nep-int New Economics Papers
on International Trade
Issue of 2008‒10‒28
twelve papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Globalization Drives Strategic Product Switching By Marialuz Moreno Badia; Veerle Slootmaekers; Ilke Van Beveren
  2. Trade Elasticities in the Middle East and Central Asia: What is the Role of Oil? By Andreas Billmeier; Dalia Hakura
  3. Comparative Advantages, Transaction Costs and Factor Content of Agricultural Trade: Empirical Evidence from CEE By d'Artis Kancs; Pavel Ciaian; Jan Pokrivcak
  4. The Changing Incidence of Geography By James E. Anderson; Yoto V. Yotov
  5. FDI in Post-Production Services and Product Market Competition By Jota Ishikawa; Hodaka Morita; Hiroshi Mukunoki
  6. The Quality-Complementarity Hypothesis: Theory and Evidence from Colombia By Maurice Kugler; Eric Verhoogen
  7. Imported Intermediate Inputs and Domestic Product Growth: Evidence from India By Pinelopi K. Goldberg; Amit Khandelwal; Nina Pavcnik; Petia Topalova
  8. Factor Content of Agricultural Trade: The Role of Firm Heterogeneity and Transaction Costs By d'Artis Kancs; Pavel Ciaian
  9. External Economies and International Trade Redux By Gene M. Grossman; Esteban Rossi-Hansberg
  10. Commercial Policy and Foreign Ownership By Jota Ishikawa; Yoichi Sugita; Laixun Zhao
  11. Real Exchange Rate Movements and the Relative Price of Non-traded Goods By Caroline M. Betts; Timothy J. Kehoe
  12. Recent exports matter: export discoveries, FDI and Growth, an empirical assessment for MENA countries By Dalila NICET- CHENAF (GREThA-GRES); Eric ROUGIER (GREThA-GRES)

  1. 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. We contribute 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 does not affect firm exit significantly but it is an important factor explaining product switching. Previous studies on industrial countries have shown that product switching has been a defensive strategy against low-cost imports. In contrast, our results suggest that Estonian firms have switched products as an offensive strategy to take advantage of the export opportunities created by trade liberalization.
    Date: 2008–10–11
  2. By: Andreas Billmeier; Dalia Hakura
    Abstract: The analysis in this paper suggests that import and export volume elasticities are markedly lower in oil-exporting Middle East and Central Asian countries than in non-oil countries in the region. A key implication of this finding is that a real appreciation of the exchange rate in oil-exporting countries would achieve little in terms of expenditure switching: an appreciation does not boost imports and non-oil exports constitute only a small share of GDP and total trade in these countries. Therefore, while a real appreciation lowers the current account surplus of oil-exporting countries through valuation effects, the contribution to lowering global imbalances may be more limited.
    Keywords: Middle East and Central Asia , Trade policy , Imports , Exports , Oil exporting countries , Exchange rate appreciation , Current account surpluses , Economic integration , Real effective exchange rates , Economic models , Working Paper ,
    Date: 2008–09–15
  3. By: d'Artis Kancs; Pavel Ciaian; Jan Pokrivcak
    Abstract: The present study examines factor content of the CEE transition country agricultural trade. We examine the relative country abundance for labour, capital and land, and test the Heckscher-Ohlin-Vanek (HOV) hypothesis. Our empirical findings suggest that the factor content of agricultural exports and imports is rather similar in CEE and most of the agricultural trade flows do not satisfy the HOV prediction. In order to explain the general lack of agricultural specialisation and the observed paradox in the CEE's agricultural trade, we examine the role of transaction costs and market imperfections. We find that transaction costs and market imperfections distort farm specialisation and hence factor content of agricultural trade.
    Keywords: Factor Content, Agricultural Trade, Comparative Advantages, Transaction Costs
    JEL: F12 F14 D23 Q12 Q17
    Date: 2008–02
  4. By: James E. Anderson; Yoto V. Yotov
    Abstract: The incidence of bilateral trade costs is calculated here using neglected properties of the structural gravity model, disaggregated by commodity and region, and re-aggregated into forms useful for economic geography. For Canada's provinces, 1992-2003, incidence is on average some five times higher for sellers than for buyers. Sellers' incidence falls over time due to specialization, despite constant gravity coefficients. This previously unrecognized globalizing force drives big reductions in 'constructed home bias', the disproportionate share of local trade; and large but varying gains in real GDP.
    JEL: F10 F15 R10
    Date: 2008–10
  5. By: Jota Ishikawa; Hodaka Morita; Hiroshi Mukunoki
    Abstract: Post-production services, such as sales, distribution, and maintenance, comprise a crucial element of business activity. A foreign firm faces a higher cost to perform such services than its domestic rival because of the lack of proximity to customers. We explore an international duopoly model in which a foreign firm can reduce its cost for post-production services by foreign direct investment (FDI), or alternatively can outsource such services to its domestic rival. Trade liberalization, if not accompanied by liberalization of service FDI, can hurt domestic consumers and decrease world welfare, but the negative welfare impacts can be mitigated and eventually turned into positive ones as service FDI is also liberalized. This finding yields important policy implications, given the reality that the progress of liberalization in service sectors is limited compared to the substantial progress already made in trade liberalization.
