nep-int New Economics Papers
on International Trade
Issue of 2009‒08‒22
seven papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Trade Booms, Trade Busts, and Trade Costs By David S. Jacks; Christopher M. Meissner; Dennis Novy
  2. International Trade, Factor Mobility and the Persistence of Cultural-Institutional Diversity By Marianna Belloc; Samuel Bowles
  3. Trade, Foreign Investment, and Industrial Policy for Developing Countries By Ann Harrison; Andrés Rodríguez-Clare
  4. What’s on the Table? The Doha Round as of August 2009 By Matthew Adler; Claire Brunel; Gary Clyde Hufbauer; Jeffrey J. Schott
  5. Trends and Patterns of Foreign Direct Investments In Asia: A Comparative Perspective By Prema-chandra Athukorala
  6. Criss-Crossing Globalization: Uphill Flows of Skill-Intensive Goods and Foreign Direct Investment By Aaditya Mattoo; Arvind Subramanian
  7. The Macroeconomic Determinants of Cross Border Mergers and Acquisitions and Greenfield Investments By Paula Neto; António Brandão; António Cerqueira

  1. By: David S. Jacks; Christopher M. Meissner; Dennis Novy
    Abstract: What has driven trade booms and trade busts in the past and present? We derive a micro-founded measure of trade frictions from leading trade theories and use it to gauge the importance of bilateral trade costs in determining international trade flows. We construct a new balanced sample of bilateral trade flows for 130 country pairs across the Americas, Asia, Europe, and Oceania for the period from 1870 to 2000 and demonstrate an overriding role for declining trade costs in the pre-World War I trade boom. In contrast, for the post-World War II trade boom we identify changes in output as the dominant force. Finally, the entirety of the interwar trade bust is explained by increases in trade costs.
    JEL: F15 N70
    Date: 2009–08
  2. By: Marianna Belloc (Sapienza University of Rome); Samuel Bowles (Santa Fe Institute, University of Siena, and University of Massachusetts Amherst)
    Abstract: Cultural and institutional differences among nations may result in differences in the ratios of marginal costs of goods in autarchy and thus be the basis of specialization and comparative advantage, as long as these differences are not eliminated by trade. We provide an evolutionary model of endogenous preferences and institutions under autarchy, trade and factor mobility in which multiple asymptotically stable cultural-institutional conventions may exist, among which transitions may occur as a result of decentralized and un-coordinated actions of employers or employees. We show that: i) specialization and trade may arise and enhance welfare even when the countries are identical other than their cultural-institutional equilibria; ii) trade liberalization does not lead to convergence, it reinforces the cultural-institutional differences upon which comparative advantage is based and may thus impede even Pareto-improving cultural-institutional transitions; and iii) by contrast, greater mobility of factors of production favors decentralized transitions to a superior cultural-institutional convention by reducing the minimum number of cultural or institutional innovators necessary to induce a transition. JEL Categories: D23, F15, F16, C73
    Keywords: institutions, incomplete contracts, evolutionary game theory, culture, trade integration, factor mobility, globalization
    Date: 2009–08
  3. By: Ann Harrison; Andrés Rodríguez-Clare
    Abstract: In this paper we explore the popular but controversial idea that developing countries benefit from abandoning policy neutrality vis-a-vis trade, FDI and resource allocation across industries. Are developing countries justified in imposing tariffs, subsidies, and tax breaks that imply distortions beyond the ones associated with optimal taxes or revenue constraints? We refer to this set of government interventions as "industrial policy". We explore the theoretical foundation for industrial policy and then review the related empirical literature. We follow this with a broader look at the empirical work on the relationship between trade and FDI and growth. In this review, we find little evidence that countries benefit from "hard" interventions that distort prices to deal with Marshallian externalities, learning-by-exporting, and knowledge spillovers from FDI. We discuss an alternative set of "soft" industrial policies that deal directly with the coordination failures that may arise within the sectors or clusters where the country has a comparative advantage.
