nep-int New Economics Papers
on International Trade
Issue of 2009‒01‒24
seven papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. The Quality-Complementarity Hypothesis: Theory and Evidence from Colombia By Kugler, Maurice; Verhoogen, Eric
  2. How vertically specialized is Chinese trade? By Dean, Judith; Fung , K.C.; Wang, Zhi
  3. Determinants of World Demand for U.S. Corn Seeds: The Role of Trade Costs By Sampath Jayasinghe; John C. Beghin; GianCarlo Moschini
  4. What beyond oil and gas? Russian trade specialisation in manufactures By Garanina, Olga
  5. Trade and Variety in a Model of Endogenous Product Differentiation By Oliver Lorz; Matthias Wrede
  6. Foreign Firms, Domestic Wages By Nikolaj Malchow-Møller; James R. Markusen; Bertel Schjerning
  7. Export Subsidies in a Heterogeneous Firms Framework By Christian Helmers; Natalia Trofimenko

  1. By: Kugler, Maurice (University of Southampton); Verhoogen, Eric (Columbia University)
    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.
    Keywords: product quality, heterogeneous firms, international trade, plant size
    JEL: O1 F1 L1
    Date: 2009–01
  2. By: Dean, Judith (BOFIT); Fung , K.C. (BOFIT); Wang, Zhi (BOFIT)
    Abstract: Two recent phenomena have transformed the nature of world trade: the explosive growth of Chinese trade, and the growth of vertically specialized trade due to international production fragmentation. While vertical specialization may explain much of the growth and unique features of Chinese trade, few papers have quantitatively assessed these two phenomena together. In part, this is because it is difficult to measure just how vertically specialized Chinese trade is. The unique features of China's extensive processing trade cause both the identification of imported intermediate goods, and their allocation across sectors, to depend upon the Chinese trade regime. In this paper, we estimate the vertical specialization of Chinese exports, addressing these two challenges. Using two Chinese benchmark input-output tables, and a detailed Chinese trade dataset which distinguishes processing trade from other forms of trade, we develop a new method of identifying intermediate goods imported into China. Vertical specialization is then estimated using two methods. The first method uses the Hummels, Ishii and Yi (2001) measure, the official benchmark IO tables, and incorporates our identification correction. The second method follows the first, but also incorporates the Koopman, Wang and Wei (2008) method of splitting the benchmark IO tables into separate tables for processing and normal exports, in order to address the allocation problem. Results show strong evidence of an Asian network of intermediate suppliers to China, and the two methods provide a range of estimates for the foreign content of Chinese exports. In 2002 aggregate exports ranges between 25% and 46%, with some individual sectors are as high as 52%-95%. Across destinations, under both methods, the vertical specialization of Chinese exports declines with the level of development of the trading partner.
    Keywords: China; fragmentation; vertical specialization; trade growth
    JEL: F10 F14
    Date: 2009–01–13
  3. By: Sampath Jayasinghe; John C. Beghin; GianCarlo Moschini (Center for Agricultural and Rural Development (CARD))
    Abstract: The United States is a large net exporter of corn seeds. Seed trade, including that of corn, has been expanding, but its determinants are not well understood. This paper econometrically investigates the determinants of world demand for U.S. corn seeds with a detailed analysis of trade costs impeding export flows to various markets, including costs associated with distance, tariffs, and sanitary and phytosanitary (SPS) regulations. The analysis relies on a gravity-like model based on an explicit specification of derived demand for seed by foreign corn producers, estimated based on data from 48 countries and for the years 1989 to 2004. An SPS count variable is incorporated as a shifter in the unit cost of seeds faced by foreign users. A sample selection framework is used to account for the determination of which trade flows are positive. All trade costs matter and have had a negative impact on U.S. corn seed exports. Tariffs matter most, followed by distance and SPS measures.
    Keywords: corn, distance, phytosanitary, seeds, SPS, tariff, technical barriers, trade cost.
