nep-int New Economics Papers
on International Trade
Issue of 2009‒02‒07
eleven papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Gravity, Productivity and the Pattern of Production and Trade By James E. Anderson
  2. Commercial Policy in a Predatory World By James E. Anderson
  3. The Changing Incidence of Geography By James E. Anderson; Yoto V. Yotov
  4. Consistent Trade Policy Aggregation By James E. Anderson
  5. Trade-Related Intellectual Property Rights: Theory and Empirics By Olena Ivus
  6. Analyzing the Agricultural Trade Impacts of the Canada-Chile Free Trade Agreement By Malhotra, Nisha; Stoyanov, Andrey
  8. Can a Preferential Trade Agreement Benefit Neighbor Countries without Compensating Them? By Endoh, Masahiro; Hamada, Koichi; Shimomura, Koji
  9. Differentiated Agri-Food Product Trade and the Linder Effect By Haq, Zahoor; Meilke, Karl D.
  10. Global Environmental Policy and Global Trade Policy By Frankel, Jeffrey
  11. Achieving Export-Led Growth in Colombia By Hausmann, Ricardo; Klinger, Bailey

  1. By: James E. Anderson (Boston College)
    Abstract: The aggregated incidence of bilateral trade costs is derived from the gravity model. Incidence is equivalent to a TFP penalty. Sectoral and national differences in TFP have sharp implications for the equilibrium pattern of production and trade in a specific factors model of production. Unskilled labor is intersectorally mobile. Skilled labor acquires sector specific skills. Productivity shocks cause incidence shock that induce ex post inefficient allocation of skilled labor. Below (above) average TFP sectors produce less and have below (above) average skill premia. Ex ante efficient allocation is lower in sectors with riskier TFP incidence, despite risk neutrality.
    Keywords: gravity model, trade costs, total factor productivity
    JEL: F10 D24
    Date: 2008–12–01
  2. By: James E. Anderson (Boston College)
    Abstract: Predation---extortion or theft---imposes significant endogenous costs on trade, with rich implications for trade policy. The model of this paper shows that the response of trade to liberalization depends on the strength of enforcement against predators. Efficient commercial policy may either tax or subsidize trade. The Mercantilist predilection for trade monopoly and for subsidy has a rationale. Insecurity induces an international externality alternative that of the standard terms of trade effect. Tolerance or intolerance of smuggling can be rational depending on the weakness or strength of enforcement, illustrated by the switch from the former to the latter by Britain in regard to its North American colonies.
    Keywords: commercial policy, predation, extortion, theft, trade costs, trade policy
    JEL: F13 O17 K42
    Date: 2008–05–01
  3. By: James E. Anderson (Boston College); Yoto V. Yotov (Drexel University)
    Abstract: Neglected properties of the structural gravity model offer a theoretically consistent method to calculate the incidence of estimated trade costs, disaggregated by commodity and region, and re-aggregated into forms useful for economic geography. For Canada's provinces, 1992-2003, incidence is on average some five times higher for sellers than for buyers. Sellers' incidence falls over time due to specialization, despite constant gravity coefficients. This previously unrecognized globalizing force drives big reductions in 'constructed home bias', the disproportionate share of local trade; and large but varying gains in real GDP. Aggregation biases gravity coefficients downward.
    Keywords: geography, gravity model, rade costs, globalization
    JEL: F10 D24
    Date: 2008–09–01
  4. By: James E. Anderson (Boston College)
    Abstract: Much empirical work requires the aggregation of policies. This paper provides methods of policy aggregation that are consistent with two common objectives of empirical work. One is to preserve real income. The other is to preserve the real volume of activity in one or more parts of the economy. Trade policy aggregation is an acute example of the aggregation problem with thousands of highly dispersed trade barriers to be aggregated. An application to India shows that the standard atheoretic method of aggregation is seriously misleading compared to the consistent method.
