nep-int New Economics Papers
on International Trade
Issue of 2008‒11‒25
twenty papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Empirical analysis of agricultural trade between EU and China: Explanation behind China's growing agrifood imports By Huan-Niemi, E.; Niemi, J.
  2. Comparative Advantages, Transaction Costs and Factor Content in Agricultural Trade: Empirical Evidence from the CEE By Ciaian, P.; Kancs, D.; Pokrivcak, J.
  3. Analysing major determinants of European FDI into the Mediterranean countries By Weissleder, L.M.; Heckelei, T.
  4. Heterogeneous firms and trade costs: a reading of French access to European agro-food market By Chevassus-Lozza, E.; Latouche, K.
  5. The evolution of world trade and the Italian ‘anomaly': a new look By Michele Di Maio; Federico Tamagni
  6. Uncertainty, Trade Integration and the Optimal Level of Protection in a Ricardian Model with a Continuum of Goods By Michele Di Maio
  7. An Impact Study of the Economic Partnership Agreements (EPAs) in the Six ACP Regions By Fontagne, Lionel; Laborde, David; Mitaritonna, Cristina
  8. Quantifying non-tariff measures in international agricultural trade: a tariff equivalent of technical barriers to trade on African horticultural exports to the European markets By Nimenya, N.; Henry de Franhan, B.; Ndimira, P.F.
  9. Agri-food Trade Specialisation Pattern in the New EU Member States By Drabik, Dusan; Bartova, Lubica
  10. Global Production Sharing and US-China Trade Relations By Prema-chandra Athukorala; Nobuaki Yamashita
  11. Modelling the impacts of multilateral agricultural trade liberalization on the EU By Niemi, J.; Kerkela, L.; Lehtonen, H.
  12. Trade and mergers in the presence of firm heterogeneity By Noriaki Matsushima; Yasuhiro Sato; Kazuhiro Yamamoto
  13. Transportation, freight rates, and economic geography By BEHRENS, Kristian; PICARD, Pierre M.
  14. Welfare in Models of Trade with Heterogeneous Firms By Janiak, Alexandre
  15. Impact assessment of trade liberalisation between EU and Mercosur countries By Weissleder, Lucie; Adenauer, Marcel; Heckelei, Thomas
  16. China and the Manufacturing Exports of Other Developing Countries By Gordon H. Hanson; Raymond Robertson
  17. Similarity in export composition and catching-up By Luca De Benedictis; Lucia Tajoli
  18. Financial factors and the margins of trade : evidence from cross-country firm-level data. By Nicolas Berman; Jérôme Héricourt
  19. Overall Specialization and Income: Countries Diversity By Luca De Benedictis; Marco Gallegati; Massimo Tamberi
  20. Explaining German imports of olive oil: evidence from a gravity model By Kavallari, A.; Maas, S.; Schmitz, P.M.

  1. By: Huan-Niemi, E.; Niemi, J.
    Abstract: This study attempts to identify and measure quantitatively the effects of changing economic environment and trade policies on China€ٳ agricultural imports from the EU as well as globally. The approach is to model behavioural relationships in the agricultural trade between China and the EU by using annual trade data from 1986 to 2005. The results indicate that Chinese agricultural imports are relatively inelastic to absolute price changes, but relative price changes significantly affect the market shares of EU exports due to price competition. Trade liberalisation in the form of tariff reductions is trivial in changing the quantity of China€ٳ agricultural imports from the EU. China€ٳ growing agrifood imports has been fuelled by rapid income growth of its population.
    Keywords: EU, China, agricultural trade, International Relations/Trade,
    Date: 2008
  2. By: Ciaian, P.; Kancs, D.; Pokrivcak, J.
    Abstract: The present study examines factor content in the CEE transition country agricultural trade. However, deviating from the traditional approach, we do not test the HOV prediction. Instead, we examine the theoretical predictions that relate the factor content of international trade to cross-country differences in technology and endowments. Our empirical findings suggest that factor content between agricultural exports and imports is rather similar in CEE. In order to explain the general lack of the CEE agricultural specialisation and the observed paradox, we attempt to identify the role of transaction costs and market imperfections in determining factor content in agricultural production and trade. We find that technological differences and factor endowment are only weak determinants of country specialisation. Transaction costs and market imperfections distort farm specialisation and organisation in CEE, and hence factor content in traded agricultural goods.
