nep-int New Economics Papers
on International Trade
Issue of 2008‒06‒21
sixteen papers chosen by
Martin Berka
Massey University

  1. Distribution Costs, International Trade and Industrial Location By Kikuchi, Toru
  2. Made in America? The New World, the Old, and the Industrial Revolution By Clark, Gregory; O''Rourke, Kevin H; Taylor, Alan M
  3. The Interaction amongst Trade, Investment and Competition Policies By Csilla Bartók; Sébastien Miroudot
  4. Trade and Firm Heterogeneity In A Quality-Ladder Model of Growth By Tetsugen Haruyama; Laixun Zhao
  5. What a Difference Trade Makes - Export Activity and the Flexibility of Collective Bargaining Agreements By Wolf Dieter Heinbach; Stefanie Schröpfer
  6. The Effect of Exchange Rate Volatility on International Trade: The Implication for Production Networks in East Asia By Hayakawa, Kazunobu; Kimura, Fukunari
  7. New Dimensions of Adjustment to Globalization By Marialuz Moreno Badia; Veerle Slootmaekers; Ilke Van Beveren
  8. Estimating the Productivity Selection and Technology Spillover Effects of Imports By Acharya, Ram C.; Keller, Wolfgang
  9. Uncertainty and entry into export markets By Rubén Segura-Cayuela; Josep M. Vilarrubia
  10. Competitiveness in the Southern Euro Area: France, Greece, Italy, Portugal, and Spain By Yuan Xiao; Marialuz Moreno-Badia; Werner Schule; Herman Z. Bennett; Julio Escolano; Stefania Fabrizio; Eva Gutierrez; Bogdan Lissovolik; Stephen Tokarick; Iryna V. Ivaschenko
  11. International Spillover of Labor Market Reforms By Mai Dao
  12. Impactos Sociales en Uruguay de la Liberalización del Comercio Mundial de la Carne By Fernando Borraz; Máximo Rossi
  13. Do trade and financial linkages foster business cycle synchronization in a small economy? By Alicia García-Herrero; Juan M. Ruiz
  14. Post-Apartheid South Africa: Poverty and Distribution Trends in an Era of Globalization By Van der Berg, Servaas; Louw, Megan; Burger, Ronelle
  15. Variety expansion and fertility rates By Akiko Maruyama; Kazuhiro Yamamoto
  16. Linking South Asia with East Asia: Trends, Potential, and Policies By Pradumna B. Rana

  1. By: Kikuchi, Toru
    Abstract: The purpose of this study is to illustrate, with a simple two-country, two-good, two-factor model, how a technological/regulational improvement in one country's distribution sector can affect firms' location decisions and the nature of the trading equilibrium. It is shown that, through improvements in distribution sector, one country might divert high-tech industries to another country. This effect reduces the incentive to improve distribution sector lower.
    JEL: F12
    Date: 2008
  2. By: Clark, Gregory; O''Rourke, Kevin H; Taylor, Alan M
    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.
    Keywords: British Industrial Revolution; colonies; Great Divergence; growth; specialisation; trade
    JEL: F11 F14 F43 N10 N70 O40
    Date: 2008–06
  3. By: Csilla Bartók; Sébastien Miroudot
    Abstract: The report focuses on the complementarities between trade, investment and competition policies and analyses how policy coherence can be promoted in these three important areas that shape incentives for firms and individuals to be more productive and for markets to be more competitive. It also deals with the potential inconsistencies or tensions that may arise between trade, investment and competition reforms and how to ease them. It shows that specific policy goals can be achieved while maintaining an open and procompetitive environment. Overall, the analysis highlights the role of governments in providing the right incentives to facilitate the adjustment to the internationalisation of production and the important synergies between policies that can be exploited to promote growth. It is not only the case in contestable markets but also in the context of market failures where pro-competitive policies can address specific distortions and mitigate the adverse effects of reforms. The report includes the results of a survey collecting the experience of policymakers on complementarities between trade, investment and competition policies.
