nep-int New Economics Papers
on International Trade
Issue of 2008‒06‒07
29 papers chosen by
Martin Berka
Massey University

  1. Consistent Trade Policy Aggregation By James E. Anderson
  2. Made in America? The New World, the Old, and the Industrial Revolution By Gregory Clark, Kevin H. O'Rourke and Alan M. Taylor
  3. A Simple Model of the Juggernaut Effect of Trade Liberalisation By Richard E. Baldwin; Frédéric Robert-Nicoud
  4. International Trade, Minimum Quality Standards and the Prisoners Dilemma By Dimitra Petropoulou
  5. Does Trade Foster Contract Enforcement? By James E. Anderson
  6. Trade and Empire, 1700-1870 By Kevin H. O'Rourke, Leandro Prados de la Escosura and Guilllaume Daudin
  7. Does Regionalism Affect Trade Liberalization Towards Non-Members? By Antoni Estevadeordal; Caroline Freund; Emanuel Ornelas
  8. The Euro and the Intensive and Extensive Margins of Trade: Evidence from French Firm Level Data By Antoine Berthou; Lionel Fontagne
  9. The Choice of Transport Mode: Evidence from Japanese Exports to East Asia By Hayakawa, Kazunobu
  10. Monopolistic Competition, International Trade and Firm Heterogeneity - a Life Cycle Perspective By Hansen, Jørgen Drud; Kvedaras, Virmantas; Nielsen, Jørgen Ulff-Møller
  11. An Impact Study of the EU-ACP Economic Partnership Agreements (EPAs)in the Six ACP Regions By Lionel Fontagne; David Laborde; Cristina Mitaritonna
  12. A Swing-State Theory of Trade Protection in the Electoral College By Mirabelle Muûls; Dimitra Petropoulou
  13. Economic partnership agreements between the European Union and African, Caribbean, and Pacific Countries: What is at stake for Senegal By Berisha-Krasniqi, Valdete; Bouet, Antoine; Mevel, Simon
  14. Information Costs, Networks and Intermediation in International Trade By Dimitra Petropoulou
  15. Was Germany Ever United? Evidence from Intra- and International Trade 1885-1933 By Nikolaus Wolf
  16. Determinants of Maritime Transport Costs. A Panel Data Analysis for Latin American Trade By Inmaculada Martínez-Zarzoso; Gordon Wilmsmeier
  17. Deepening Intraregional Trade and Investment in South Asia: The Case of the Textiles and Clothing Industry By Meenu Tewari
  18. Competing for Contacts: Network Competition, Trade Intermediation and Fragmented Duopoly By Dimitra Petropoulou
  19. Does Africa trade less than it should, and if so, why?: The role of market access and domestic factors By Bouet, Antoine; Mishra, Santosh; Roy, Devesh
  20. Competition Clauses in Bilateral Trade Treaties: Analysing the Issues in the Context of India's Future Negotiating Strategy By Sanghamitra Sahu; Neha Gupta
  21. The Brave New World of Cross-Regionalism By Alfred Tovias
  22. Outsourcing and Offshoring in Canada By Baldwin, John R.; Gu, Wulong
  23. Tax Cuts in Open Economies By Alejandro Cuñat; Szabolcs Deak; Marco Maffezzoli
  24. Aid and Trade - A Donor´s Perspective By Felicitas Nowak-Lehmann D.; Inmaculada Martínez-Zarzoso; Stephan Klasen; Dierk Herzer
  25. An Open Services Regime Recipe for Jobless Growth? By Suparna Karmakar
  26. Open International Markets without Exclusion: Encompassing Domestic Institutions, Excludable Goods, and International Public Goods By William Phelan
  27. Growth in Agriculture Terms of Trade and Aggregate Supply Response Model: A Case Study for Pakistan By Adnan, Muhammad; Shahbaz, Muhammad; Butt, Sabihuddin
  28. The Effects of Overseas Operations on Home Employment of Japanese Multinational Enterprises By Nobuaki Yamashita; Kyoji Fukao
  29. Agglomeration Economies and Clustering – Evidence from German Firms By Kurt A. Hafner

  1. By: James E. Anderson
    Abstract: Most empirical policy work requires the aggregation of policies. Trade policy aggregation exemplifies the aggregation problem poignantly, with thousands of highly dispersed trade barriers. This paper provides methods of policy aggregation that are consistent with two common objectives of empirical work. One is to preserve real income. The other is to preserve the real volume of activity in the parts of the economy being aggregated. Both objectives must be achieved for consistent multi-country policy modeling. An application to India shows that the standard atheoretic method of aggregation overstates India's real income by around 3 times the global gains from free trade.
