nep-int New Economics Papers
on International Trade
Issue of 2009‒02‒28
27 papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Quality Competition Versus Price Competition Goods: An Empirical Classification By Baldwin, Richard; Ito, Tadashi
  2. International Trade Integration: A Disaggregated Approach By Chen, Natalie; Novy, Dennis
  3. The Margins of Multinational Production and the Role of Intra-firm trade By Irarrazabal, Alfonso; Moxnes, Andreas; Opromolla, Luca David
  4. Cross-Border Trade and FDI in Services By Fillat Castejón, Carmen; Francois, Joseph; Woerz, Julia
  5. The Quality-Complementarity Hypothesis: Theory and Evidence from Colombia By Kugler, Maurice; Verhoogen, Eric A.
  6. Global Production and Trade in the Knowledge Economy By Keller, Wolfgang; Yeaple, Stephen R
  7. An Anatomy of International Trade: Evidence from French Firms By Eaton, Jonathan; Kortum, Samuel S; Kramarz, Francis
  8. Heterogeneous Firms, the Structure of Industry, and Trade under Oligopoly By Bekkers, Eddy; Francois, Joseph
  9. Trade Liberalization and Organizational Change By Conconi, Paola; Legros, Patrick; Newman, Andrew
  10. The Erosion of Colonial Trade Linkages After Independence By Head, Keith; Mayer, Thierry; Ries, John
  11. The Margins of US Trade (Long Version) By Bernard, Andrew; Jensen, J Bradford; Redding, Stephen J; Schott, Peter
  12. Offshoring and the Role of Trade Agreements By Antràs, Pol; Staiger, Robert
  13. Economic Implications of Deeper Asian Integration By Francois, Joseph; Wignaraja, Ganeshan
  14. FDI, the Brain Drain and Trade: Channels and Evidence By de Melo, Jaime; Ivlevs, Artjoms
  15. Is the WTO's Article XXIV Bad? By Mrazova, Monika; Vines, David; Zissimos, Ben
  16. Does Family Control Affect Trade Performance? Evidence for Italian Firms By Barba Navaretti, Giorgio; Faini, Riccardo; Tucci, Alessandra
  17. Firm Heterogeneity and Country Size Dependent Market Entry Cost By Åkerman, Anders; Forslid, Rikard
  18. The Spatial Selection of Heterogeneous Firms By Okubo, Toshihiro; Picard, Pierre M; Thisse, Jacques-François
  19. Globalization and the Size Distribution of Multiproduct Firms By Nocke, Volker; Yeaple, Stephen R
  20. Policy Choice: Theory and Evidence from Commitment via International Trade Agreements By Limão, Nuno; Tovar, Patricia
  21. Wake up and smell the ginseng: International trade and the rise of incremental innovation in low-wage countries By Diego Puga; Daniel Trefler
  22. Organizations and Trade By Antràs, Pol; Rossi-Hansberg, Esteban
  23. Rules of Origin, Preferences and Diversification in Apparel: African Exports to the US and to the EU By de Melo, Jaime; Portugal-Pérez, Alberto
  24. The Structure of Protection and Growth in the Late 19th Century By Lehmann, Sibylle H.; O'Rourke, Kevin H
  25. Economic Geography: a Review of the Theoretical and Empirical Literature By Redding, Stephen J
  26. Dots to Boxes: Do the Size and Shape of Spatial Units Jeopardize Economic Geography Estimations? By Briant, Anthony; Combes, Pierre-Philippe; Lafourcade, Miren
  27. Immigrant Links, Diasporas and FDI. An Empirical Investigation on Five European Countrie By Marina Murat; Sara Flisi

  1. By: Baldwin, Richard; Ito, Tadashi
    Abstract: Based on the recent trade models of the Heterogeneous Firms Trade (HFT) model and the Quality Heterogeneous Firms Trade (QHFT) model, we classify export goods (at the HS 6-digit level of disaggregation) by quality and price competition. We find a high proportions of quality-competition goods for the major EU countries and lower proportions for Canada, Australia and China. However, the overlap of these quality-competition goods is not large, which suggests that characteristics of export goods are substantially different across countries at the same HS 6-digit code.
