nep-int New Economics Papers
on International Trade
Issue of 2008‒09‒20
nine papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Heterogeneous Firms, the Structure of Industry & Trade under Oligopoly By Eddy Bekkers; Joseph Francis Francois
  2. Regionalism as an Engine of Multilateralism: A Case for a Single East Asian FTA By Kawai, Masahiro; Wignaraja, Ganeshan
  3. Trade, Wages, and Productivity By Kristian Behrens; Giordano Mion; Yasusada Murata; Jens Sudekum
  4. Are Unfair Import Laws Unfair to Developing Countries: Evidence from U.S. Antidumping Actions 1990-2004 By Morris E. Morkre; Dean Spinanger; Lien H. Tran
  5. On the Conflict Mitigating Effects of Trade: The India-Pakistan Case By Mamoon, Dawood; S. Mansoob, Murshed
  6. The Role of Exports in the Economy of Colonial North America: New Estimates for the Middle Colonies By Peter Mancall; Joshua Rosenbloom; Thomas J. Weiss
  7. Agglomeration, Vertical Specialization, and the Strength of Industrial Linkages By Jan Kranich
  9. Globalization and the Rise of the Entrepreneurial Economy By David B. Audretsch; Mark Sanders

  1. By: Eddy Bekkers (Department of Economics, Johannes Kepler University Linz, Austria); Joseph Francis Francois (Department of Economics, Johannes Kepler University Linz, Austria)
    Abstract: We develop a model with endogeneity in key features of industrial structure linked to heterogeneous cost structures under Cournot competition. We use the model to explore issues related to cross-country differences in industry structure and the impact of globalization on markups and pricing, concentration, and productivity. The model nests two workhorse trade models, the Brander & Krugman reciprocal dumping model and the Ricardian technology-based trade model, as special cases. We examine both free entry and limited entry (free exit) cases. The model generates clear testable predictions on the probability of zero trade flows and the pattern of export prices, and on cross-country and industry variations in industrial structure controlling for openness. Market prices decline as a result of trade liberalization, the least productive firms get squeezed out of the market, exporting firms gain market share, and more firms become trade oriented. In addition, depending on the strength of underlying cost heterogeneity, falling prices are consistent with both increasing and falling industry concentration following episodes of integration. Welfare rises with trade liberalization, unless trade costs decline from a prohibitive level in the short run free exit case. Variation across industries and markets in markups, concentration, and pricing structures is otherwise a function of market size and the variation in cost heterogeneity across industries.
    Keywords: Firm heterogeneity, Cournot competition, Composition effects of trade liberalization
    JEL: L11 L13 F12
    Date: 2008–09
  2. By: Kawai, Masahiro (Asian Development Bank Institute); Wignaraja, Ganeshan (Asian Development Bank)
    Abstract: As East Asia becomes increasingly integrated through market-driven trade and FDI activities, free trade agreements (FTAs) are proliferating. Consolidation of multiple and overlapping FTAs into a single East Asian FTA can help mitigate the harmful noodle bowl effects of different or competing tariffs, standards, and rules. A region-wide FTA will also encourage participation of low-income countries and reduce trade-related business costs, particularly for small and medium enterprises. A computable general equilibrium (CGE) model examines the economic impact of various types of FTAs in East Asia (among ASEAN+1's, ASEAN+3, and ASEAN+6) finding that consolidation at the ASEAN+6 level would yield the largest gains to East Asia among plausible regional trade arrangements.
    Keywords: Free Trade Agreement; ASEAN; multilateralism
    JEL: F10 F13 F40
    Date: 2008–02–01
  3. By: Kristian Behrens; Giordano Mion; Yasusada Murata; Jens Sudekum
    Abstract: We develop a new general equilibrium model of trade with heterogeneous firms, variable demand elasticities and endogenously determined wages. Trade integration favors wage convergence, intensifies competition, and forces the least efficient firms to leave the market, thereby affecting aggregate productivity. Since wage and productivity responses are endogenous, our model is well suited to study the impacts of trade integration on aggregate productivity and factor prices. Using Canada-U.S. interregional trade data, we first estimate a system of theory-based gravity equations under the general equilibrium constraints generated by the model. Doing so allows us to measure "border effects" and to decompose them into a "pure" border effect, relative and absolute wage effects, and a selection effect. Using the estimated parameter values, we then quantify the impacts of removing the Canada-U.S. border on wages, productivity, markups, the share of exporters, the mass of varieties produced and consumed, and welfare. We finally provide a similar quantification with respect to regional population changes.
