nep-int New Economics Papers
on International Trade
Issue of 2008‒12‒14
eight papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Credit Constraints, Heterogeneous Firms, and International Trade By Kalina Manova
  2. Estimation of Missing Intra-African Trade By Villoria, Nelson
  3. International Trade in Used Durable Goods: The Environmental Consequences of NAFTA By Lucas W. Davis; Matthew E. Kahn
  4. Export Demand Elasticities as Determinants of Growth: Estimates for Mauritius By Habiyaremye, Alexis; Ziesemer, Thomas
  5. Task Trade between Similar Countries By Gene M. Grossman; Esteban Rossi-Hansberg
  6. Endogenous Transport Prices and Trade Imbalances By Olaf Jonkeren; Erhan Demirel; Jos van Ommeren; Piet Rietveld
  7. The Estimated Effects of the Euro on Trade: Why Are They Below Historical Effects of Monetary Unions Among Smaller Countries? By Jeffrey A. Frankel
  8. Impacts of Exchange Rate Volatility on the U.S. Cotton Exports By Bajpai, Siddharth; Mohanty, Samarendu

  1. By: Kalina Manova
    Abstract: Three fundamental features of international trade flows are a predominance of zeros in the bilateral trade matrix, great variation in the number of products countries export, and substantial turnover in the product mix of exports over time. This paper provides evidence that credit constraints are an important determinant of all three patterns. I develop a model with credit-constrained heterogeneous firms, countries at different levels of financial development, and sectors of varying financial vulnerability, and find strong empirical support for the model's predictions. First, I show that financially developed countries are more likely to export bilaterally and ship greater volumes when they become exporters. This effect is more pronounced in sectors with a greater requirement for outside finance or fewer collateralizable assets. Firm selection into exporting accounts for a third of the effect of credit constraints on export volumes, whereas two thirds are due to the impact on firm-level exports. Second, in financially vulnerable sectors, financially developed countries export a wider variety of products and experience less product turnover in their exports over time. Finally, credit constraints lead to a pecking order of trade. While all countries export to large destinations, financially advanced countries have more trading partners and also export to smaller import markets, especially in financially vulnerable sectors.
    JEL: F10 F14 F36 G20 G28 G32
    Date: 2008–12
  2. By: Villoria, Nelson
    Abstract: Missing trade is defined as the exports and imports that may have taken place between two potential trading partners, but which are unknown to the researcher because neither partner reported them to the United Nation’s COMTRADE, the official global repository of trade statistics. In a comprehensive sample of African countries, over 40% of the potential trade flows fit this definition. For a continent whose trade integration remains an important avenue for development, this lack of information hinders the analysis of policy mechanisms -- such as the Economic Partnership Agreements with the EU -- that influence intra-regional trade patterns. This paper estimates the likely magnitude of the missing trade by modeling the manufacturing trade data in the GTAP Data Base using a gravity approach. The gravity approach employed here relates bilateral trade to country size, distance, and other trade costs while explicitly considering that high fixed costs can totally inhibit trade. This last feature provides an adequate framework to explain the numerous zero-valued flows that characterize intra-African trade. The predicted missing exports are valued at approximately 300 million USD. The incidence of missing trade is highest in the lowest income countries of Central and West Africa.
    Date: 2008
  3. By: Lucas W. Davis; Matthew E. Kahn
    Abstract: Previous studies of trade and the environment overwhelmingly focus on how trade affects where goods are produced. However, trade also affects where goods are consumed. In this paper we describe a model of trade with durable goods and non-homothetic preferences. In autarky, low-quality (used) goods are relatively inexpensive in high-income countries and free trade causes these goods to be exported to low-income countries. We then evaluate the environmental consequences of this pattern of trade using evidence from the North American Free Trade Agreement. Since trade restrictions were eliminated for used cars in 2005, over 2.5 million used cars have been exported from the United States to Mexico. Using a unique, vehicle-level dataset, we find that traded vehicles are dirtier than the stock of vehicles in the United States and cleaner than the stock in Mexico, so trade leads average vehicle emissions to decrease in both countries. Total greenhouse gas emissions increase, primarily because trade gives new life to vehicles that otherwise would have been scrapped.
