nep-int New Economics Papers
on International Trade
Issue of 2009‒06‒10
nine papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. What explains the low survival rate of developing country export flows ? By Brenton, Paul; Saborowski, Christian; von Uexkull, Erik
  2. The Chinese Export Bundles: Patterns, Puzzles and Possible Explanations By Zhi Wang; Shang-Jin Wei
  3. India in the Global and Regional Trade: Determinants of Aggregate and Bilateral Trade Flows and Firms' Decision to Export By T.N. Srinivasan; Vani Archana
  4. Trade, Reallocations and Productivity: A Bridge between Theory and Data in Öresund By Åkerman, Anders
  5. India's Trade Integration, Realising the Potential By Przemyslaw Kowalski; Nora Dihel
  6. Trade Liberalization and Organizational Choice By Paola Conconi; Patrick Legros; Andrew F. Newman
  7. Transition to a Market Economy and Export Performance in Vietnam By Prema-chandra Athukorala
  8. The ASEAN free trade agreement : impact on trade flows and external trade barriers By Calvo-Pardo, Hector; Freund, Caroline; Ornelas, Emanuel
  9. The Cost Competitiveness of Manufacturing in China and India: An Industry and Regional Perspective By Bart Van Ark; Abdul Azeez; Erumban Vivian Chen; Chen Utsav Kumar

  1. By: Brenton, Paul; Saborowski, Christian; von Uexkull, Erik
    Abstract: Successful export growth and diversification require not only entry into new export products and markets, but also the survival and growth of export flows. This paper uses a detailed, cross-country dataset of product level bilateral export flows to illustrate that exporting is an extremely perilous activity and especially so in low-income countries. The authors find that unobserved individual heterogeneity in product-level export flow data prevails despite controlling for a wide range of observed country and product characteristics. This questions previous studies that have used the Cox proportional hazards model to model export survival. The authors estimate a Prentice-Gloeckler model, amended with a gamma mixture distribution summarizing unobserved individual heterogeneity. The empirical results confirm the significance of a range of products as well as country-specific factors in determining the survival of export flows. From a policy perspective, an interesting finding is the importance of learning-by-doing for export survival: experience with exporting the same product to other markets or different products to the same market are found to strongly increase the chance of export survival. A better understanding of such learning effects could substantially improve the effectiveness of export promotion strategies.
    Keywords: Economic Theory&Research,Free Trade,Trade Policy,Emerging Markets,Markets and Market Access
    Date: 2009–06–01
  2. By: Zhi Wang (Indian Council for Research on International Economic Rela); Shang-Jin Wei (Indian Council for Research on International Economic Rela)
    Abstract: China's exports have become increasingly sophisticated. This has generated anxiety in developed countries as the competitive pressure may be increasingly felt outside labor-intensive industries. Using product-level data on exports from different cities within China, this paper investigates the contributing factors to the rising export sophistication. Somewhat surprisingly, neither processing trade nor foreign invested firms are found to play an important role in generating the increased overlap in the export structure between China and high-income countries. Instead, improvement in human capital and government policies in the form of tax-favored high-tech zones appear to be the key in the country's evolving export structure. On the other hand, processing trade, foreign invested firms, and government-sponsored high-tech zones all have contributed significantly to raising the unit values of China's exports within a given product category.
