nep-int New Economics Papers
on International Trade
Issue of 2008‒04‒21
seventeen papers chosen by
Martin Berka
Massey University

  1. Resolving the Global Imbalance: The Dollar and the U.S. Saving Rate By Martin S. Feldstein
  2. How Likely Is Factor Price Equalization? By Bodil O. Hansen; Hans Keiding
  3. Exporting Deflation? Chinese Exports and Japanese Prices By David Weinstein; Christian Broda
  4. R&D, Market Structure and Trade: A General Equilibrium Analysis By Leopoldo Yanes
  5. Monopolistic Competition and the Dependent Economy Model By Romain Restout
  6. Varieties and the Transfer Problem: The Extensive Margin of Current Account Adjustment By Giancarlo Corsetti; Philippe Martin; Paolo Pesenti
  7. Trade, conflicts and political integration : explaining the heterogeneity of regional trade agreements By Vincent Vicard
  8. A Portrait of the Innovative Firm as a Small Patenting Entrepreneur By Andersson, Martin; Lööf, Hans
  9. Transportation Expenditures, Growth and International Trade By Yesim Kustepeli; Yaprak Gulcan; Sedef Akgungor
  10. Globalization and the effects of national versus international competition on the labour market. Theory and evidence from Belgian firm level data By Hilde Vandenbussche; Jozef Konings
  11. International R&D Spillovers in Transition Countries: The Impact of Trade and Foreign Direct Investment By Marius Sorin Krammer
  12. Winners and Losers from World Agricultural Trade Liberalisation By Susan Senior Nello
  13. When consumption heals producers: the effect of fair trade on marginalised producers’ health and productivity By Leonardo Becchetti; Giuseppina Gianfreda
  14. Latin America’s Asian Opportunity By Rolando Avendaño; Gøril Bjerkhol Havro
  15. From innovation to exporting or vice versa? Causal link between innovation activity and exporting in Slovenian microdata By Joze P. Damijan; Crt Kostevc; Saso Polanec
  16. "Performance of Urban India during Globalization Period: An Economic Analysis" By Narayana, Muttur Ranganathan

  1. By: Martin S. Feldstein
    Abstract: The large trade and current account deficits of the United States cannot continue indefinitely because doing so would constitute a permanent gift to the U.S. economy. The process that will cause this gift to shrink and that will eventually cause it to reverse is a fall in the dollar. The dollar will fall as private investors and governments become unwilling to accept the risk of increasing amounts of dollars in their portfolios, especially in a context in which they realize that the dollar must fall to reduce the trade imbalance. Although a more competitive dollar is the mechanism that will cause the U.S. trade deficit to decline, the fundamental requirement for a lower trade deficit is an increase in the U.S. national saving rate. So a rise will be driven by higher household savings of the coming years as the two primary forces that depressed savings in recent years are reversed: the exceptionally rapid rise in household wealth and the high level of mortgage refinancing with equity withdrawal.
    JEL: F1 F3
    Date: 2008–04
  2. By: Bodil O. Hansen (Copenhagen Business School); Hans Keiding (Department of Economics, University of Copenhagen)
    Abstract: The idea of treating factor price equalization as a situation, where the distribution of factors among countries is compatible with an equilibrium in an integrated world economy, has been refined to give the so-called lens condition for factor price equalization. In this paper, we show that the lens condition may be used to give estimates for the probability of factor price equalization when factors are distributed randomly among countries and, in addition, the techologies are sampled according to a given probability distribution. The estimates indicate that factor price equalization may occur less often than intuitively conceived.
    Keywords: international trade; Factor Price Equalization; lens condition
    JEL: F11
    Date: 2008–04
  3. By: David Weinstein; Christian Broda
    Abstract: Between 1992 and 2002, the Japanese Import Price Index registered a decline of almost 9 percent and Japan entered a period of deflation. We show that much of the correlation between import prices and domestic prices was due to formula biases. Had the IPI been computed using a pure Laspeyres index like the CPI, the IPI would have hardly moved at all. A Laspeyres version of the IPI would have risen 1 percentage point per year faster than the official index. Second we show that Chinese prices did not behave differently from the prices of other importers. Although Chinese prices are substantially lower than the prices of other exporters, they do not exhibit a differential trend. However, we estimate that the typical price per unit quality of a Chinese exporter fell by half between 1992 and 2005. Thus the explosive growth in Chinese exports is attributable to growth in the quality of Chinese exports and the increase in new products being exported by China.
