nep-int New Economics Papers
on International Trade
Issue of 2008‒05‒31
eighteen papers chosen by
Martin Berka
Massey University

  1. Understanding International Price Differences Using Barcode Data By Christian Broda; David E. Weinstein
  2. Macroeconomic volatility and welfare loss under free-trade in two-country models By Kazuo Nishimura; Alain Venditti; Makoto Yano
  3. The Effect of Trade with Low-Income Countries on U.S. Industry By Auer, Raphael; Fischer, Andreas M
  4. Carbon Motivated Border Tax Adjustments: Old Wine in Green Bottles? By Ben Lockwood; John Whalley
  5. Have Developed Countries Escaped the Curse of Distance? By Hervé Boulhol; Alain de Serres
  6. Measures of International Transport ost for OECD Countries By Stephen S. Golub; Brian Tomasik
  7. Trade and Empire, 1700-1870 By Kevin H. O’Rourke; Leandro Prados de la Escosura; Guillaume Daudin
  8. China’s Growing Economic Activity in Africa By Hany Besada; Yang Wang; John Whalley
  9. Live or let die : intra-sectoral lobbying on entry By Vincent Rebeyrol; Julien Vauday
  10. The Effect of the Euro on Export Patterns: Empirical Evidence from Industry Data By Gavin Murphy; Iulia Siedschlag
  11. Competing Industrial Standards and the Impact of Trade Liberalization By Kikuchi, Toru; Iwasa, Kazumichi
  12. Service Exports: The Next Engine of Growth For Hong Kong? By Frank Leung; Kevin Chow; Jessica Szeto; Dickson Tam
  13. Has trade with China affected UK inflation? By Wheeler, Tracy
  14. The role of country-specific trade and survey data in forecasting euro area manufacturing production. Perspective from Large Panel factor models. By Laurent Maurin; Matthieu Darracq Pariès
  15. Spatial Aspects of Trade Liberalization in Colombia:A General Equilibrium Approach By Eduardo Haddad; Jaime Bonet Moron; Geoffrey Hewings; Fernando Perobelli
  16. Export-platform FDI: which impacts on the local production? (In French) By Huu Thanh Tam NGUYEN (LEREPS-GRES); Med KECHIDI (LEREPS-GRES)
  17. Enhancing the Globalisation of Korea By Randall Jones; Taesik Yoon

  1. By: Christian Broda; David E. Weinstein
    Abstract: The empirical literature in international finance has produced three key results about international price deviations: borders give rise to flagrant violations of the law of one price, distance matters enormously for understanding these deviations, and most papers find that convergence rates back to purchasing power parity are inconsistent with the evidence of micro studies on nominal price stickiness. The data underlying these results are mostly comprised of price indexes and price surveys of goods that may not be identical internationally. In this paper, we revisit these three stylized facts using massive amounts of US and Canadian data that share a common barcode classification. We find that none of these three main stylized facts survive. We use our barcode level data to replicate prior work and explain what assumptions caused researchers to find different results from those we find in this paper. Overall, our work is supportive of simple pricing models where the degree of market segmentation across the border is similar to that within borders.
    JEL: F1 F15 F31
    Date: 2008–05
  2. By: Kazuo Nishimura (Kyoto University - Kyoto University); Alain Venditti (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579); Makoto Yano (Kyoto University - Kyoto University)
    Abstract: This paper investigates the interlinkage in the business cycles based on sunspot fluctuations of large-country economies in a free-trade equilibrium. We consider a two-country, two-good, two-factor general equilibrium model with Cobb-Douglas<br />technologies, sector-specific externalities and linear preferences. We also assume constant social returns in the investment good sector but decreasing social returns in the consumption good sector. We first identify the determinants of each country's accumulation pattern in autarky equilibrium, and second we show that some country's sunspot fluctuations may spread throughout the world once trade opens even if the other country has determinacy under autarky. We thus prove that under free-trade, globalization and market integration may have destabilizing effects on a country's competitive equilibrium. Finally, we characterize a configuration in which opening to international trade improves the stationary welfare at the world level but deteriorates the stationary welfare of the country which imports investment goods and exports consumption goods. We thus show that in opposition to the standard belief, international trade may not be beneficial to all trading partners in the long run. Moreover, we prove that for some country, international trade may have contrasted consequences as it may at the same time improve the stationary welfare and have a destabilizing effect.