    JEL: C43 D58 F10 F13 F17
    Date: 2008–05
  2. By: Gregory Clark, Kevin H. O'Rourke and Alan M. Taylor
    Abstract: For two decades, the consensus explanation of the British Industrial Revolution has placed technological change and the supply side at center stage, affording little or no role for demand or overseas trade. Recently, alternative explanations have placed an emphasis on the importance of trade with New World colonies, and the expanded supply of raw cotton it provided. We test both hypotheses using calibrated general equilibrium models of the British economy and the rest of the world for 1760 and 1850. Neither claim is supported. Trade was vital for the progress of the industrial revolution; but it was trade with the rest of the world, not the American colonies, that allowed Britain to export its rapidly expanding textile output and achieve growth through extreme specialization in response to shifting comparative advantage.
    Date: 2008–05–30
  3. By: Richard E. Baldwin; Frédéric Robert-Nicoud
    Abstract: This paper posits a formal political economy model where the principle of reciprocity inmultilateral trade talks results in the gradual elimination of tariffs. Reciprocity trade talks turneach nation's exporters into anti-protectionists at home; they lower foreign tariffs byconvincing their own government to lower home tariffs. Due to the new array of politicalforces, each government finds it politically optimal to remove tariffs that it previously foundpolitically optimal to impose. The one-off global tariff cut then reshapes the politicaleconomy landscape via entry and exit - reducing the size/influence of import-competingsectors and increasing that of exporters. In the next round of trade talks governmentstherefore find it politically optimal to cut tariffs again. The process may continue until tariffsare eliminated.
    Keywords: Trade policy, Economic integration
    JEL: F13 F15
    Date: 2008–01
  4. By: Dimitra Petropoulou
    Abstract: Unilateral minimum quality standards are endogenously determined as the outcome of a non-cooperative standard-setting game between the governments of two countries. Cross-country externalities from the implementation of minimum quality standards are shown to give rise to a Prisoners' Dilemma structure in the incentives of policy-makers leading to inefficient policy outcomes. The role of minimum quality standards as non-tariff barriers is examined and the scope for mutual gains from reciprocal adjustment in minimum standards analysed. The analysis delivers four results. First, there exist four unregulated Nash equilibria in minimum standards, two symmetric and two asymmetric, depending on the quality ranking of firms in each market. The analysis establishes that in all four cases, unilaterally selected minimum quality standards are inefficient as a result of cross-country externalities. Second, minimum quality standards are shown to operate as non-tariff barriers to trade. Third, the world welfare maximising symmetric standard can be reached through reciprocal adjustments in national minimum standards from either of the two symmetric Nash equilibria. Finally, the scope for mutually beneficial cooperation is shown to be significantly restricted when cross-country externalities are asymmetric. Asymmetric externalities make a cooperative agreement at the world optimum infeasible.
    Keywords: standards, quality, international trade, standard coordination
    JEL: L13 F19 F13
    Date: 2008–02
  5. By: James E. Anderson
    Abstract: Contract enforcement is probabilistic, but the probability depends on rules and processes. A stimulus to trade may induce traders to alter rules or processes to improve enforcement. In the model of this paper, such a positive knock-on effect occurs when the elasticity of supply of traders is sufficiently high. Negative knock-on is possible when the elasticity is low. Enforcement strategies in competing markets are complements (substitutes) if the supply of traders is sufficiently elastic (inelastic). The model provides a useful structure of endogenous enforcement that gives promise of explaining patterns of institutional development.