    Keywords: heterogeneous firms trade model; Quality vs Price competition
    JEL: F14
    Date: 2008–09
  2. By: Chen, Natalie; Novy, Dennis
    Abstract: This paper investigates the sources and size of trade barriers at the industry level. We derive a micro-founded measure of industry-specific bilateral trade integration that has an in-built control for time-varying multilateral resistance. This trade integration measure is consistent with a broad range of recent trade models including the Anderson and van Wincoop (2003) framework, the Ricardian model by Eaton and Kortum (2002) and heterogeneous firms models. We use it to explore trade barriers for manufacturing industries in European Union countries between 1999 and 2003. We find a large degree of trade cost heterogeneity across industries. The most important trade barriers are transportation costs and policy factors such as Technical Barriers to Trade. Trade integration is generally lower for countries that opted out of the Euro or did not abolish border controls in accordance with the Schengen Agreement. Reductions in trade barriers explain about one-half of the growth in trade over the period 1999-2003 and are therefore a major driving force of the EU Single Market.
    Keywords: Disaggregation; European Union; Gravity; Industries; Multilateral Resistance; Trade Costs; Trade Integration
    JEL: F10 F15
    Date: 2008–12
  3. By: Irarrazabal, Alfonso; Moxnes, Andreas; Opromolla, Luca David
    Abstract: In this paper we ask why the gravity model of international trade also work well for foreign direct investment (FDI) flows or multinational production (MP). We propose a model of trade and horizontal FDI, where the subsidiary is allowed to source inputs from the headquarters. Under certain parameter values, the model will generate gravity relationships for both exports and MP. Matching the model with data using a unique firm-level dataset of both exports and MP reveals the following results. First, intra-firm trade appears to play a crucial role in shaping the geography of MP. Our conclusions are robust to any geographical distribution of fixed costs. Second, counterfactual experiments show that impeding FDI leads to reduced domestic labor demand by the headquarters, suggesting that outwards FDI may have positive effects on home employment.
    Keywords: Export; FDI; Gravity; Intra-firm Trade; Multinational Production
    JEL: F10
    Date: 2009–01
  4. By: Fillat Castejón, Carmen; Francois, Joseph; Woerz, Julia
    Abstract: Working with a panel dataset of of OECD countries over the decade 1994-2004, we examine linkages between cross-border trade and FDI in the service sectors. We first develop a consistent analytical framework for the application of the gravity model jointly to services trade and commercial presence (i.e. FDI), using a composite model of delivery that offers testable hypotheses about the roles of different modes of services supply as complements or substitutes. We further link our estimates to policy variables measuring market regulations that may act directly or implicitly as barriers to trade. We find robust evidence of complementary effects in the short-run, which is reinforced in the long run by an increased potential for cross-border imports based on previous FDI inflows. A detailed analysis by individual service sectors highlights business, communication and financial services as showing the largest potential for cross-border trade when market regulations are reduced and when commercial presence increases.
    Keywords: FDI; services; services trade; trade and FDI substitution and complementarity
    JEL: F10 F14 F21
    Date: 2008–12
  5. By: Kugler, Maurice; Verhoogen, Eric A.
    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: heterogeneous firms; international trade; plant size; product quality
    JEL: F1 L1 O1
    Date: 2009–01
  6. By: Keller, Wolfgang; Yeaple, Stephen R
    Abstract: This paper presents and tests a new model of multinational firms to explain a rich array of multinational behavior. In contrast to most approaches, here the multinational faces costs to transferring its know-how that are increasing in technological complexity. Costly technology transfer gives rise to increasing marginal costs of serving foreign markets, which explains why multinational firms are often much more successful in their home market compared to foreign markets. The model has four key predictions. First, as transport costs between multinational parent and affiliate increase, firms with complex production technologies and it relatively difficult to substitute local production for imports from the parent, because complex technologies are relatively costly to transfer. Second, the activity of affiliates with complex technologies declines relatively strongly as transport costs from the home market increase, both at the intensive and the extensive margin. We also show that as transport costs from the home market increase, affiliates concentrate their imports from the parent on intermediates that are technologically more complex. We test these hypotheses by employing information on the activities of individual multinational firms, on the nature of intra-firm trade at the product level, and on the skills required for occupations with different complexity. The empirical analysis finds strong evidence in support of the model by confirming all four hypotheses. The analysis shows that accounting for costly technology transfer within multinational firms is important for explaining the structure of trade and multinational production.