    Keywords: investment, competition, trade, reforms, market failure
    JEL: F1 F2 L5
    Date: 2008–02–22
  4. By: Tetsugen Haruyama (Graduate School of Economics, Kobe University); Laixun Zhao (Research Institute for Economics and Business Administration, Kobe University)
    Abstract: The present paper explores the effect of trade liberalization on the level of productivity as well as the rate of productivity growth in an R&Dbased model with heterogeneous firms. We introduce new and plausible features that are absent in existing studies. First, technical progress takes the form of continual quality improvement of products over time. Second, firm entry and exit are endogenously determined due to creative destruction of products traded. In this framework, we demonstrate that a lower transport cost or export sunk cost unambiguously reallocates resources from non-exporting industries to R&D as well as exporting industries. This means that trade liberalization increases the level of manufacturing productivity and the rate of technical progress. These results are found to be robust in an extended model with population growth without scale effects. In extensions of the basic model, we also endogenize the ex ante distribution of firm heterogeneity and examine the effect of R&D subsidies.
    Date: 2008–04
  5. By: Wolf Dieter Heinbach; Stefanie Schröpfer
    Abstract: The prevalence of opening clauses in collective bargaining agreements may indicate a tendency to a higher decentralised wage settlement. Increasing competition on international product markets is assumed to be one reason for wage-setting decentralisation, whereas theoretical explanations focus currently on the change of production structure and the impact of exogenous shocks. Incorporating stylised facts about exporting firms, new trade models suggest a different way of adjustment to increasing competition depending on a firm's nature. While the most productive exporters expand into new markets, small, less productive non-exporters are threatened by import competition. Based on the model from Bernard et al. (2003), we apply the theoretical implications to explain why decentralisation in bargaining may arise. We examine in a second step whether small, less productive, non-exporting firms paying low average wages, possess a higher propensity to use opening clauses than more productive, large exporters with a high wage level. Based on IAB Establishment Data covering the German Manufacturing, our results indicate that firms exporting to EMU countries -- but not exporters in general -- have a lower propensity of using opening clauses than non-exporters. However, inconsistent with theory, slight evidence suggests a rising propensity with increasing firm size and increasing wage level.
    Keywords: trade model;opening clauses; collective bargaining;
    JEL: J31 J51
    Date: 2007–12
  6. By: Hayakawa, Kazunobu; Kimura, Fukunari
    Abstract: This paper is an empirical investigation of the relationship between exchange rate volatility and international trade, focusing on East Asia. It finds that intra-East Asian trade is discouraged by exchange rate volatility more seriously than trade in other regions because intermediate goods trade in production networks, which is quite sensitive to exchange rate volatility compared with other types of trade, occupies a significant fraction of trade. In addition, this negative effect of volatility is mainly induced by the unanticipated volatility and has an even greater impact than that of tariffs.
    Keywords: Exchange rate volatility, Trade, East Asia, International trade, Foreign exchange
    JEL: F10 F31 N75
    Date: 2008–05
  7. By: Marialuz Moreno Badia; Veerle Slootmaekers; Ilke Van Beveren
    Abstract: Using firm-level data for Estonia for the years 1997-2005, we analyze the impact of international competition on firm dynamics, considering both firm closedown and product switching. This paper contributes to the literature in two important ways: (1) this is the first paper to study the determinants of exit and product switching in an emerging market; and (2) we consider explicitly the role of export opportunities. Our results indicate that globalization affects firm closure and product switching differently. In particular, firm exit is positively related to the degree of intra-industry trade while the decision to switch is affected only by the conditions in export markets. This is in sharp contrast to previous findings for industrial countries.
    Keywords: Product switching, Exit, International trade, Comparative Advantage
    JEL: D21 D24 F18 L25 L60
    Date: 2008
  8. By: Acharya, Ram C.; Keller, Wolfgang
    Abstract: In the wake of falling trade costs, two central consequences in the importing economy are, first, that stronger competition through increased imports can lead to market share reallocations among domestic firms with different productivity levels (selection). Second, the increase in imports might improve domestic technologies through learning externalities (spillovers). Each of these channels may have a major impact on aggregate productivity. This paper presents comparative evidence from a sample of OECD countries. We find that the average long run effect of an increase in imports on domestic productivity is close to zero. If the scope for technological learning is limited, the selection effect dominates and imports lead to lower productivity. If, however, imports are relatively technology-intensive, imports also generate learning that can on net raise domestic productivity. Moreover, there is somewhat less selection when the typical domestic firm is large. The results support models in which trade triggers both substantial selection and technological learning.