    JEL: E31 F1 F12
    Date: 2008–04
  4. By: Leopoldo Yanes (School of Economics, The University of Queensland)
    Abstract: That many industries exhibit highly concentrated market structures, even at the global level, calls for trade theoretic analyses which can accommodate this fact. We present a two-country, general equilibrium analysis in which high concentration levels can be sustained through the interaction between R&D and market structure, whilst emphasizing the effects of trade and industrial policy on wages and welfare. The world economy is characterized by asymmetric initial conditions and populations. If initial conditions are very different, freetrade reduces wages in a backward economy, relative to autarky. However, the advanced economy always achieves higher wages through trade. Welfare gains from trade arise when economies are either very similar or very different. In the intermediate case, when initial conditions are not too different, and the advanced economy’s population is not very large, the backward economy loses from trade, while the advanced economy gains. A compensation mechanism is feasible and would ensure that no nation loses from trade. The analysis provides formal criteria for the choice of trade partners and the formation of trade blocs. Moreover, industrial policy (an R&D subsidy) is shown to be neutral or ineffective, in the sense that it does not affect any real magnitudes.
    Keywords: International trade, industrial policy, product quality, R&D, market structure, initial conditions
    Date: 2008
  5. By: Romain Restout
    Abstract: This paper explores the consequences of introducing a monopolistic competition in an intertemporal two-sector small open economy model which produces traded and non traded goods. It is assumed that the non traded sector is the locus of the imperfectly competition. Our analysis shows that markup depends on the composition of aggregate non traded demand and is therefore endogenously determined in the model. Calibrating the model with OECD parameters, the effects of fiscal and technological shocks are simulated. Our findings are as follows. First, the model is consistent with the observed saving-investment correlations found in the data. Second, unlike the perfectly framework and in accordance with empirical studies, fiscal shocks cause real appreciation of the relative price of non traded goods, which in turn enlarges the responses of current account and investment. Third, the model is consistent with the empirical report that technological shocks result in current account deficits and investment rises. Fourth, the strength of the relative price appreciation following sector productivity differentials, i.e. the Balassa-Samuelson effect, is affected by the monopolistic competition hypothesis. Assume perfect competition when it is not, biases upward estimates of the Balassa-Samuelson effect.
    Keywords: Monopolistic Competition, Fiscal Policy, Productivity
    JEL: E20 E62 F31 F41
    Date: 2008
  6. By: Giancarlo Corsetti; Philippe Martin; Paolo Pesenti
    Abstract: Most analyses of the macroeconomic adjustment required to correct global imbalances ignore net exports of new varieties of goods and services and do not account for firms'net entry in the product market. In this paper we revisit the macroeconomics of trade adjustment in the context of the classic 'transfer problem', using a model where the set of exportables, importables and nontraded goods is endogenous. We show that exchange rate movements associated with adjustment are dramatically lower when the above features are accounted for, relative to traditional macromodels. We also find that, for reasonable parameterizations, consumption and employment (hence welfare) are not highly sensitive to product differentiation, and change little regardless of whether adjustment occurs through movements in relative prices or quantities. This result warns against interpreting the size of real depreciation associated with trade rebalancing as an index of macroeconomic distress.
    Keywords: transfer problem, current account, global imbalances, extensive margin
    Date: 2008–01–24
  7. By: Vincent Vicard (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: This paper investigates the determinants of the shape of regional trade agreements (RTAs). Because the world is constituted by independent political entities, international trade flows take place in a system where property rights are unsecured and RTAs should be understood as regulation mechanisms. In this theoretical framework, trade and security issues interact in the formation of RTAs, so that their determinants differ according to their level of political integration, defined by their ability to promote the negotiated settlement of conflicts. Empirical results confirm that countries more subject to interstate disputes and naturally more opened to trade are more likely to create politically integrated regional agreements, such as common markets or custom unions. On the contrary, international insecurity deters less integrated agreements implying a weak institutional framework, such as preferential or free trade agreements.
    Keywords: International conflicts, political integration, regionalism, trade, war.
    Date: 2008–03
  8. By: Andersson, Martin (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper examines small innovative entrepreneurs by contrasting patenting firms against non-patenting firms. The empirical analysis is based on new and unique data on internal attributes, location and international trade characteristics for over 20 000 manufacturing firms in Sweden with 1-25 employees. Our main findings are that firms’ access to financial means, human capital and trade with R&D-intensive economies correlate highly significant with their propensity to be engaged in innovation activities, as evidenced by patent applications. Interestingly, when controlling for firm attributes we do not find any significant effect of the local milieu on innovativeness among micro and very small firms.