    Keywords: Comparative Advantage, Transaction Cost, Factor Content, Trade, International Relations/Trade,
    Date: 2008
  3. By: Weissleder, L.M.; Heckelei, T.
    Abstract: Foreign direct investment (FDI) is known as a very relevant driver of economic growth and has found increased attention in recent trade research. Existing theories differ, however, in their conclusion regarding the relation between trade in goods and FDI: they appear to be either complements or substitutes depending on the theory applied and specific country conditions. Benefits or losses for individual member countries resulting from these different relationships are relevant for evaluating the effects of regional trade areas as established by the Euro-Mediterranean Partnership. This paper offers an empirical analysis of the connection between trade and FDI flows in the agribusiness sector in the context of the Euro-Mediterranean partnership. It contributes to the limited literature in this area by providing an overview on relevant theories and their conclusion on the relationship between trade and FDI. Determinants implied by the single theories are identified and reasonable proxies derived for the carried out econometric analysis. The empirical analysis shows mixed evidence on the complementary or substitutive relationship of FDI and trade in agricultural goods. For comparison and better interpretation of determinants€٠ impacts identified by the econometric analysis, a further analysis between the EU15 and the Mercosur countries is carried out. Finally, further research needs in this area of trade analyses are identified for the specific case of the Euro-Mediterranean Partnership.
    Keywords: Foreign Direct Investment, Trade, EU-Med Partnership, International Relations/Trade,
    Date: 2008
  4. By: Chevassus-Lozza, E.; Latouche, K.
    Abstract: This article offers a new reading of intra-European trade based on recent developments in new international economics (Melitz, 2003; Chaney, 2008). These models take the heterogeneity of firms into account and offer a micro-economic analysis of the process of selection at work for firms entering markets. An exporting firm has to bear certain specific costs to break into a market, and only sufficiently productive firms are able to do so. Using individual data for French agro-food firms and the distribution of their exports across European markets, this article shows that access conditions to the various European markets are not identical for French firms: the Belgian market would seem to be a natural extension of the French market, whereas the markets of small, distant countries (Austria, Finland or Sweden) are the least accessible. Econometric analysis based on analysis both of the firm selection process and of the value of their exports shows that the standard geographical variables (distance, country size) affecting the single European market still play a major role in the choice of export markets. Results also reveal that there are still remaining trade costs at entry to the different European markets; but these trade frictions don€ٴ matter to all firms in the same way. The higher the firm experience, the lower the impact of trade costs.
    Keywords: firm heterogeneity, trade costs, European Integration., International Relations/Trade,
    Date: 2008
  5. By: Michele Di Maio (Università di Macerata); Federico Tamagni (Scuola Superiore Sant’Anna)
    Abstract: <div style="line-height: normal"><span style="font-size: 10pt"><div style="line-height: normal"><span style="font-size: 10pt">This work provides an empirical assessment of the 'sophistication' of the Italian international</span></div><div style="line-height: normal"><span style="font-size: 10pt">specialization pattern and of its evolution during the period 1980</span><em><span style="font-size: 10pt">¡</span></em><span style="font-size: 10pt">2000. In particular we analyse</span></div><div style="line-height: normal"><span style="font-size: 10pt">the well-known Italian trade 'anomaly' combining the information coming from the PRODY index</span></div><div style="line-height: normal"><span style="font-size: 10pt">(Hausmann et al. (2005)) with the RCA index. Our results show that in the last two decades, the</span></div><div style="line-height: normal"><span style="font-size: 10pt">world trade has been rapidly changing with Italy becoming increasingly more competitive and</span></div><div style="line-height: normal"><span style="font-size: 10pt">specialized in products that are characterized by decreasing income/productivity levels. Thus,</span></div><div style="line-height: normal"><span style="font-size: 10pt">while the Italian 'anomaly' was not a problem in the past, it may have become an obstacle to</span></div><div style="line-height: normal"><span style="font-size: 10pt">future growth.</span></div></span></div>
    Keywords: PRODY index,RCA,Specialization pattern
    JEL: O1 O11
    Date: 2006–10
  6. By: Michele Di Maio (University of Macerata)
