nep-int New Economics Papers
on International Trade
Issue of 2009‒06‒03
ten papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. The selection effect of two-way trade in the Melitz model: an alternative approach By Potin, Jacques
  2. Trade Intermediation and the Organization of Exporters By Gabriel Felbermayr; Benjamin Jung
  3. Matching, Quality Upgrading, and Trade between Heterogeneous Firms By Yoichi Sugita
  4. Innovation Promotion and Learning in International Trade: the Case of Colombian Manufacturing Exports By Simon Teitel
  5. Superiority of Exporters and the Causality Between Exporting and Firm Characteristics in Vietnam By Nguyen Hiep; Hiroshi Ohta
  6. WTO Membership and the Extensive Margin of World Trade: New Evidence By Gabriel Felbermayr; Wilhelm kohler
  7. Tacit Collusion over Foreign Direct Investment under Oligopoly By Collie, David R.
  8. Ethnic Networks, Information, and International Trade: Revisiting the Evidence By Gabriel Felbermayr; Benjamin Jung; Farid Toubal
  9. South-North Integration, Outsourcing and Skills By Michael Landesmann; Robert Stehrer
  10. Product Specialization in International Trade: A Further Investigation By Cong S. Pham

  1. By: Potin, Jacques (ESSEC Business School)
    Abstract: This paper studies the influential Melitz model of trade with heterogeneous firms using an alternative, intuitive approach. Contrary to what is often argued, it is an increase in product market competition that drives the bad firms out: with two-way trade, entry by foreign firms is not compensated by a “sufficient” reduction in the mass of surviving firms. To illustrate this, we decompose the total effect of trade in two partial effects: a domestic-profit-reducing effect due to foreign market penetration by the most productive firms; an average-profit-reducing effect due to the payment of the fixed export costs. We also provide the new prediction that trade generally leads to (weakly) less entry in the industry. This clarifies key interpretation issues in a prolific literature.
    Keywords: Firm Heterogeneity; Intra-industry Trade; Selection
    JEL: F10 F12
    Date: 2009–04
  2. By: Gabriel Felbermayr; Benjamin Jung
    Abstract: The business literature shows that exporting firms typically require the help of foreign trade intermediaries or need to set up own foreign wholesale affiliates. In contrast, conventional trade theory models assume that producers can directly access foreign consumers. This paper models the endogenous emergence of intermediaries in an international trade model where producers differ with respect to productivity as well as regarding their varieties' perceived quality and tradability. We assume that trade intermediation is prone to frictions due to the absence of enorceable cross-country contracts while own wholesale subsidiaries require capital investment. We derive the sorting pattern of firms according to their degree of competitive advantage and show how the relative prevalence of intermediation depends on the degree of heterogeneity among producers, on the importance of market-specificity of goods, or on expropriation risk. We use US export data for 50 sectors and 133 destination countries to check the empirical validity of this predictions and find robust empirical support. JEL classifcation: F12, F23
    Keywords: Trade intermediation, international trade, heterogeneous rms, incomplete contracts.
  3. By: Yoichi Sugita
    Abstract: This paper analyzes trade between firms that are heterogeneous in product quality in a simple general equilibrium model. The multi-sided heterogeneity of exporters and importers creates a new source of gains from trade. The opening of trade raises the quality of final goods by improving matching of firms. The quality upgrading is decomposed as the short run effect of a reduction in the quality gap among parts and components and the long run effect of intensified competition among suppliers. Under the existence of fixed trade costs, firms' trade pattern is consistent with a variety of stylized facts that have not been explained in the conventional love of variety model. Firms selectively trade with those with similar sizes at similar quality levels. Both exporting and importing are concentrated into large and high quality firms, though not all large and high quality firms engage in trade. Trade in intermediate goods improves the quality of even firms that do not import intermediate goods.
    Keywords: matching, heterogeneous firms, quality, vertical differentiation, trade in inter-mediate goods, offhoring.
    Date: 2009–04
  4. By: Simon Teitel
    Abstract: Colombian manufacturing exporting firms survey results are analyzed highlighting innovation, promotion, and learning, as well as the influence of factors such as: size, ownership, output objectives, destination of exports, competition and pricing, export incentives, and firm configuration, in their export performance.
    Keywords: Manufacturing exports, learning, Colombia, export incentives, preferences, industrialization, import substitution, innovation, international trade, industrial organization.
    JEL: D21 D24 D40 F10 F13 L10 L52 O10 O14 O24
    Date: 2008–06
  5. By: Nguyen Hiep (Research Institute for Economics and Business Administration, Kobe University); Hiroshi Ohta (Graduate School of International Cooperation Studies (GSICS), Kobe University)
    Abstract: The study in this paper is on the causal relationship between export activities of firms and their characteristics in a transition country that is pursuing export-led growth strategies and experiencing a fast track of trade liberalization. For this purpose, we examine the superiority of exporters using a panel of firm-level data of manufacturing firms in Vietnam. We observe that exceptional performance of exporters, especially in TFP, does prevail in this country. Via testing self-selection hypothesis using a random-effects dynamic probit model to examine the causality from firm characteristics to export probability, we find significantly positive impacts of factors such as firm size, age or foreign ownership but not that of TFP. However, TFP superiority of exporters is satisfactorily explained by the existence of learning-by-exporting effects that are tested in a multivariate analysis using matching technique in combination with difference-in-differences approach. Besides contributing an empirical analysis to heterogeneous-firm trade theories, this study gives us some insights into the interpretation of mixed findings in macro-analysis of the effects of exports on growth in Vietnam.