    Keywords: post-production services, trade liberalization, FDI, outsourcing, international oligopoly
    JEL: F12 F13 F21 F23
    Date: 2008–10
  6. By: Maurice Kugler; Eric Verhoogen
    Abstract: This paper presents a tractable formalization and an empirical investigation of the quality-complementarity hypothesis, the hypothesis that input quality and plant productivity are complementary in generating output quality. We embed this complementarity in a general-equilibrium trade model with heterogeneous, monopolistically competitive firms, extending Melitz (2003), and show that it generates distinctive implications for two simple, observable within-sector correlations -- between output prices and plant size and between input prices and plant size -- and for how those correlations vary across sectors. Using uniquely rich and representative data on the unit values of outputs and inputs of Colombian manufacturing plants, we then document three facts: (1) output prices are positively correlated with plant size within industries on average; (2) input prices are positively correlated with plant size within industries on average; and (3) both correlations are more positive in industries with more scope for quality differentiation, as measured by the advertising and R&D intensity of U.S. industries. The predicted and observed correlations between export status and input and output prices are similar to those for plant size. We present additional evidence that market power of either final-good producers or input suppliers does not fully explain the empirical patterns we observe. These findings are consistent with the predictions of our model and difficult to reconcile with alternative models that impose symmetry or homogeneity of either inputs or outputs. We interpret the results as broadly supportive of the quality-complementarity hypothesis.
    JEL: F12 L11 O14
    Date: 2008–10
  7. By: Pinelopi K. Goldberg; Amit Khandelwal; Nina Pavcnik; Petia Topalova
    Abstract: New goods play a central role in many trade and growth models. We use detailed trade and firm-level data from a large developing economy—India—to investigate the relationship between declines in trade costs, the imports of intermediate inputs and domestic firm product scope. We estimate substantial static gains from trade through access to new imported inputs. Accounting for new imported varieties lowers the exact import price index for intermediate goods on average by an additional 4.7 percent per year relative to conventional gains through lower prices of existing imports. Moreover, we find that lower input tariffs account on average for 31 percent of the new products introduced by domestic firms, which implies potentially large dynamic gains from trade. This expansion in firms' product scope is driven predominately by international trade increasing access of firms to new input varieties rather than by simply making existing imported inputs cheaper. Hence, our findings suggest that an important consequence of the input tariff liberalization was to relax technological constraints through firms' access to new imported inputs that were unavailable prior to the liberalization.
    JEL: F1 F13 F14
    Date: 2008–10
  8. By: d'Artis Kancs; Pavel Ciaian
    Abstract: In this paper we study factor content of the CEE agricultural trade. In order to account for differences in technology and factor prices in CEE, the theoretical framework of the present study builds on the previous work of Helpman (1984) and Staiger (1986) who consider a trade equilibrium in which factor prices are allowed to differ across countries and Lai and Zhu (2007), who account for international technology differences. In the empirical analysis we examine three hypothesis, which relate cross-country differences in technology, relative factor abundance and transaction costs and market imperfections to the factor content of trade. We find that the first two hypotheses are confirmed by the majority of developed countries, but rejected by roughly one half of the CEE transition country pairs. We find that, when accounting for transaction costs of farm (re)organisation, both hypotheses are confirmed by the majority of CEE country pairs. These findings provide empirical evidence of market imperfections, and particularly, of transaction costs of farm (re)organisation.
    Keywords: Factor content, bilateral trade, relative factor abundance, technological differences, agriculture, transaction costs.
    JEL: F12 F14 D23 Q12 Q17
    Date: 2008–04
  9. By: Gene M. Grossman; Esteban Rossi-Hansberg
    Abstract: We study a world with national external economies of scale at the industry level. In contrast to the standard treatment with perfect competition and two industries, we assume Bertrand competition in a continuum of industries. In this setting, many of the "pathologies" of the standard treatment disappear. There typically exists a unique equilibrium with trade guided by "natural" comparative advantage. And, when a country has CES preferences and any finite elasticity of substitution between goods, gains from trade are assured.
    JEL: F1 F11
    Date: 2008–10
  10. By: Jota Ishikawa; Yoichi Sugita; Laixun Zhao
    Abstract: To serve the domestic market, foreign multinationals often not only export there but also control local firms through FDI. This paper examines the effects of trade and industrial policies on prices, outputs, profits, and welfare when exports and FDI coexist. Specifically, we focus on the case in which a foreign firm has full control of a local firm through partial ownership. Cross-border ownership on the basis of both financial interests and corporate control leads to horizontal market-linkages through which tariffs and production subsidies may harm a locally-owned firm but benefit a foreign firm. Foreign ownership regulation benefits a locally-owned firm.
    Keywords: foreign direct investment, corporate control, tariffs, production subsidies, ownership regulation
    JEL: F12 F13 F23
    Date: 2008–10
  11. By: Caroline M. Betts; Timothy J. Kehoe
    Abstract: We study the quarterly bilateral real exchange rate and the relative price of non-traded to traded goods for 1225 country pairs over 1980-2005. We show that the two variables are positively correlated, but that movements in the relative price measure are smaller than those in the real exchange rate. The relation between the two variables is stronger when there is an intense trade relationship between two countries and when the variance of the real exchange rate between them is small. The relation does not change for rich/poor country bilateral pairs or for high inflation/low inflation country pairs. We identify an anomaly: The relation between the real exchange rate and relative price of non-traded goods for US/EU bilateral trade partners is unusually weak.
    JEL: F31 F41
    Date: 2008–10
    Abstract: Export diversification has become a priority goal for the development strategies of the MENA countries. In this paper, we aim at measuring the effects of exports’ diversification on growth in MENA countries. But we also try to assess the way new exports and FDI interact each others in the process of growth. Within the framework of an endogenous growth model, we claim that FDI can act as a complementary factor in the discovery process. The model is estimated by the system-GMM and we provide robust evidence that FDI do not necessarily have the same effect on growth according to the diversification level. We also show that while FDI have a positive and significant effect on the MENA countries’ growth, it is most probably rather linked to the direct effect on value added and employment than to the spillover effects of technological transfer.
    Keywords: Export diversification, FDI, Growth, MENA, GMM system
    JEL: F1 O11
    Date: 2008

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