    Abstract: <p>This paper analyzes how increasing trade integration affects individual utility when the international specialization pattern is stochastic, i.e. when the number of varieties each country produces depends on the realization of a random variable. I employ a Ricardian continuum of goods model to show that in this case a trade off emerges. As in the standard model, higher trade integration reduces prices and increases expected real income. However, higher trade integration, reducing the number of active sectors in the economy, also increases the displacement cost the worker would suffer in a bad state (i.e. when the sector she is employed into has to close down because, ex-post, the foreign country’s competing sector results to be more efficient). The main result of the model is that there exists an optimal level of protection that it is higher the smaller the price reduction induced by trade integration and the more technologically similar are countries.</p>
    Keywords: Trade Intergration,Ricardian Model with a continuum of goods,Optimal protection,Uncertainty
    JEL: O1 O11
    Date: 2006–10
  7. By: Fontagne, Lionel; Laborde, David; Mitaritonna, Cristina
    Abstract: This article intends to present a very detailed analysis of the trade-related aspects of Economic Partnership Agreements (EPAs) negotiations. We use a dynamic partial equilibrium model €Ӡfocusing on the demand side €Ӡat the HS6 level (covering 5,113 HS6 products). Two alternative lists of sensitive products are constructed, one giving priority to the agricultural sectors, the other focusing on tariff revenue preservation. In order to be WTO compatible, EPAs must translate into 90 percent of bilateral trade fully liberalised. We use this criterion to simulate EPAs for each negotiating regional block. ACP exports to the EU are forecast to be 10 percent higher with the EPAs than under the GSP/EBA option. On average ACP countries are forecast to lose 70 percent of tariff revenues on EU imports in the long run. Yet imports from other regions of the world will continue to provide tariff revenues. Thus when tariff revenue losses are computed on total ACP imports, losses are limited to 26 percent on average in the long run and even 19 percent when the product lists are optimised. The final impact on the economy depends on the importance of tariffs in government revenue and on potential compensatory effects. However this long term and less visible effect will mainly depend on the capacity of each ACP country to reorganise its fiscal base.
    Keywords: Preferential Trade Agreements, Africa, EPAs, Partial Equilibrium Simulations, International Relations/Trade,
    Date: 2008
  8. By: Nimenya, N.; Henry de Franhan, B.; Ndimira, P.F.
    Abstract: Fresh food and agricultural products from sub- Saharan Africa meet few tariff barriers because of preferential market access granted to ACP countries through Lomé and Cotonou Act. However, non-tariff barriers are still serious impediments to trade. This paper focuses more specifically on technical barriers to trade (TBT) and sanitary and phytosanitary measures (SPS) on horticultural exports from Kenya and Zambia to France, Germany, the Netherlands and United-Kingdom. Using an extension of price-wedge method that takes into account imperfect substitution (on demand side) and differences in factor endowments (on supply side), we provide a tariff-equivalent of a wide range of TBT. Preliminary results show that the tariff-equivalent of TBT is very high for Kenyan green beans exports (more than 56%) while it is low for Kenya€ٳ exports of peas and avocados and Zambian exports of peas (less than 10%). However, there are no large differences between EU importing countries.
    Keywords: Armington elasticity of substitution, price-wedge method, tariff-equivalent, International Relations/Trade,
    Date: 2008
  9. By: Drabik, Dusan; Bartova, Lubica
    Abstract: The paper analyses development of agri-food trade specialisation pattern in eight EU Member States of the 2004 and 2007 enlargements (NMS) during the period 2000 €Ӡ2005. Over the period analysed, the NMS were not able to hold trade positions in the most competitive commodities, but on the other hand, positions of a number of previously uncompetitive commodities improved. We show convergence of dynamism of agri-food trade specialisation across NMS in trade with the partners/groupings investigated.
    Keywords: agri-food trade, specialisation, EU Member States of 2004 and 2007 enlargements, International Relations/Trade,
    Date: 2008
  10. By: Prema-chandra Athukorala; Nobuaki Yamashita
    Abstract: This paper examines US-China trade relations, focusing on the ongoing process of global production sharing global production sharing—the breakup of the production processes into geographically separated stag—and the resulting trade complementarities between the two countries in world manufacturing trade. The results suggest that the USChina trade imbalance is basically a structural phenomenon resulting from the pivotal role played by China as the final assembly centre in East-Asia centered global production networks. Given the current state of China’s factor market conditions, US-China trade patterns are unlikely to change dramatically in the short to medium run.