    Keywords: Heterogeneous firms, gravity equations, general equilibrium, monopolistic competition, variable demand elasticities
    JEL: F12 F15 F17
    Date: 2008
  4. By: Morris E. Morkre; Dean Spinanger; Lien H. Tran
    Abstract: This paper investigates the effects of U.S. AD actions on DCs. It first considers administrative actions by the U.S. Department of Commerce, which decides AD margins for countries. It then considers decision making by the U.S. International Trade Commission, which determines injury to domestic industry. The econometric results show that USDOC actions lead to significantly higher AD margins for NMEs (all DCs) than for MOEs. Among countries that suffer from U.S. AD actions DCs have a significantly higher ratio of dumped imports to total imports (relative dumped imports) compared with middle income countries. However, the results also show that relative dumped imports of high income countries are also greater than middle income countries
    Keywords: antidumping (AD), AD margin, developing countries (DCs), market-oriented economies (MOEs), nonmarket economies (NME), relative dumped imports, underselling, zeroing
    JEL: F13 K42
    Date: 2008–08
  5. By: Mamoon, Dawood; S. Mansoob, Murshed
    Abstract: We examine whether greater inter-state trade, democracy and reduced military spending lower belligerence between India and Pakistan. We begin with theoretical models covering the opportunity costs of conflict in terms of trade losses and security spending, as well as the costs of making concessions to rivals. Conflict between the two nations can be best understood in a multivariate framework where variables such as economic performance, integration with rest of the world, bilateral trade, military expenditure, democracy scores and population are simultaneously considered. Our empirical investigation based on time series econometrics from 1950-2005 suggests that reduced bilateral trade, greater military expenditure, less development expenditure, lower levels of democracy, lower growth rates and less general trade openness are all conflict enhancing. Globalization, or a greater openness to international trade with the rest of the world, is the most significant driver of a liberal peace, rather than a common democratic orientation suggested by the pure form of the democratic peace.
    Keywords: Inter-state conflict and trade; democracy and conflict; conflict and economic development.
    JEL: F15 F52 F51 C7
    Date: 2008–04–25
  6. By: Peter Mancall; Joshua Rosenbloom; Thomas J. Weiss
    Abstract: Economic historians of the eighteenth-century British mainland North American colonies have given considerable weight to the role of exports as a stimulus for economic growth. Yet their analyses have been handicapped by reliance on one or two time series to serve as indicators of broader changes rather than considering the export sector as a whole. Here we construct comprehensive export measures for the middle colonies. We find that aggregate exports did grow quickly but that this expansion failed to keep pace with population growth during much of the period under consideration. We argue this result challenges the export staples model on the role of foreign demand as a stimulus for economic growth. Instead, these results emphasize the impact of resource abundance and labor and capital scarcity as the defining characteristics of colonial economic growth.
    JEL: N11 N21 N7 N71
    Date: 2008–09
  7. By: Jan Kranich (Leuphana Universität Lüneburg)
    Abstract: This paper picks up the seminal model of Venables (1996) and provides a quantifying concept for the sectoral coherence in vertical-linkage models of the New Economic Geography. Based upon an alternative approach to solve the model and to determine critical trade cost values, this paper focuses on the interdependencies between agglomeration, specialization and the strength of vertical linkages. A central concern is the idea of an ’industrial base,’ which is attracting linked industries but is persistent to relocation. As a main finding, the intermediate cost share and substitution elasticity basically determine the strength of linkages. Thus, these parameters affect how strong the industrial base responds to changes in trade costs, relative wages and market size.
    Keywords: New Economic Geography, Vertical Linkages
    JEL: F12
    Date: 2008–09
  8. By: Dermot Leahy; Catia Montagna
    Abstract: We consider the make-or-buy decision of oligopolistic firms in an industry in which final good production requires specialised inputs. Factor price considerations dictate that firms acquire the intermediate abroad, by either producing it in a wholly owned subsidiary or outsourcing it to a supplier who must make a relationship specific investment. Firms’ internationalisation mode depends on cost and strategic considerations. Crucially, asymmetric equilibria emerge, with firms choosing different modes of internationalisation, even when they are ex-ante identical. With ex-ante asymmetries, lower cost producers have a stronger incentive to vertically integrate (FDI), while higher cost firms are more likely to outsource.
    Keywords: Outsourcing, Foreign Direct Investment, Trade Liberalisation, Oligopoly
    JEL: F12 F23 L13 L14
    Date: 2008–08
  9. By: David B. Audretsch; Mark Sanders
    Abstract: This paper argues that recent trends in the global economy have led to a shift in developed countries’ comparative advantage from mature industrial to early stage entrepreneurial production. We develop a three stage product life cycle model in which we distinguish between life cycle stages characterized by new, mature and off-shored production. In that model we analyze the impact of a level shock in the supply of unskilled labor in the South, a decrease in the level of political risk associated with outward foreign direct investment (off-shoring), and the widespread diffusion of a general purpose technology such as ICT. Due to endogenous responses in the allocation of entrepreneurial activity, the above shocks all result in a shift in the comparative advantage of developed countries towards new varieties, which corresponds to activities in the early stages of the product life cycle. Moreover, because entrepreneurs also serve as the agents that move varieties between life cycle stages, their value added increases due to globalization and technical change. By contrast, the factors of production employed in the mature stage of the life cycle, e.g. low skilled northern labor, become less valuable. Thus, the model predicts the emergence of an entrepreneurial economy in the North as the South opens up to trade and industrializes.
    Keywords: Product Cycles, International Trade, Entrepreneurship, Globalization
    JEL: F01 J31 O1 P0
    Date: 2008–06

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