    Keywords: Exporter superiority, self-selection, learning-by-exporting, Vietnam
    JEL: F10 F14 F43 D21 D24 L20 L60
    Date: 2009–03
  6. By: Gabriel Felbermayr; Wilhelm kohler
    Abstract: Recent literature has argued that, contrary to the results of a seminal paper by Rose (2004), WTO membership does promote bilateral trade, at least for developed economies and if membership includes non-formal compliance. We review the literature in order to identify open issues. We then develop the simplest possible "corner-solutions" version of the gravity model which serves as a framework to readdress these issues. We focus on the extensive margin of trade that separates positive-trade from zero-trade country pairs. We argue that the model can be consistently estimated using Poisson pseudo-maximum-likelihood methods with exporter and importer fixed effects. We account for coding issues and the potential heterogeneity of the WTO membership which recent contributions have stressed. While we find that WTO membership increases the likelihood that a given country pair trades, we do not find that the extensive margin has a strong and systematic effect on the average trade-creating potential of the WTO. JEL classifcation: F12, F13
    Keywords: gravity approach, WTO, monopolistic competition, real trade costs
  7. By: Collie, David R. (Cardiff Business School)
    Abstract: A two-country model of the FDI versus export decisions of firms is analysed. The analysis considers both the Cournot duopoly and the Bertrand duopoly models with differentiated products. It is shown that the static game is often a prisoners' dilemma where both firms are worse off when they both undertake FDI. To avoid the prisoners' dilemma, in an infinitely-repeated game, the firms can collude over their FDI versus export decisions. Then, a reduction in trade costs may lead firms to switch from exporting to undertaking FDI when trade costs are relatively high. Also, collusion over FDI may increase welfare.
    Keywords: Collusion; Trade Liberalisation; Foreign Direct Investment; Cournot Oligopoly; Bertrand Oligopoly; Infinitely-Repeated Game
    JEL: F12 F23 L13 L41
    Date: 2009–06
  8. By: Gabriel Felbermayr; Benjamin Jung; Farid Toubal
    Abstract: Influential empirical work by Rauch and Trindade (REStat, 2002) finds that Chinese ethnic networks of the magnitude observed in Southeast Asia increase bilateral trade by at least 60%. We argue that this estimate is upward biased due to omitted variable bias. Moreover, it is partly related to a preference effect rather than to enforcement and/or the availability of information. Applying a theory-based gravity model to ethnicity data for 1980 and 1990, and focusing on pure network effects, we find that the Chinese network leads to a more modest amount of trade creation of about 15%. Using new data on bilateral stocks of migrants from the World Bank for the year of 2000, we extend the analysis to all potential ethnic networks. We find, i.a., evidence for a Polish, a Turkish, a Mexican, or an Indian network. While confirming the existence of a Chinese network, its trade creating potential is dwarfed by other ethnic networks.
    Keywords: Gravity model, international trade,network effects, international migration. regression
    JEL: F22 F12
  9. By: Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This paper focuses on the increasing role played by lower- and medium-income countries in the global economy. In particular we look at the role of outsourcing in the process of trade integration of these countries. Further we discuss the impact of these integration patterns upon labour markets with a focus on the position of different skill groups of workers. The paper provides descriptive evidence on the changes in trade patterns over the past decades, distinguishing between product types (primary, processed, parts and final goods) and the sectoral structure (i.e. industry groups according to skill intensity). The paper reveals that there is an upward pressure in the skill content of exports to the EU in particular from low- and medium-income economies. The observed changes in skill content and in the shares of imports by these economies particularly for processed inputs and parts production are interpreted in a catching-up framework combined with outsourcing: High-income countries lose market shares mainly in processed inputs and parts but less so in final goods. With respect to country groups, especially the new EU member states account for a higher share of imports in EU Northern economies together with the fact that these countries shifted their export structure towards parts. EU Southern countries are more strongly present in processed inputs whereas the Rest of the World countries tend to shift exports towards final goods imports. This confirms the hypothesis that geographic proximity is important for outsourcing activities.
    Keywords: international integration, outsourcing, labor market
    JEL: F14 F15 F16
    Date: 2009–02
  10. By: Cong S. Pham (Deakin University)
    Abstract: In an influential paper, Schott (2004) makes two empirical observations about U.S. imports. (1) The United States is increasingly sourcing the same product (however narrowly defined) from both developed and developing countries. That is, ‘across-product specialization’ has been decreasing. (2) The unit values of these multiple-sourced products are positively and significantly correlated with the capital and skill abundance of exporters and with the capital-labor ratios used by exporters. That is, endowments-driven ‘within-product specialization’ has been increasing. We show that both these observations extend to the imports of Brazil, India and Japan. However, our main finding is that observation (1) is largely driven by two factors. First, China is the dominant low-wage exporter of multiple-sourced products. Second, the most developed countries remain the primary exporters of multiple-sourced products. The U.S. case is the most extreme of our four importers: When China is deleted from the U.S. import data there is no trend in across-product specialization and rich exporters are increasing their trade share of multiple-sourced products. Since deleting China has no theoretical justification, these results must be viewed not as a contradiction of Schott’s work but as a way of deepening our understanding of his empirical results.
    Keywords: China, Heckscher-Ohlin Model, International Trade, Multiple Sourcing and Product Specialization
    JEL: F11 F2
    Date: 2007–12–14

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