    Keywords: China, global production sharing, U.S.-China trade imbalance
    JEL: F14 F23 O53
    Date: 2008
  11. By: Niemi, J.; Kerkela, L.; Lehtonen, H.
    Abstract: The objective of this paper is to explore the implications of domestic policy reforms and trade liberalisation on EU and global agricultural markets by utilising the GTAP model. The results suggest that CAP reforms in conjunction with the removal of export subsidies and tariff reductions according to the proposals from the EU and the US in the WTO would decrease EU's production, reduce EU's exports, and increase EU's imports in almost all the examined agricultural products. For countries such as Australia, the US, and the MERCOSUR group, higher world prices stimulate domestic agricultural production, partly offsetting the EU output decline.
    Keywords: EU, WTO, tariff reductions, export subsidies, CAP reforms, GTAP model, International Relations/Trade,
    Date: 2008
  12. By: Noriaki Matsushima (Kobe University); Yasuhiro Sato (Osaka University); Kazuhiro Yamamoto (Osaka University)
    Abstract: We investigate the role of firm heterogeneity in considering profitability and desirability of mergers in the international economy. Analysis shows that higher trade costs make only crossborder mergers profitable whereas larger firm heterogeneity is likely to increase both domestic and cross-border mergers. Furthermore, it is shown that whether or not a merger leads to merger waves depends on the types of firms involved in it. It is also demonstrated that larger firm heterogeneity can reduce the discrepancy between profitability and desirability of mergers when the trade cost is sufficiently low.
    Keywords: M&As, trade, firm heterogeneity, Cournot competition
    JEL: F12 G34 L13
    Date: 2008–11
  13. 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
  14. By: Janiak, Alexandre (University of Chile)
    Abstract: I illustrate that the welfare improvement property of the Melitz model is due to the shape of the aggregate labor demand curve, which slopes upwards. By slightly changing some assumptions in the model, this curve may have a negative slope. In this case, increases in aggregate productivity result in a reduction in welfare. For example, this may occur when fixed costs are measured in units of aggregate output instead of labor.
    Keywords: heterogenous firms, international trade, aggregate labor demand curve, welfare
    JEL: F12 F16 J23
    Date: 2008–10
  15. By: Weissleder, Lucie; Adenauer, Marcel; Heckelei, Thomas
    Abstract: Ongoing bilateral trade negotiations between the Mercosur group and the EU since 2000 on agricultural products served as incitement to analyse the impacts of possible outcomes. The objective of this paper is to quantitatively assess impacts of bilateral liberalisation scenarios on EU25 and Mercosur markets as well as their bilateral trade flows. For this purpose, the CAPRI model, which has already been applied to several multi- and bilateral trade liberalisation scenarios in the past, has been adopted in several ways. (1) Trading blocks in CAPRI have been expanded so that the Mercosur countries are now represented with country specific behavioural functions and explicit trade flows. (2) The parameters of these behavioural functions have been calibrated using recently estimated supply and demand elasticities (CAP, E. ET AL., 2006) as prior information in a constrained Bayesian framework (HECKELEI, T. ET AL., 2005). (3) Two different baselines scenarios varying in the assumed production potential of the Mercosur countries were defined with experts from these countries. This approach reflects that developments in Mercosur countries are very dynamic with lots of uncertainties. It also provides analysis of results dependent on baselines which is an innovation in CAPRI (technically and qualitatively). In this paper three selected scenarios are analysed. The first scenario reflects an unilateral partial liberalisation between the EU25 and the Mercosur countries by allocating additional Tariff Rate Quotas (TRQs) to the Mercosur countries for certain products based on an official EU proposal (USDA, 2005). The second scenario combines the partial unilateral liberalisation with the multilateral WTO G20 proposal. Sensitive products are defined according to JEAN, S. et al. (2006). The third comprises a bilateral full liberalisation between the EU25 and the Mercosur countries by allowing quota and duty free access in both directions for all agricultural products. The results focus on welfare effects and the market balances of seven key commodities (wheat, maize, rice, soybeans, bovine meat, chicken and pork). Furthermore, a sensitivity analysis on the elasticities of substitution between foreign and domestic produced goods that drive demand of trade flows is provided and shows that the choice of those elasticities is very crucial with respect to model results.
