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

  1. Transportation, freight rates, and economic geography By BEHRENS, Kristian; PICARD, Pierre M.
  2. Exporting strategies of heterogeneous firms subject to export shocks and financial restraints By Di Nino Virginia
  3. Trends in Italy’s Nonprice Competitiveness By Bogdan Lissovolik
  4. Chile: Trade Performance,Trade Liberalization, and Competitiveness By Brieuc Monfort
  5. Trade as a Wage Disciplining Device By Persyn, Damiaan
  6. Testing the Melitz Model of Trade: An Application to U.S. Motion Picture Exports By Gordon H. Hanson; Chong Xiang
  7. Does international openness affect productivity of local firms? Evidence from Southeastern Europe By Jože P. Damijan; Jose de Sousa; Olivier Lamotte
  8. How Dependent is the Chinese Economy on Exports and in What Sense has its Growth been Export-led? By Dong He; Wenlang Zhang
  9. When, How Fast and by How Much do Trade Costs change in the Euro Area? By Helmut Herwartz; Henning Weber
  10. Does regionalism affect trade liberalization toward non-members ? By Estevadeordal, Antoni; Freund, Caroline; Ornelas, Emanuel
  11. The Customs Union issue: Why do we observe so few of them? By Giovanni Facchini; Peri Silva; Gerald Willmann
  12. Trade Sensitivity to Exchange Rates in the Context of Intra-Industry Trade By Yoko Oguro; Kyoji Fukao; Yougesh Khatri
  13. The Impact of Yuan/Ringgit on Bilateral Trade Balance of China and Malaysia By Hooy, Chee Wooi; Chan, Tze-Haw
  14. On the Bilateral Trade Effects of Free Trade Agreements between the EU-15 and the CEEC-4 Countries By Rault, Christophe; Caporale, Guglielmo Maria; Sova, Ana Maria; Sova, Robert
  15. Exports and Profitability: First Evidence for German Manufacturing Firms By Fryges, Helmut; Wagner, Joachim

  1. By: BEHRENS, Kristian; PICARD, Pierre M. (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Abstract: We investigate the role of the transport sector in structuring the location of economic activity within two-region economic geography models of the footloose capital and core-periphery types. In our setting, competitive carriers offer transport services for shipping manufactured goods across regions and freight rates are determined endogenously to clear transport markets. Each carrier commits to the maximum capacity for a round-trip and thus faces a simple logistic problem: there are costs associated with 'returning empty', and those costs increase the freight rates charged to manufacturing firms. Since demand for transport services depends on the spatial distribution of economic activity, agglomeration in one region raises freight rates to serve foreign markets, thus generating an additional dispersion force. We show that a more equal equilibrium distribution of firms prevails when freight rates are endogenously determined than when they are exogenous and that multiple equilibria (including partial agglomeration) usually coexist.
    Keywords: transport sector, freight rates, economic geography, trade.
    JEL: F12 R12
    Date: 2008–07
  2. By: Di Nino Virginia (IUHEID, The Graduate Institute of International and Development Studies, Geneva)
    Abstract: This paper develops an open economy firm-heterogeneous model where the combination of market rigidities and exchange rate uncertainty acts like a barrier to trade and modifies a firm's optimal choice in terms of production and pricing. The existence of price and labour rigidities, coupled with imperfect financial development and exchange rate uncertainty, separates incumbent firms into (1) domestic producers, (2) exporters setting the price in national currency and (3) more productive exporters pricing in foreign currency. The model predicts that only where financial development is limited a reduction in exchange rate uncertainty raises a firm's profit, lowers prices, and induces new firms to export. Fully financially integrated countries are insulated from exchange rate risk.
    Keywords: exchange rate uncertainty; firm heterogeneity; market rigidity; financial restraints.
    JEL: F1 F12 F16 F15
    Date: 2008–10
  3. By: Bogdan Lissovolik
    Abstract: Italy's medium-term economic performance has raised "standard" competitiveness concerns as unit labor costs surged, and real export growth fell. But the recent economic upturn, low current account deficit, and robust nominal exports argue for less pessimism. An empirical analysis confirms the standard concerns, but also suggests that "residual" factors, which partly reflect nonprice economic restructuring, have supported Italy's real exports after 2005 (as in Germany but less so in France or Spain). An investigation of selected structural trends over the past decade offers some substantiation to Italy's "restructuring story," including quality upgrading, geographical trade diversification, and outsourcing. But sluggish services, low FDI, and modest "technological" upgrading indicate limits to Italy's restructuring.
    Date: 2008–05–15
  4. By: Brieuc Monfort
    Abstract: This paper analyses the evolution of Chile's trade between 1990 and 2007, studying in particular the impact of trade liberalization in addition to traditional price and demand determinants. The results show that export and import flows are mainly responsive to external and domestic demand, and less so to relative prices, although there is a small impact on imports. In addition, the analysis suggests that trade liberalization may have played a role in increasing exports and imports. Estimations of trade elasticities for other countries in Latin America tend to confirm the results found for Chile.