    JEL: F18
    Date: 2008–12
  4. By: Habiyaremye, Alexis (UNU-MERIT); Ziesemer, Thomas (UNU-MERIT, and Maastricht University)
    Abstract: In this paper, we combine the export-led and import-led growth hypotheses in a growth model in which the importation of foreign capital goods and the demand elasticities of own export products explain the growth opportunities and the technical progress of developing countries. This model, based on imported capital goods uses Mauritius’ data on capital investment, employment, export partners’ growth and terms of trade to estimate price and income elasticities of export demand, total-factor productivity growth and economies of scale. These elasticities are then used to assess how the growth in export partners’ income is converted into domestic growth. The implications of the presence of low or high export demand elasticities are discussed by relating them to various strands of trade and growth literature. Based on the results of this estimation, we also calculate steady-state growth rates, engine and handmaiden effects of growth as well as the dynamic steady-state gains from trade for this latecomer export economy. The implications of steady state results are also discussed in the light of the Mauritian employment and growth perspectives.
    Keywords: growth models, trade, capital goods, exports, total factor productivity
    JEL: O11 O19 O41 F43
    Date: 2008
  5. By: Gene M. Grossman; Esteban Rossi-Hansberg
    Abstract: We propose a theory of task trade between countries that have similar relative factor endowments but may differ in size. Firms produce differentiated goods by performing a continuum of tasks, each of which generates local spillovers. Tasks can be performed at home or abroad, but offshoring entails costs that vary by task. In equilibrium, the tasks with the highest offshoring costs may not be traded. Among the remainder, those with the relatively higher offshoring costs are performed in the country that has the higher wage and higher aggregate output. We discuss the relationship between equilibrium wages, equilibrium outputs, and relative country size and examine how the pattern of specialization reflects the key parameters of the model.
    JEL: F12 F23
    Date: 2008–12
  6. By: Olaf Jonkeren (VU University Amsterdam); Erhan Demirel (VU University Amsterdam); Jos van Ommeren (VU University Amsterdam); Piet Rietveld (VU University Amsterdam)
    Abstract: According to economic theory, imbalances in trade flows affect transport prices because (some) carriers have to return without cargo from the low demand region to the high demand region. Therefore, transport prices in the high demand direction have to exceed those in the low demand direction. This implies that transport costs, and therefore trade costs, are fundamentally endogenous with respect to trade imbalances. We study this effect using transport prices for the inland waterway transport market in north-west Europe. We find that imbalances in trade flows have substantial effects on transport prices. We estimate that a one standard deviation increase in the trade imbalance from region A to region B decreases transport prices from A to B by about 8 percent.
    Keywords: Imbalances in trade flows; trade costs; inland waterway transport market
    JEL: R41
    Date: 2008–09–17
  7. By: Jeffrey A. Frankel
    Abstract: Andy Rose (2000), followed by many others, has used the gravity model of bilateral trade on a large data set to estimate the trade effects of monetary unions among small countries. The finding has been large estimates: Trade among members seems to double or triple, that is, to increase by 100-200%. After the advent of EMU in 1999, Micco, Ordoñez and Stein and others used the gravity model on a much smaller data set to estimate the effects of the euro on trade among its members. The estimates tend to be statistically significant, but far smaller in magnitude: on the order of 10-20% during the first four years. What explains the discrepancy? This paper seeks to address two questions. First, do the effects on intra-euroland trade that were estimated in the euro's first four years hold up in the second four years? The answer is yes. Second, and more complicated, what is the reason for the big discrepancy vis-à-vis other currency unions? We investigate three prominent possible explanations for the gap between 15% and 200%. First, lags. The euro is still very young. Second, size. The European countries are much bigger on average than most of those who had formed currency unions in the past. Third, endogeneity of the decision to adopt an institutional currency link. Perhaps the high correlations estimated in earlier studies were spurious, an artifact of reverse causality. Contrary to expectations, we find no evidence that any of these factors explains a substantial share of the gap, let alone all of it.
    JEL: F01 F33 F4
    Date: 2008–12
  8. By: Bajpai, Siddharth; Mohanty, Samarendu
    Abstract: A structural time series approach utilizing the state space model is used to analyze the impact of exchange rate volatility on the bilateral U.S. cotton exports to major export destinations. An EGARCH (Exponential Generalized Autoregressive Conditional Heteroskedasticity) model with normal and non-normal errors is used to estimate the volatility of exchange rate. Monthly data from 1995 to 2006 is utilized for the analysis. The results indicate a negative relationship between exchange rate volatility and U.S. cotton exports for most countries. The stochastic process governing the U.S. cotton exports to different countries is found to be permanent as well as transitory. The results support the view that the impact of exchange rate volatility can be better understood by analyzing markets separately.
    Keywords: International Relations/Trade, Research Methods/ Statistical Methods,
    Date: 2008

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