nep-int New Economics Papers
on International Trade
Issue of 2008‒11‒04
nineteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Cross-Border Trade and FDI in Services By Carmen Fillat-Castejon; Joseph Francis Francois; Julia Maria Woerz
  2. Openness and Income Dispaities: Does Trade Explain the 'Mezzogiorno' Effect? By Claudia M. Buch; Paola Monti
  3. Unemployment and interactions between trade and labour market institutions By Hervé Boulhol
  4. Exchange rate pass-through in the global economy - the role of emerging market economies. By Matthieu Bussière; Tuomas Peltonen
  5. Economic Integration in a Chamberlinian-Ricardian World By Toru Kikuchi
  6. Disaggregated Trade Flows and the “Missing Globalization Puzzle” By Boriss Siliverstovs; Dieter Schumacher
  7. Geographical Diversification of Developing Country Exports By Shepherd, Ben
  8. Financial Factors and the Margins of Trade: Evidence from Cross-Country Firm-Level Data By Nicolas Berman; Jérôme Héricourt
  9. Antitrust and Trade Policy: Are Legislators Consistent? By Robert M. Feinberg; Thomas A. Husted; Kara M. Reynolds
  10. Trade Liberalization and Organizational Change By Paola Conconi; Patrick Legros; Andrew F. Newman
  11. Trade, conflicts and political integration : explaining the heterogeneity of regional trade agreements By Vincent Vicard
  12. Live or let die : intra-sectoral lobbying on entry By Vincent Rebeyrol; Julien Vauday
  13. The sustainable cooperative tariffs : a political economy perspective By Racem Mehdi
  14. Endogenous Protection in General Equilibrium: estimating political weights in the EU By Joseph Francis Francois; Douglas Nelson; Annette Pelkmans-Balaoing
  15. Economic Implications of Deeper Asian Integration By Joseph Francis Francois; Ganeshan Wignaraja
  16. Free Trade Agreements versus Customs Unions: An Examination of East Asia By Park, Innwon; Park, Soonchan
  17. The intra-industry trade for a high-income country: new empirical evidence for Italy By Rosanna Pittiglio
  18. Civil Wars and International Trade By Philippe Martin; Thierry Mayer; Mathias Thoenig
  19. Does Trade Adjustment Assistance Make a Difference? By Kara M. Reynolds; John S. Palatucci

  1. By: Carmen Fillat-Castejon (University of Zaragoza); Joseph Francis Francois (Department of Economics, Johannes Kepler University Linz, Austria); Julia Maria Woerz (Oesterreichische Nationalbank (National Bank of Austria), Foreign Research Division)
    Abstract: Working with a panel dataset of of OECD countries over the decade 1994-2004, we examine linkages between cross-border trade and FDI in the service sectors. We first develop a consistent analytical framework for the application of the gravity model jointly to services trade and commercial presence (i.e. FDI), using a composite model of delivery that offers testable hypotheses about the roles of different modes of services supply as complements or substitutes. We further link our estimates to policy variables measuring market regulations that may act directly or implicitly as barriers to trade. We find robust evidence of complementary effects in the short-run, which is reinforced in the long run by an increased potential for cross-border imports based on previous FDI inflows. A detailed analysis by individual service sectors highlights business, communication and financial services as showing the largest potential for cross-border trade when market regulations are reduced and when commercial presence increases.
    Keywords: FDI, imports, services, panel data, substitution and complementary effects.
    JEL: F10 F14 F21
    Date: 2008–09
  2. By: Claudia M. Buch; Paola Monti
    Abstract: Many theoretical models show that trade openness has positive welfare implications. Yet, openness might affect different social groups and regions asymmetrically, even within a given country. We use Italian regional data to answer the question whether trade openness affects within-country income differentials. In Italy, the more affluent regions are internationally more open than poorer ones not only with respect to trade in goods, but also with respect to FDI and international migration. Prima facie, there is a positive correlation between openness and per capita income. Studying this relationship empirically requires taking into account the endogenous component of openness. We apply panel cointegration and instrumental variables techniques to account for the endogeneity of trade. Our results show a positive link between trade openness and the level of income per capita.
