nep-int New Economics Papers
on International Trade
Issue of 2008‒10‒07
twelve papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Trade, product variety and welfare: a quantitative assessment for mainland China By Ralf Ruhwedel; Michael Funke
  2. Monopoly Power and Endogenous Product Variety: Distortions and Remedies By Florin O. Bilbiie; Fabio Ghironi; Marc J. Melitz
  3. Where Do Firms Export, How Much, and Why? By Martina Lawless; Karl Whelan
  4. Multi-product exporters : diversification and micro-level dynamics By Iacovone, Leonardo; Javorcik, Beata S.
  5. Exporters and credit constraints. A firm-level approach By Mirabelle Muûls
  6. "Trade and Location with Land as a Productive Factor" By Pfluger, Michael; Takatoshi Tabuchi
  7. Jobs, Jobs, Jobs: A "New" Perspective on Protectionism By Arnaud Costinot
  8. A Comparative Institutional Analysis of Agreements on Product Standards By Arnaud Costinot
  9. Learning-by-Exporting or Managerial Quality? Evidence from the Czech Republic By Branislav Saxa
  10. Trade in intermediate goods and total factor productivity By Ferreira, Pedro Cavalcanti; Trejos, Alberto
  11. Export destinations and learning-by-exporting : Evidence from Belgium By Mauro Pisu
  12. Do regional Trade and Specialization drive intra-regional Risk-Sharing? By Barbara Pfeffer

  1. By: Ralf Ruhwedel; Michael Funke
    Abstract: We calculate a variety of welfare gains for Mainland China, following the approach of Romer (1994), who emphasized that proper modelling of the impact of trade restrictions on the number of available product varieties is crucial for quantifying the welfare impact of trade liberalization. The empirical work presented relies on direct measures of product variety calculated from highly disaggregated trade data. The emerging conclusion is that freer trade has indeed boosted welfare.
    Keywords: trade liberalization; product variety; welfare; China
    Date: 2008–06
  2. By: Florin O. Bilbiie; Fabio Ghironi; Marc J. Melitz
    Abstract: We study the efficiency properties of a dynamic, stochastic, general equilibrium, macroeconomic model with monopolistic competition and firm entry subject to sunk costs, a time-to-build lag, and exogenous risk of firm destruction. Under inelastic labor supply and linearity of production in labor, the market economy is efficient if and only if symmetric, homothetic preferences are of the C.E.S. form studied by Dixit and Stiglitz (1977). Otherwise, efficiency is restored by properly designed sales, entry, or asset trade subsidies (or taxes) that induce markup synchronization across time and states, and align the consumer surplus and profit destruction effects of firm entry. When labor supply is elastic, heterogeneity in markups across consumption and leisure introduces an additional distortion. Efficiency is then restored by subsidizing labor at a rate equal to the markup in the market for goods. Our results highlight the importance of preserving the optimal amount of monopoly profits in economies in which firm entry is costly. Inducing marginal cost pricing restores efficiency only when the required sales subsidies are financed with the optimal split of lump-sum taxation between households and firms.
    JEL: D42 H32 L16
    Date: 2008–10
  3. By: Martina Lawless (Central Bank and Financial Services Authority of Ireland); Karl Whelan (University College Dublin)
    Abstract: The empirical finding that exporting firms are more productive on average than non-exporters has provoked a large theoretical literature based on models such as Melitz (2003), where more productive firms are more likely to overcome costs associated with trade. This paper provides a systematic empirical assessment of the Melitz framework using a unique Irish dataset that includes information on destinations and firm characteristics such as productivity. We find a number of interesting deviations from the model’s predictions including a high degree of unpredictable idiosyncratic participation in export markets by firms, a relatively weak positive correlation between the extent of export participation and export sales, and a limited role for productivity in explaining firm exporting behavior. We illustrate the effect of firm heterogeneity on gravity regressions of aggregate trade flows and show how past exporting to a particular market has a strong impact on the current probability of exporting there.
    Date: 2008–09–22
  4. By: Iacovone, Leonardo; Javorcik, Beata S.
    Abstract: Recent developments in trade theory, especially research on multi-product firms, have not been matched by similar progress on the empirical front. This paper aims to fill this gap by presenting a novel set of stylized facts on firm-product dynamics observed during an export boom. This exercise is possible thanks to a unique firm-product level dataset covering about 85 percent of Mexican industrial output for the period 1994-2003. The main findings are as follows. First, there is a substantial degree of product turnover at the firm-product level in response to declining trade costs. Second,"core competencies"- the fact that firms have a cost advantage or greater expertise at manufacturing some of their products - are the main driver of firms'decision to introduce or drop export products. Third, new exporters tend to"start small"in terms of both values and number of exported products. Fourth, even if the expansion in the number of exported products played a role in stimulating Mexican exports, the growth in volume of pre-existing products was the main driver of the export boom. Finally, the introduction of new export products is preceded by a surge in investment. These findings are in line with many, but not all, predictions of recent theoretical work.