    JEL: F10 O17 O19 O24
    Date: 2008–05
  6. By: Kevin H. O'Rourke, Leandro Prados de la Escosura and Guilllaume Daudin
    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.
    Date: 2008–05–23
  7. By: Antoni Estevadeordal; Caroline Freund; Emanuel Ornelas
    Abstract: We examine the effect of regionalism on unilateral trade liberalization using industry-level data onapplied MFN tariffs and bilateral preferences for ten Latin American countries from 1990 to 2001.We find that preferential tariff reduction in a given sector leads to a reduction in the external (MFN)tariff in that sector. External liberalization is greater if preferences are granted to important suppliers.However, these "complementarity effects" of preferential liberalization on external liberalization donot arise in customs unions. Overall, our results suggest that concerns about a negative effect ofpreferential liberalization on external trade liberalization are unfounded.
    Keywords: regionalism, external tariffs, trade liberalization
    JEL: F13 F15
    Date: 2008–05
  8. By: Antoine Berthou; Lionel Fontagne
    Abstract: We improve the study of the effects of a Currency Union on trade. Using data on French exports at the firm level, we compute an intensive and extensive margins of French exports - with a variety dimension - over the period 1998-2003. Estimation results indicate that nominal exchange rate volatility has a negative effect, which translates into the intensive and extensive margins. We also provide some evidence that the euro had an additional positive effect on the extensive margin; this effect is not related to the reduced nominal exchange rate volatility. This suggests a new varieties effect of the euro.
    Keywords: Trade; export margins; euro
    JEL: F15
    Date: 2008–04
  9. By: Hayakawa, Kazunobu
    Abstract: This paper investigates Japanese trade by mode of transport, i.e., air transport versus maritime shipping. Some facts about Japanese machinery exports by mode of transport in the 1990s are examined first. Then it will be shown that products of the machinery sector where international fragmentation prevails are more likely to be exported by air.
    Keywords: Transport, Fragmentation, East Asia, Japan, Transportation, International trade, Exports
    JEL: F14 L91 N75
    Date: 2008–05
  10. By: Hansen, Jørgen Drud (Department of Economics, Aarhus School of Business); Kvedaras, Virmantas (Department of Econometric Analysis); Nielsen, Jørgen Ulff-Møller (Department of Economics, Aarhus School of Business)
    Abstract: This paper presents a dynamic international trade model based on monopolistic competition, where observed intra-industry differences at a given point in time reflect different stages of the firm’s life cycle. New product varieties of still higher quality enter the market every period rendering old varieties obsolescent in a process of creative destruction. For given technology (variety) production costs decrease after an infant period due to learning. It is shown that several patterns of exports may arise depending primarily on the size of fixed trade costs. At a given point in time firms therefore differ due to different age, although all firms are symmetric in a life cycle perspective. The paper thus offers an alternative view on firm heterogeneity compared with other recent papers, where productivity differences appear as an outcome of a stochastic process.
    Keywords: Product innovations; learning; creative destruction; firm heterogeneity; export performance
    JEL: F12 F13
    Date: 2008–05–01
  11. By: Lionel Fontagne; David Laborde; Cristina Mitaritonna
    Abstract: This study intends to present a very detailed and dynamic analysis of the trade-related aspects of Economic Partnership Agreements (EPAs) negotiations. We use a dynamic partial equilibrium model – focusing on the demand side – at the HS6 level (covering 5,113 HS6 products). Two alternative lists of sensitive products are constructed, one giving priority to the agricultural sectors, the other focusing on tariff revenue preservation. In order to be WTO compatible, EPAs must translate into 90 percent of bilateral trade fully liberalised. We use this criterion to simulate EPAs for each negotiating regional block. ACP exports to the EU are forecast to be 10 percent higher with the EPAs than under the GSP/EBA option. On average ACP countries are forecast to lose 70 percent of tariff revenues on EU imports in the long run. Yet imports from other regions of the world will continue to provide tariff revenues. Thus when tariff revenue losses are computed on total ACP imports, losses are limited to 26 percent on average in the long run and even 19 percent when the product lists are optimised. The final impact on the economy depends on the importance of tariffs in government revenue and on potential compensatory effects. However this long term and less visible effect will mainly depend on the capacity of each ACP country to reorganise its fiscal base.
