nep-int New Economics Papers
on International Trade
Issue of 2008‒08‒06
twelve papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. International fragmentation of production in the Portuguese economy: What do different measures tell us? By Amador, João; Cabral, Sónia
  2. Immigration and Trade in Portugal: A Static and Dynamic Panel Data Analysis By Horácio C. Faustino; Nuno Carlos Leitão
  3. Innovation and Trade with Heterogeneous Firms By Ngo Van Long; Horst Raff; Frank Stähler
  4. The Euro adoption’s impact on extensive and intensive margins of trade: the Italian case By Sergio de Nardis; Carmine Pappalardo; Claudio Vicarelli
  5. Alternative Exchange Rate Regimes for MENA countries: Gravity Model Estimates of the Trade Effects By Christopher Adam; David Cobham
  6. Trade and the External Wealth of Nations By André Lemelin
  7. How does a domestic tax reform effect protection against imports? The case of the Republic of Madagascar By Jean-Jacques Hallaert
  8. Trade elasticity of substitution and equilibrium dynamics By Martin Bodenstein
  9. Export, Assembly-line FDI or FDI with the Possibility of Technology Diffusion: Optimal Entry Mode for Multinationals By Tanmoyee Banerjee(Chatterjee); Nilanjana Mitra
  10. A Note on the Determinants and Consequences of Outsourcing Using German Data By Addison, John T.; Bellmann, Lutz; Pahnke, André; Teixeira, Paulino
  11. Services offshoring and wages: Evidence from micro data By Ingo Geishecker; Holger Görg
  12. Whole versus Shared Ownership of Foreign Affiliates By Horst Raff; Michael Ryan; Frank Stähler

  1. By: Amador, João; Cabral, Sónia
    Abstract: This paper analyses the relevance and the characteristics of the international fragmentation of production in the Portuguese economy. The empirical trade literature suggests different measures of fragmentation, changing the scope of the concept and using alternative sets of information. The existing measures can be broadly divided in those that make use of Input-Output matrices together with international trade data and those that look at specific elements of international transactions, namely trade in parts and components and outward-inward processing trade. In this paper, we survey the different measures of international fragmentation of production and apply them to Portuguese data. Our results of Input-Output based measures point to a substantial increase of the vertical linkages in the Portuguese economy, in particular since the nineties. Nevertheless, it seems that the pace of vertical specialization has been somewhat modest in international terms. The share of exports of parts and components in total trade has almost doubled in the last two decades, while the import share of these goods has remained nearly stable. Processing trade represents a very low share of Portuguese international trade
    Keywords: International Trade; International Fragmentation of Production; Vertical Specialization; Globalization
    JEL: F15 F14 F1 O52
    Date: 2008–07
  2. By: Horácio C. Faustino; Nuno Carlos Leitão
    Abstract: This article tests the relation between immigration and Portuguese bilateral trade, considering the fifteen European partners (EU15). Using a static and dynamic panel data analysis, the results show that the stock of immigrants has a positive effect on Portuguese exports, imports and bilateral intra-industry trade. These results suggest that immigration affects all types of trade in a positive way. The underlying assumption is that immigration contributes to decrease the costs of transactions, which in turn promotes all trade flows. The static and dynamic results do not confirm the hypothesis of a negative effect of immigration on Portuguese exports. In the static model, a 10% increase in immigration induces a 5.98 % increase in exports and a 5.55% increase in imports. The effect on the Portuguese trade balance is positive. However, the dynamic results for the export and import equations are more reliable, showing a smaller positive effect on exports. A 10% increase in bilateral immigration induces a 0.47% and 2.34% increase in exports and imports, respectively. Our findings also suggest that when immigrants to Portugal originate from a Latin partner-country, the effects on trade are stronger than in the case of immigrants from non-Latin countries. The study is based on an extended gravitational model, in order to incorporate the qualitative factors as control variables.
    Keywords: intra-industry trade; immigration; gravity model; panel data; Portugal.