    Keywords: Chile , Trade liberalization , Competition , Exports , Imports ,
    Date: 2008–05–22
  5. By: Persyn, Damiaan (Catholic University of Leuven)
    Abstract: We estimate how trade openness affects the relationship between wages, labour productivity and foreign wages using sector-level time series for several EU member states. In some countries wages became less responsive to foreign wages as trade costs declined. We show this counter-intuitive result is as expected when wages are set by a monopoly union with a preference for wages relative to employment. Trade liberalisation then leads to more wage discipline by forcing unions to set wages more in line with labour productivity. Foreign wages simultaneously become less relevant. Our results call to rethink how trade liberalisation is affecting unionized labour markets, and offer a possible explanation for the mixed evidence found by some tests for international factor price convergence.
    Keywords: unions, globalisation, economic geography, factor price equalisation
    JEL: J50 J31 F16
    Date: 2008–10
  6. By: Gordon H. Hanson; Chong Xiang
    Abstract: In this paper, we develop a simple empirical method to test two alternative versions of the Melitz (2003) model, one with global fixed export costs and one with bilateral fixed export costs. With global costs, import sales per product variety (relative to domestic sales per variety) are decreasing in variable trade barriers, as a result of adjustment occurring along the intensive margin of trade. With bilateral costs, imports per product variety are increasing in fixed trade costs, due to adjustment occurring along the extensive margin. We apply our approach to data on imports of U.S. motion pictures in 46 countries over 1995-2006. Imports per product variety are decreasing in geographic distance, linguistic distance, and other measures of trade costs, consistent with adjustment to these costs occurring along the intensive margin. There is relatively little variation in the number of U.S. movies that countries import but wide variation in the box-office revenues per movie. The data thus appear to reject the bilateral-fixed-export-cost model in favor of the global-fixed-export-cost model.
    JEL: F12 F2
    Date: 2008–10
  7. By: Jože P. Damijan; Jose de Sousa; Olivier Lamotte
    Keywords: international trade, trade liberalization, foreign ownership, total factor productivity, transition economics
    JEL: F14 D24 L25
    Date: 2008
  8. By: Dong He (Research Department, Hong Kong Monetary Authority); Wenlang Zhang (Research Department, Hong Kong Monetary Authority)
    Abstract: This paper studies the interaction between foreign trade and domestic demand and supply in China¡¦s economic transformation. It compares China¡¦s export dependency with other economies using input-output analysis. The paper also conducts econometric analysis of provincial level data to examine causality between the growth of foreign trade and different components of domestic demand, and causality between the growth of foreign trade and total factor productivity. The main message is that China¡¦s export dependency is significantly lower than commonly thought. Moreover, the contribution of export to economic growth in China came mainly from its impact on total factor productivity growth from a supply perspective rather than its multiplier effect from a demand perspective. This relationship was found to be stronger in the more developed coastal areas than in the less developed inland areas.
    Keywords: Export-led growth; Export dependency; Input-output analysis; Malmquist index
    JEL: F13 O11 O43
    Date: 2008–10
  9. By: Helmut Herwartz; Henning Weber
    Abstract: Microfoundations of the euro’s effect on euro area trade hinge on the timing, the speed and the size of adjustment in trade costs. We estimate timing, speed and size of adjustment in trade costs for sectoral trade data. Our approach allows for sector specific impacts of trade costs on sectoral trade while controlling for unobserved but time-variant variables at the sector level. We find that, due to falling trade costs, trade within the euro area increases between the years 2000 and 2003 by 10 to 20 percent compared with trade between European countries that are not members of the euro area. Adjustment of individual sectors is extremely fast whereas aggregate adjustment spreads out because different sectors adjust at distinct times.
    Keywords: Euro trade effect, gravity model, smooth transition, Kalman filter
    JEL: C31 C33 F13 F15 F33 F42
    Date: 2008–10
  10. By: Estevadeordal, Antoni; Freund, Caroline; Ornelas, Emanuel
    Abstract: This paper examines the effect of regionalism on unilateral trade liberalization using industry-level data on applied most-favored nation tariffs and bilateral preferences for ten Latin American countries from 1990 to 2001. The findings show that preferential tariff reduction in a given sector leads to a reduction in the external (most-favored nation) tariff in that sector. External liberalization is greater if preferences are granted to important suppliers. However, these"complementarity effects"of preferential liberalization on external liberalization do not arise in customs unions. Overall, the results suggest that concerns about a negative effect of preferential liberalization on external trade liberalization are unfounded.
    Keywords: Free Trade,Trade Policy,International Trade and Trade Rules,Trade and Regional Integration,Trade Law
    Date: 2008–10–01
  11. By: Giovanni Facchini; Peri Silva; Gerald Willmann
    Abstract: The number of preferential trade agreements has greatly increased over the past two decades, yet most existing bilateral arrangements take the form of free trade areas, and less than ten percent can be considered to be fully fledged customs unions. This paper develops a political economy model of trade policy under imperfect competition to provide a positive explanation for the prevalence of free trade areas. In a three country setting, a representative from each prospective member is elected to determine the tariffs to be applied on imported goods. Under a customs union, the necessity to coordinate tariff leads voters to strategically delegate power to more protectionist representatives. Contrary to most of the existing literature, we show that strategic delegation may imply that free trade areas increase welfare compared to customs unions. Moreover, the model also indicates that free trade areas are more likely to be politically viable than customs unions.
