nep-int New Economics Papers
on International Trade
Issue of 2009‒08‒16
ten papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. China's Exporters and Importers: Firms, Products and Trade Partners By Kalina Manova; Zhiwei Zhang
  2. Vertical Trade, Trade Costs and FDI By Sébastien Miroudot; Alexandros Ragoussis
  3. The Trade Creation Effect of Immigrants: Testing the Theory on the Remarkable case of Spain By Giovanni Peri; Francisco Requena
  4. An extended gravity model with substitution applied to international trade By Jacob A. Bikker
  5. Trade, Wages and Productivity By Kristian Behrens; Giordano Mion; Yasusada Murata; Jens Südekum
  6. Firm heterogeneity and comparative advantage: the response of French firms to Turkey's entry in the European Customs Union By Ines Buono
  7. The Home-Market Effect and Bilateral Trade Patterns: A Reexamination of the Evidence By Cong S. Pham; Mary E. Lovely; Devashish Mitra
  8. The trade response to global downturns : historical evidence By Freund, Caroline
  9. On the Death of Distance and Borders: Evidence from the Nineteenth Century By David S. Jacks
  10. Production Sharing in Latin America and East Asia By K.C. Fung; Alicia García-Herrero; Alan Siu

  1. By: Kalina Manova; Zhiwei Zhang
    Abstract: This paper uses newly available data on Chinese trade flows to establish novel and confirm existing stylized facts about firm heterogeneity in trade. First, the bulk of exports and imports are captured by a few multiâ€product firms that transact with a large number of countries. Second, the average importer imports more products than the average exporter exports, but exporters trade with more countries than importers do. Third, compared to private domestic firms, foreign affiliates and joint ventures trade more and import more products from more source countries, but export fewer products to fewer destinations. Fourth, the relationship between firms’ intensive and extensive margin of trade is non-monotonic, differs between exporters and importers, and depends on the ownership structure of the firm. Fifth, firms frequently exit and re-enter into trade and regularly change their product mix and trade partners, but foreign firms exhibit less churning. Finally, most of the growth in Chinese exports between 2003-2005 was driven by deepening and broadening of trade relationships by surviving firms, while reallocations across firms contributed only 30%. These stylized facts shed light on the cost structure of international trade and the importance of foreign ownership for firms’ export and import decisions.
    JEL: F10 F14 F23
    Date: 2009–08
  2. By: Sébastien Miroudot; Alexandros Ragoussis
    Abstract: Firms find advantages in sourcing inputs from abroad and in fragmenting their production process. On average, vertical trade represents about one third of total trade among OECD countries. This report describes and illustrates new firm strategies of vertical specialisation and explores the policy implications of new patterns of trade and FDI. It is in services industries that vertical trade has increased the most in recent years. While vertical trade seems to respond to the same determinants as the rest of exports and imports, distance-related trade costs play a more important role in explaining the volume of bilateral trade flows resulting from vertical specialisation. Distance-related costs have a lower impact on foreign direct investment and sales of foreign affiliates but there is a complementary relationship between trade and FDI. Vertical specialisation networks have created new challenges for trade policymakers. In particular, growth of bilateral exchanges between countries depends increasingly on barriers to trade and investment in the rest of the world. Moreover, the impact of a country’s own trade barriers on domestic firms is significant in the context of vertical specialisation. The analysis stresses the importance of multilateral negotiations for trade and investment liberalisation.