    Keywords: Preferential trade agreements; Africa; EPAs; simulations
    JEL: F13 F15 O55
    Date: 2008–04
  12. By: Mirabelle Muûls; Dimitra Petropoulou
    Abstract: This paper develops an infinite-horizon, political agency model with a continuum of politicaldistricts, in which incumbent politicians can improve their re-election probability byattracting swing voters in key states through strategic trade protection. A unique equilibriumis shown to exist where incumbents build a reputation of protectionism through their policydecisions. We show that strategic trade protection is more likely when protectionist swingvoters have a lead over free-trade supporters in states with relatively strong electoralcompetition that represent a larger proportion of Electoral College votes. US data is used totest the hypothesis that industrial concentration in swing and decisive states is an importantdeterminant of trade protection of that industry. The empirical findings provide support forthe theory and highlight an important, and previously overlooked, determinant of tradeprotection in the US Electoral College.
    Keywords: Political Economy, Elections, Electoral College, Swing States, Trade Policy
    JEL: D72 D78 F13 R12
    Date: 2008–02
  13. By: Berisha-Krasniqi, Valdete; Bouet, Antoine; Mevel, Simon
    Abstract: "In recent years the European Union has sought to transform its trading regime with the ACP countries by advocating reciprocal free trade agreements with them through Economic Partnership Agreements (EPAs). As a result, the EPA talks were launched in 2002 and were expected be completed by the end of 2007. Nevertheless, many African countries, including Senegal did not reach agreements with the European Union in 2007 amid rising concerns that such agreements do not represent the interests of developing countries. This policy shift from preferential trade to free trade would imply drastic changes for Senegal's economy, which currently enjoys relatively good access to European market (but also to the U.S. through the African Growth Opportunity Act) while applying a high domestic protection on all sources of imports. As a result, this type of reform would result in improved access to foreign markets only for the EU. Furthermore, the EPA implies a loss of tariff revenues from liberalization, which has been a key concern for ACP countries from the beginning of talks because they constitute a high level of public receipts there. Finally this kind of reform could lead to trade diversion in Senegal while creating not enough trade. Using the MIRAGE computable general equilibrium model the study examines the potential impact of Economic Partnership Agreements on ACP countries with a special focus on Senegal." from Author's Abstract
    Keywords: Economic partnership agreements, European Union, economic growth, Computable general equilibrium (CGE) modeling, trade, Markets, Globalization,
    Date: 2008
  14. By: Dimitra Petropoulou
    Abstract: This paper presents a pairwise matching model with two-sided information asymmetry toanalyse the impact of information costs on endogenous network building and matching byinformation intermediaries. The framework innovates by examining the role of informationcosts on incentives for trade intermediation, thereby endogenising the pattern of direct andindirect trade. Intermediation is shown to unambiguously raise expected trade volume andsocial welfare by expanding the set of matching technologies available to traders. Moreover,convexity in network-building costs is necessary for both direct and indirect trade to arise inequilibrium while the pattern of trade is shown to depend on the level of information costs aswell as the relative effectiveness of direct and indirect matching technologies with changinginformation costs. The model sheds light on the relationship between information frictionsand aggregate trade volume, which may be non-monotonic as a result of conflicting effects ofinformation costs on the incentives for direct and indirect trade.
    Keywords: International Trade, Pairwise Matching, Information Cost, Intermediation,Networks
    JEL: F10 C78 D43 D82 D83 L10
    Date: 2008–02
  15. By: Nikolaus Wolf
    Abstract: This paper asks whether Germany was ever an economically integrated area. I explore thegeography of trade costs in a new data set of about 40,000 observations on regional tradeflows within and across the borders of Germany over the period 1885 - 1933. There are threekey results. First, the German Empire before 1914 was a poorly integrated economy, bothrelative to integration across the borders of the German state and internally. Second, thisinternal fragmentation had its origins in administrative borders within Germany, in ageographical barrier that divided Germany roughly along natural trade routes into east andwest, and in a considerable cultural heterogeneity within Germany prior to 1919. Third,internal integration improved along with external disintegration in the wake of the war, partlydue to border changes along the lines of ethno-linguistic heterogeneity and again with theGreat Depression. By the end of the Weimar Republic in 1933, Germany was reasonably wellintegrated.