    Keywords: Strategic delegation, Preferential Trade Agreements.
    JEL: F10 F11 F13
    Date: 2008–10
  12. By: Yoko Oguro; Kyoji Fukao; Yougesh Khatri
    Abstract: This paper theoretically and empirically investigates export sensitivity to exchange rates in the context of intra-industry trade (IIT). It is assumed that more IIT implies a smaller elasticity of substitution among differentiated products and vice versa. The model presented suggests the gap in production costs between two countries has an influence on IIT as well. Industry-level pane regressions of thirty-eight trading pairs provide strong empirical support for the idea that the exchange rate sensitivity of exports declines in concert with the extent of ITT. An obvious policy implication is that the effectiveness of exchange rates in addressing trade imbalances will diminish as the extent of IIT increases.
    Keywords: Working Paper , India , Globalization , Monetary policy , Capital inflows , Economic conditions , Liquidity management ,
    Date: 2008–05–27
  13. By: Hooy, Chee Wooi; Chan, Tze-Haw
    Abstract: The exposure to exchange rates remains an unresolved issue in international trade literature. The issue is particularly relevant to China and Malaysia, whom relaxed their USD pegging the same day in the mid of 2005. Our paper investigates the exchange rate exposure of China-Malaysian bilateral trade balance over the last 20 years using a standard trade balance equation which is a function of local income, foreign income, and the bilateral real exchange rates of yuan/ringgit. Our modeling is somewhat different with the literature where we take into account the structural breaks of the 1997 Asian currency crisis as well as the fixed-exchange rate regime adopted by the Malaysia. With high frequency monthly sample (Jan1990-Jan2008), we documented GARCH effect in the trade model. Taking that into consideration, our result shows that real exchange rates do play a role in the bilateral trade of China-Malaysia. The long run exchange rate elasticity is consistent with the Marshall-Lerner condition. However, the short run J-curve phenomenon is somewhat inconclusive.
    Keywords: Exports; Imports; exchange rates exposure; J-curve; structural breaks; GARCH
    JEL: C32 F10 F41 F31
    Date: 2008–10–01
  14. By: Rault, Christophe (University of Orléans); Caporale, Guglielmo Maria (Brunel University); Sova, Ana Maria (CREST & Université Paris 1 Panthéon-Sorbonne); Sova, Robert (CREST & Université Paris 1 Panthéon-Sorbonne)
    Abstract: The expansion of regionalism has spawned an extensive theoretical literature analysing the effects of Free Trade Agreements (FTAs) on trade flows. In this paper we focus on FTAs (also called European agreements) between the European Union (EU-15) and the Central and Eastern European countries (CEEC-4, i.e. Bulgaria, Hungary, Poland and Romania) and model their effects on trade flows by treating the agreement variable as endogenous. Our theoretical framework is the gravity model, and the econometric method used to isolate and eliminate the potential endogeneity bias of the agreement variable is the fixed effect vector decomposition (FEVD) technique. Our estimation results indicate a positive and significant impact of FTAs on trade flows. This finding is robust to the inclusion in the sample of a group of control countries (specifically Belarus, the Russian Federation and Ukraine) that did not sign an FTA. Besides, we show that trade growth after the FTA agreement with the EU was signed exceeded trade growth of the control group of countries which did not become members.
    Keywords: regionalisation, European integration, panel data methods
    JEL: E61 F13 F15 C25
    Date: 2008–10
  15. By: Fryges, Helmut (ZEW Mannheim); Wagner, Joachim (University of Lüneburg)
    Abstract: Using unique recently released nationally representative high-quality longitudinal data at the enterprise level for Germany, this paper presents the first comprehensive evidence on the relationship between exports and profitability. It documents that the positive profitability differential of exporters compared to non-exporters is statistically significant, though rather small, when observed firm characteristics and unobserved firm specific effects are controlled for. In contrast to nearly all empirical studies on the relationship between productivity and exports we do not find any evidence for self-selection of more profitable firms into export markets. Due to the sampling frame of the data used we cannot test the hypothesis that firms which start exporting perform better in the years after the start than their counterparts which do not start. Instead, we use a newly developed continuous treatment approach and show that exporting improves the profitability almost over the whole range of the export-sales ratio. Only firms that generate 90 percent and more of their total sales abroad do not benefit from exporting in terms of an increased rate of profit. This means, that the usually observed higher productivity of exporters is not completely absorbed by the extra costs of exporting or by higher wages paid by internationally active firms.
    Keywords: exports, profitability, micro data, Germany
    JEL: F14 D21
    Date: 2008–10

This nep-int issue is ©2008 by Alessia A. Amighini. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.