    Keywords: Openness, growth, regional income disparities, Italian regions
    JEL: F2 F43
    Date: 2008–07
  3. By: Hervé Boulhol (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: There is ample evidence that a country's labour market institutions are important determinants of unemployment. This study generalises Davis' (1998) idea according to which the institutions of the trade partners matter also for a country's equilibrium unemployment rate as they generate comparative advantages. Moreover, the empirical investigation provides some evidence that the interactions between bilateral trade and relative labour market regulations affect the equilibrium unemployment rate. Given data limitations in this area, the ambition of this paper is merely to draw the attention to the general relevance of these interactions as complementing factors to other explanations of unemployment. Another interesting finding is that a fairly low regulated country like Canada can be negatively affected because its main trading partner is even less regulated, while a high regulated country like Germany appears rather sheltered because its trading partners are also highly regulated.
    Keywords: Unemployment; trade; labour market institutions.
    Date: 2008–01
  4. By: Matthieu Bussière (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Tuomas Peltonen (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: This paper estimates export and import price equations for 41 countries –including 28 emerging market economies. Further, it relates the estimated elasticities to structural factors and tests for statistical breaks in the relation between trade prices and exchange rates. Results indicate that (i) the elasticity of trade prices in emerging markets is sizeable, but not significantly higher than in advanced economies; (ii) such elasticity is primarily influenced by macroeconomic factors such as the exchange rate regime and the inflationary environment, although microeconomic factors such as product differentiation also play a role; (iii) export and import price elasticities tend to be strongly correlated across countries; (iv) pass-through to import prices has declined in some advanced economies, noticeably the United States; this is consistent with a rise in pricing-to-market in several EMEs and especially with a change in the geographical composition of U.S. imports. JEL Classification: F10, F30, F41.
    Keywords: emerging market economies, exchange rate pass-through, pricing-to-market, local and producer currency pricing, exchange rate regime.
    Date: 2008–10
  5. By: Toru Kikuchi
    Abstract: Based on a many-industry Chamberlinian-Ricardian trade model with iceberg trade costs, this note examines the impact of two modes of economic integration: a reduction in trade costs, and technical standardization due to information spillover. It is shown that these two modes of economic integration have opposing effects on specialization patterns: while trade liberalization narrows the range of industries with intra-industry trade, technical standardization widens the same range.
    Keywords: Monopolistic competition; Technical heterogeneity; Trade costs; Economic integration.
    JEL: D43 F12
    Date: 2008–10–20
  6. By: Boriss Siliverstovs (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Dieter Schumacher (DIW Berlin)
    Abstract: This study analyzes the stability of the distance coefficient values over time in the generalized gravity equation of Bergstrand (1989) using both aggregate and disaggregated trade flows among 22 OECD countries recorded for the sample period covering 1970 until 2000. We estimate the gravity equation both in its traditional form as well as by taking into account multilateral resistance as suggested in Baier and Bergstrand (2007). First of all, we find that the missing globalization puzzle, typically observed in empirical gravity models for aggregate trade flows, largely disappears when one estimates a gravity model using disaggregated trade data at the level of individual industries. Secondly, we document that accounting for multilateral price resistance alone can provide some evidence against the missing globalization puzzle. At the same time, the results obtained for a traditional specification of the gravity equation emphasizing the importance of disaggregated trade flows in explaining the distance puzzle remain largely intact. We also illustrate how the aggregation bias could have contributed to a typical finding of a non-declining trade-deterring role of distance in the existing literature.
    Keywords: Gravity model, missing globalization puzzle, distance coefficient, multilateral resistance
    JEL: F12
    Date: 2008–10
  7. By: Shepherd, Ben
    Abstract: This paper shows that export costs, tariffs, and international transport costs are all important determinants of geographical export diversification in a sample of 123 developing countries. A 10% reduction in any one of these factors produces a 5%-6% increase in the number of foreign markets entered. Moreover, there is evidence that these impacts differ significantly across countries and sectors: geographical export diversification is more sensitive to export costs and transport costs in more differentiated sectors, and to export costs in lower income countries. These results are generally robust to alternative specifications, and instrumental variables estimation.
    Keywords: International trade; Trade policy; Trade and development; Extensive margin; Economic geography.