    JEL: F0 O0
    Date: 2009–08
  4. By: Matthew Adler (Peterson Institute for International Economics); Claire Brunel (Peterson Institute for International Economics); Gary Clyde Hufbauer (Peterson Institute for International Economics); Jeffrey J. Schott (Peterson Institute for International Economics)
    Abstract: The Doha Round is the longest-running trade liberalization negotiation in the postwar era. Despite its longevity, the end is not yet in sight as parties disagree on the depth of liberalization necessary in agriculture and nonagricultural market access (NAMA). This rift is prolonging the Round's completion and hindering the discussion of other important issues on the negotiating agenda, particularly services. To shed light on the debate concerning the benefits from Doha, this paper first estimates, using three metrics, the potential gains from liberalization in agriculture and NAMA resulting from the specific "modalities" set forth in papers drafted by the chairs of the Doha negotiating groups. Next, the study estimates the benefits that could result from sector initiatives in chemicals, electronic/electrical goods, and environmental goods that go beyond the tariff cuts outlined in the negotiating modalities. Finally, prospective gains from liberalization of services barriers and improvements in trade facilitation are also analyzed. Overall, we estimate that the boost to global exports from concluding the Doha Round could range between $180 billion and $520 billion annually. Likewise, the potential GDP gains are significant, between $300 billion and $700 billion annually, and well balanced between developed and developing countries.
    Keywords: International Trade, World Trade Organization, Doha Round, Tariff Liberalization, Nontariff Barrier Liberalization.International Trade, World Trade Organization, Doha Round, Tariff Liberalization, Nontariff Barrier Liberalization.
    JEL: F1 F13 F18 L6 L8 L63 L65 Q1 Q50
    Date: 2009–09
  5. By: Prema-chandra Athukorala
    Abstract: This paper examines foreign direct investment (FDI) in developing Asia over the past three decades with emphasis on two key issues: the implications of the ongoing process of international production fragmentation and the alleged ‘crowding out’ effect of China’s rise as a major host to FDI on the other countries in the region. The evidence suggests that assembly processes within vertically integrated global industries (in particularly, electrical goods and electronics) has gained prominence over the past two decades as the major area of attraction for foreign investors in the region. Contrary to the popular crowding out fear, China’s rise as a major assembly centre within global production networks seems to have added further dynamism to region-wide MNE operations in the regions. A key policy inference from our analysis is that, in designing policies of outward-oriented development, investment and trade policies must be considered together as co-determinants of the location of production and patterns of trade.
    Keywords: FDI, production fragmentation, developing Asia, China
    JEL: F21 F23 O53
    Date: 2009
  6. By: Aaditya Mattoo (; Arvind Subramanian (Peterson Institute for International Economics)
    Abstract: This paper documents an unusual and possibly significant phenomenon: the export of skills embodied in goods, services, or capital from poorer to richer countries. We first present a set of stylized facts. Using a measure that combines the sophistication of a country’s exports with the average income level of destination countries, we show that the performance of a number of developing countries, notably China, Mexico, and South Africa, matches that of much more advanced countries, such as Japan, Spain, and the United States. Creating a new combined dataset on foreign direct investment (FDI) (covering greenfield investments as well as mergers and acquisitions) we show that flows of FDI to Organization for Economic Cooperation and Development (OECD) countries from developing countries like Brazil, India, Malaysia, and South Africa as a share of their GDP are as large as flows from countries like Japan, Korea, and the United States. Then, taking the work of Hausmann et al. (2007) as a point of departure, we suggest that it is not just the composition of exports but their destination that matters. In both cross-sectional and panel regressions, with a range of controls, we find that a measure of uphill flows of sophisticated goods is significantly associated with better growth performance. These results suggest the need for a deeper analysis of whether development benefits might derive not from deifying comparative advantage but from defying it.
    Keywords: Uphill flows, foreign direct investment, finance, sophisticated goods, exports, services, growth, comparative advantage, mergers and acquisitions, greenfield investment
    JEL: F1 F2 F4 O4
    Date: 2009–09
  7. By: Paula Neto (ISCA, University of Aveiro); António Brandão (FEP, University of Porto); António Cerqueira (FEP, University of Porto)
    Abstract: When a company decides to invest abroad, it can do it through the establishment of a new firm (greenfield investment) or by the purchase of an already existing firm. Although there is a vast empirical literature on the macroeconomic determinants of aggregate FDI, there are just a few studies examining the location-specific determinants of each entry mode. The aim of this study is to extend the previous work by Globerman and Shapiro (2005) through the analysis of panel data of 53 countries over the period 1996-2006, in order to identify the potential location-specific determinants of both M&A and greenfields. We have found evidence that there is a group of mode-encompassing variables which are common to all entry modes (such as economy’s size, openness, governance and human development index) and mode-specific variables. Investor’s protection and cultural variables seem to play an important role in the explanation of M&A and greenfields, respectively.
    Keywords: Foreign Direct Investment, Cross Border Mergers and Acquisitions, Greenfield Investments.
    JEL: F23 F40 G34
    Date: 2009–08

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