    Keywords: trade barriers, policy aggregation
    Date: 2008–05–01
  5. By: Olena Ivus
    Abstract: The WTO inspired strengthening of intellectual property rights (IPRs) in developing countries remains highly controversial even 15 years after the 1994 TRIPs agreement. This paper employs both theory and empirics to assess how a strengthening of IPRs affects international technology diffusion by altering the volume of high-tech exports into developing countries. In the context of a North-South general equilibrium model,stronger IPRs encourage Northern firms to introduce new high-tech products in the South. High-tech exports to the South rise, while low-tech exports may fall. International technology diffusion does not necessarily fall. These theoretical predictions are examined empirically. On average,developing countries that strengthened their IPRs under the TRIPs agreement saw an increase of approximately $50 billion (1994 US dollars) in their high-tech imports. This amount is equivalent to a 13% increase in their annual value of high-tech imports.
    JEL: F10 K33 O34
    Date: 2009–01–29
  6. By: Malhotra, Nisha; Stoyanov, Andrey
    Abstract: In this paper we study the agricultural trade impacts of the Canada Chile Free Trade Agreement (CCFTA). We find that the effect of the CCFTA on Chilean agricultural exports to Canada is large and positive. We estimate that approximately one-half of a 90 percent increase in Chilean exports to Canada can be attributed to trade preferences that the country received under the agreement. We found no effect of the agreement on Canadian exports to Chile. As far as we know, our paper is among the few that carries out a detailed empirical analysis of \ the effect of the FTA on agriculture. Most empirical papers that have studied the trade impact of FTAs rely on country-wide gravity models and aggregate trade data. These aggregate analyses can hide negative effects of FTAs on some sectors (like agriculture) where a country may have a comparative disadvantage. Our approach is industry-focused and differs from the mainstream literature analyzing FTAs.
    Keywords: Canada, Chile, FTA, regional, Agricultural and Food Policy, International Relations/Trade,
    Date: 2008–10
  7. By: Lee, Youngjae; Kennedy, P. Lynn
    Abstract: Direct and indirect effects of exchange rates on foreign and home prices may induce a change in terms of trade and volume of trade. In particular, the price effect in substitutability between foreign and home products and endogeneity of the foreign price provide evidence for the indirect impact of the exchange rate on home price. Furthermore, elasticity of substitution and degree of returns to scale influence the impact of the exchange rate on terms of trade and trade volume. In an empirical examination of the Korean beef market, this study found a decrease in terms of trade and an increase in volume of trade when the U.S. dollar depreciates, and an increase in terms of trade and a decrease in volume of trade when the U.S. dollar appreciates. However, the effect on terms of trade is greater than the effect on volume, implying that the foreign price elasticity of import demand is less than one.
    Keywords: exchange rate, home and foreign prices, direct and indirect effects, terms of trade, volume of trade., International Relations/Trade,
    Date: 2009–01–31
  8. By: Endoh, Masahiro (Keio U); Hamada, Koichi (Yale U); Shimomura, Koji (Kobe U)
    Abstract: PTAs are generally negotiated without any tariff concessions or transfers to non-member countries. Can such a PTA benefit the neighbors' welfare? In a two-good competitive equilibrium model in the absence of an entrepot, a PTA without concessions to the outsider will hurt the outsider's welfare when goods are normal. If one of the member countries is an entrepot, however, it definitely improves the neighbors' welfare. In a multiple-good model, a PTA without concessions deteriorates the neighbors' welfare, provided that all the goods are normal and substitutes, and that initial tariff levels are small.
    JEL: F11
    Date: 2008–03
  9. By: Haq, Zahoor; Meilke, Karl D.
    Abstract: Using a generalized gravity equation, this study tests for the Linder effect in differentiated agrifood product trade, i.e. as the demand structures of two countries become more similar, their trade intensity increases. Two proxies of demand structure, the Balassa index and the absolute value of the difference in per capita GDPs of trading partners, are used to capture the Linder effect. In addition, two measures of bilateral trade, the Grubel and Lloyed index, and the value of bilateral trade are used as the dependent variable. The study investigates the role of the Linder effect in explaining the trade of 37 differentiated agri-food and beverage products categorized into eight product groups: cereals; fresh fish; frozen fish; vegetables; fresh fruit; processed fruit; tea and coffee; and alcoholic beverages. The data covers trade across 52 developed and developing countries from 1990 to 2000. The type of proxy used for the Linder effect and the way in which bilateral trade is measured influence the outcome of the statistical tests for the Linder effect. The Linder effect for cereals, frozen fish, vegetables, processed fruits, and tea and coffee, using the value of trade as the dependent variable, is often accepted but it is generally rejected when the GL index is used as the measure of trade intensity. In brief, the results do not provide strong support for the Linder effect in the trade of differentiated agri-food products.