    JEL: F15 F13 O24
    Date: 2008–10–24
  8. By: Nicolas Berman (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, European University Institute - Max Weber Programme); Jérôme Héricourt (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EQUIPPE - Université de Lille - Université des Sciences et Technologies de Lille - Lille I)
    Abstract: Using a large cross-country, firm level database containing 5,000 firms in 9 developing and emerging economies, we study how financial factors affect both firms' export decisions and the amount exported by firm. First, our results stress an important impact of firms' access to finance on their entry decision into the export market. However, a better financial health neither increases the probability of remaining an exporter once the firm has entered, nor the size of exports. Second, we find that financial constraints create a disconnection between firms' productivity and their export status: productivity is a significant determinant of exporting decision only if the firm has a sufficient access to external finance. Finally, an increase in a country's financial development dampens this disconnection, thus acting positively both on the number of exporters and on the exporters' selection process. These results contribute to the literature documenting the role of fixed cost and of the extensive margin of trade in total trade adjustment, and provide micro evidence of the positive impact of financial development on trade found by previous literature.
    Keywords: Export decision, margins of trade, financial constraints
    Date: 2008–09
  9. By: Robert M. Feinberg; Thomas A. Husted; Kara M. Reynolds
    Abstract: In analyzing the potential exercise of monopoly power in domestic markets, both the academic literature and U.S. antitrust authorities have acknowledged the disciplining role of competition from abroad. In this paper, we explore the extent to which this view seems to reveal itself in recent U.S. Congressional votes taken during the 108th Congress (2003-04) on four free trade agreements (FTAs). To the extent that antitrust and trade liberalization are both viewed as pro-consumer in nature, we would expect to see a positive relationship between antitrust enforcement in their legislative district and Congressional votes in support of new FTAs. We do find evidence supporting a positive relationship between state-level antitrust enforcement (measured either by absolute number of cases filed or by cases relative to the state’s economic size) and support for FTAs.
    Keywords: Antitrust, Trade Protection
    JEL: F13 L4
    Date: 2008–09
  10. By: Paola Conconi; Patrick Legros; Andrew F. Newman
    Abstract: We embed a simple incomplete-contracts model of organization design in a standard two-country perfectly-competitive trade model to examine how the liberalization of product and factor markets affects the ownership structure of firms. In our model, managers decide whether or not to integrate their firms, trading off the pecuniary benefits of coordinating production decisions with the private benefits of operating in their preferred ways. The price of output is a crucial determinant of this choice, since it affects the size of the pecuniary benefits. In particular, non-integration is chosen at “low” and “high” prices, while integration occurs at moderate prices. Organizational choices also depend on the terms of trade in supplier markets, which affect the division of surplus between managers. We obtain three main results. First, even when firms do not relocate across countries, the price changes triggered by liberalization of product markets can lead to significant organizational restructuring within countries. Second, the removal of barriers to factor mobility can lead to inefficient reorganization and adversely affect consumers. Third, “deep integration” — the liberalization of both product and factor markets — leads to the convergence of organizational design across countries.
    Keywords: Firms, Contracts, Globalization
    JEL: D23 F13 F23
    Date: 2008
  11. By: Vincent Vicard (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: This paper investigates the determinants of the shape of regional trade agreements (RTAs). Because the world is constituted by independent political entities, international trade flows take place in a system where property rights are unsecured and RTAs should be understood as regulation mechanisms. In this theoretical framework, trade and security issues interact in the formation of RTAs, so that their determinants differ according to their level of political integration, defined by their ability to promote the negotiated settlement of conflicts. Empirical results confirm that countries more subject to interstate disputes and naturally more opened to trade are more likely to create politically integrated regional agreements, such as common markets or custom unions. On the contrary, international insecurity deters less integrated agreements implying a weak institutional framework, such as preferential or free trade agreements.
    Keywords: International conflicts, political integration, regionalism, trade, war.
    Date: 2008–03
  12. By: Vincent Rebeyrol (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Julien Vauday (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: Since the GATT/WTO hinders tariffs manipulation, the Technical Barriers to Trade (TBT's) are a growing and appealing protection tool. The endogenous protection literature has shown that a government's taste for protection creates an incentive for lobbying. Since regulations at the origin of such barriers have to be borne also by domestic sectors, due to the National Treatment WTO's principle, this creates conflicts of interests within a sector enhancing an intra-sectoral competition. This paper develops a political economy framework based on common agency under complete information that highlights this issue. The political competition opposes productive versus non productive firms in this context rather than domestic versus foreign ones, contrasting with the literature. Some apparently unorganized sectors, i.e. that are not protected, may actually be sectors where lobbies are biased towards non productive firms. Therefore, we should be cautious when empirically studying the relationship between the levels of protection and contributions.
