nep-int New Economics Papers
on International Trade
Issue of 2009‒07‒17
twelve papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Trade Liberalization, Offshoring and Firm Heterogeneity By Vincent Rebeyrol
  2. Economies of Scale and the Size of Exporters By Roc Armenter; Miklós Koren
  3. The Dynamics of Structural Change - The European Union's Trade with China By Bianka Dettmer; Fredrik Erixon; Andreas Freytag; Pierre Olivier Legault Tremblay
  4. Gravity, log of gravity and the "distance puzzle" By Clément Bosquet; Hervé Boulhol
  5. Imported Inputs and Productivity By László Halpern; Miklós Koren; Adam Szeidl
  6. A Spatial Explanation for the Balassa-Samuelson Effect By Péter Karádi; Miklós Koren
  7. DOMESTIC AND GLOBAL SOURCING By Wenli Cheng; Dingsheng Zhang
  8. Inequality and Unemployment in a Global Economy By Helpman, Elhanan; Itskhoki, Oleg; Redding, Stephen J
  9. A Cross Country View On Souh-North Migration And Trade By Giulia BETTIN; Alessia LO TURCO
  11. PRODUCTIVITY SPILLOVERS IN INDIAN MANUFACTURING FIRMS By Mita Bhattacharya; Jong-Rong Chen; V. Pradeep Author-X-Name- V
  12. Trade in Financial Services--Has the IMF Been Involved Constructively? By Robert M Stern

  1. By: Vincent Rebeyrol
    Abstract: This paper analyses the impact of trade liberalization in a model where heterogeneous firms can freely offshore their production. Firms choose whether to produce, and if so whether to sell on the domestic market only or on the export market as well. Simultaneously, they also choose where to locate their production. The paper shows that the interaction between heterogeneity in firm productivity and the possibility of offshoring production dramatically alters the impact of trade liberalization. Three main results emerge from this interaction: i) Intra-industry factor reallocation towards the most productive firms, which is induced by trade liberalization, operates at the world level, but not necessarily at the country level and thus trade liberalization can lead to average productivity losses in some countries; ii) Trade liberalization may reverse country specialization independently of any country size effect; iii) The relation between trade liberalization and trade growth is non-linear, even in the absence of trade in intermediate goods.
    Keywords: Trade Liberalization, Offshoring, Firm Heterogeneity, Trade Patterns, Average Productivity
    JEL: F12 F15 R30
    Date: 2009
  2. By: Roc Armenter; Miklós Koren
    Abstract: Exporters are few---less than one fifth among U.S. manufacturing firms---and are larger than non-exporting firms---about 4-5 times more total sales per firm. These facts are often cited as support for models with economies of scale and firm heterogeneity as in Melitz (2003). We find that the basic Melitz model cannot simultaneously match the size and share of exporters given the observed distribution of total sales. Instead exporters are expected to be between 90 and 100 times larger than non-exporters. It is easy to reconcile the model with the data. However, a lot of variation independent of firm size is needed to do so. This suggests that economies of scale play only a minor role in determining the export status of a firm. We show that the augmented model also has markedly different implications in the event of a trade liberalization. Most of the adjustment is through the intensive margin; and productivity gains due to reallocation are halved.
    Date: 2009–03–12
  3. By: Bianka Dettmer; Fredrik Erixon; Andreas Freytag (Friedrich-Schiller-University Jena, School of Economics and Business Administration); Pierre Olivier Legault Tremblay
    Abstract: Sino?European trade relations have been controversially discussed mainly, if not only, because of the increasing European Union's bilateral trade deficit with China. As from the European perspective trade with China becomes more important, the structural adjustment process of the Chinese economy from inter?industry to intra?industry trade is not as intensively discussed. We show how the emergence of China on the world markets has affected European comparative advantages over time. The change in bilateral trade is compared to the overall development of European comparative advantages to highlight the features of the structural change in China. We show that China is increasingly specialising in technology intensive goods. This development is absolutely in accordance with the historical perspective on country's upgrading in technology while integrating into the world economy. Technology intensive Schumpeter goods are either of a mobile or an immobile type based on the selection criterion of separating research and production process. While China predominantly focuses on the mobile type of Schumpeter goods, the European Union maintains its comparative advantages in immobile technology intensive goods, which are harder to imitate. Based on technology intensity, the second issue presented in the paper focuses on the Chinese integration into the world?wide value?added chain, which has been fragmented across borders in recent years. Not least due to increasing FDI, intra?industry trade has become more prevalent in bilateral trade relations with China.
    Keywords: Comparative advantage, Intra-industry trade, Fragmentation, EU, China
    JEL: F11 F14
    Date: 2009–07–08
  4. By: Clément Bosquet (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); Hervé Boulhol (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: Estimations of gravity equations specified in logarithm generally conclude that the distance elasticity of trade has increased over time despite globalization. In contrast, building on Santos Silva and Tenreyro (2006), this elasticity is estimated to have been stable around 0.65-0.70 since the 1960s. Moreover, although FTAs tend to cover neighboring countries, this main result is robust to different treatments of FTA effects. The main estimated change refers to the impact of colonial linkages, which has been at least halved. This paper brings also several important methodological contributions to the analysis of gravity equations, including broad support for the Poisson PML estimator.