    Keywords: Factor cost differences; Firm heterogeneity; Intermediate inputs; Offshoring; Tasks; Technological complexity; Technology transfer
    JEL: F1 F15 F23 O33
    Date: 2009–02
  7. By: Eaton, Jonathan; Kortum, Samuel S; Kramarz, Francis
    Abstract: We examine the sales of French manufacturing firms in 113 destinations, including France itself. Several regularities stand out: (1) the number of French firms selling to a market, relative to French market share, increases systematically with market size; (2) sales distributions are very similar across markets of very different size and extent of French participation; (3) average sales in France rise very systematically with selling to less popular markets and to more markets. We adopt a model of firm heterogeneity and export participation which we estimate to match moments of the French data using the method of simulated moments. The results imply that nearly half the variation across firms that we see in market entry can be attributed to a single dimension of underlying firm heterogeneity, efficiency. Conditional on entry, underlying efficiency accounts for a much smaller variation in sales in any given market. Parameter estimates imply that fixed costs eat up a little more than half of gross profits. We use our results to simulate the effects of a counterfactual decline in bilateral trade barriers on French firms. While total French sales rise by around US$16 billion, sales by the top decile of firms rise by nearly US$23 billion. Every lower decile experiences a drop in sales, due to selling less at home or exiting altogether.
    Keywords: export; firms; general equilibrium; productivity; trade
    JEL: F12 L25
    Date: 2009–01
  8. By: Bekkers, Eddy; Francois, Joseph
    Abstract: We develop a model with endogeneity in key features of industrial structure linked to heterogeneous cost structures under Cournot competition. We use the model to explore issues related to cross-country differences in industry structure and the impact of globalization on markups and pricing, concentration, and productivity. The model nests two workhorse trade models, the Brander & Krugman reciprocal dumping model and the Ricardian technology-based trade model, as special cases. We examine both free entry and limited entry (free exit) cases. The model generates clear testable predictions on the probability of zero trade flows and the pattern of export prices, and on cross-country and industry variations in industrial structure controlling for openness. Market prices decline as a result of trade liberalization, the least productive firms get squeezed out of the market, exporting firms gain market share, and more firms become trade oriented. In addition, depending on the strength of underlying cost heterogeneity, falling prices are consistent with both increasing and falling industry concentration following episodes of integration. Welfare rises with trade liberalization, unless trade costs decline from a prohibitive level in the short run free exit case. Variation across industries and markets in markups, concentration, and pricing structures is otherwise a function of market size and the variation in cost heterogeneity across industries.
    Keywords: Composition effects of trade liberalization; Cournot competition; Industry structure and firm heterogeneity
    JEL: F12 L11 L13
    Date: 2008–09
  9. By: Conconi, Paola; Legros, Patrick; Newman, Andrew
    Abstract: We embed a simple incomplete-contracts model of organization design in a standard two-country perfectly-competitive trade model to examine how the liberalization of product and factor markets affects the ownership structure of firms. In our model, managers decide whether or not to integrate their firms, trading off the pecuniary benefits of coordinating production decisions with the private benefits of operating in their preferred ways. The price of output is a crucial determinant of this choice, since it affects the size of the pecuniary benefits. In particular, non-integration is chosen at "low" and "high" prices, while integration occurs at moderate prices. Organizational choices also depend on the terms of trade in supplier markets, which affect the division of surplus between managers. We obtain three main results. First, even when firms do not relocate across countries, the price changes triggered by liberalization of product markets can lead to significant organizational restructuring within countries. Second, the removal of barriers to factor mobility can lead to inefficient reorganization and adversely affect consumers. Third, "deep integration" - the liberalization of both product and factor markets - leads to the convergence of organizational design across countries.