    Keywords: Two-country general equilibrium model, free-trade, local indeterminacy, sunspot fluctuations, capital intensities, decreasing social retur
    Date: 2008–05–22
  3. By: Auer, Raphael; Fischer, Andreas M
    Abstract: When labor abundant nations grow, their exports increase more in labor intensive than in capital intensive sectors. We utilize this difference in how exports are affected by growth to identify the causal effect of trade with low-income countries (LICs) on U.S. industry. Our framework relates differences in sectoral inflation rates to differences in comparative advantage-induced import growth rates and abstracts from aggregate fluctuations and sector specific trends. In a panel covering 325 six-digit NAICS manufacturing industries from 1997 to 2006, we find that LIC exports are associated with strong downward pressure on U.S. producer prices and a large effect on productivity. When LIC exporters capture 1% U.S. market share producer prices decrease by 3%, which is nearly fully accounted by a 2.4% increase in productivity and a 0.3% decrease in markups. We also document that while LICs on average find it easier to penetrate sectors with elastic demand, the price and productivity response to import competition is much stronger in industries with inelastic demand. Overall, between 1997 and 2006, the effect of LIC trade on manufacturing PPI inflation was around two percentage points per year, far too large to be neglected in macroeconomic analysis.
    Keywords: comparative advantage; globalization; low-wage country import competition
    JEL: F14 F15 F16
    Date: 2008–05
  4. By: Ben Lockwood; John Whalley
    Abstract: We discuss emerging proposals for border tax adjustments (BTAs) to accompany commitments to reduce carbon emissions in the EU, the US and other OECD economies. The rationale offered for such border adjustment is that various entities, such as the EU, if making commitments to reduce emissions which go beyond those undertaken in other regions of the world, impose added costs on domestic producers which create a competitive disadvantage for them. Some form of remedy is viewed as reasonable to maintain the competitiveness of domestic industries when responding to global environmental problems. In this paper, we argue that despite its current carbon manifestation, the issue of border tax adjustments and both their rationale and their effects on trade are not new and, despite the present debate (which seems to overlook older literature), have arisen before. Earlier debate on border tax adjustments occurred at the time of the adoption of the Value Added Tax (VAT) in the EU as a tax harmonization target in the early 1960’s. But academic literature of the time showed that a change between origin and destination basis in the VAT would be neutral and hence the use of a destination based tax in the EU to accompany the VAT offered no trade advantage to Europe. Here we argue that essentially the same arguments also apply for carbon motivated BTAs, and in the current debate there seems to be a misconception between price level effects and relative price effects stemming from a BTA, which needs correcting. We also argue that the impact of border tax adjustments should be viewed as independent of the motivation of the adjustments.