    JEL: C33 F11 F12 F22
    Date: 2008–07
  3. By: Ngo Van Long; Horst Raff; Frank Stähler
    Abstract: This paper examines how trade liberalization affects the innovation incentives of firms, and what this implies for industry productivity and social welfare. For this purpose we develop a reciprocal dumping model of international trade with heterogeneous firms and endogenous R&D. We identify two effects of trade liberalization on productivity: a direct effect through changes in R&D investment, and a selection effect due to inefficient firms leaving the market. We show how these effects operate in the short run when market structure is fixed, and in the long run when market structure is endogenous. Among the robust results that hold for any market structure are that trade liberalization (i) increases (decreases) aggregate R&D for low (high) trade costs; (ii) increases expected industry productivity; and (iii) raises expected social welfare if trade costs are low
    Keywords: international trade, firm heterogeneity, R&D, productivity, market structure
    JEL: F12 F15
    Date: 2008–06
  4. By: Sergio de Nardis (ISAE - Institute for Studies and Economic Analyses); Carmine Pappalardo (ISAE - Institute for Studies and Economic Analyses); Claudio Vicarelli (ISAE - Institute for Studies and Economic Analyses)
    Abstract: The recent theoretical literature has focused on the importance of extensive and intensive margins of trade in the case of the Euro adoption. But few works have investigated the effects of the euro introduction on the extensive and intensive margins of trade. All these studies have used disaggregated bilateral flows data (6 digit). However, not even the finest level of disaggregation in the publicly available trade data is enough to single out individual products. We try to fill this gap by using a unique dataset taken from ISAE surveys on Italian manufacturing firms. From this quarterly survey it is possible to obtain information about both the structural characteristics (geographical location, industrial sector of activity, number of employees) and exporting behaviour of firms. We concentrate our analysis on the period 1997-2001, covering the two years before and the three years after the euro introduction., In line with large part of the empirical literature on bilateral trade, we estimate a gravity equation using a Hausman and Taylor estimator (HT). Our results show that the introduction of the euro has not had any effect on export turnover. This evidence seems to match other empirical findings on Italy, both at aggregate and sectoral level. However, interaction terms between the euro dummy and the group of “entering firms” (firms that started to export after the euro introduction) and that of “persistent firms” (firms that exported in the euro area before and after 1999) are positive and statistically significant, showing a positive effect of the common currency on extensive and intensive margins of trade. Indeed, the magnitude of the coefficient of the former is higher than the latter: in the Italian case, empirical findings for the Euro area as a whole seem to be confirmed. In our view, the euro introduction has had a positive effect on the extensive margin: a small group of firms benefited from it by starting to export in the Eurozone market. However, the total size of this group is very small; this finding may be due to the average small size of Italian manufacturing firms and to their scarce presence in the ICIR sectors (Imperfect Competition and Increasing Return sectors). Following theoretical indications, these latter are sectors that may have benefited more from the euro introduction: firms usually have lower marginal costs and they can easily cover the fixed costs of export activity if these costs are reduced, as they are when a common currency is introduced.
    Keywords: Trade, Euro, Export Margins
    JEL: F14 F15 C23
    Date: 2008–07
  5. By: Christopher Adam; David Cobham
    Abstract: Middle East and North African (MENA) countries have traditionally anchored their currencies largely on the US dollar, but the creation of the euro means that there is now for the first time a real alternative numéraire and anchor available. This paper estimates the effect of a menu of exchange rate regimes on trade within a gravity model, using the Baier & Bergstrand (2006) Taylor expansion technique to allow for multilateral trade resistance. This approach allows simulations of the effects of changes in the exchange rate regime for a particular country or region which explicitly take into account the associated changes in multilateral and world trade resistance. Results are presented for eight different scenarios: pegging to the dollar, dollarising, pegging to the euro and euroising, each of these on an individual country basis and when the MENA countries all implement the change together. We find that in terms of the trade effects for most MENA countries it would be better to anchor on the euro than on the dollar, but for some others (typically small oil exporters with large exports to Asian countries) it would be better to continue to anchor on the dollar.
    Keywords: gravity, geography, trade, exchange rate regime, currency union, transactions costs, multilateral trade resistance, MENA, Middle East, North Africa, euro, dollar
    JEL: F10 F33 F49
    Date: 2008
  6. By: André Lemelin
    Abstract: Most CGE trade models fix current account balances exogenously, in accordance with the widely accepted view that trade policy may influence trade flows, but that current accounts are constrained by symmetric capital account balances, on which trade policy has little effect. The MIRAGE-D model was developed to make explicit the international capital flows which must take place to balance the current account implications of the simulated trade flows, and to compute the cumulative consequences of such capital flows on the international investment positions (IIP) of countries. In MIRAGE-D, current account balances and their capital account counterparts are endogenous, following a three-tier portfolio management model, adapted from Decaluwé and Souissi (1994; Souissi, 1994; Souissi and Decaluwé, 1997), which represents country-agent wealth allocation behavior. The allocation of capital among countries and industries is determined by an investment supply and demand equilibrating mechanism. Investment supply is the demand for new physical capital ownership titles resulting from the wealth allocation process, while investment demand is a constant elasticity function of Tobins's q in the Jung-Thorbecke (2001) style. An illustrative simulation scenario was run with both MIRAGE-D and the standard version of MIRAGE. Apart from the IIP of countries, which the standard version does not produce, other simulation results, although not identical, show moderate differences, which are fully explained by the financial aspects, and arise from the consistency required between such financial aspects and the rest of the model.