    Keywords: Aggregation Bias, Border Effects, Economic Integration, Germany
    JEL: F15 N13 N14 N90
    Date: 2008–05
  16. By: Inmaculada Martínez-Zarzoso (Universits of Goettingen / Germany and University Jaume I / Spain); Gordon Wilmsmeier (Napier University, Edingburgh / UK and Osnabrück University / Germany)
    Abstract: This paper analyses the determinants of transport costs for intra-Latin American trade over a period of six years (1999-2004). The data refer to yearly disaggregated (SITC 5 digit level) maritime trade flows on 277 trade routes. With this data set, a transport costs equation is estimated using linear regression analysis in a panel data framework. The first contribution to the literature is to exploit the greater variability present in our data and to control for unobservable heterogeneous effects. The second is to investigate the influence of open registries on the variability of maritime transport costs. Three groups of explanatory variables are considered. Firstly, timevarying variables: use of open registries and trade imbalance. Secondly, variables related to liner shipping network structures: number of liner services, shipping opportunities, deployed ships and deployed TEUs. Finally, product related variables such as volume of shipment, value of product and special characteristics of the cargo (i.e. refrigerated cargo). The results will allow us to quantify the effect of the explanatory variables on international maritime transport costs and to compare the obtained elasticities with previous cross-section analysis. In particular, estimating the impact of the use of open registries on transport cost is a new contribution in this field that could provide policy makers with valuable information to be used in the implementation of economic policies.
    Keywords: International Transport Costs, Maritime Trade, Latin America, Sectoral Data, Time Series, Open Registries, Competitiveness, liner shipping network structure
    JEL: F10 F14
    Date: 2008–05–13
  17. By: Meenu Tewari (Indian Council for Research on International Economic Rela)
    Abstract: This paper draws on recent field work within South Asia and an extensive review of secondary data to examine the dynamics of cross border trade and investment in South Asia, exploring the potential for, and obstacles to, such trade through the lens of a sector that is salient throughout South Asia: Textiles and Clothing. Despite the growing competitiveness of this sector in the SAARC region, there is very little regional inter-linkage within South Asia's textile and clothing industry. Currently less than 4 of SAARC's global T&C exports are traded within the region. There is growing evidence of widespread substitution of South Asia by East Asia as the sourcing hub of fabric and accessories by the region's major clothing exporters. Over 80 of the fabric needs of Bangladesh and Sri Lanka, for example, come from outside the region even though India and Pakistan are net exporters of textiles. At one level the history of external ties matters: the long standing role of East Asian suppliers and quota-hopping garment manufacturers in the origin of apparel exports in parts of South Asia, the institutional embedding or `bundling' of sourcing practices and input supply, as well as the role of global buyers in designating or mandating preferred input and accessory suppliers have all generated inertia in altering existing relationships. At another level, the burden of mistrusts embedded in the region's own history, the structure of its textile industry (narrowly cotton-based, not very diverse, relatively high cost), and high trade costs exacerbated by complicated rules of origin, frustrating layers of bureaucratic and administrate oversight, poor transportation, and a long list of non-tariff barriers that disrupt the movement of goods and personnel across South Asia have prevented the emergence of either a common market or regional production networks in the SAARC region. Despite these barriers, there is growing evidence that with recent shifts in the nature of the textile and clothing industry, especially post-MFA, as well as changing intra-regional dynamics there are emerging possibilities for cooperation and collective action in the region. The drivers of this potential lie in the growing importance of the domestic market and the rise of organized retail in South Asia, the rise of a new generation of younger entrepreneurs in South Asia who are increasingly professional, globally aware, and schooled in a shared cultural worldview that helps cut across traditional barriers of region and history, the emergence of new knowledge networks and an interpenetrated regional labor market in skills in the South Asian garment industry and the possibility of leveraging strategic regulatory shifts and upcoming `demands for structural change' post-2008 to foster greater regional cooperation. The paper argues that SAARC members - along with civic organizations and private sector industry associations - need to build upon and support the positive trends already underway. In addition, SAARC could enhance interregional integration in textiles and clothing by creating the conditions for greater cross-border investment within the SAARC region, first in textiles and accessories and then apparel, by expeditiously establishing a credible investment protocol in the region, while simultaneously pushing forward with trade facilitation reforms. India, in its current role as SAARC Chair should take a leading role in facilitating these reforms.