    Keywords: Contracts; Firms; Globalization
    JEL: D23 F13 F23
    Date: 2008–10
  10. By: Head, Keith; Mayer, Thierry; Ries, John
    Abstract: The majority of independent nations today were part of empires in 1945. Using bilateral trade data from 1948 to 2006, we examine the effect of independence on post-colonial trade. On average, there is little short run effect of trade with the colonizer (metropole). However, after three decades trade declines more than 60%. We also find that trade between former colonies of the same empire erodes as much as trade with the metropole, whereas trade with third countries exhibits small and unsystematic changes after independence. Hostile separations lead to larger and more immediate reductions. Trade deterioration over extended time periods suggests the depreciation of some form of trading capital such as business networks or institutions.
    Keywords: Colonies; Gravity; Trade
    JEL: F15
    Date: 2008–09
  11. By: Bernard, Andrew; Jensen, J Bradford; Redding, Stephen J; Schott, Peter
    Abstract: Recent research in international trade emphasizes the importance of firms' extensive margins for understanding overall patterns of trade as well as how firms respond to specific events such as trade liberalization. In this paper, we use detailed U.S. trade statistics to provide a broad overview of how the margins of trade contribute to variation in U.S. imports and exports across trading partners, types of trade (i.e., arm's-length versus related-party) and both short and long time horizons. Among other results, we highlight the differential behavior of related-party and arm's-length trade in response to the 1997 Asian financial crisis.
    Keywords: heterogeneous firms; product differentiation; product market entry and exit
    JEL: F1
    Date: 2009–02
  12. By: Antràs, Pol; Staiger, Robert
    Abstract: The rise of offshoring of intermediate inputs raises important questions for commercial policy. Do the distinguishing features of offshoring introduce novel reasons for trade policy intervention? Does offshoring create new problems of global policy cooperation whose solutions require international agreements with novel features? Can trade agreements that are designed to address problems that arise when trade predominantly takes the form of the exchange of final goods be expected to perform in a world where offshoring is prevalent? In this paper we provide answers to these questions, and thereby initiate the study of trade agreements in the presence of offshoring. We do so by deriving the Nash and internationally efficient trade policy choices of governments in an environment in which some trade flows involve the exchange of customized inputs, contracts governing these transactions are incomplete, and the matching between final-good producers and input suppliers may involve search frictions. By characterizing the differences between Nash and internationally efficient policies in this environment, and by comparing these differences to those that would arise in the absence of offshoring of customized inputs, we seek to understand the implications of offshoring for the role of trade agreements. Our findings indicate that the rise of offshoring is likely to complicate the task of trade agreements, because in the presence of offshoring, (i) the mechanism by which countries can shift the costs of intervention on to their trading partners is more complicated and extends to a wider set of policies than is the case when offshoring is not present, and (ii) because the underlying problem that a trade agreement must address in the presence of offshoring varies with the political preferences of member governments. As a consequence, the increasing prevalence of offshoring is likely to make it increasingly difficult for governments to rely on simple and general rules - such as reciprocity and non-discrimination - to help them solve their trade-related problems.
    Keywords: incomplete contracts; inefficiency; matching; offshoring; trade agreements
    JEL: D02 F02 F13 F5
    Date: 2008–09
  13. By: Francois, Joseph; Wignaraja, Ganeshan
    Abstract: The Asian countries are once again focused on options for large, comprehensive regional integration schemes. In this paper we explore the implications of such broad-based regional trade initiatives in Asia, highlighting the bridging of the East and South Asian economies. We place emphasis on the alternative prospects for insider and outsider countries. We work with a global general equilibrium model of the world economy, benchmarked to a projected 2017 sets of trade and production patterns. We also work with gravity-model based estimates of trade costs linked to infrastructure, and of barriers to trade in services. Taking these estimates, along with tariffs, into our CGE model, we examine regionally narrow and broad agreements, all centered on extending the reach of ASEAN to include free trade agreements with combinations of the northeast Asian economies (PRC, Japan, Korea) and also the South Asian economies. We focus on a stylized FTA that includes goods, services, and some aspects of trade cost reduction through trade facilitation and related infrastructure improvements. What matters most for East Asia is that China, Japan, and Korea be brought into any scheme for deeper regional integration. This matter alone drives most of the income and trade effects in the East Asia region across all of our scenarios. The inclusion of the South Asian economies in a broader regional agreement sees gains for the East Asian and South Asian economies. Most of the East Asian gains follow directly from Indian participation. The other South Asian players thus stand to benefit if India looks East and they are a part of the program, and to lose if they are not. Interestingly, we find that with the widest of agreements, the insiders benefit substantively in terms of trade and income while the aggregate impact on outside countries is negligible. Broadly speaking, a pan-Asian regional agreement would appear to cover enough countries, with a great enough diversity in production and incomes, to actually allow for regional gains without substantive third-country losses. However, realizing such potential requires overcoming a proven regional tendency to circumscribe trade concessions with rules of origin, NTBs, and exclusion lists. The more likely outcome, a spider web of bilateral agreements, carries with it the prospect of signficant outsider costs (i.e. losses) both within and outside the region.
