nep-int New Economics Papers
on International Trade
Issue of 2008‒05‒17
seventeen papers chosen by
Martin Berka
Massey University

  1. Technology Capital and the U.S. Current Account By Ellen R. McGrattan; Edward C. Prescott
  2. Was It Prices, Productivity or Policy? The Timing and Pace of Latin American Industrialization after 1870 By Aurora Gómez Galvarriato; Jeffrey G. Williamson
  3. Trade and Labour Market Adjustments By Samuel Hill; Molly Lesher; Hildegunn Kyvik Nordas
  4. Autarkic Indeterminacy and Trade Determinacy By Nicholas C.S. Sim; Kong-Weng Ho
  5. Indeterminacy and Market Instability By Nicholas C.S. Sim; Kong-Weng Ho
  6. When Is Quality of Financial System a Source of Comparative Advantage? By Jiandong Ju; Shang-Jin Wei
  7. How does FDI inflow affect productivity of domestic firms? The role of horizontal and vertical spillovers, absorptive capacity and competition By Kolasa, Marcin
  8. Trade, conflicts and political integration : explaining the heterogeneity of regional trade agreements. By Vincent Vicard
  9. Does Trade Liberalization Reduce Pollution Emissions? By MANAGI Shunsuke; HIBIKI Akira; TSURUMI Tetsuya
  10. Internationalization and economic performance of enterprises: evidence from firm-level data By Hagemejer, Jan; Kolasa, Marcin
  11. Does Immigration Raise Natives’ Income? National and Regional Evidence from Spain. By Catalina Amuedo-Dorantes; Sara de la Rica
  12. Trade Liberalization and Productivity Dynamics: Evidence from Canada By Lileeva, Alla
  13. Geographic Market Access and the Effects of Trade on Length of Production Run, Product Diversity and Plant Scale of Canadian Manufacturing Plants, 1974 to 1999 By Baldwin, John R.; Brown, W. Mark; Gu, Wulong
  14. The Effect of Corruption on Investment Growth: Evidence from Firms in Latin America, Sub-Saharan Africa and Transition Countries. By Elizabeth Asiedu; James Freeman
  15. Can Imports Discipline Collusive Firms? The Case of the Philippine Cement Industry By Aldaba, Rafaelita Mercado
  16. The Impact of Liberalizing International Trade of Banking Services in Morocco By Achy, Lahcen; Hassani, Aicha
  17. Perspectives of Workers with Low Qualifications in Germany under the Pressures of Globalization and Technical Progress By Harald Hagemann; Ralf Rukwid

  1. By: Ellen R. McGrattan; Edward C. Prescott
    Abstract: The U.S. Bureau of Economic Analysis (BEA) estimates the return on investments of foreign subsidiaries of U.S. multinational companies over the period 1982--2006 averaged 9.4 percent annually after taxes; U.S. subsidiaries of foreign multinationals averaged only 3.2 percent. Two factors distort BEA returns: technology capital and plant-specific intangible capital. Technology capital is accumulated know-how from intangible investments in R&D, brands, and organizations that can be used in foreign and domestic locations. Used abroad, it generates profits for foreign subsidiaries with no foreign direct investment (FDI). Plant-specific intangible capital in foreign subsidiaries is expensed abroad, lowering current profits on FDI and increasing future profits. We develop a multicountry general equilibrium model with an essential role for FDI and apply the BEA's methodology to construct economic statistics for the model economy. We estimate that mismeasurement of intangible investments accounts for over 60 percent of the difference in BEA returns.
    JEL: F32
    Date: 2008–05
  2. By: Aurora Gómez Galvarriato; Jeffrey G. Williamson
    Abstract: Brazil, Mexico and a few other Latin American republics enjoyed faster industrialization after 1870 than did the rest of Latin America and even faster than the rest of the poor periphery (except East Asia). How much of this economic performance was due to more accommodating institutions and greater political stability, changes that would have facilitated greater technology transfer and accumulation? That is, how much to changing fundamentals? How much instead to a cessation in the secular rise in the net barter terms of trade which reversed de-industrialization forces, thus favoring manufacturing? How much instead to cheaper foodstuffs coming from more open commercial policies ('grain invasions'), and from railroad-induced integration of domestic grain markets, serving to keep urban grain prices and thus nominal wages in industry low, helping to maintain competitiveness? How much instead to more pro-industrial real exchange rate and tariff policy? Which of these forces contributed most to industrialization among the Latin American leaders, long before their mid 20th century adoption of ISI policies? Changing fundamentals, changing market conditions, or changing policies?