    Keywords: Trade liberalisation, Mercosur, CAPRI, Armington., Demand and Price Analysis, International Relations/Trade,
    Date: 2008
  16. By: Gordon H. Hanson; Raymond Robertson
    Abstract: In this paper, we examine the impact of China's growth on developing countries that specialize in manufacturing. Over 2000-2005, manufacturing accounted for 32% of China's GDP and 89% of its merchandise exports, making it more specialized in the sector than any other large developing economy. Using the gravity model of trade, we decompose bilateral trade into components associated with demand conditions in importing countries, supply conditions in exporting countries, and bilateral trade costs. We identify 10 developing economies for which manufacturing represents more than 75% of merchandise exports (Hungary, Malaysia, Mexico, Pakistan, the Philippines, Poland, Romania, Sri Lanka, Thailand, and Turkey), which are in theory the countries most exposed to the adverse consequences of China's export growth. Our results suggest that had China's export supply capacity been constant over the 1995-2005 period, demand for exports would have been 0.8% to 1.6% higher in the 10 countries studied. Thus, even for the developing countries most specialized in export manufacturing, China's expansion has represented only a modest negative shock.
    JEL: F15
    Date: 2008–11
  17. By: Luca De Benedictis (Università di Macerata); Lucia Tajoli (Politecnico di Milano)
    Abstract: <div><div>In this paper we look at the role of export composition in the growth process, considering how increased similarity in trade structure among countries can induce catching-up in income levels. We apply our analysis to the Central and Eastern European Countries (CEECs) using the EU as a benchmark. We explicitly consider the sectoral export patterns of the CEECs by comparing them to those of the current members of the EU, focusing on countries' specialization as suppliers for the EU market.</div><div>Our main result is that similarity in export composition has a positive, significant and nonlinear impact on catching-up, and seems to be driven by the growth of the main export market more than by other factors. Results are robust to controlling for openness and country-size and for investment, schooling, and the quality of institutions.</div></div>
    Keywords: EU enlargement,CEECs,,growth,,export composition,
    JEL: O1 O11
    Date: 2005–10
  18. By: Nicolas Berman (Centre d'Economie de la Sorbonne - Paris School of Economics et European University Institute); Jérôme Héricourt (Centre d'Economie de la Sorbonne - Paris School of Economics et EQUIPPE - Université de Lille 1)
    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 and exporter once the firm has entered, not 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.
    Keywords: Export decision, margins of trade, financial constraints.
    JEL: D24 F14 F0 D92
    Date: 2008–09
  19. By: Luca De Benedictis (Università di Macerata); Marco Gallegati (Università Politecnica delle Marche); Massimo Tamberi (Università Politecnica delle Marche)
    Abstract: <p><font face="CMBX12"> </font><p> </p><p align="left"> </p></p><p align="left">This paper gives evidence to a stylized fact often disregarded in international trade empir-</p><div align="left">ics: countries' diversification. In the last fifteen years, the growth of world trade coexisted</div><div align="left">with the tendency of countries to reduce the specialization of their export composition</div><div align="left">along the development path. On average, countries do not specialize, they diversify. Our</div><div align="left">semiparametric empirical analysis shows how this result is robust to the use of different</div><div align="left">statistical indexes used to measure trade specialization to the level of sectoral aggrega-</div><div align="left">tion and to the level of smoothing in the nonparametric term associated to income per</div><div align="left">capita. Using a General Additive Model (GAM) with country-specific fixed-effect, we show</div><div align="left">that, controlling for countries heterogeneity, sectoral export diversification increases with</div><div align="left">income.</div><p align="left"> </p>
    Keywords: Nonparametrics,International Trade,Specialization
    JEL: O1 O11
    Date: 2006–10
  20. By: Kavallari, A.; Maas, S.; Schmitz, P.M.
    Abstract: In this study the case of olive oil imports of Germany is examined since olive oil is a traditional Mediterranean commodity and Germany is the biggest importer in the EU. A gravity model has been employed so as to analyse those factors that explain the German imports of olive oil that were identified in a preceding analysis of the German olive oil supply chain. The results of two random-effects models corrected for serial correlation and heteroskedasticity suggest that being a Mediterranean Partner country of the EU has the highest impact on trade flows to Germany, thus supporting further Euromediterranean trade integration. The level of trade to Germany is positively related to existence of direct marketing channels and to tourism implying that these factors should be explored more in the future by the Mediterranean countries so as to boost their exports.
    Keywords: gravity model, olive oil, Germany, International Relations/Trade,
    Date: 2008

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