    Keywords: South Asia, Trade, Investment, Textile and clothing, Regional Cooperation.
    JEL: F15 F14 F59
    Date: 2008–04
  18. By: Dimitra Petropoulou
    Abstract: A two-sided, pair-wise matching model is developed to analyse the strategic interaction between two information intermediaries who compete in commission rates and network size, giving rise to a fragmented duopoly market structure. The model suggests that network competition between information intermediaries has a distinctive market structure, where intermediaries are monopolistic service providers to some contacts but duopolists over contacts they share in their network overlap. the intermediaries' inability to price discriminate between the competitive and non-competitive market segments, gives rise to an undercutting game, which has no pure strategy Nash equilibrium. The incentive to randomise commission rates yields a mixed strategy Nash equilibrium. Finally, competition is affected by the technology of network development. The analysis shows that either a monopoly or a fragmented duopoly can prevail in equilibrium, depending on the network-building technology. Under convexity assumptions, both intermediaries invest in a network and compete over common matches, while randomising commission rates. In contrast, linear network development costs can only give rise to a monopolistic outcome.
    Keywords: International Trade, Pairwise Matching, Information Cost, Intermediation, Networks
    JEL: F10 C78 D43 D82 D83 L10
    Date: 2008–02
  19. By: Bouet, Antoine; Mishra, Santosh; Roy, Devesh
    Abstract: "This paper addresses the question of whether Africa is an undertrading continent. We answer this question using a much-improved data set for obtaining predicted trade and by employing methods that correct for bias in estimates of undertrading. Our results indicate that globally Africa is an underexporter in our preferred Heckman specification. This result is robust to the addition of various controls and the application of variants of the gravity model of trade. We also looked for explanations for Africa's undertrading. We found that accounting for transport and communication infrastructure reduced the undertrading effect for Africa, and in some specifications of the gravity model, the under-trading effect vanished altogether. Results from a semiparametric model provided evidence of significant nonlinear impacts from infrastructure, and the effects for a large number of African countries was significant and compared favorably with the marginal effects of infrastructure in countries on other continents and in comparable income brackets. Using this model we also found evidence of complementarity across transport and communication infrastructure, implying that much greater impacts will be likely if the infrastructure are developed jointly rather than in isolation." from Author's Abstract
    Keywords: Gravity model, Undertrading, Trade related infrastructure, Market access,
    Date: 2008
  20. By: Sanghamitra Sahu (Indian Council for Research on International Economic Rela); Neha Gupta (Indian Council for Research on International Economic Rela)
    Abstract: There is a recent trend towards trade agreements that include trade related competition provisions. However there are large differences across these trade agreements in terms of how the competition provisions are addressed. In this context, this research report tries to analyse the competition provisions in few selected FTAs and draw lessons for India, which is also following the path of entering into trade agreements. The analysis suggests that cooperation in implementing competition laws is immensely helpful. However, at this moment, India can follow the EU style of agreements with competition provisions such as cooperation, exchange of non-confidential information, technical assistance and consultation.
    Date: 2008–02
  21. By: Alfred Tovias
    Abstract: Cross-regionalism is a new fashion in preferential trading whereby countries, large or small, participate simultaneously in various Free Trade Areas. They seem mostly to be a reflection of the increasing rivalry of the United States and the European Union for drawing the attention by emerging middle-sized and small economies. This trend is profited then by the latter to diversify their previous (almost) exclusive economic relations with a given "hub". A strategy consisting in multiplying the number of Free Trade Areas is perfectly suited both to "hubs" and "spokes". According to the old North-South pattern, economic powers concluding preferential deals sought mainly to reap the political benefit of extending their sphere of influence and small countries the economic benefit of market access to a large market. Now new pattern is emerging whereby the two partners are motivated both by economic and political reasons. One clear result is that spheres of influence are on the wane. But this is of no help to least developed countries.