    Keywords: Entrepreneurship; Innovation and Invention; Intellectual Property Rights; SMEs; Technology Transfer; Location; Agglomeration
    JEL: F43 L26 M13 O31 O34
    Date: 2008–04–09
  9. By: Yesim Kustepeli (Department of Economics, Faculty of Business, Dokuz Eylül University); Yaprak Gulcan (Department of Economics, Faculty of Business, Dokuz Eylül University); Sedef Akgungor (Department of Economics, Faculty of Business, Dokuz Eylül University)
    Abstract: One of the processes that are alleged to constitute globalization is trade and investment. Improvements in highways, railways and ports facilitate the movement of the goods thus leading to higher standards of living for the people of the whole globe. Although infrastructure is indispensable to achieve the main development targets in developing countries, such as urbanization, industrialization, export growth and sustainable economic development (Kim, 2006), the relationship between infrastructure expenditures, economic growth and international trade is inconclusive. Boarnet (1995) suggests that public investment is productive if it gives some places a local competitive advantage over other places. The aim of the study is to investigate the effects of investments on highway infrastructure in Turkey, on Turkey’s international trade and economic growth for the period of 1970-2005. Results from cointegration and causality analysis suggest that there is only a weak relationship between highway transportation infrastructure, economic growth and international trade in Turkey.
    JEL: H20 O40
    Date: 2008–04–14
  10. By: Hilde Vandenbussche; Jozef Konings
    Abstract: In this paper we first develop a simple theoretical framework which shows that important differences exist between national and international competition and their effect on national labour markets. National competition refers to a reduction of monopoly power in the product market through improved market contestability and market access, which is the responsibility of competition authorities. International competition refers to a reduction in product market competition as a result of trade liberalization. We show that when the domestic market is unionized, national entry (FDI or domestic entry) has very different effects on the national labour market than international entry (imports in the relevant product market). One result we obtain is that national competition need not increase domestic employment while trade competition need not lower domestic employment. Our analysis has at least two important implications. First, geographic location of competitors matters when institutional settings like trade unions are country specific. Second, a change in competition policy is likely to affect labour markets differently than a change in trade policy. The results also indicate that apart from location, market structure and the level at which wages are bargained over (firm or sector level) matter. In a further step the theoretical predictions we derive, are tested on Belgian company accounts data supplemented with data from a postal survey.
    Date: 2008–03
  11. By: Marius Sorin Krammer
    Abstract: While the economic theory predicts that developing countries will gain the most from technology spillovers, there have been only a few analyses looking at this question empirically. The present study focuses on a panel of 27 transition and 20 Western European countries between 1990 and 2006 and uses the latest developments in panel unit root and cointegration testing to disentangle the effects of international spillovers via trade and FDI. My findings show that imports remain the main channel of diffusion for both sets of countries, while FDI, although significant econometrically, has less quantitative impact on domestic productivity. The domestic R&D capital stock plays an active role in Western Europe while in the Eastern part is much less important. Human capital has an overall robust positive influence on TFP. The results confirm that transition countries seem to gain more in terms of productivity from the international diffusion process than their Western counterparts.
    Keywords: technology spillovers; trade; investment; panel cointegration
    JEL: O30 O47 O57 C23 D24
    Date: 2008–03
  12. By: Susan Senior Nello
    Abstract: This paper aims at showing the role of agriculture in determining many of the controversies and problems of the current phase of globalisation. This first entails presenting key statistics indicating the main developments in world agricultural trade, illustrating how there has been a relative deterioration of the export performance of developing countries. The Doha Development Agenda of the World Trade Organisation (WTO) is then analysed, indicating the positions of the main actors involved as this illustrates the perceived vulnerabilities and opportunities arising from agricultural trade liberalisation. The final part of the article provides a survey of the main estimates of the impact of agricultural trade liberalisation, and tackles the issue of those countries, sectors and households that might be adversely affected by the process. In particular, the paper will attempt to illustrate how the possible negative consequences of the failure of the Doha Round could be overcome.