    Keywords: Agri-food, Generalized Gravity Equation, Grubel and Lloyed index, Linder Effect, trade, Agricultural and Food Policy, International Relations/Trade,
    Date: 2008–10
  10. By: Frankel, Jeffrey (Harvard U)
    Abstract: The global climate regime, as represented by the Kyoto Protocol, may be on a collision course with the global trade policy regime, as represented by the WTO (World Trade Organization). Environmentalists fear that international trade will undercut reductions in greenhouse gas emissions as dirty production migrates to non-participating countries, a phenomenon known as leakage. Meanwhile businesspeople fear the effects on their own competitiveness of the same phenomenon. These fears have now become prominent in the policy-making process. In early 2008, legislation to enact long-term targets for reduced emission of greenhouse gases included provisions for possible barriers against imports from countries perceived as non-participating--in both Washington, DC (where the bills have not yet passed) and in Brussels (where the EU Commission Directive has gone into effect). Such provisions could be interpreted as violations of the rules of the WTO, which poses the nightmare scenario of a WTO panel rejecting a major country's climate change legislation. In light of the hostile feelings that such a scenario would unleash, it would be a nightmare for the supporters of the WTO and free trade as much as for the supporters of the Kyoto Protocol and environmental protection. The issue is just the latest and largest instance of fears among many environmentalists that the WTO is an obstacle to their goals in general. The issue transcends institutions. For the critics, the WTO is a symbol of globalization, and their fears attach also to that larger phenomenon. The first part of this paper discusses the broader issue of whether environmental goals in general are threatened by free trade and the WTO. The second half of the paper focuses exclusively on the narrower question of trade aspects of nations' efforts to implement climate change policy and whether they are likely to come into conflict with the WTO.
    Date: 2008–10
  11. By: Hausmann, Ricardo (Harvard U); Klinger, Bailey (Harvard U)
    Abstract: The purpose of this paper is to analyze Colombia's experiences with and opportunities for export led growth. We first review Colombia's growth and export performance over the past 30 years and find that the country is indeed facing an export challenge. We then go on to develop new metrics and apply them to Colombia's export challenge. First, we consider the opportunities for upgrading quality within existing exports, and find that Colombia has very little opportunity for growth in this dimension. Second, we consider the level of sophistication of the current export basket, and find that it is low and commensurate with the lack of export dynamism. Although not a significant drag on growth, the current export basket will not be sufficient to fuel future output growth. Finally, we develop the concept distances between products, open forest, and the option value of exports to examine the possibility that Colombia's current structure of production is itself a barrier to future structural transformation. While improvements in the export package have been slow in the past, this evidence suggests that Colombia does now enjoy more options for future structural transformation. As there are attractive options for structural transformation nearby, a parsimonious approach to industrial strategy, rather than a risky strategic bet to move to a new part of the product space, seems appropriate. In order to inform such a strategy, we use the metrics developed in the diagnostic to evaluate new export activities in terms of their proximity to current activities, their sophistication, and their strategic value. We identify the sectors representing the best tradeoffs between these aims for Colombia as a whole, as well as its regions. We also devote separate attention to the topic of Agricultural exports, and to exports of services. Finally, we use these metrics to analyze the list of 'high-potential' sectors in the United States, developed by another firm, as well as the sectors prioritized in Colombia's Agenda Interna. These external lists of high-potential sectors are found to be sensible, but could be further rationalized using these metrics. This identification of nearby, high-potential, and strategically valuable sectors is not meant to be a definitive list for targeted subsidies and 'picking winners'. Rather, it provides a robust data-driven approach to inform the next steps in achieving export-led growth in Colombia: which private sector actors should be consulted first? What sector-specific reforms should be stressed? How should public spending on infrastructure and training, which are also sector-specific, be prioritized? What foreign firms should be targeted by FDI promotion agencies? These decisions can be informed by our analysis and the accompanying data.
    JEL: F19 O14 O54
    Date: 2008–10

This nep-int issue is ©2009 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.