    Keywords: market shares; R&D; Technology investments
    JEL: F1 O3 O33
    Date: 2008–06
  9. By: Rubén Segura-Cayuela (Banco de España); Josep M. Vilarrubia (Banco de España)
    Abstract: We face uncertainty in most economic decisions we take. This is particularly true in the case of a firm entering a foreign market where there is uncertainty about the size of the market, the distribution channels, the adequacy of the firm's product to local tastes, etc. Despite its obvious importance, this ingredient appears to have been largely overlooked by the literature explaining the direction and volume of international trade flows. We incorporate this informational uncertainty into a model with heterogeneous firms similar to the one proposed by Melitz (2003). The model exhibits informational externalities that arise via informational complementarities: in markets with less uncertainty, the most productive firms always find optimal to enter. Once a firm enters that foreign market, her success/failure reveals information to other domestic firms who, given the new information, optimally decide whether to enter. We characterize the conditions under which, given initial entry, informational externalities are strong enough to reach an equilibrium with full information. The model delivers an explanation for the recent dynamic evolution of trade flows, at the intensive margin at the country level and the extensive margin at the firm/product level. The model also provides insights on the persistence of bilateral trade flows, zero trade flows, and why we observe empirically less entrance by small firms than the Melitz model predicts.
    Keywords: firm heterogeneity, International Trade, Uncertainty, Informational Externalities
    JEL: D21 D80 F12
    Date: 2008–06
  10. By: Yuan Xiao; Marialuz Moreno-Badia; Werner Schule; Herman Z. Bennett; Julio Escolano; Stefania Fabrizio; Eva Gutierrez; Bogdan Lissovolik; Stephen Tokarick; Iryna V. Ivaschenko
    Abstract: This collection of studies analyzes developments in nonprice external competitiveness of France, Greece, Italy, Portugal, and Spain. While France, Italy, and Portugal have experienced substantial export market share losses, Greece and Spain performed relatively well. Export market share losses appear associated with rigidities in resource allocation (sectoral, geographical, technological) relative to peers and lower productivity gains in high value-added sectors. Disaggregated analysis of goods and services export markets provides insights on aspects such as quality, market concentration, growth of destination markets, and geographical and sectoral diversification. Also, increased import penetration, offshoring and FDI could improve productivity and export performance.
    Keywords: Working Paper , France , Greece , Italy , Portugal , Spain , Competition , Exports , Markets , International trade , Foreign investment , Exchange rates , Productivity , Resource allocation ,
    Date: 2008–05–01
  11. By: Mai Dao
    Abstract: This paper uses a dynamic economy model, with unionized labor markets, to analyze the effects of labor market reforms, similar to those recently introduced in Germany, on the domestic and trading partner economies. The model is calibrated on Germany and the rest of the Euro area. The results indicate that German labor market reforms have positive spillover effects on the rest of the Euro area, which operate through the channel of trade, relative price adjustment, and financial market integration. Compared to a competitive labor market, setting, unionization dampens the positive response of the domestic economy and magnifies the spillover effects.
    Keywords: Working Paper , Labor market reforms , Germany , Europe , Labor policy , Price adjustments , International capital markets , International trade ,
    Date: 2008–05–01
  12. By: Fernando Borraz (Universidad de Montevideo); Máximo Rossi (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: In this work we quantify the impact of trade liberalization in the global beef markets over labor income, employment and poverty levels in Uruguay. The adjustment of local beef prices after an external shock to the worldwide price levels is imperfect. Estimations indicate that 76% of a certain shock to the export prices is transmitted to the price paid to the local producers. Shortterm local price dynamics show that the transmission is pretty low paced Price changes after trade liberalization imply that men become better off, in particular those who are highly educated and work in the agricultural sector. For the case of women, increases in labor income after trade liberalization are mild. We do not observe poverty impacts after trade liberalization. Additionally, changes in employment levels are almost immaterial. We conclude that income concentration is lower in the case of men and higher for the case of women.