    Keywords: Trade negociation; regionalism
    JEL: F13 F15
    Date: 2008–04
  22. By: Baldwin, John R.; Gu, Wulong
    Abstract: This paper has three main objectives. First, it presents the long-term trends in outsourcing and offshoring across Canadian industries. Second, it examines the relationship between offshoring and changes in trade patterns at the industry level. It focuses on two major drivers that some have suggested are behind the recent trends toward offshoring: globalization and technological changes associated with information and communications technologies. Third, the paper examines the economic impact of offshoring by investigating the relationship between the extent of offshoring and productivity growth, shifts to high value-added activities and changes in labour markets.
    Keywords: International trade, Business performance and ownership, Business adaptation and adjustment
    Date: 2008–05–23
  23. By: Alejandro Cuñat; Szabolcs Deak; Marco Maffezzoli
    Abstract: A reduction in income tax rates generates substantial dynamic responses within the framework of the standard neoclassical growth model. The short-run revenue loss after an income tax cut is partly - or, depending on parameter values, even completely - offset by growth in the long-run, due to the resulting incentives to further accumulate capital. We study how the dynamic response of government revenue to a tax cut changes if we allow a Ramsey economy to engage in international trade: the open economy's ability to reallocate resources between labor-intensive and capital-intensive industries reduces the negative effect of factor accumulation on factor returns, thus encouraging the economy to accumulate more than it would do under autarky. We explore the quantitative implications of this intuition for the US in terms of two issues recently treated in the literature: dynamic scoring and the Laffer curve. Our results demonstrate the internaional trade enhances the response of government revenue to tax cuts by a relevant amount. In our benchmark calibration, a reduction in the capital-income tax rate has virtually no effect on government revenue in steady state.
    Keywords: international trade, Heckscher-Ohlin, dynamic macroeconomics, taxation, revenue estimation, Laffer curve
    JEL: E13 E60 F11 F43 H20
    Date: 2008–03
  24. By: Felicitas Nowak-Lehmann D. (University of Goettingen / Germany); Inmaculada Martínez-Zarzoso (University of Goettingen / Germany); Stephan Klasen (University of Goettingen / Germany); Dierk Herzer (Johann Wolfgang Goethe University, Frankfurt / Germany)
    Abstract: Foreign aid is given for a combination of economic, political, and humanitarian motives. While its impact on economic development in recipient countries has been the main focus of research recently, we concentrate on the question to what extent it also promotes donor countries’ exports. We examine this issue using Germany as a case study where the positive impact of aid on exports has been found to be extremely high. Using more advanced methods, we compute an average return (between EUR 1.49 to EUR 1.72) of one EUR of aid spent, well below previous findings, but still surprisingly large and robust.
    Keywords: bilateral aid, donors’ exports, time series properties of panel data, ECM and DOLS estimation in a panel context
    JEL: F14 F35 C
    Date: 2008–04–22
  25. By: Suparna Karmakar (Indian Council for Research on International Economic Rela)
    Abstract: Development economists' disfavour with services as a viable engine of growth has been expressed both through theoretical and empirical analysis. One of the stylized facts of development economics is that share of services in employment increases only with the rise in per capita incomes. The skepticism emanates from the observed relatively jobless nature of service sector growth, in particular in the low- and middle-income developing countries. However, given that services have becomes the main source of growth in even the lowest-income developing countries, new empirical evaluation of this thesis has become crucial. A second stylized fact openly acknowledges trade as a source of growth and development. International trade in services, and in particular in the developing countries, has remained significantly lower in comparison to its share in global output. Further, one of the notable trends in recent years has been the increasing importance of cross-border supply of services in economic activities of countries. But is this a sustainable and viable model of development? In view of the above, this paper reviews India's experience to understand how services sector liberalisation can generate (welfare) gains for developing countries, in particular vis--vis its employment generation potential. The analysis has been based on India's experience of an increasingly open service sector and reviews the different channels through which economic gains are garnered from openness to trade in services. But the lessons from this analysis extend far beyond India and are of interest to both developed and developing countries' policymakers concerned about sustaining the competitiveness of their domestic economy. ic activities of countries. But is this a sustainable and viable model of development? In view of the above, this paper reviews India's experience to understand how services sector liberalisation can generate (welfare) gains for developing countries, in particular vis--vis its employment generation potential. The analysis has been based on India's experience of an increasingly open service sector and reviews the different channels through which economic gains are garnered from openness to trade in services. But the lessons from this analysis extend far beyond India and are of interest to both developed and developing countries' policymakers concerned about sustaining the competitiveness of their domestic economy.