    Keywords: Endogenous protection, Truthful equilibrium, firm heterogeneity.
    Date: 2008–05
  13. By: Racem Mehdi (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, ESSECT - Université de Tunis)
    Abstract: The purpose of this paper is to examine the international trade cooperation in order to determine the sustainable cooperative tariff rates in a political economy perspective. This paper establishes a tariff-setting game among two countries as a two-phase game : negotiation phase and implementation phase. Our results show the following points. First, the sustainable cooperative tariff rate depends on the political weight placed by government on domestic import-competing industry, on the political influence of the foreign export industry and on the economic stakes of domestic tariff policy in these two sectors. Second, international cooperation is sustainable when governments involved in tariff negotiation are patient enough. Third, difference in patience affects the relative bargaining power of governments.
    Keywords: Trade negotiation, political economy, repeated game.
    Date: 2008–03
  14. By: Joseph Francis Francois (Department of Economics, Johannes Kepler University Linz, Austria); Douglas Nelson; Annette Pelkmans-Balaoing (Erasmus University Rotterdam)
    Abstract: We examine the political economy underpinnings of import protection in general equilibrium. Starting from a dual theoretical representation of production, trade, and consumption, we map a general representation of the real economy to underlying political processes aka the political support function to derive a general representation of the determinants of import protection. This includes the relatively standard approach of examining the pattern of tariffs in a Grossman-Helpman framework, as well as recent extensions linked to upstream and downstream linkages between sectors. Because we start from a relatively generic general equilibrium model of production, we have an immediate bridge between the theory and general equilibrium-based estimates of the welfare effects and rents generated by tariffs. We therefore follow the development of our generalized theoretical framework by introducing the use of general equilibrium estimates of the direct and indirect marginal impacts of protection at the sector level for econometric estimation of the revealed pattern of policy weights. This GE approach yields direct estimates of political weights based on economic effects, including cross-industry effects. The resulting weights lend insight into relative protection of agriculture and manufacturing. Working with data on the European union, we find that the strength of downstream linkages matters for policy weights and rates of protection, as does the national posture of industry. We also find support for a general political support function in the determination of tariffs, though results are mixed for the more narrow Grossman-Helpman specification. In the EU, nationality of industry seems to play a role in the setting of Community-wide import protection.
    Keywords: political weights, political economy of import protection, Grossman-Helpman model
    JEL: F13 F14 D72
    Date: 2008–09
  15. By: Joseph Francis Francois (Department of Economics, Johannes Kepler University Linz, Austria); Ganeshan Wignaraja
    Abstract: The Asian countries are once again focused on options for large, comprehensive regional integration schemes. In this paper we explore the implications of such broad-based regional trade initiatives in Asia, highlighting the bridging of the East and South Asian economies. We place emphasis on the alternative prospects for insider and outsider countries. We work with a global general equilibrium model of the world economy, benchmarked to a projected 2017 sets of trade and production patterns. We also work with gravity-model based estimates of trade costs linked to infrastructure, and of barriers to trade in services. Taking these estimates, along with tariffs, into our CGE model, we examine regionally narrow and broad agreements, all centered on extending the reach of ASEAN to include free trade agreements with combinations of the northeast Asian economies (PRC, Japan, Korea) and also the South Asian economies. We focus on a stylized FTA that includes goods, services, and some aspects of trade cost reduction through trade facilitation and related infrastructure improvements. What matters most for East Asia is that China, Japan, and Korea be brought into any scheme for deeper regional integration. This matter alone drives most of the income and trade effects in the East Asia region across all of our scenarios. The inclusion of the South Asian economies in a broader regional agreement sees gains for the East Asian and South Asian economies. Most of the East Asian gains follow directly from Indian participation. The other South Asian players thus stand to benefit if India looks East and they are a part of the program, and to lose if they are not. Interestingly, we find that with the widest of agreements, the insiders benefit substantively in terms of trade and income while the aggregate impact on outside countries is negligible. Broadly speaking, a pan-Asian regional agreement would appear to cover enough countries, with a great enough diversity in production and incomes, to actually allow for regional gains without substantive third-country losses. However, realizing such potential requires overcoming a proven regional tendency to circumscribe trade concessions with rules of origin, NTBs, and exclusion lists. The more likely outcome, a spider web of bilateral agreements, carries with it the prospect of significant outsider costs (i.e. losses) both within and outside the region.