    Keywords: FDI, trade liberalisation, distance, MNEs, export platform, firm strategy, trade costs, vertical trade, vertical specialization
    Date: 2009–07–28
  3. By: Giovanni Peri (UC Davis, NBER and Centro Studi Luca d’Agliano); Francisco Requena (University of Valencia)
    Abstract: There is abundant evidence that immigrants’ networks are associated with larger trade flows between countries of origin and the country (or province) where they settle. The causality of such relation and its magnitude, however, have not been proven beyond reasonable doubt. We use the simple predictions of the model by Chaney (2008) and treat networks of migrants as a device that reduces fixed bilateral trade costs. In so doing we have strong predictions on the effect of immigrants on total exports, exports by category of goods, and on the extensive and intensive margin of trade. We test these predictions using the remarkable and uneven increase of immigration to Spanish provinces between 1993 and 2008. The richness of our data, a panel of import and export by sector between 50 Spanish provinces and 77 countries over fifteen years, allows us to control for a very large set of covariates and fixed effects and to use an instrumental variable strategy so that we can isolate the trade-creation effect of new immigrants. We are also able to qualify the effect of immigration on bilateral trade of homogeneous and differentiated goods, and its impact on the intensive and extensive margin of trade. Our findings support all the implications of the Chaney model showing that migration network indeed seems to decrease the fixed costs of trade. Finally by decomposing the effect across provinces and over time we find evidence that the elasticity of trade creation to new immigrant is larger once a critical mass has been reached.
    Keywords: Immigration, International Trade, Intensive and Extensive margin, Differentiated Goods
    JEL: F10 F14 R12
    Date: 2009–07–31
  4. By: Jacob A. Bikker
    Abstract: The traditional gravity model has been applied many times to international trade flows, especially in order to analyze trade creation and trade diversion. However, there are two fundamental objections to the model: it cannot describe substitutions between flows and it lacks a cogent theoretical foundation. A newly developed model, the Extended Gravity Model (EGM), overcomes these objections. The model shares characteristics of the models of Bergstrand (1985), Andersen and Van Wincoop (2003), and Redding and Scott (2003). An empirical test on a world-wide sample of 19 thousand 2005 trade flows strongly rejects the gravity model in favour of the EGM. The empirical analysis also shows that the gravity model widely overestimates the influence of the determinants of international trade, which is due to strong substitution between trade flows, reducing the initial (gravity model) effects. Substitution determines both trade creation and trade diversion. The EGM encompasses several models originating in regional economics and can be applied usefully to a wide set of subjects.
    Keywords: bilateral trade, imports, exports, spatial allocation, trade creation, trade diversion, distance, market access, supplier access, multilateral resistance terms, remoteness indices
    JEL: F1 R12
    Date: 2009–07
  5. By: Kristian Behrens; Giordano Mion; Yasusada Murata; Jens Südekum
    Abstract: We develop a new general equilibrium model of monopolistic competition with heterogeneous firms, variable demand elasticity and multiple asymmetric regions, in which trade integration induces wage and productivity changes. Using Canada-US interregional trade data, we structurally estimate a theory-based gravity equation system featuring endogenous wages and productivity. Given the estimated parameter values, we first decompose border effects into a pure border effect, relative and absolute wage effects, and a selection effect. We then quantify the impacts of removing the trade distortions generated by the Canada-US border on regional market aggregates such as wages, productivity, markups, the mass of varieties produced and consumed, as well as welfare. Last, we extend the counterfactual analysis to the firm level by generating productivity distributions and their changes via simulation.
    Keywords: firm heterogeneity, monopolistic competition, general equilibrium, endogenous markups, gravity equation system, counterfactual analysis
    JEL: F12 F15 F17
    Date: 2009–07
  6. By: Ines Buono (Bank of Italy, Economics and International Relations)
    Abstract: I analyse the effects of a reduction in the tariffs of a trading partner on the exports of domestic firms. More precisely, I focus on how cross-industry differences in factor intensities and within-industry differences in firm productivities shape the response of the extensive (decision to export) and the intensive (exported volumes per firm) margins of exports. I examine the response of French firms to the reduction of Turkish import tariffs that followed the entry of Turkey into the European Customs Union in 1996. A reduction in tariffs increases the probability to export and, surprisingly, the effect is stronger in comparatively disadvantaged sectors. I provide a possible explanation using a partial equilibrium model which includes firm-level heterogeneity and sector-level comparative advantage. In this model, as trade partner tariffs fall, the productivity threshold separating exporters from non-exporters decreases more in comparatively disadvantaged sectors. This occurs because, even if the productivity threshold to enter the export market falls in the same proportion as tariffs in all sectors, its level was initially higher in comparatively disadvantaged ones.