    Keywords: ASEAN; Asian FTAs; gravity model of services; preferential trade; regionalism; trade costs and infrastructure
    JEL: F13 F17
    Date: 2008–09
  14. By: de Melo, Jaime; Ivlevs, Artjoms
    Abstract: This paper explores the links between the patterns of migration (high vs. low-skill), trade policy, and foreign direct investment (FDI) from the standpoint of sending countries. A skeleton general equilibrium model with a non-traded good and sector-specific labour is used to explore the effects of the skill-composition of exports on FDI. The model suggests that if exports are low-skill intensive, emigration of high- skill labour leads to positive FDI, suggesting that migration and FDI are complements. Cross-sectional analysis using FDI and emigration data for 103 migration-sending countries over the period 1990-2000 finds some support for this conjecture.
    Keywords: Brain Drain; FDI; Migration; Trade
    JEL: F13 F16 F22
    Date: 2008–10
  15. By: Mrazova, Monika; Vines, David; Zissimos, Ben
    Abstract: This paper shows that the WTO's Article XXIV increases the likelihood of free trade, but may worsen world welfare when free trade is not reached and customs unions (CUs) form. We consider a model of many countries. Article XXIV prevents a CU from raising its common external tariff, which makes CU formation less attractive and explains why free trade is more likely. In an equilibrium where two CUs do form, one is necessarily larger than the other. We show that Article XXIV has a 'composition effect' on CU formation, whereby CUs are (endogenously) less asymmetric in size so more goods are subject to tariff distortions as they move between CUs; thus Article XXIV may be 'bad' for world welfare.
    Keywords: Coalition formation game; customs union; protection; trade block; trade liberalization
    JEL: F02 F13 F15
    Date: 2009–01
  16. By: Barba Navaretti, Giorgio; Faini, Riccardo; Tucci, Alessandra
    Abstract: This paper examines whether the export decision of firms is affected by their ownership structure, specifically it looks at whether family control is an obstacle to entering foreign markets. The underlying assumption is that family firms are risk averse. Risk aversion may be an obstacle to entering foreign markets, as far as these are perceived as more volatile and risky than the domestic one, particularly when such choice entices bearing relatively high sunk costs. We develop an illustrative theoretical model that shows how the combination between high risk aversion and low initial productivity may hinder family firms’ decision to enter foreign markets, particularly distant ones. The empirical analysis, based on a detailed panel data set of Italian firms covering the years from 1995 to 2003, confirms such predictions by showing that family controlled firms do indeed export less than other type of companies even after controlling for firm heterogeneity in productivity, size, technology and access to credit.
    Keywords: exports; family firms; firm structure; foreign markets
    JEL: F1 F14 L2
    Date: 2008–12
  17. By: Åkerman, Anders (Research Institute of Industrial Economics (IFN)); Forslid, Rikard (Stockholm University)
    Abstract: This paper introduces a market size dependent firm entry cost into the Melitz (2003) model. This is a relatively small generalisation, which preserves the analytical solvability of the model. Nevertheless, our model yields several new results that are in line with data. First, the average productivity of firms located in a market increases in the size of the market. Second, the productivity of exporters is U-shaped with reference to export market size. Third, the productivity premium (the difference in average productivity) between exporters and non-exporters decreases in the home country size. Fourth, we derive a set of new results related to trade volume. It is shown that when the fixed entry cost of exporting declines, for instance as the result of economic integration, export shares converge. This prognosis is supported by the empirical section of the paper. Fifth, we use a multicountry version of our model to derive a gravity equation. Our specification yields a gravity equation à la Anderson and van Wincoop (2003), but where GDP per capita enters as an additional explanatory variable.
