nep-int New Economics Papers
on International Trade
Issue of 2009‒03‒22
fourteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Trade-FDI Linkages in a System of Gravity Equations for German Regional Data By Timo Mitze; Björn Alecke; Gerhard Untiedt
  2. International Trade and Economic Diversification: Patterns and Policies in the Transition Economies By Michael Landesmann
  3. Trade, Markup Heterogeneity and Misallocations By Epifani, Paolo; Gancia, Gino A.
  4. A test of trade theories when expenditure is home biased By Marius Brülhart; Federico Trionfetti
  5. How Do Firms Organize Trade? Evidence from Ghana By Jens Krüger
  6. Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement By Julian di Giovanni; Andrei A. Levchenko
  7. International Trade in Used Vehicles: The Environmental Consequences of NAFTA By Lucas W. Davis; Matthew E. Kahn
  8. EU Trade Barriers in the Agri-food Sector: When Protection Breeds Dependence By Cadot, Olivier; Gallezot, Jacques; Suwa Eisenmann, Akiko
  9. International Trade with Firm Heterogeneity in Factor Shares By Julian Emami Namini
  10. Computational Analysis of APEC Trade Liberalization By Kozo Koyota; Robert M. Stern
  11. Non-tariff measures and Indian textiles and clothing exports By Gordhan K. Saini
  12. Profit Shifting and Trade Agreements in Imperfectly Competitive Markets By Kyle Bagwell; Robert W. Staiger
  13. International Trade and Institutional Change By Andrei A. Levchenko
  14. East is East and West is West: A Ricardian-Heckscher-Ohlin Model of Comparative Advantage By Peter M. Morrow

  1. By: Timo Mitze; Björn Alecke; Gerhard Untiedt
    Abstract: We analyse the nature of German trade-FDI linkages within the EU27 based on a simultaneous equation gravity approach for imports, exports, in- and outward FDI stocks.We adopt both a Hausman-Taylor (1981) IV approach (3SLS-GMM) and rival non-IV estimation (the system extension to the Fixed Effects Vector Decomposition model recently proposed by Plümper & Tröger, 2007).Turning to the results, both estimators give empirical support for our chosen gravity setup as an appropriate framework in explaining German trade and FDI activity. Looking carefully at cross-variable linkages we basically find substitutive links between trade flows and outward FDI in line with earlier empirical evidence for Germany. Building upon German state level data we are also able to analyse the sensitivity of the results for regional sub-samples. The latter disaggregation hints at structural differences among the trade and FDI activity of the twoWest and East German macro regions on the one hand, and also their interaction with the ’core’ EU15 member states opposed to the overall EU27 aggregate on the other hand.TakingWest German–EU27 trade & FDI as an example, the identified pairwise linkages closely follow the theoretical predictions of New Trade Theory models as in Baldwin & Ottaviano (2001): That is, when trade is merely of intra-industry type with non-zero trade costs,we observe export replacement effects of FDI.However, at the same time outward FDI stimulates trade via reverse good imports. For the West German–EU15 sub-sample we even reveal complementaries among export and outward FDI activity.This strongly advocates to care for the regional dimension in analysing cross-variable linkages of trade and FDI.
    Keywords: Trade, FDI, panel data, simultaneous equations
    JEL: C33 F14 F21
    Date: 2009–01
  2. By: Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This report counter-poses the patterns of trade specialization and trade diversification of two groups of economies: the new member states of the European Union, NMS, and the follower countries of the Soviet Union, the NIS (Newly Independent States). It is shown that the NIS export structures are characterized by an exceptionally high degree of concentration and a very strong specialization in trade with the EU (towards fuel, metals, and - for a sub-group of NIS economies - labour-intensive commodities). The NMS economies show a much more diversified export structure, there is more evidence for upgrading. There is, furthermore, a discussion of differences of trade structures with respect to EU markets, intra-NIS trade and trade with the Rest of the World. We discuss reasons for the differences in the degree of export concentration and patterns of trade specialization between the two groups of economies, particularly the link to institutional and reform processes, as well as potential policy options for NIS economies.
    Keywords: trade specialization, trade diversification, NIS economies, New Member States
    JEL: F1 F10 F14 P23 P27 P33
    Date: 2008–12
  3. By: Epifani, Paolo; Gancia, Gino A.
    Abstract: Markups vary widely across industries and countries, their heterogeneity has increased overtime and asymmetric exposure to international trade seems partly responsible for this phenomenon. In this paper, we study how the entire distribution of markups affects resource misallocation and welfare in a general equilibrium framework encompassing a large class of models with imperfect competition. We then identify conditions under which trade opening, by changing the distribution of markups, may reduce welfare. Our approach is novel both in its generality and in the emphasis on the second moment of the markup distribution. Two broad policy recommendations stand out from the analysis. First, whenever there is heterogeneity in markups, be it due to trade or other distortions, there is also an intersectoral misallocation, so that the equilibrium can be improved upon with an appropriate intervention. This suggests that trade liberalization and domestic industrial policy are complementary. Second, ensuring free-entry is a crucial pre-condition to prevent adverse effects from asymmetric trade opening.