    Keywords: Markets and Market Access,Microfinance,Free Trade,Tax Law,Economic Theory&Research
    Date: 2008–09–01
  5. By: Mirabelle Muûls (National Bank of Belgium, Microeconomic Information department; London School of Economics)
    Abstract: By building a theoretical model and taking it to the data with two novel datasets, this paper analyses the interaction between credit constraints and exporting behaviour. Building a heterogeneous firms model of international trade with liquidity-constrained firms yields several predictions on the equilibrium relationships between productivity, credit constraints and exports that are then verified in the data. The main findings of the paper are that firms are more likely to be exporting if they enjoy higher productivity levels and lower credit constraints. Also, credit constraints are important in determining the extensive but not the intensive margin of trade in terms of destinations. This introduces a pecking order of trade. Finally, an exchange rate appreciation will cause existing exporters to reduce their exports, entry of credit-constrained potential exporters and exit of the least productive exporters
    Keywords: Credit constraints, heterogeneous firms, margins of export, export destinations, exchange rates and trade
    JEL: D92 F10 F36 G28
    Date: 2008–09
  6. By: Pfluger, Michael (Faculty of Economics, University of Passau, DIW Berlin and IZA); Takatoshi Tabuchi (Faculty of Economics, University of Tokyo)
    Abstract: This paper is motivated by the fact that, contrary to its importance in practice, the role of land for production has received no attention in the new trade theory and the new economic geography. We set up a simple monopolistic competition model and we show that, due to the factor proportions effect which emerges when land is used as a productive factor besides labor, a number of tenets of the new trade and geography literature no longer hold. We also show that in order to explain the stylised facts, notably that wages are higher in larger locations, land-use for production and housing has to be taken into account. Our analysis furthermore implies that market-size based agglomeration forces are too weak to overcome the very strong congestion force associated with competition for land, unless the consumers desire of variety (as expressed by a low elasticity of substitution) is very strong. This suggests that further agglomeration forces have to be invoked to explain the agglomeration of economic activity observed in the real world.
    Date: 2008–09
  7. By: Arnaud Costinot (University of California - San Diego)
    Abstract: This paper analyzes the determinants of protectionism in a small open economy with search frictions. This this environment, jobs generate rents whose access depends on the level of trade protectionn. By raising the domestic price of a good, a government may attract more firms in a particular industry. This raises the probability that workers will find jobs in this sector, and in turn, will benefit from the associated rents. Though simple, this channel may help explain a variety of stylized facts on the structure of trade protection and individual trade-policy preferences.
    Keywords: search frictions, trade protection, trade-policy preferences,
    Date: 2008–02–01
  8. By: Arnaud Costinot (University of California - San Diego)
    Abstract: The WTO and EU have chosen two differernt agreements on product standards. While the WTO's approach is primarily based on a "National Treatment" (NT) principle, the EU's approach crucially relies on a principle of "Mutual Recognition" (MR). This paper offers a first look at the comparative performance of these two principles. We show that standards are imposed for levels of externalities that are too low under NT and too high under MR. This suggests that NT should be preferred to MR when the amount of trade in goods characterized by high levels of externalities is large.
    Keywords: product standards, trade agreements, incomplete contracts, national treatment, mutual recognition,
    Date: 2008–03–01
  9. By: Branislav Saxa
    Abstract: This paper employs firm-level panel data from the Czech Republic to investigate the empirical relevance of the learning-by-exporting hypothesis. To provide convincing estimates, one must be able to disentangle learning-by-exporting from changes in company management that induce the company to both start exporting and introduce productivity increasing measures. Therefore, I compare estimates based on matching on propensity score, which do not control for potential management changes, to estimates based on an instrumental variables strategy. Specifically, I focus on firms that start exporting due to changes in the industry-specific exchange rate and industry-specific ratio of producer prices on domestic and foreign markets. The results suggest that learning-by-exporting in the Czech Republic is not significant, either statistically or economically, irrespective of the method used.
    Keywords: Exporting, productivity, matching on propensity score, local average treatment effect.
    JEL: D24 D83 F13 C23
    Date: 2008–08
  10. By: Ferreira, Pedro Cavalcanti; Trejos, Alberto
    Date: 2008–05
  11. By: Mauro Pisu (National Bank of Belgium, Research Department)
    Abstract: This paper evaluates the causal effects of exports to different destination countries using a comprehensive dataset on Belgian manufacturing firms from 1998 to 2005. Initial evidence suggests that, before export market entry, exporters to more developed economies have superior productivity levels than non-exporters and firms exporting to less developed countries. Moreover, they seem to experience higher productivity growth rates in the post-entry period, suggesting learning-by-exporting effects. However, applying matching methodology to formally evaluate the causal effects of export market entry on productivity reveals no such impact. Thus, the productivity advantage of firms exporting to developed countries appears to be driven solely by self-selection.
    Keywords: Learning-by-exporting, export destinations, productivity
    JEL: L1 D24
    Date: 2008–09
  12. By: Barbara Pfeffer (Universität Siegen, Department of Economics)
    Abstract: The goal of the present paper is two-fold. First, I explore the impact of different trade patterns on industrial specialisation and consequently on business cycle co-movements between and within different regions. Especially, I emphasize industrial specialisation as a result of intra- or inter-industry trade. Furthermore, I justify the predictions of different theoretical trade models on the basis of my results. Second, I analyse the degree of risk-sharing between and within the regions in dependence of the previous step. In particular, the purpose is to clarify direct and indirect channels between trade, specialisation, business cycle co-movements and risk sharing. The expectations are that countries within a region with homogeneous specialisations show intra-industry trade. Hence regional business-cycles converge. Consequently, risk-sharing within these regions is not possible. These countries tend to be more internationally financially integrated than regionally. Inter-industry trade arises in countries within regions with heterogeneous specialisation. As a result regional business-cycles diverge. Now, countries can share risk within the region. Regional financial integration is stronger for these countries than international financial integration. One further question is: do the same patterns create risk sharing also in the means of consumption co-movements between or within a region?
    Keywords: Trade, Specialization, Risk Sharing
    JEL: F15 F36
    Date: 2008

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