    Keywords: Heterogenous Firms; Market Size; Beachhead Costs
    JEL: D21 F12 F15
    Date: 2009–02–23
  18. By: Okubo, Toshihiro; Picard, Pierre M; Thisse, Jacques-François
    Abstract: The aim of this paper is to study the spatial selection of firms once it is recognized that heterogeneous firms typically choose different locations in respond to market integration of regions having different sizes. Specifically, we show that decreasing trade costs leads to the gradual agglomeration of efficient firms in the large region because these firms are able to survive in a more competitive environment. In contrast, high-cost firms seek protection against competition from the efficient firms by establishing themselves in the small region. However, when the spatial separation of markets ceases to be a sufficient protection against competition from the low-cost firms, high-cost firms also choose to set up in the larger market where they have access to a bigger pool of consumers. This leads to the following prediction: the relationship between economic integration and interregional productivity differences first increases and then decreases with market integration.
    Keywords: firm heterogeneity; spatial selection; trade liberalization
    JEL: F12 H22 H87 R12
    Date: 2008–09
  19. By: Nocke, Volker; Yeaple, Stephen R
    Abstract: We develop a theory of multiproduct firms to analyze the effects of globalization on the distributions of firm size, scope, and productivity. In the model, firms are heterogeneous in how well they cope with expanding their product range. The model generates a negative relationship between firm size and market-to-book ratio, thus explaining the "size-discount puzzle" found in the data. Globalization induces a merger wave that leads to an improvement in average productivity. This improvement is not due to selection effects but rather due to product-level productivity effects. The model predicts that globalization leads to a flattening of the size distribution of firms.
    Keywords: firm heterogeneity; firm size distribution; merger wave; multiproduct firms; productivity; size discount; trade liberalization
    JEL: F12 F15
    Date: 2008–08
  20. By: Limão, Nuno; Tovar, Patricia
    Abstract: Why do governments employ inefficient policies to redistribute income towards special interest groups (SIGs) when more efficient ones are available? To address this puzzle we derive and test predictions for a set of policies where detailed data is available and an efficiency ranking is feasible: tariffs vs. non-tariff barriers (NTBs). In our policy choice model a government bargaining with domestic SIGs can gain by constraining tariffs through international agreements even if this leads to the use of the less efficient NTBs. This generates two key testable predictions (i) there is imperfect policy substitution, i.e. tighter tariff constraints are not fully offset by the higher NTBs they generate and (ii) the decision to commit to constraints depends on the government's bargaining power relative to SIGs. Using detailed data, we confirm that tariff constraints in trade agreements increase the likelihood and restrictiveness of NTBs. We also provide a structural estimate that indicates NTBs are less efficient than the tariffs they imperfectly replace. Moreover, we find parametric and non-parametric evidence that the higher the government bargaining power relative to a SIG the more relaxed the tariff constraint it chooses. This result is stronger for organized industries, which further supports the theory. The main theoretical insights and empirical approach can be applied to other policies to provide additional evidence on inefficient redistribution.
    Keywords: bargaining; commitment; Inefficient redistribution; lobbies; non-tariff barrier; PTA; tariff; trade; WTO
    JEL: C7 D7 F13 H2
    Date: 2009–02
  21. By: Diego Puga (IMDEA Social Sciences, Universidad Carlos III de Madrid, and CEPR); Daniel Trefler (Rotman School of Management and Department of Economics, University of Toronto)
    Abstract: Increasingly, a small number of low-wage countries such as China and India are involved in incremental innovation. That is, they are responsible for resolving production line bugs and suggesting product improvements. We provide evidence of this new phenomenon and develop a model in which there is a transition from old style product cycle trade to trade involving incremental innovation in low-wage countries. The model explains why levels of involvement in incremental innovation vary across low-wage countries and across firms within each low-wage country. We draw out implications for sectoral earnings, living standards, the capital account and, foremost, international trade in goods.