    Keywords: Dispersion of Market Power; Markups; Procompetitive Effect; Trade and Welfare
    JEL: F12 F15
    Date: 2009–03
  4. By: Marius Brülhart (HEC - LAUSANNE - École des HEC, Université de Lausanne Département d'économétrie et économie politique - Université de Lausanne); Federico Trionfetti (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579)
    Abstract: We develop a criterion to distinguish two dominant paradigms of international trade theory: homogeneous-goods perfectly competitive models, and differentiated-goods monopolistically competitive models. Our analysis makes use of the pervasive presence of home-biased expenditure. It predicts that countries' relative output and their relative home biases are positively correlated in differentiated-goods sectors (the “home-bias effect”), while no such relationship exists in homogeneous-goods sectors. This discriminating criterion turns out to be robust to a number of generalisations of the baseline model. Our empirical results, based on a world-wide cross-country data set, suggest that the differentiated-goods model fits particularly well for the machinery, precision engineering and transport equipment industries, which account for some 40 percent of sample manufacturing output.
    Keywords: international specialisation ; new trade theory ; home-market effects ; border effects
    Date: 2009–03–08
  5. By: Jens Krüger
    Abstract: The literature on firm heterogeneity in international trade posits that only the most productive firms become exporters (Melitz 2003). However, empirical findings suggest that also firms that are not highly productive export. This paper investigates empirically how firms organize their export trade. If selling directly, sunk costs of foreign market entry are arguably very high, so only productive firms can achieve this (Schroeder et al. 2003). Low productivity firms, by contrast, may prefer to export through trading companies, which involves lower sunk costs. Using a firm level panel data set of Ghanaian firms we investigate the relationship between firm productivity and the use of export intermediaries. Our estimation results take simultaneity problems into account and reveal that indeed low productivity firms tend to export through intermediaries
    Keywords: export intermediation, firm productivity
    JEL: D21 F14 L22
    Date: 2009–02
  6. By: Julian di Giovanni (International Monetary Fund); Andrei A. Levchenko (University of Michigan)
    Abstract: A well established empirical result is that countries that trade more with each other exhibit higher business cycle correlation. This paper examines the mechanisms underlying this relationship using a large cross-country industry-level panel dataset of manufacturing production and trade. We show that higher bilateral trade in an individual sector increases both the co-movement within the sector between trading countries, as well as the comovement between that sector and the rest of the economy of the trading partner. We also demonstrate that vertical linkages in production are an important force behind the overall impact of trade on business cycle synchronization. The elasticity of comovement with respect to bilateral trade is significantly higher in industry pairs that use each other as intermediate inputs in production. Our estimates imply that vertical production linkages account for some 30% of the total impact of bilateral trade on business cycle correlation for our full country sample. Finally, the positive impact of trade on industry-level comovement is far more pronounced in the North-North country pairs compared to either the South-South or North-South country pairs. However, the relative contribution of vertical linkages to aggregate comovement is roughly three times greater for North-South trade than North-North trade.
    Keywords: trade, institutional change
    Date: 2008–09
  7. By: Lucas W. Davis (University of Michigan); Matthew E. Kahn (University of California, Los Angeles)
    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-chomothetic preferences. In autarky, 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 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.
    Keywords: trade, environment, NAFTA, consequences
    Date: 2009–01
  8. By: Cadot, Olivier; Gallezot, Jacques; Suwa Eisenmann, Akiko
    Abstract: This paper looks for firm-level evidence that high rates of protection breed concentration of firm activities into highly protected sectors, endogenously generating vested interests in the maintenance of protection. We combine data on the EU’s trade protection for food and agricultural products measured by ad-valorem equivalents (AVEs) with survey data on France’s agri-food sector to show that indeed, small and mid-size firms and cooperatives in that sector are heavily concentrated in product lines protected by tariff-rate quotas (TRQs) at high rates. Those firms and cooperatives can be expected to be at the forefront of resistance to multilateral tariff cuts, in particular in the meat and dairy sectors. Overcoming their resistance would call for targeted adjustment assistance.
    Keywords: agriculture; concentration; trade protection
    JEL: F13
    Date: 2009–03
  9. By: Julian Emami Namini (Erasmus School of Economics, Erasmus University Rotterdam)
    Abstract: This paper presents a trade model with capital and labor as factors of production. The main contribution of this paper is that it considers a new type of firm heterogeneity, which is empirically relevant: firms in this paper differ with respect to their factor shares in production. Therefore, this paper addresses the following four empirical facts on globalization, firms’ factor shares and factor prices: (i) firms within narrowly defined industries exhibit a large degree of heterogeneity in factor shares in production; (ii) exporters are, on average, more capital intensive than non—exporters; (iii) globalization decreases labor’s share in national income; (iv) the larger the share of exporters in the industry, the larger the increase in the industry’s wages due to globalization.