    Date: 2009–01
  4. By: Garanina, Olga (BOFIT)
    Abstract: The objective of the paper is to study Russia's pattern of specialisation in the manufactures trade since 1998. Russia's global trade balance for manufactures is rapidly deteriorating. However, the trade pattern in manufactures should be differentiated according to Russia’s main trading partners: the European Union (EU), the Commonwealth of Independent States (CIS) and China. On the basis of trade indicator analysis (revealed comparative advantages and Grubel-Lloyd index of intra-industry trade), we show that Russia is globally disadvantaged in the manufactures trade vis-à-vis the EU and China, and advantaged in the trade with the within the CIS. Russia is managing to expand its manufactured exports to other CIS countries. However, it is gradually losing its role of main supplier of capital goods in the post-Soviet space.
    Keywords: international trade; trade specialisation; revealed comparative advantage; intra-industry trade; Russia
    JEL: F14
    Date: 2009–01–13
  5. By: Oliver Lorz (Faculty of Business and Economics, RWTH Aachen University, 52056 Aachen, Germany); Matthias Wrede (Faculty of Business Administration and Economics, University of Marburg, 35032 Marburg, Germany)
    Abstract: This paper sets up a model of endogenous product differentiation to analyze the variety effects of international trade. In our model multi-product firms decide not only about the number of varieties they supply but also about the degree of horizontal differentiation between these varieties. Firms can raise the degree of differentiation by investing variety-specific fixed costs. In this setting, we analyze how trade integration, i.e. an increase in market size, influences the number of firms in the market, the number of product varieties supplied by each firm, and the degree of differentiation.
    Keywords: Product differentiation, multi-product firms, international trade.
    JEL: D43 F12 L25
    Date: 2009
  6. By: Nikolaj Malchow-Møller (University of Southern Denmark); James R. Markusen (University of Colorado, Boulder); Bertel Schjerning (Department of Economics, University of Copenhagen)
    Abstract: Many papers have documented a wage premium in foreign-owned and large firms. However, there is very little formal theory in the literature and empirical analyses are typically not based on hypotheses which are rigorously derived from theory. This paper contributes to the theory-empirics gap by developing a model that allows for two “pure” explanations for the wage premium. The first is a heterogenous-worker explanation along the lines of Yeaple (2005), where firms that select more scaleintensive technologies select ex-ante more productive workers. In this case, the wage premium is a pure selection phenomenon. The second explanation builds on the heterogeneous-firm model of Melitz (2003) combined with on-the-job learning as in Markusen (2001). Productivity differences between firms are internalized by ex-ante homogeneous workers, so the wage premium is a pure learning phenomenon due to ex-post higher productivity in foreign firms. Our model yields a number of precise empirical hypotheses. When these predictions are tested on Danish matched employer-employee data, we find that both explanations play a role in explaining the observed wage premium. Specifically, the foreign- and large-firm premiums explained by selection are in the neighborhood of 30-65% of the total premium, with the remainder consistent with learning. There is also considerable support for a number of other predictions specific to the worker-learning explanation.
    Date: 2009–01
  7. By: Christian Helmers; Natalia Trofimenko
    Abstract: We evaluate the impact of firm-specific export subsidies on exports in Colombia. Using a two-stage Heckman selection procedure, we obtain firm-specific predicted subsidy amounts that can be explained by the characteristics that determine the firms’ eligibility for the government support and its amount. Drawing on the accounts of the discretionary allocation of subsidies in developing countries, we regard the discrepancy between the predicted and the observed subsidy amounts as a proxy for the firm’s ties to government officials. Controlling for observable and unobservable firm characteristics and persistence in exports, we find that although, in general, subsidies exhibit positive impact on export volumes, this impact is diminishing in subsidy size and in the degree of firm’s connectedness to government officials
    Keywords: export subsidies, exports, Heckman selection, System GMM
    JEL: F10 F13 L20 H20
    Date: 2009–01

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