    JEL: F1 N7 O2
    Date: 2008–05
  3. By: Samuel Hill; Molly Lesher; Hildegunn Kyvik Nordas
    Abstract: This study describes developments in international trade and OECD labour markets and analyses possible linkages between them. It depicts recent developments in offshoring, trade in tasks and the integration of large emerging economies into the world market. The labour market in major OECD countries has been characterised by rising employment relative to the total population and declining unemployment rates during the past decade. Job security has not changed greatly between 1995 and 2005, but the wage share of national income has declined in many OECD countries. The report does not find evidence of a linkage between import penetration and overall employment or unemployment, but relatively small effects on productivity and employment patterns are found. A shift towards sourcing of imports from emerging markets slightly improves labour productivity and reduces labour demand in the importcompeting sectors or activities. Offshoring of services has a relatively strong positive marginal impact on labour productivity, but the scale of offshoring is still modest. The labour market impact of offshoring is stronger in countries with high employment protection and high barriers to entrepreneurship. The study finally argues that offshoring is motivated by the need for flexibility and lower costs and helps firms remain competitive. Thus, offshoring may well relax the pressure to move the entire manufacturing production chain to low-cost countries.
    Keywords: emerging economies
    JEL: F16
    Date: 2008–03–25
  4. By: Nicholas C.S. Sim (Department of Economics, Boston College, USA); Kong-Weng Ho (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore)
    Abstract: We extend the model of Nishimura and Shimomura (2002) to consider a two-country framework where under autarky indeterminacy arises in one country but determinacy in the other, and show that indeterminacy could be eliminated when trade takes place between the two.
    Keywords: Indeterminacy, Trade, Two-Country Framework.
    JEL: E32 F00 F11 F43
    Date: 2007–06
  5. By: Nicholas C.S. Sim (Department of Economics, Boston College, USA); Kong-Weng Ho (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore)
    Abstract: This note shows that indeterminacy arising from an economy exhibiting production with social constant returns to scale may be related to the instability of the consumption goods market equilibrium. Furthermore, trade does not contribute to indeterminacy; indeterminacy arises becasue each country’s equilibrium path is already indeterminate before trade.
    Keywords: Indeterminacy, Market Instability
    JEL: E32 F00 F11 F43
    Date: 2007–05
  6. By: Jiandong Ju; Shang-Jin Wei
    Abstract: Does finance follow the real economy, or the other way around? This paper unites the two competing schools of thought in a general equilibrium framework. Our key result is that there are threshold effects defined by a set of deep institutional parameters (cost of financial intermediation, quality of corporate governance, and level of property rights protection) which can be used to separate economies of high-quality institutions from those of low-quality institutions. On one hand, for economies with high-quality institutions, the view that finance follows the real economy is essentially correct. Equilibrium output and prices are determined by factor endowment. Further improvement in the institutions does not affect patterns of output. On the other hand, for economies with low-quality institutions, the view that finance is a key driver of the real economy is essentially correct. Not only is finance a source of comparative advantage, but an increase in capital endowment has no effect on outputs and prices. Our model extends a standard one-sector, partial equilibrium model of corporate finance to a multi-sector, general equilibrium analysis. Surprisingly, but consistent with data, we show that the size of financial markets (relative to GDP) does not change monotonically with either the quality of institutions or with the factor endowment. Free trade may reduce the aggregate income of an economy with low-quality institutions. Financial capital tends to flow from economies with low-quality institutions to those with high-quality institutions.
    JEL: F1 F3 G3
    Date: 2008–05
  7. By: Kolasa, Marcin
    Abstract: This paper examines the existence of externalities associated with FDI in a host country by exploiting firm-level panel data covering the Polish corporate sector. The main findings are as follows. Local firms benefit from foreign presence in the same industry and in downstream industries. Absorptive capacity of domestic firms is highly relevant to the size of spillovers. Competitive pressure facilitates backward spillovers, while market power increases the extent of forward spillovers. Host country equity participation in foreign firms is consistent with higher unconditional productivity spillovers to domestic firms.
    Keywords: foreign investment; spillovers; productivity; firm-level data
    JEL: F23 O33
    Date: 2007–03
  8. By: Vincent Vicard (Centre d'Economie de la Sorbonne)
    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.