    Keywords: distance puzzle ; gravity equations ; international trade ; pseudo-maximum likelihood methods
    Date: 2009–07–03
  5. By: László Halpern; Miklós Koren; Adam Szeidl
    Abstract: How do imported inputs affect firm productivity? We address this question by estimating a structural model of importers using product-level data for all Hungarian manufacturing firms during 1992-2003. We have three main findings. (1) Imported inputs have large productivity effects: increasing the share of imported goods from 0 to 100 percent increases productivity by 11 percent. (2) About 60 percent of this gain is due to imperfect substitution, i.e., the idea that combining different inputs is "more than the sum of the parts." This is consistent with Hirschman's (1958) view about the importance of complementarities along a production chain for economic development. (3) Tariff cuts have a highly non-linear effect on productivity, due to firm entry into import markets for new varieties. This non-linearity can rationalize differences between estimated tariff effects in different studies, and shows how firm level analysis helps understand macro facts. Our structural approach can also be used for counterfactual policy analysis, and to study the different implications of the quality and complementarity mechanisms.
    Date: 2009–04–01
  6. By: Péter Karádi; Miklós Koren
    Abstract: We propose a simple spatial model to explain why the price level is higher in rich countries. There are two sectors: manufacturing, which is freely tradable, and non-tradable services, which have to locate near customers in big cities. As countries develop, total factor productivity increases simultaneously in both sectors. However, because services compete with the population for scarce land, labor productivity will grow slower in services than in manufacturing. Services become more expensive, and the aggregate price level becomes higher. The model hence provides a theoretical foundation for the Balassa--Samuelson assumption that productivity growth is slower in the non-tradable sector than in the tradable sector. Empirical results confirm two key implications of the theory. First, we compare countries where land is scarce (densely populated, highly urban countries) to rural countries. The Balassa--Samuelson effect is stronger among urban countries. Second, we compare sectors that locate at different distance to consumers. The Balassa--Samuelson effect is stronger within sectors that locate closer to consumers.
    Date: 2008–10–01
  7. By: Wenli Cheng; Dingsheng Zhang
    Abstract: This paper develops a general equilibrium Ricardian model with transaction costs to investigate the determinants of the firm’s sourcing decision. It derives conditions under which different sourcing choices and corresponding trade patterns occur in general equilibrium. These conditions suggest that, inter alia, the choice between vertical integration and specialisation depends on the relative internal transaction costs associated with vertical integration and external transaction costs associated with international outsourcing; and that the equilibrium sourcing structures and trade patterns are consistent with a refined theory of comparative advantage that incorporates the effects of transaction costs in international trade.
    Keywords: endogenous sourcing decisions, transaction costs, Ricardian model
    JEL: L2 F19
    Date: 2009–05
  8. By: Helpman, Elhanan; Itskhoki, Oleg; Redding, Stephen J
    Abstract: This paper develops a new framework for examining the distributional consequences of international trade that incorporates firm and worker heterogeneity, search and matching frictions in the labor market, and screening of workers by firms. Larger firms pay higher wages and exporters pay higher wages than non-exporters. The opening of trade enhances wage inequality and raises unemployment, but expected welfare gains are ensured if workers are risk neutral. And while wage inequality is larger in a trade equilibrium than in autarky, reductions of trade impediments can either raise or reduce wage inequality.
    Keywords: International Trade; Risk; Unemployment; Wage Inequality
    JEL: E24 F12 F16
    Date: 2009–07
  9. By: Giulia BETTIN (Universita' Politecnica delle Marche, Dipartimento di Economia); Alessia LO TURCO (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: The aim of this paper is to analyse the relationship between North-South migration and trade. The evidence on the topic is mainly based on country case studies and is mixed. Trade data disaggregated by good typologies, together with a recent dataset on migrants in OECD countries from developing and transition economies, are used in a gravity model. The availability of migration data for three different years allows for panel data techniques. Moreover the estimation of the empirical model for each trade sector separately - besides overall imports and exports - highlights heterogeneous responses of trade to migration according to dikerent good typologies.
    Keywords: migration, north-south, trade
    JEL: F16 F22
    Date: 2009–03
  10. By: Jakob Madsen
    Abstract: Using a long dataset on openness and productivity this paper tests the influence of openness on TFP growth and per capita growth since 1870 for 16 industrialized countries. It is shown, in simple regressions, that growth is by and large independent of openness. However, once the interaction between openness and foreign knowledge is allowed for, productivity is positively affected by openness.
    Keywords: Openness, TFP growth, trade barriers, imports of technology, panel estimates.
    JEL: F13 F14 F32
    Date: 2009–06
  11. By: Mita Bhattacharya; Jong-Rong Chen; V. Pradeep Author-X-Name- V
    Abstract: Indian economic reform since early 1990s aims at improving productivity and competitiveness of major industries. The paper examines spillovers from foreign direct investment (FDI), research and development (R&D) and exporting activities on productivity both for foreign and domestic manufacturing firms. The data is obtained from the PROWESS database provided by the Centre for Monitoring Indian Economy (CMIE). Balanced panel of over 1,000 manufacturing firms in India between 1994 and 2006 are considered for our empirical analysis. Findings indicate that foreign presence has a significant spillover effect on the productivity of the Indian manufacturing firms compared to the alternative spillovers such as from R&D and export initiatives.
    Keywords: Productivity, Spillovers, Indian manufacturing, FDI.
    JEL: F21 O47 O53
    Date: 2009–06
  12. By: Robert M Stern (University of Michigan)
    Abstract: This paper considers the key policy issues related to liberalization of trade in financial services that the IMF should be concerned with, and the role the IMF has played in advising on policies related to trade in financial services in its bilateral and multilateral surveillance and conditionality attached to lending programs. IMF staff were generally aware of the literature and country experiences showing the benefits of financial liberalization. But Fund advice in support of liberalization can be best interpreted to be in support of country unilateral policy actions and the dynamics of the WTO accession process.
    Keywords: financial liberalization, foreign banks, GATS, IMF
    JEL: F13 F32 F33 F53 G28
    Date: 2009–06

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