    Keywords: regionalism, Asia FTAs, ASEAN, preferential trade, gravity model of services trade, trade costs and infrastructure
    JEL: F13 F17
    Date: 2008–09
  16. By: Park, Innwon; Park, Soonchan
    Abstract: The spaghetti bowl phenomenon expected from the proliferating East Asian regional trade agreements (RTAs) is worrisome. In particular, the complicated web of hub-and-spoke type of overlapping free trade agreements (FTAs) can result in high costs for verifying rules of origin (RoO). As an alternative policy option to avoid the negative effect of trade deflection, customs unions (CUs) should be examined. Most of the theoretical analyses on the formation of CUs highlight stronger positive welfare effects compared to FTAs. However, there is a lack of empirical evidence to support the second best theory of customs unions. This paper is an attempt to fill this gap by applying two methodologies, an ex-ante simulation approach and an ex-post econometric approach. We quantitatively estimate the trade effect of CUs and FTAs by adopting a Gravity regression analysis. In general, we find that a CU is a superior type of RTA to an FTA in terms of creating more intra-union trade. In addition to analyzing the trade effects of RTAs according to type, we quantitatively evaluate the welfare and output effects of CUs for East Asia (an ASEAN+3 CU and a China-Japan-Korea CU) compared to FTAs by applying a computable general equilibrium (CGE) model analysis. The East Asian CUs adopt a system of common external tariffs (CET) based on simple-averaged, import-weighted, consumption-weighted, and minimum rates. Overall, we find that the ASEAN+3 CU with the minimum CET is the most desirable type of RTA for both East Asian member countries and the world economy as a whole.
    Keywords: free trade agreements; customs unions; rules of origin; common external tariffs; Gravity; CGE; East Asia; ASEAN+3
    JEL: F15 C68 F13 O53
    Date: 2008–10–30
  17. By: Rosanna Pittiglio
    Abstract: This paper examines the determinants of Italian intra-industry trade in horizontally and vertically differentiated products, using a dataset which eliminates the effects linked to the hypothesis of homogeneity both between countries - when specific industry characteristics are analysed - and between sectors - within the same country. In this way, within limits, we have tried to address an issue raised by Greenaway et al. in 1999 which, in the light of the current state of the literature on intra-industry trade, does not seem to have been explicitly dealt with. Our paper highlights how strong the impact of this hypothesis could be in the analyses of the determinants of intra-industry trade in the case of Italy.
    Keywords: intra-Industry trade, international trade, differentiated products, Italian trade
    JEL: F13 F14
    Date: 2008–10
  18. By: Philippe Martin (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Thierry Mayer (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Mathias Thoenig (Université de Genève - Université de Genève)
    Abstract: This article analyzes empirically the relationship between civil wars and international trade. We first show that trade destruction due to civil wars is very large and persistent and increases with the severity of the conflict. We then identify two effects that trade can have on the risk of civil conflicts: It may act as a deterrent if trade gains are put at risk during civil wars, but it may also act as an insurance if international trade provides a substitute to internal trade during civil wars. We find support for the presence of these two mechanisms and conclude that trade openness may deter the most severe civil wars (those that destroy the largest amount of trade) but may increase the risk of lower-scale conflicts.
    Date: 2008–04
  19. By: Kara M. Reynolds; John S. Palatucci
    Abstract: Background: The U.S. Trade Adjustment Assistance (TAA) program provides workers who have lost their jobs due to increased trade with income support and training, job search, and relocation benefits. This paper uses the most recent data collected by the Department of Labor on TAA beneficiaries to provide one of the first evaluations of the effectiveness of the Trade Adjustment Assistance program. Using propensity score matching techniques, we find that the TAA program is of dubious value in terms of helping displaced workers find new, well-paying employment opportunities.
    Keywords: Trade Adjustment Assistance, displaced workers
    JEL: J08 J65 F16
    Date: 2008–08

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