    JEL: F13 F18 Q56
    Date: 2008–05
  5. By: Hervé Boulhol; Alain de Serres
    Abstract: There is widespread evidence that a better access to markets contributes to raising income levels. However, no quantification of the impact of distance to markets has been made on the basis of a sample restricted to advanced — and therefore more homogeneous — countries. This paper applies the framework developed by Redding and Venables (2004) on a panel data covering 21 OECD countries over 1970-2004, and shows that, relative to the average OECD country, the cost of remoteness for countries such as Australia and New Zealand could be as high as 10% of GDP. Conversely, the benefit for centrally-located countries like Belgium and the Netherlands could be around 6-7%. Second, the paper explains why the key estimated parameter in the Redding-Venables model is biased upwards in cross-section samples that mix both developing and developed countries, because of the inability to adequately control for heterogeneity in technology levels across countries. The paper also provides a detailed discussion of the links between the ?death-of-distance? hypothesis, the evolution of transport costs and that of the elasticity of trade to distance. <P>Les pays développés ont-ils échappé à la malédiction de la distance ? <BR>De nombreuses études empiriques ont montré qu‘un meilleur accès aux marchés contribue à augmenter les revenus. Cependant, aucune quantification de l‘impact de la distance aux marchés n‘a été effectuée à partir d‘un échantillon homogène limité aux pays développés. Ce papier applique le cadre développé par Redding and Venables (2004) à des données de panel couvrant 21 pays de l‘OCDE entre 1970 et 2004, et montre que, relativement à la moyenne des pays de l‘OCDE, le coût de l‘éloignement géographique pour des pays comme l‘Australie et la Nouvelle Zélande s‘élève à environ 10% de PIB. Réciproquement, le bénéfice que tirent les pays ayant une position centrale comme la Belgique et les Pays-Bas serait de l‘ordre de 6-7%. Deuxièmement, cette étude explique pourquoi le paramètre-clé dans le modèle Redding-Venables est biaisé à la hausse dans des échantillons en coupe qui mêlent pays développés et en développement, en raison de l‘incapacité à contrôler l‘hétérogénéité des niveaux technologiques entre pays. Le papier propose également une discussion détaillée des liens entre l‘hypothèse de la « fin de la distance », l‘évolution des coûts de transport et celle de l‘élasticité du commerce à la distance.
    Keywords: market access, accès aux marchés, distance
    JEL: F12 F15 R11 R12
    Date: 2008–05–15
  6. By: Stephen S. Golub; Brian Tomasik
    Abstract: This paper presents new estimates of country-specific international transport costs for 21 OECD countries over the period 1973-2005. The methodology is based on direct measures of air, maritime, and road transport costs rather than on cif/fob ratios or other balance of payments data employed in previous studies. Transport costs are calculated as costs per kilogramme for each mode of transport at a bilateral level and then aggregated. Australia and New Zealand are found to have the highest transport costs among the OECD countries considered, followed by Japan. The time trends are sensitive to the choice of deflator, but the results do not show an overall downward trend in transport costs for OECD countries, contrary to conventional wisdom, but consistent with Hummels’ (2007) recent study of global transport costs. <P>Les mesures internationales des coûts de transport pour les pays OCDE <BR>Ce document présente des nouvelles estimations de coûts de transport internationaux par pays, pour 21 membres de l’OCDE pendant la période 1973-2005. La méthode repose sur des mesures directes des coûts de transport par voies maritime, aérienne et routière, plutôt que sur des ratios cif/fob ou d’autres données issues de la balance des paiements employés dans des études précédentes. Les résultats indiquent que l’Australie et la Nouvelle Zélande ont les coûts de transport les plus élevés parmi les pays de l’OCDE considérés, suivi par le Japon. Les tendances dans le temps sont sensibles au choix du déflateur, mais il n’apparaît pas de tendance globale à la baisse des coûts de transports pour les pays de l’OCDE, contrairement aux idées reçues, mais en accord avec l’étude récente de Hummels (2007) sur les coûts de transport au niveau mondial.
    Keywords: international trade, OECD, OCDE, air transport, transport aérien, commerce international, transport routier, distance
    JEL: F10 F14 L90 L91 L92 L93
    Date: 2008–05–15
  7. By: Kevin H. O’Rourke (Department of Economics, Trinity College Dublin); Leandro Prados de la Escosura (Departamento de Historia Económica e Instituciones, Universidad Carlos III de Madrid); Guillaume Daudin (Département “Économie de la Mondialisation”, OFCE and Université Lille-I)
    Abstract: This paper surveys the rise and fall of the European mercantilist system, and the transition to the modern, well-integrated international economy of the 19th century. It also surveys the literature on the links between trade and economic growth during the period, and on the economic effects of empire.