    JEL: D74 F15 F51 F52 H56
    Date: 2008–03
  9. By: MANAGI Shunsuke; HIBIKI Akira; TSURUMI Tetsuya
    Abstract: Literature on trade liberalization, economic development, and the environment is largely inconclusive about the environmental consequences of trade. This study treats trade and income as endogenous and estimates the overall impact of trade openness on environmental quality using the instrumental variables technique. Trade is found to benefit the environment using a globally representative sample. A 1% increase in trade openness causes a decrease of 0.344%, 0.754%, and 1.909% for SO2, CO2, and BOD emissions, respectively, in the long term. Our results also show composition and scale-technique effects contribute differently to the overall effect in the short and long term.
    Date: 2008–05
  10. By: Hagemejer, Jan; Kolasa, Marcin
    Abstract: This paper provides evidence on the relative performance of internationalized firms using Polish firm-level data spanning over the period of 1996-2005. We distinguish between three modes of internationalization: exporting, importing of capital goods and foreign direct investment. Our results point strongly at superior performance of exporters vs. non-exporters importers vs. non-importers and foreign affiliates vs. domestic firms. We also find evidence for significant horizontal and backward productivity spillovers from all three types of international activity.
    Keywords: internationalization; productivity; panel firm-level data
    JEL: F15 L25 F23 O12
    Date: 2008–05
  11. By: Catalina Amuedo-Dorantes (San Diego State University & IZA); Sara de la Rica (The University of the Basque Country & FEDEA & IZA)
    Abstract: How immigration affects the labor market of the host country is a topic of major concern for many immigrant-receiving nations. Spain is no exception following the rapid increase in immigrant flows experienced over the past decade. We assess the impact of immigration on Spanish natives’ income by estimating the net immigration surplus accruing at the national level and at high immigrant-receiving regions while taking into account the imperfect substitutability of immigrant and native labor. Specifically, using information on the occupational densities of immigrants and natives of different skill levels, we develop a mapping of immigrant-to-native self-reported skills that reveals the combination of natives across skills that would be equivalent to an immigrant of a given self-reported skill level, which we use to account for any differences between immigrant self-reported skill levels and their effective skills according to the Spanish labor market. We find that the immigrant surplus amounts to 0.04 percent of GDP at the national level and it is even higher for some of the main immigrant-receiving regions, such as Cataluña, Valencia, Madrid, and Murcia.
    Keywords: International migration, regional, national, immigration surplus, Spain.
    JEL: J61 F22
    Date: 2008–05–08
  12. By: Lileeva, Alla
    Abstract: This paper investigates the productivity effects of the Canada-United States Free Trade Agreement (FTA) on Canadian manufacturing. It finds that Canadian tariff cuts increased exit rates among moderately productive non-exporting plants. This led to the reallocation of market share toward highly productive plants, which helps explain why aggregate productivity gains were observed when Canadian tariffs were reduced. The paper also finds that all of the within-plant productivity gains resulting from the U.S. tariff cuts involved exporters and, especially, new entrants into the export market. It demonstrates that any lack of output responses and labour-shedding as a consequence of the FTA were experienced by Canadian plants who were non-exporters, while exporters captured the gains from the FTA.
    Keywords: International trade, Manufacturing, Business performance and ownership, Business adaptation and adjustment
    Date: 2008–05–07
  13. By: Baldwin, John R.; Brown, W. Mark; Gu, Wulong
    Abstract: Over the past three decades, tariff barriers have fallen significantly, leading to an increasing integration of Canadian manufactures into world markets and especially the U.S. market. Much attention has been paid to the effects of this shift at the national scale, while little attention has been given to whether these effects vary across regions. In a country that spans a continent, there is ample reason to believe that the effects of trade will vary across regions. In particular, location has a significant effect on the size of markets available to firms, and this may impact the extent to which firms reorganize their production in response to falling trade barriers. Utilizing a longitudinal microdata file of manufacturing plants (1974 to 1999), this study tests the effect of higher levels of trade across regions on the organization of production within plants. The study finds that higher levels of export intensity (exports as a share of output) across regions are positively associated with longer production runs, larger plants and product specialization within plants. These effects are strongest in Ontario and Quebec, provinces that are best situated with respect to the U.S. market.
    Keywords: International trade, Manufacturing, Business performance and ownership, Business adaptation and adjustment
    Date: 2008–05–09
  14. By: Elizabeth Asiedu (Department of Economics, The University of Kansas); James Freeman (Department of Economics, Wheaton College)
    Abstract: Many of the empirical studies that analyze the impact of corruption on investment have three common features: they employ aggregate (country-level) data on investment, corruption is measured at the country-level, and data for countries from several regions are pooled together. This paper uses firm-level data on investment and measures corruption at the firm and country-level, and allows the effect of corruption to vary by region. Our dependent variable is firms’ investment growth and we employ six measures of corruption from four different sources: two firm-level measures and four country-level measures. We find that the effect of corruption on investments varies significantly across regions: corruption has a negative and significant effect on investment growth for firms in Transition countries but has no significant impact for firms in Latin America and Sub-Saharan Africa. Furthermore, among the variables included in the regressions (firm size, firm ownership, trade orientation, industry, GDP growth, inflation and openness to trade) corruption is the most important determinant of investment growth for Transition countries.