    Date: 2008–03
  26. By: William Phelan
    Abstract: This paper uses the concept of the ‘encompassing group’ to set out a collective action theory based explanation for the maintenance of open international markets to add to existing explanations for stable international market regimes, hegemonic stability and tit-for-tat specific reciprocity. While groups representing small constituencies have incentives to seek inefficient redistributions of income while imposing costs on wider society, cohesive groups representing large cross-issue constituencies – encompassing groups – have incentives to accept costs in return for the provision of public goods. States whose domestic political institutions are encompassing – inclusive of large numbers of diverse interests and centralized to provide coordination across issue-areas – have similar incentives to accept costs on constituents in order to support the provision of public goods for their constituents as a whole – such as welfare gains from trade or avoiding damage to reliable international markets – even without the application of external sanctions.
    Date: 2008–03–26
  27. By: Adnan, Muhammad; Shahbaz, Muhammad; Butt, Sabihuddin
    Abstract: This present endeavor explores the relationship between output, technological advancement and agricultural term of trade by utilizing the Nerlovian supply response model in case of small developing economy, like Pakistan. The long run rapport explains by using advance techniques, Johansen’s (1988) approach and Fully Modified Ordinary Least Square (FMOLS). .Empirical findings reveal that price incentives may not translate into faster growth in agriculture. The growth in agricultural output responds better when price incentives and investment in technology enhances.
    Keywords: Aggregated supply response model; JJ-co integration; FMOLS
    JEL: A1
    Date: 2008–01–04
  28. By: Nobuaki Yamashita; Kyoji Fukao
    Abstract: This paper examines the hypothesis that expansion of overseas operations of Japanese manufacturing multinational enterprises (MNEs) reduces home employment. While the existing studies are mainly based on the industry level, this paper presents the evidence using newly constructed firm-level panel data set over the period 1991-2002. In spite of concerns expressed about the adverse effects of FDI on the domestic economy, the evidence does not support the view that overseas operations expand at the cost of home employment in Japan. On the contrary, the findings suggest that overseas operations have somewhat helped to maintaining the level of home employment in Japanese manufacturing during the period under study. However, the results are sensitive to the estimation method used and whether the estimation is based on the panel data set is balanced or unbalanced.
    Keywords: Multinational Enterprises, FDI, Labour demand, hollowing out of manufacturing, Japan
    JEL: F14 F16 J31
    Date: 2008–06
  29. By: Kurt A. Hafner
    Abstract: The paper quantifies the impact of agglomeration economies on the clustering of German firms. Therefore, I use the 2006 Innobarometer survey, which focuses on cluster characteristics and activities of German firms, to empirically identify agglomeration economies derived from the New Economic Geography and Marshall externalities. At the industry specific level, I find that within-industry spillovers are important for German low-tech firms but not for high-tech firms or knowledge intensive firms. At the department level, Marshall externalities such as hiring skilled labor and technological spillover effects are empirically confirmed for some departments like Human Resources or R&D but rarely for others like Production.
    Keywords: Agglomeration Economies, New Economic Geography, Externalities, Cluster
    JEL: C20 D21 F12 R12
    Date: 2008–05–08

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