    Keywords: China, India, Export sophistication, Export structure, high-tech zones,human capital
    JEL: F1 F14
  3. By: T.N. Srinivasan (Indian Council for Research on International Economic Rela); Vani Archana (Indian Council for Research on International Economic Rela)
    Abstract: This paper contributes to two strands of literature on empirical models of trade flowsand trade policy. The first and the older strand is that of gravity models of bilateraltrade flows going back to Hans Linneman (1966) and Tinbergen (1962) and its recentapplications, particularly by Adams et al (2003) and De Rosa (2007) in analyzing theimpact of Preferential Trade Agreements (PTAs). Our focus is on applying the gravitymodel to analyze India's trade flows (exports and imports) with its trading partnersaround the world and to examine the impact of various PTAs in which India or itstrading partner or both are members. Clearly this is of interest, since, from 1991 Indiais aggressively negotiating and concluding PTAs of which South Asian preferentialtrade (and later free trade) agreement is the most prominent. We find that India is notwell served by its pursuit of PTAs and should instead push for multilateral tradeliberalisation by contributing to conclusion of the Doha round of negotiations with anagreement beneficial to all WTO members.The second and the more recent strand is the analysis of trade flows using data onexports of individual firms. It is well known that in all countries of the worldrelatively few firms participate in world trade, thus suggesting that characteristics ofa firm (such as its size and productivity) are relevant besides country level barriers ontrade matter for participation in world trade. This strand is rapidly growing. Ours isone of the very few attempts at modeling and estimating the decision of Indian firmson their participation using firm level data. The paper reports on our preliminaryresults. We have also collected primary data from a sample survey of firms to explorethis issue deeper. While these data are yet to be fully analyzed, nevertheless somepreliminary descriptive tables summarizing them are included in an Appendix.
    Keywords: PTAs/RTAs, Non-discriminatory trade liberalisation, Gravity model,Intrabloc trade effect, Trade diversion, Trade creation, Firm heterogeneity,Probability of exporting, Export performance, Logit, Probit, Fixed effect, Random effect, Tobit model, firm-specific effect, sunk cocost, Hazard model
  4. By: Åkerman, Anders (Research Institute of Industrial Economics (IFN))
    Abstract: The paper estimates the causal effect of trade liberalisation on aggregate productivity through mechanisms related to firm selection. The construction of a bridge in 2000 across the Öresund Strait linking Copenhagen with Malmö, Sweden's third largest city, provided a natural experiment with which to analyse this effect. A difference-in-difference methodology is applied using both geographic and sectoral variation in how much the bridge affected export patterns and productivity. Firms based in Malmö raise exports to Denmark substantially, mostly by firms selecting into exporting, and the aggregate productivity in Malmö increases. I find that almost all of Malmö's productivity growth is due to the reallocation of production from less productive to more productive firms. When decomposing the productivity gain, I find that these efficiency gains come mostly from the exit of the least productive firms but also from firms with an above-average productivity that start to export and therefore expand their output share. The two largest sectors in Malmö are wholesale trade and manufacturing. Exports by the wholesale sector in Malmö are strongly affected by the bridge whereas those of manufacturing are not. The productivity effects are also the strongest in the wholesale sector.
    Keywords: Firm Heterogeneity; International Trade; Aggregate Productivity; Natural Experiment
    JEL: F10 F40 L10 R30
    Date: 2009–04–29
  5. By: Przemyslaw Kowalski; Nora Dihel
    Abstract: This study examines economic implications of India’s trade and trade policy reforms during the period from 1990 to 2007. It first describes India’s economic growth and the composition and performance of its trade at the product and broad sector level. Next, recent reforms and the current trade policy stance are assessed and recommendations for further policy reforms are discussed. The impact of India’s openness on its total factor productivity is also addressed. The analysis shows that India has gone a long way in reducing its tariffs on non-agricultural products as well as selected non-tariff barriers and that this had a positive impact on the economy. Nevertheless, moderate to high protection still persists and adds to the hurdles faced by Indian enterprises. Overall, India’s pattern of specialisation is still affected by the pre- 1990s policies; while certain services have recently performed very well, their high reliance on skilled labour and capital means they can only address a small portion of the Indian jobless growth problem. India’s endowment structure and the recent services-dominated export profile suggest that it needs to improve conditions for the development of its manufacturing sector, with a particular emphasis—at this stage—on labour-intensive activities. The remaining goods and services trade barriers combine with domestic red tape, infrastructure bottlenecks and factor markets rigidities that restrict new entry and competition to keep India’s competitiveness, particularly in agriculture and manufacturing, at relatively low levels. In an effort to offset the remaining protection, India has developed a complex system of duty exemption schemes, special investment and establishment rules and special economic zones (SEZs) that provide incentives particularly to exporting firms. The paper argues that, while such a policy can have important demonstration effects, across-the-board reduction of trade and business barriers could have more beneficial economy-wide and export effects.