    Keywords: Bribery, Corruption, Firm, Investment, Latin America and Caribbean, Sub-Saharan Africa, Transition Countries.
    JEL: G31 O16
    Date: 2008–05
  15. By: Aldaba, Rafaelita Mercado
    Abstract: <p>Applying a conjectural variations (CV) model introduced by Haskel and Scaramozzino (H&S model 1997), the paper examines the impact of trade liberalization on the Philippine cement industry where alleged cartel activities have taken place after the entry of the world’s Big Three cement firms: Holcim, Cemex, and Lafarge. In the H&S model, the relationship between firm behavior and competition is estimated with price cost margin (price minus marginal costs over price) as indicator of competition and profitability. The model is extended to assess the impact of imports on competition using import penetration ratio as proxy for trade policy.</p> <p>The paper focuses on the following questions: did the removal of import restriction and reduction of tariffs affect competition in the cement industry? Are imports effective in disciplining domestic firms and reducing their market power? The results imply that imports do not seem to affect profitability and competition in the industry. Given the ability of firms to engage in anticompetitive behavior and the absence of an effective competition policy in the Philippines, the gains from trade liberalization are nullified. The country’s experience in the cement industry illustrates that trade liberalization is not a substitute for competition policy. For imports to effectively discipline the market, trade liberalization must be accompanied by strict competition policy.</p>
    Keywords: trade liberalization, competition, cartel, cement industry, conjectural variations
    Date: 2008
  16. By: Achy, Lahcen; Hassani, Aicha
    Abstract: The purpose of this paper is to assess welfare effects of regulating the banking sector in Morocco along the European Union lines. The agreement between the EU and Morocco, signed in February 1996 and came into force in March 2000, provides for the gradual establishment of an industrial free-trade zone by 2012 and progressive liberalization of trade in agriculture. The agreement between Morocco and the EU foresees, in addition to that, to start negotiations for a free trade area in services. The agreement contains, however, no binding commitments. But Morocco is expected to deepen further its relationships with Europe within the framework of the Neighboring Policy. The relevance of the issue of banking services’ liberalization goes beyond Morocco’s agreement with the EU. On the one hand, Morocco’s free trade agreement with the US encompasses services, more specifically financial services, in addition to manufactured goods, agricultural products, intellectual property rights, and government procurement. This agreement is expected to come into force in 2006. On the other hand, under GATS, Morocco is projected to increase its commitments and opens up further its banking sector to foreign competition. The last commitments made by Morocco in Uruguay Round were mainly under commercial presence (mode 3) as compared to cross border supply (mode 1) and consumption abroad (mode 2). Except lending to finance investment in Morocco or commercial transactions with Morocco allowed under the mode 1, no commitment has been made in other items (Achy 2002). Hence, there is a real need to understand opportunities and challenges of liberalizing banking services on the Moroccan economy.
    Keywords: Banking services; liberalization; Welfare effects; Morocco
    JEL: F15 G21
    Date: 2005
  17. By: Harald Hagemann (Universitaet Hohenheim); Ralf Rukwid (Universitaet Hohenheim)
    Abstract: This paper gives a detailed analysis of the perspectives of workers with low qualifications in Germany under the twofold pressures of globalization and technological change. First, alter-native explanations for the skill-bias in the development of labour demand are discussed, with particular emphasis on the “trade versus technology” debate. The consequences of the demand shift away from low-skilled labour in Germany are examined in a detailed empirical analysis of the development of (un)employment problems differentiated for qualification groups. Compared to other advanced economies, Germany shows a higher unemployment rate among less-qualified workers which is generally associated with a lack of flexibility in the German wage structure. However, an analysis of German, U.S. and British wage data based on the Cross National Equivalent File (CNEF) does not confirm the assumption of a simple mono-causal relationship between wage disparity and the intensity of group-specific unemployment. Finally, some political approaches for an improvement of the job prospects of less-qualified persons in Germany are outlined briefly and evaluated against the background of the empiri-cal results.
    Keywords: low-skilled labour, unemployment, wage inequality, globalization, skill-biased technological change, CNEF
    JEL: J2 J3 F1
    Date: 2007–10

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