    Keywords: CGE models, International Investment Position (IIP), Financial assets, International trade
    JEL: C68 D58 F17 F37 G11 G15
    Date: 2008
  7. By: Jean-Jacques Hallaert
    Abstract: In 2008, Madagascar reformed its domestic tax system. Because the excise duties and VAT regimes were reformed, the taxation of imports has changed. This paper quantifies how the reform changes the protection against imports and the fiscal revenues from taxation of imports. It shows that, even if the reform has only a limited impact on the average rate of protection, it substantially alters the structure of protection across goods. Moreover, because the reform further increases the already high rate of taxation of imports, it will also boost revenue from taxes on imports and reduce the fiscal losses from the SADC FTA.
    Keywords: Working Paper , Madagascar , Tax reforms , Imports , Excise taxes , Value added tax , Tax policy , Trade policy ,
    Date: 2008–06–23
  8. By: Martin Bodenstein
    Abstract: The empirical literature provides a wide range of estimates for trade elasticities at the aggregate level. Furthermore, recent contributions in international macroeconomics suggest that low (implied) values of the trade elasticity of substitution may play an important role in understanding the disconnect between international prices and real variables. However, a standard model of the international business cycle displays multiple locally isolated equilibria if the trade elasticity of substitution is sufficiently low. The main contribution of this paper is to compute and characterize some dynamic properties of these equilibria. While multiple steady states clearly signal equilibrium multiplicity in the dynamic setup, this is not a necessary condition. Solutions based on log-linearization around a deterministic steady state are of limited to no help in computing the true dynamics. However, the log-linear solution can hint at the presence of multiple dynamic equilibria.
    Date: 2008
  9. By: Tanmoyee Banerjee(Chatterjee) (Jadavpur University); Nilanjana Mitra (Susil Kar College)
    Abstract: The paper tries to evaluate the optimal entry mode of a Multinational Company that is choosing among export, fragmented production structure with assembly-line FDI in LDC or complete production in LDC with FDI. The results show that if the plant installation cost is sufficiently high then the firm will find it profitable to export the finished product to the LDC market and the Government will not exercise any IPR restriction. If plant installation cost is below a certain critical level the MNC chooses complete LDC production with FDI over assembly-line FDI if the IPR restriction is strong, where the model assumes that a fake producer can copy the product if complete production takes place in LDC. In such a situation government will choose to protect IPR if government earning exceeds the cost of IPR protection, otherwise no monitoring is the optimal strategy of the government and MNC will choose the strategy of fragmented production structure and assembly-line FDI will take place in LDC.
    Keywords: Export, Assembly-line FDI, FDI with Complete Production, IPR Protection
    JEL: L11 O34
    Date: 2008–07
  10. By: Addison, John T. (University of South Carolina); Bellmann, Lutz (IAB, Nürnberg); Pahnke, André (IAB, Nürnberg); Teixeira, Paulino (University of Coimbra)
    Abstract: Using German data from the Institute for Employment Research Establishment Panel, this paper constructs two main measures of outsourcing and examines their determinants and consequences for employment. There are some commonalities in the correlates of the two measures of outsourcing, as well as agreement on the absence of adverse employment effects across all industries. For one specification, however, some negative effects are reported for manufacturing industry, balanced by positive effects for the services sector for another. But there are no indications of survival bias. This is because the association between outsourcing and plant closings is predominantly negative, albeit poorly determined.
    Keywords: outsourcing, organizational change, employment change, plant closings, value added
    JEL: F16 J23
    Date: 2008–07
  11. By: Ingo Geishecker; Holger Görg
    Abstract: This paper investigates the effects of services offshoring on wages using individual level data combined with industry information on offshoring. Our results show that services ofsshoring affects the real wage of low and medium skilled individuals negatively. By contrast, skilled workers benefit from services offshoring in terms of higher real wages. Hence, offshoring has contributed to a widening of the wage gap between skilled and less skilled workers. This result is obtained while controlling for individual and sectoral observed and unobserved heterogeneity. In particular, our empirical model also controls for the impact of technological change and offshoring materials
    Keywords: Services offshoring, individual wages
    JEL: F16 J31 C23
    Date: 2008–07
  12. By: Horst Raff; Michael Ryan; Frank Stähler
    Abstract: This paper studies why multinational firms often share ownership of a foreign affiliate with a local partner even in the absence of government restrictions on ownership. We show that shared ownership may arise, if (i) the partner owns assets that are potentially important for the investment project, and (ii) the value of these assets is private information. In this context shared ownership acts as a screening device. Our model predicts that the multinational’s ownership share is increasing in its productivity, with the most productive multinationals choosing not to rely on a foreign partner at all. This prediction is shown to be consistent with data on the ownership choices of Japanese multinationals
    Keywords: Foreign direct investment, multinational enterprise, joint venture, productivity
    JEL: F23 L20
    Date: 2008–07

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