    Keywords: wages, employment, poverty, liberalization, trade
    JEL: D31 I32 F16
    Date: 2008–04
  13. By: Alicia García-Herrero (BBVA); Juan M. Ruiz (Banco de España)
    Abstract: We estimate a system of equations to analyze whether bilateral trade and financial linkages influence business cycle synchronization directly and/or indirectly. Our paper builds upon the existing literature by using bilateral trade and financial flows for a small, open economy (Spain) as benchmark for the results, instead of the US as generally done in the literature. We find that both the similarity of productive structure and trade links promote the synchronization of cycles. However, bilateral financial links are inversely related to the co movement of output. This might point to financial integration allowing an easiertransfer of resources between two economies, which could enable their decoupling, as predicted by a standard model of international business cycles. Both the effects of trade and financial links on output synchronization are statistically significant and economically relevant.
    Keywords: business cycle synchronization, trade linkages, financial linkages, productive structure, integration
    JEL: E32 F41 F12 E44
    Date: 2008–06
  14. By: Van der Berg, Servaas; Louw, Megan; Burger, Ronelle
    Abstract: South Africa’s transition to democracy in 1994 created new possibilities for economic policy. Economic liberalization brought sustained, if unspectacular, growth that reversed the long decline in per capita incomes, but left its scars in much job shedding associated with business becoming internationally competitive. This accords with international evidence that trade liberalization takes time to realize positive employment effects. Disappointing employment growth in the face of an expanding labourforce fed rising unemployment. However, using poverty estimates from a combination of sources, this study demonstrates that poverty nevertheless declined quite substantially after the turn of the century. Poverty dominance testing shows this conclusion to be insensitive to the selection of poverty line or measure. But empirical analysis does not allow strong conclusions to be drawn on causal relationships between globalization and poverty trends.
    Keywords: trade; labour; South Africa; globalization
    JEL: F16 F14 I32
    Date: 2007–09
  15. By: Akiko Maruyama (Population Research Institute, Nihon University); Kazuhiro Yamamoto (Graduate School of Economics, Osaka University)
    Abstract: To investigate how fertility rates interrelate with the modern economy, we construct a simple model in which variety expansion of consumption goods reduces fertility rates. In our model, variety expansion reduces the relative price of a composite of differentiated goods compared to child- rearing costs. Thus, parents raise the expenditure share for differentiated goods and lower the number of children. We show that this model can be applied to a growth model in which economic growth progresses with variety expansion of consumption goods and fertility rates decrease with economic growth. In addition, we show that international trade, which raises consumption variety, lowers fertility rates. Thus, we show a new mechanism for fertility decline, and this mechanism can be applied to growth and international trade models.
    Keywords: Consumerism; Fertility rates; Variety expansion; Economic growth; International trade
    JEL: J13 O10 F12
    Date: 2007–07
  16. By: Pradumna B. Rana (Division of Economics, Nanyang Technological University, Singapore)
    Abstract: Recently, there has been growing interest in the evolving economic relationships between South Asia and East Asia. What could be the implications of the re-emergence of the two giant economies or hegemons – India and China - on the region and globally? Could these relationships be the second phase of Pan-Asian integration? Will Asia be as well-integrated as it was during the pre-colonial period? This paper finds that the level of economic integration between South Asia and East Asia, although increasing since 1990, started to surge after 2000, albeit from a low base, mainly because of growing interdependence between India and China. The level of integration is, however, low in relative terms. By calculating the usual indices, the paper finds that, although there are overlaps, there are also significant amounts of complementarities between the two regions on goods and service trade. The level of economic integration between the two regions is, therefore, bound to increase. The paper concludes by identifying a set of measures to enhance policy-led integration between the two regions including those seeking to reduce transportation costs.
    Date: 2008–04

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