    Keywords: world agricultural trade; agricultural trade liberalisation; The CAP and WTO; Doha Development Agenda
    Date: 2007–05–25
  13. By: Leonardo Becchetti (University of Tor Vergata); Giuseppina Gianfreda (University of Viterbo)
    Abstract: Concerned consumers in the US and Europe are increasingly willing to pay an “ethical premium” for the social and environmental value of fair trade products. One of the fair trade criteria (aimed to enhance wellbeing and capacity building of marginalised producers) relates to producers health and creation of healthy working conditions. We evaluate its significance by comparing days lost for illness of FT and non FT affiliated Kenyan farmers. We find that FT affiliation years have a significant effect in the expected direction on the dependent variable after controlling for selection bias effects.
    Keywords: Fair trade, health, impact study
    JEL: O19 O22 D64 I1
    Date: 2008
  14. By: Rolando Avendaño; Gøril Bjerkhol Havro
    Abstract: Growing trade with China and India offers new export opportunities for Latin America. Latin American countries need to invest in infrastructure and innovation. * This Policy Insights is based on the Latin American Economic Outlook 2008.
    Date: 2007–10
  15. By: Joze P. Damijan; Crt Kostevc; Saso Polanec
    Abstract: Firm productivity and export decision are closely related to its innovation ac- tivity. Product innovation may play a more important role in the decision to start exporting, while the decision for process innovation may be triggered by success- ful exporting. This suggests that the causality between innovation and exporting may run from product innovation to exporting and conesequently from exporting to process innovation and reverse productivity improvements. Using detailed mi- crodata, including innovation survey, industrial production survey and information on trade, for Slovenian firms in 1996-2002 we investigate this dual causal relation- ship between firms' innovation and exporting activity. We find no evidence for the hypothesis that either product or process innovations increase the probability of becoming a first time exporter, but find consistent support both in the innovation survey as well as in the industrial production survey that exporting does lead to pro- ductivity improvements. These, however, are likely to be related to process rather than product innovations and are limited to a sample of medium and large sized first time exporters only.
    Keywords: ?rm heterogeneity, innovation, exporting, productivity, matching
    JEL: D24 F14 F21
    Date: 2008
  16. By: Narayana, Muttur Ranganathan (CIRJE, University of Tokyo and Institute for Social and Economic Change)
    Abstract: This paper aims at economic analysis of globalization and performance of urban India during the globalization period. India's recent process of globalization is identified with the start of national economic reforms since July 1991. India's degree of globalization, measured by internationalization of trade and capital, is shown to be low at global levels. Patterns of urbanization in the post-globalization period show higher growth and concentration of population, bigger size of organized employment, higher levels of consumption, and lower levels of poverty in bigger class-size cities. Urban economic growth is increasingly contributed by service sectors, declining share of manufacturing sector, and higher labour productivity. These experiences of urban India coincide with global experiences in countries such as China, G7, and Korea. Overall, aggregate economic performance of urban India is positive during the globalization period. Demands of globalization have transformed urban development into national policies and programmes. This implies a beginning for a national policy for urban development in India.
    Date: 2008–01
  17. By: Manuel de Heredia Caldeira Cabral (Universidade do Minho, Departamento de Economia)
    Abstract: This paper uses dynamic measures to study the changes in the Portuguese export pattern. We identify long run trends of change in the structure of the Portuguese exports, and also discuss that the recent years might be a turning point in what concerns the acceleration of the growth of the Portuguese exports, the increase of structural change in the export pattern and also of reversing the excessive concentration in the Portuguese export markets. We focus particularly on export based indicators that are related with the trade and growth literature, and in this way could reveal the contribution of the evolution of the exports to the convergence of the Portuguese economy with the European Union. We identify four important changes in former trends: First the recovery of the trend of increasing openness of the Portuguese economy (that was interrupted since the beginning of the 1990’s); Second the recent evidence of export market diversification, that interrupts the trend of concentration of the exports in the EU market; Third the trend of structural change in the export pattern, that seems to have accelerated in recent years; Fourth the increase in the technological intensity of exports, which in recent years became the main driver of the increase in the exports, in a more marked way than in most European countries. We also find that the trend of convergence of the Portuguese export structure with that of the EU continued in recent years, with an important decrease in the distance between the Portuguese structure of exports and that of the European Union. As a result of this convergence there was a significant gain in the share of intra-industry trade. We argue that each of the five trends found here should be expected to be associated in a positive way with the prospects of income convergence between Portugal and the EU.
    Keywords: Dynamics of international specialisation; structural change, trade liberalisation; technology transfers.
    JEL: F1 O33 O50
    Date: 2008–04

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