    Keywords: two—factor trade model; firm heterogeneity in factor shares
    JEL: F12 L11
    Date: 2009–02–24
  10. By: Kozo Koyota (Research Seminar in International Economics, University of Michigan); Robert M. Stern (University of Michigan, Ann Arbor)
    Abstract: In this study, we use the Michigan Model of World Production and Trade to analyze the economic welfare effects of APEC free trade, unilateral free trade for individual APEC members, and global free trade for all countries/regions covered in the Michigan Model. The Michigan Model is a multi-country, multi-sectoral computational general equilibrium (CGE) model of the global trading system. The version of the model used includes 31 countries/regions plus the rest-of-world and 27 sectors in each country/region. Nineteen APEC members are covered. The computational results suggest that APEC free trade would result in sizable increases in the economic welfare of the individual APEC members in both absolute terms and as a percentage of GDP. There would be trade diversion effects for non-APEC countries, except for the Rest of Middle East. Unilateral free trade for the APEC members would result in larger welfare gains as compared to APEC free trade for 7 of the 19 APEC members. The welfare benefits of APEC free trade are thus larger for more APEC members than unilateral free trade. Finally, global (multilateral) free trade by all of the countries/regions covered in the Michigan Model suggests much larger benefits for all APEC members compared to APEC free trade and APEC unilateral free trade. While global free trade is a limiting case, the computational results presented are testimony to the significant welfare benefits that could be realized from successful pursuit of future multilateral trade liberalization.
    Keywords: APEC, trade
    Date: 2008–06
  11. By: Gordhan K. Saini (Indira Gandhi Institute of Development Research)
    Abstract: This paper provides some important indicators of non-tariff measures in Indian textiles and clothing exports. The paper identifies major trading partners and HS codes to study the impact of Non Taiff Measures (NTMs) on Indian exports. First, using count measures i.e. frequency and coverage ratios, suggests that more than 60 of export value is affected by the NTMs in USA, EU-25 and Canada at various points in time. Second, it calculates Ad-Valorem Equivalents using price differential methods which are imposed in the SMART model under the partial equilibrium framework to know the trade impact of NTMs. A total trade loss of about billion 2.34 US$ 16.8 of base trade value is estimated, while the zero tariff gains are roughly billion 1.36 US$ that's 9.8 of base trade. Also this paper develops the framework for the primary research in the field of Non-Tariff Measures.
    Keywords: Non-Tariff Barriers, Ad-Valorem Equivalents of Non-Tariff Measures
    JEL: F10 F13 F14
    Date: 2009–03
  12. By: Kyle Bagwell; Robert W. Staiger
    Abstract: When markets are imperfectly competitive, trade policies can alter the terms of trade, shift profits from one country to another, and moderate or exacerbate existing distortions that are associated with the presence of monopoly power. In light of the various ways in which trade policies may influence welfare, it might be expected that new rationales for trade agreements would arise once imperfectly competitive markets are allowed. In this paper, we consider several trade models that feature imperfectly competitive markets and argue that the basic rationale for a trade agreement is, in fact, the same rationale that arises in perfectly competitive markets. In all of the models that we consider, and whether or not governments have political-economic objectives, the only rationale for a trade agreement is to remedy the inefficient terms-of-trade driven restrictions in trade volume. Having identified the problem that a trade agreement might solve, we next evaluate the form that an efficiency-enhancing trade agreement might take. Here, too, our results parallel the results established previously for models with perfectly competitive markets. In particular, we show that the principles of reciprocity and non-discrimination (MFN) are efficiency enhancing, as they serve to "undo" the terms-of-trade driven restrictions in trade volume that occur when governments pursue unilateral trade policies.
    JEL: F12 F13
    Date: 2009–03
  13. By: Andrei A. Levchenko (University of Michigan)
    Abstract: This paper analyzes the impact of international trade on the quality of institutions, such as contract enforcement, property rights, or investor protection. It presents a model in which institutional differences play two roles: they create rents for some parties within the economy, and they are a source of comparative advantage in trade. Institutional quality is determined in a Grossman-Helpman type lobbying game. When countries share the same technology, there is a race to the top" in institutional quality: irrespective of country characteristics, both trade partners are forced to improve institutions after opening. On the other hand, domestic institutions will not improve in either trading partner when one of the countries has a strong enough technological comparative advantage in the good that relies on institutions. We test these predictions in a sample of 141 countries, by extending the geography-based methodology of Frankel and Romer (1999). Countries whose exogenous geographical characteristics predispose them to exporting in institutionally intensive sectors enjoy significantly higher institutional quality.
    Keywords: trade, institutional change
    Date: 2008–09
  14. By: Peter M. Morrow (University of Toronto)
    Abstract: Models of comparative advantage are usually based either on differences in factor abundance or differences in total factor productivity within a country despite considerable empirical evidence that both matter. This paper articulates a unified and tractable model in which comparative advantage exists due to differences in factor abundance and relative productivity differences across a continuum of industries with monopolistic competition and increasing returns to scale. I provide evidence that both sources of comparative advantage shape international production patterns. In addition, I find that relative productivity differences across industries are uncorrelated with the factor intensities of these industries. Therefore, each of the two forces for comparative advantage offers valid partial descriptions of the data. Consequently, simply aggregating the predictions of the factor abundance-based and relative productivity-based models can be used to obtain a full description of industry-by-industry production patterns.
    Date: 2008–01

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.
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