    Keywords: international trade; low-wage country innovation
    JEL: F1
    Date: 2009–01–27
  22. By: Antràs, Pol; Rossi-Hansberg, Esteban
    Abstract: We survey an emerging literature at the intersection of organizational economics and international trade. We argue that a proper modelling of the organizational aspects of production provides valuable insights on the aggregate workings of the world economy. In reviewing the literature, we describe certain predictions of standard models that are affected or even overturned when organizational decisions are brought into the analysis. We also suggest potentially fruitful areas for future research.
    Keywords: comparative advantage; contractual frictions; fragmentation; internalization; matching; offshoring; organizations; outsourcing; technology; wage inequality
    JEL: D23 E25 F10 F23 L23
    Date: 2008–09
  23. By: de Melo, Jaime; Portugal-Pérez, Alberto
    Abstract: The EU and the US offer similar preferential market access for apparel exports to a group of African countries. These agreements differ in their product-specific rules of origin (PSRO). While EBA and Cotonou require yarn to be woven into fabric and then made-up into apparel in the same country or in a country qualifying for cumulation (double transformation), AGOA grants a special regime (SR) to “lesser developed countries” allowing them the use of fabric from any origin and still meet the criteria for preferences (single transformation). Using several estimation methods, this paper contrasts export performance to the US and EU markets and attributes an increase in export volume of about 300% for the top seven beneficiaries of AGOA’s SR to differences in respective PSRO and also an increase in the number of products exported.
    Keywords: AGOA; EBA; Regional Integration; Rules of Origin
    JEL: F12 F13 F15
    Date: 2008–12
  24. By: Lehmann, Sibylle H.; O'Rourke, Kevin H
    Abstract: Many papers have explored the relationship between average tariff rates and economic growth, when theory suggests that the structure of protection is what should matter. We therefore explore the relationship between economic growth and agricultural tariffs, industrial tariffs, and revenue tariffs, for a sample of relatively well-developed countries between 1875 and 1913. Industrial tariffs were positively correlated with growth. Agricultural tariffs were negatively correlated with growth, although the relationship was often statistically insignificant at conventional levels. There was no relationship between revenue tariffs and growth.
    Keywords: growth; history; tariffs
    JEL: F13 F43 N10 N70 O49
    Date: 2008–11
  25. By: Redding, Stephen J
    Abstract: This paper reviews the new economic geography literature, which accounts for the uneven distribution of economic activity across space in terms of a combination of love of variety preferences, increasing returns to scale and transport costs. After outlining the canonical core and periphery model, the paper examines the empirical evidence on three of its central predictions: the role of market access in determining factor prices, the related home market effect in which demand has a more than proportionate effect on production, and the potential existence of multiple equilibria. In reviewing the evidence, we highlight issues of measurement and identification, alternative potential explanations, and remaining areas for further research.
    Keywords: Home Market Effect; Market Access; Multiple Equilibria; New Economic Geography
    JEL: F12 F14 O10
    Date: 2009–01
  26. By: Briant, Anthony; Combes, Pierre-Philippe; Lafourcade, Miren
    Abstract: This paper evaluates, in the context of economic geography estimates, the magnitude of the distortions arising from the choice of zoning system, which is also known as the Modifiable Areal Unit Problem (MAUP). We consider three standard economic geography exercises (the analysis of spatial concentration, agglomeration economies, and trade determinants), using various French zoning systems differentiated according to the size and shape of spatial units, which are the two main determinants of the MAUP. While size matters a little, shape does so much less. Both dimensions seem to be of secondary importance compared to specification issues.
    Keywords: agglomeration; concentration; gravity; MAUP; wage equation
    JEL: C10 C43 O18 R12 R23
    Date: 2008–08
  27. By: Marina Murat; Sara Flisi
    Abstract: This paper studies the effects of migration on the bilateral FDI of five European countries, Germany, Italy, France, UK and Spain. It is based on five datasets with time spans going from 1990 to 2006. It analyses the impacts of skilled and less-skilled immigrants, of skilled networks from developed and developing countries and, for Italy and Spain, of emigrants. Results are that skilled immigrants, originating from both developed and developing countries, have positive and robust effects on the bilateral FDI of UK, Germany and France. The FDI of Italy and Spain are influenced by their respective diasporas.
    Keywords: migration; networks; diasporas; FDI
    JEL: F21 F22 F23
    Date: 2009–02

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