    Keywords: trade, empire, history
    JEL: N43 N73
    Date: 2008–05
  8. By: Hany Besada; Yang Wang; John Whalley
    Abstract: Trade between the whole of Africa and China (imports and exports summed) grew from $10.6 billion to $73.3 billion between 2000 and 2007, and between Sub-Saharan Africa and China from $7 billion to $59 billion over the same period. China is now Africa's third largest trading partner behind the EU and the US. The Chinese FDI stock in Africa has grown from $49 million in 1990 to $2.6 billion in 2006. On the basis of these data, one frequently hears the claim that China is now a dominant influence in Africa. Here we both evaluate such claims, and assess what factors underlay this phenomenon. We suggest that while the annual growth rates of trade and investment flows are high (around 30% per year sine the late 1990's), the levels are still considerably smaller than such claims might suggest. China in 2006 accounted for only $520 million of inward FDI compared to a total from all sources of $36 billion, around 1.4% of total FDI inflows to Africa; and only 8.6% of African exports and 9.6% of African imports. African interdependence with China thus remains proportionally smaller than that for most other geographical areas, but is growing rapidly. Factors behind this growth are discussed in the text.
    JEL: F13 F59 O53 O55
    Date: 2008–05
  9. By: Vincent Rebeyrol (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); Julien Vauday (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: Since the GATT/WTO hinders tariffs manipulation, the Technical Barriers to Trade (TBT's) are a growing and appealing protection tool. The endogenous protection literature has shown that a government's taste for protection creates an incentive for lobbying. Since regulations at the origin of such barriers have to be borne also by domestic sectors, due to the National Treatment WTO's principle, this creates conflicts of interests within a sector enhancing an intra-sectoral competition. This paper develops a political economy framework based on common agency under complete information that highlights this issue. The political competition opposes productive versus non productive firms in this context rather than domestic versus foreign ones, contrasting with the literature. Some apparently unorganized sectors, i.e. that are not protected, may actually be sectors where lobbies are biased towards non productive firms. Therefore, we should be cautious when empirically studying the relationship between the levels of protection and contributions.
    Keywords: Endogenous protection, Truthful equilibrium, firm heterogeneity.
    Date: 2008–05
  10. By: Gavin Murphy (Economic and Social Research Institute (ESRI)); Iulia Siedschlag (Economic and Social Research Institute (ESRI))
    Abstract: We estimate the euro effect on Irish export patterns using a panel of industry data over the period 1993-2004. Our innovation is to account for country and industry specific omitted trending variables bias. We find that the euro effect on Irish exports to the euro area countries relative to the rest of the trading partners of Ireland has been positive, significant and increasing since 2000. Furthermore, we find heterogeneous euro effects across industries. We find consistent significant positive euro effects for industries characterised by increasing returns to scale.
    Keywords: EMU,trade,Ireland
    JEL: F14 F15 F41
    Date: 2008–05
  11. By: Kikuchi, Toru; Iwasa, Kazumichi
    Abstract: The main purpose of this study is to illustrate, with simple trade theory, the relationship between competing industrial standards and trade liberalization. We assume that there are two competing industrial standards in an international context, each of which consists of differentiated products. A product can be used only in combination with other products based on the same industrial standard. We examine the impact of trade liberalization (i.e., a decline in trade costs) on consumers' choice of a standard. It will be shown that the degree of indirect network effects, captured with substitution between differentiated products, plays an important role as a determinant of the impact of trade liberalization.
    JEL: F12
    Date: 2008
  12. By: Frank Leung (Research Department, Hong Kong Monetary Authority); Kevin Chow (Research Department, Hong Kong Monetary Authority); Jessica Szeto (Research Department, Hong Kong Monetary Authority); Dickson Tam (Research Department, Hong Kong Monetary Authority)
    Abstract: Increasing economic integration with Mainland China has contributed to the rapid expansion of service exports in Hong Kong. Growing at the current pace of 10-20% per annum, service exports would be a key contributor to GDP in the coming years, thanks to vibrant expansion in offshore trade and strong growth in financial service exports and inbound tourism. Our projections show that, if the size of the Mainland economy doubles over the next decade, service exports could increase from the current 40% of GDP to 50% of GDP by 2016, probably the fastest growing component in GDP.
