dieter M; Weder di Mauro, Beatrice
    Abstract: This study investigates the impact of international competitiveness on net employment, job creation, job destruction, and gross job flows for a representative sample of German establishments from 1993 to 2005. We find a statistically significant but economically small effect of real exchange rate shocks on employment, comparable to the one found in studies for the United States. However, contrary to the United States, the employment adjustment (among surviving firms) operates mainly through the job creation rather than the job destruction rate. Job destruction occurs essentially through discrete events such as restructuring, outsourcing and bankruptcy. We suggest that these findings are consistent with a highly regulated labour market, in which smooth adjustment is costly and possibly delayed.
    Keywords: attrition estimator; gross worker flows; international competitiveness; inverse probability weighted GMM; real exchange rate
    JEL: F16 F40
    Date: 2008–03

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