    Keywords: productivity, trade, services, tariffs, revealed comparative advantage, manufacturing, India, services trade barriers, special economic zones
    Date: 2009–05–19
  6. By: Paola Conconi (Universite Libre de Bruxelles (ECARES) and CEPR); Patrick Legros (Universite Libre de Bruxelles (ECARES) and CEPR); Andrew F. Newman (Boston University and CEPR)
    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 only 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, joint product and factor market integration leads to the convergence of organization design across countries. Second, even in the absence of factor movements, the price changes triggered by liberalization of product markets can lead to significant organizational restructuring within countries. Third, the removal of barriers to factor mobility can induce further organizational changes, sometimes adversely affecting consumers, which suggests a potential complementarity between trade policy and corporate governance policy.
    Date: 2008–05
  7. By: Prema-chandra Athukorala
    Abstract: This paper examines Vietnam’s export performance in the process of economic transition. The key theme of analysis is the complementary role of domestic policy shifts and the ongoing changes in world trade patterns in determining trends and patterns of exports. The analysis yields clear evidence that when market forces are unleashed, albeit in a constrained fashion, specialisation patterns assert themselves as predicted by the received trade theory. On the contrary, there is no evidence to suggest that the state-mediated attempts in the early stage of reforms to mould the emerging patterns of manufacturing exports had any tangible effect. Vietnam’s export performance looks impressive, particularly when we take into account the nature of the reform process, and the constraining effects of the US trade embargo during the first decade of reforms and the historic overwhelming reliance on the Soviet-block markets.
    Keywords: Vietnam, exports, FDI, global production sharing, processed food
    JEL: F14 F15 F33 O24
    Date: 2009
  8. By: Calvo-Pardo, Hector; Freund, Caroline; Ornelas, Emanuel
    Abstract: Using detailed data on trade and tariffs from 1992-2007, the authors examine how the ASEAN Free Trade Agreement has affected trade with nonmembers and external tariffs facing nonmembers. First, the paper examines the effect of preferential and external tariff reduction on import growth from ASEAN insiders and outsiders across HS 6-digit industries. The analysis finds no evidence that preferential liberalization has led to lower import growth from nonmembers. Second, it examines the relationship between preferential tariff reduction and MFN tariff reduction. The analysis finds that preferential liberalization tends to precede external tariff liberalization. To examine whether this tariff complementarity is a result of simultaneous decision making, the authors use the scheduled future preferential tariff reductions (agreed to in 1992) as instruments for actual preferential tariff changes after the Asia crisis. The results remain unchanged, suggesting that there is a causal relationship between preferential and MFN tariff reduction. The findings also indicate that external liberalization was relatively sharper in the products where preferences are likely to be most damaging, proving further support for a causal effect. Overall, the results imply that the ASEAN agreement has been a force for broader liberalization.
    Keywords: Free Trade,Trade Policy,Trade Law,Trade and Regional Integration,International Trade and Trade Rules
    Date: 2009–06–01
  9. By: Bart Van Ark (Indian Council for Research on International Economic Rela); Abdul Azeez (Indian Council for Research on International Economic Rela); Erumban Vivian Chen (Indian Council for Research on International Economic Rela); Chen Utsav Kumar (Indian Council for Research on International Economic Rela)
    Abstract: This paper focuses on comparisons of productivity, (unit) labor cost and industry-level competitiveness for the manufacturing sector of China and India. We first provide a comparison between India and China using a broad international perspective. We find that China has increased its labor productivity to a level above that of India, but due to a somewhat higher compensation level, China is still somewhat at a disadvantage in terms of unit labor cost in manufacturing relative to India. In the second half of the paper, we make an analysis of industry level differences in productivity, labor compensation and unit labor costs at state and province level in the two countries from the mid 1990s to the early 2000s. We find rapid declines in unit labor cost across industries and provinces in China, but increases in many instances in India. This suggest that productivity and compensation growth have become much more aligned across regions in China whereas this is not (yet) the case in India. We relate these results to differences in the implementation of market reforms between the two countries and removal of barriers to resource mobility eradicating inefficient manufacturing activity
    Keywords: O14, J24

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