    Keywords: Trade in services, Offshore trade, Hong Kong, Mainland China
    JEL: F1 F2
    Date: 2008–04
  13. By: Wheeler, Tracy (Monetary Policy Committee Unit, Bank of England)
    Abstract: This paper investigates empirically whether the level or growth of cheap imports from China has had an impact on UK inflation. We use two methods; the first calculates UK weighted world export price inflation as the sum of the effect of the inflation level in the UK's trading partners and the effect of substituting imports from more expensive countries with imports from countries with lower price levels. The second estimates these two effects on UK inflation using panel regressions. The results from the first method suggest that the substitution of imports from more expensive countries with imports from China reduced UK weighted world export price inflation by an average of -0.75 percentage points per annum from 2000 to 2004. Similarly, the panel regressions suggest that over the 1997-2005 period this substitution had a small but significant downward impact on UK CPI inflation. However, the same regressions also suggest that higher inflation in imports from China than in imports from other countries has put upward pressure on some components of UK CPI inflation. As this upward 'inflation effect' is likely to have outweighed the downward 'substitution effect' the regressions suggest that the overall effect of Chinese imports on UK CPI inflation from 1997-2005 was positive.
    Keywords: Inflation; China; Imports
    JEL: E31 F15
    Date: 2008–02
  14. By: Laurent Maurin (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Matthieu Darracq Pariès (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: Several factor-based models are estimated to investigate the role of country-specific trade and survey data in forecasting euro area manufacturing production. Following Boivin and Ng (2006), the emphasis is put on the role of dataset selection on the empirical performance of factor models. First, spectral analysis is used to assess the information content for euro area manufacturing production of external trade and surveys data of the three largest economies as well as two medium-sized highly opened economies. Second, common factors are estimated on four datasets, following twomethodologies, Stock andWatson (2002a, 2002b) and Forni et al. (2005). Third, a rolling out of sample forecast comparison exercise is carried out on ninemodels. Compared to univariate benchmarks, our results are supportive of factor-basedmodels up to two quarters. They show that incorporating survey and external trade information improves the forecast of manufacturing production. They also confirm the findings of Marcellino, Stock and Watson (2003) that, using country information, it is possible to improve forecasts for the euro area. Interesting, the medium-sized highly opened economies provide valuable information to monitor area wide developments, beyond their weight in the aggregate. Conversely, the large countries do not add much to the monitoring of the aggregate, when considered separately. JEL Classification: E37, C3, C53.
    Keywords: Factor models, Dataset, Forecasting.
    Date: 2008–05
  15. By: Eduardo Haddad; Jaime Bonet Moron; Geoffrey Hewings; Fernando Perobelli
    Abstract: This paper offers some preliminary steps in the marriage of some of the theoretical foundations of the new economic geography with spatial computable general equilibrium models. Modeling the spatial economy of Colombia using the traditional assumptions of CGE models makes little sense when one territorial unit, Bogotá, accounts for over one fourth of GDP and where transportation costs are high and accessibility low, compared to European or North American standards. Hence, handling market imperfections becomes imperative as does the need to address internal spatial issues from the perspective of Colombia’s increasing involvement with external markets. The paper builds on the CEER Model, a spatial CGE model of the Colombian economy; non-constant returns and non-iceberg transportation costs are introduced and some simulation exercises are carried out. The results confirm the asymmetric impacts that trade liberalization has on a spatial economy in which one region, Bogotá, is able to more fully exploit scale economies vis-à-vis the rest of Colombia. The analysis also reveals the importance of different hypotheses on factor mobility and the role of price effects to better understand the consequences of trade opening in a developing economy.