    Keywords: heterogeneous firms, Custom Union, intensive and extensive margins
    JEL: F12 F13 F15
    Date: 2009–06
  7. By: Cong S. Pham; Mary E. Lovely; Devashish Mitra
    Abstract: In this paper, we reexamine closely the empirical evidence for the home-market effect (HME) found by Hanson and Xiang (American Economic Review, 2004). We first show that evidence for the HME from their difference-in-difference gravity equation is sensitive to the way the independent variable of interest (i.e. the log of the ratio of GDPs of exporter pairs) is created. Moreover, regardless of how the sample is configured, the HME is found only in particular sub-samples of country pairs. Second, we find no evidence of the HME when we estimate the difference-in-difference gravity model on a truncated sample of positive trade flows. We also find that the magnitude of the estimated HME is sensitive to the value imputed to zero trade flows. Monte Carlo simulations show that the truncated OLS, the Eaton-Tamura Tobit and the Heckman sample-selection estimators outperform (in terms of both the bias and variation of the gravity estimates) Hanson and Xiang’s difference-in-difference estimator. Truncated OLS, ET-Tobit and Heckman estimation of the gravity equation using Hanson and Xiang’s data yield no evidence of the HME. Finally, evidence from data on exports from non-OECD countries and from Canadian provinces to the US states provides no support for the home-market effect.
    Date: 2009–08–12
  8. By: Freund, Caroline
    Abstract: The author examines the impact of historical global downturns on trade flows. The results provide insight into why trade has dropped so dramatically in the current crisis, what is likely to happen in the coming years, how global imbalances are affected, and which regions and industries suffer most heavily. The author finds that the elasticity of global trade volumes to real world GDP has increased gradually from around 2 in the 1960s to above 3 now. The author also finds that trade is more responsive to GDP during global downturns than in tranquil times. The results suggest that the overall drop in real trade this year is likely to exceed 15 percent. There is significant variation across industries, with food and beverages the least affected and crude materials and fuels the most affected. On the positive side, trade tends to rebound very rapidly when the outlook brightens. The author also finds evidence that global downturns often lead to persistent improvements in the ratio of the trade balance to GDP in borrower countries.
    Keywords: Economic Theory&Research,Emerging Markets,Free Trade,Trade Policy,Currencies and Exchange Rates
    Date: 2009–08–01
  9. By: David S. Jacks
    Abstract: In this paper, we investigate time-dependent border and distance effects in the nineteenth century and document clear declines in the importance of these variables through time. What this suggests, in light of the work for the post-1950 era, is that researchers might have correctly identified the increasing effect of distance on bilateral trade over time. In other words, trade costs may have not declined nearly as dramatically in the late twentieth century as has been supposed, especially in light of the nineteenth century, a time of documented trade cost decline and commodity market integration.
    JEL: F40 N70
    Date: 2009–08
  10. By: K.C. Fung; Alicia García-Herrero; Alan Siu
    Abstract: In this paper we empirically examine the extent and properties of production sharing in Latin and North America as well as that in East Asia. In 2006, exports of parts and components from Latin and North America constituted 29.7% of the region’s exports of manufactured goods to the world. Both exports and imports of parts and components were declining shares of trade in manufactured goods or trade in all goods. A large amount of trade in parts and components in the region was with members of NAFTA, particularly the United States. Imports from East Asia and from China were increasingly important. There was a relatively thick production network of parts of motor vehicles in Latin and North America, followed by networks of parts of telecommunication equipment and electronic components. But the network was primarily within the United States, Mexico and Canada, with Brazil also playing a role. For East Asia, the motor vehicle parts network was not as significant, but the electronic components network was much wider and deeper.
    Date: 2009–01

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