    Date: 2008–05–21
    Abstract: The development of regional economic integration have enabled in the last 15 years the emergence and the evolution of a particular type of direct foreign investment; the DFI export platform. The firms’ strategies have been shifted from a strict export logic to an implantation logic accompanied by export. This paper analyzes the impacts of this type of investment on the host country. We study the effects of this investment on the production level of local firms and on the output level of final or intermediate goods. We consider the existence of technological spillovers from the foreign firm toward the local ones and their impact on the local firms’ demography. The model shows that the impact on the output level of final goods is ambiguous depending on the characteristics of these two dimensions, whereas the impact on the output level of intermediate goods hinges on the effects of competition and of rising demand.\r\n
    Keywords: Export-platform FDI; multinational firm; regional integration; local production
    JEL: F1 F2 L1
    Date: 2008
  17. By: Randall Jones; Taesik Yoon
    Abstract: Globalisation through foreign direct investment (FDI), international trade and international movements of labour is a key force driving economic growth. Although Korea has become more integrated in the world economy over the past decade, it still ranks low in terms of import penetration, the stock of inward FDI relative to GDP and foreign workers as a share of the labour force. A number of policy reforms would help Korea make greater use of goods, services, capital and human resources from abroad: i) reducing barriers to FDI, including foreign ownership limits in some sectors; ii) focusing on attracting FDI by improving the business and living environment rather than through special zone schemes; iii) reducing import barriers, particularly in agriculture, through multilateral trade negotiations and WTO-consistent regional trade agreements; iv) relaxing product market regulations, notably in services; and v) easing controls on and facilitating the inflow of both low and high-skilled workers. <P>Renforcer la mondialisation de l’économie Coréenne <BR>La mondialisation, par le biais de l’investissement direct étranger (IDE), des échanges internationaux et de la circulation internationale de la main-d’oeuvre, est un facteur essentiel de croissance économique. Même si la Corée s’est intégrée davantage dans l’économie mondiale au cours de la décennie passée, elle est encore à la traîne du point de vue de la pénétration des importations, du stock d’IDE par rapport au PIB et de la proportion de travailleurs étrangers dans la population active. Un certain nombre de réformes aideraient la Corée à tirer meilleur parti des biens, des services, des capitaux et des ressources humaines d’origine étrangère : i) la réduction des obstacles à l’IDE, liés notamment au plafonnement des participations étrangères dans certains secteurs ; ii) une stratégie visant à attirer l’IDE, axée sur l’amélioration des conditions d’activité et de vie offertes aux investisseurs étrangers et non sur des systèmes de zones spéciales ; iii) la réduction des obstacles à l’importation, en particulier dans l’agriculture, par le biais de négociations commerciales multilatérales et d’accords commerciaux régionaux conformes aux règles de l’OMC ; iv) un assouplissement de la réglementation des marchés de produits, notamment dans les services ; et v) un assouplissement des contrôles limitant l’entrée de travailleurs aussi bien peu qualifiés que hautement qualifiés et la facilitation de l’accès de ces catégories.
    Keywords: globalisation, international trade, Korea, Corée, foreign direct investment, investissement direct étranger, trade liberalisation, mondialisation, merger and acquisition, fusion et acquisition, import penetration, pénétration des importations, agricultural trade, commerce agricole, immigration, immigration, foreign workers, échanges internationaux, libéralisation des échanges, service sector
    JEL: F1 F21 F22 F23
    Date: 2008–05–15
  18. By: Tingsong Jiang; Warwick McKibbin
    Abstract: A Free Trade Area of the Asia-Pacific (FTAAP) has been proposed as a long-term prospect by the Asia-Pacific Economic Cooperation (APEC). This paper examines the impact of the FTAAP on the national and regional economies in China using a suite of general equilibrium models: APG-Cubed, a dynamic global model; GTAP, a static global model; and CERD, a static China model with regional dimension. The impact on the Chinese economy of the APFTA is also compared with those of other forms of FTAs such as the ASEAN-China FTA (ACFTA) and the East Asia FTA (EAFTA). China benefits from all three FTAs, and the eastern region gains the most. It is also found that China's benefit increases along with the increase in coverage of the FTAs, that is, the APFTA has the biggest positive impact on the Chinese economy, among the three FTAs considered in this study. Sector-wise, textile, clothing and footwear sector gains the most from the FTAAP, while motor vehicle and parts sector loses the most.
    Date: 2008–05

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