nep-int New Economics Papers
on International Trade
Issue of 2009‒10‒03
nine papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Bilateralism, multilateralism, and the quest for global free trade By Saggi, Kamal; Yildiz, Halis Murat
  2. Smoke in the water : the use of tariff policy flexibility in crises By Foletti, Liliana; Fugazza, Marco; Nicita, Alessandro; Olarreaga, Marcelo
  3. Criss-Crossing Globalization: Uphill Flows of Skill-Intensive Goods and Foreign Direct Investment By Aaditya Mattoo; Arvind Subramanian
  4. The potential cost of a failed doha round: By Bouet, Antoine; Debucquet, David Laborde
  5. Trade Complexity and Productivity By Gabor Békés; Carlo Altomonte
  6. Estimates of Trade-Related Adjustment Costs in Syria By Lim, Jamus Jerome; Saborowski, Christian
  8. ISO 9000: New Form of Protectionism or Common Language in International Trade? By Joseph A. Clougherty; Michal Grajek
  9. How important is a regional free trade area for Southern Africa?: Potential impacts and structural constraints By Nin Pratt, Alejandro; Diao, Xinshen; Bahta, Yonas

  1. By: Saggi, Kamal; Yildiz, Halis Murat
    Abstract: We develop an equilibrium theory of trade agreements in which both the degree and the nature (bilateral or multilateral) of trade liberalization are endogenously determined. To determine whether and how bilateralism matters, we also analyze a scenario where countries pursue trade liberalization on only a multilateral basis. We find that when countries have asymmetric endowments or when governments value producer interests more than tari¤ revenue and consumer surplus, there exist circumstances where global free trade is a stable equilibrium only if countries are free to pursue bilateral trade agreements. By contrast, under symmetry, both bilateralism and multilateralism yield global free trade.
    Keywords: Bilateral trade agreements; multilateral trade liberalization; free trade agreements; GATT
    JEL: F13 F12
    Date: 2009–06–30
  2. By: Foletti, Liliana; Fugazza, Marco; Nicita, Alessandro; Olarreaga, Marcelo
    Abstract: As the economic crisis deepens and widens, fears of a return to the protectionist spiral of the 1930s become more common. However, an important difference between the 1930s and today is the existence of the World Trade Organization and the legal limits it imposes on the protectionist responses members can pursue. The objective of this paper is threefold. First, to assess the extent to which applied tariff can legally be raised without violating tariff-bound obligations, and compare it with what is economically possible. Second, to examine what has been the protectionist response of individual countries when facing an economic crisis since the creation of the WTO. Finally, to predict how far the protectionist responses will go during the current crisis. Results suggest that the policy space left when looking at what is economically possible is indeed quite large. However, in the recent past very little of the available policy space has been used by countries suffering from an economic crisis. Our predictions for the current crisis are modest tariff hikes in the order of 8 percent.
    Keywords: International Trade and Trade Rules,Trade Policy,Free Trade,Debt Markets,Access to Finance
    Date: 2009–09–01
  3. By: Aaditya Mattoo; Arvind Subramanian
    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 which 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 USA. Creating a new combined dataset on FDI (covering greenfield investment as well as mergers and acquisitions) we show that flows of FDI to 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 US. 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: foreign direct investment; globalization; skill flow; economic development
    Date: 2009–08
  4. By: Bouet, Antoine; Debucquet, David Laborde
    Abstract: "This study offers new conclusions on the economic cost of a failed Doha Round. The first section is devoted to an analysis of how trade policies evolve in the long and medium runs. We show that even under normal economic conditions, policymakers modify tariffs to cope with the evolution of world markets. We then use the MIRAGE Computable General Equilibrium model to assess the potential outcome of the Doha Round, and then examine four protectionist scenarios. Under a scenario where applied tariffs of major economies increase up to the currently bound tariff rates, we find that world trade decreases by 7.7 percent and world welfare drops by US$353 bn. We then compare a resort to protectionism when the Doha Development Agenda (DDA) is implemented versus a resort to protectionism when the DDA is not implemented. We find that this trade agreement could prevent the potential loss of US$ 809 bn of trade, and could therefore act as an efficient multilateral insurance scheme against the adverse consequences of “beggar-thy-neighbor” trade policies." from authors' abstract
    Keywords: Trade negotiations, Computable general equilibrium (CGE) modeling, Bound duties, Domestic support, Globalization, Markets, Doha Development Agenda,
    Date: 2009
  5. By: Gabor Békés (Hungarian Academy of Science); Carlo Altomonte (AM - Bocconi University, KITeS and FEEM)
    Abstract: We exploit a panel dataset of Hungarian firms merged with product-level trade data for the period 1992-2003 to investigate the relation between firms' trading activities (importing, exporting or both) and productivity. We find important self-selection effects of the most productive firms induced by the existence of heterogeneous sunk costs of trade, for both importers and exporters. We relate these sunk costs of trade to the relationship-specific nature of the trade activities, entailing a certain degree of technological and organizational complexity. We also show that, to the extent that imports and exports are correlated within firms, failing to control for the importing activity leads to overstated average productivity premia of exporters.
    Keywords: Trade Openness, Firms' Heterogeneity, Productivity
    JEL: F12 F14 L25
    Date: 2009–08
  6. By: Lim, Jamus Jerome; Saborowski, Christian
    Abstract: The scope and complexity of international trading arrangements in the Middle East, as well as their spotty historical record of success, underscores the urgent need for an adequate understanding of the relative costs and benefits of participation in preferential trading arrangements and, more generally, of changes in the domestic import regimes. This paper seeks to address this problem by providing estimates of the adjustment costs associated with two broad classes of hypothetical trade policy scenarios scenarios for Syria: Participation in preferential trading arrangements, and changes in the domestic import regime. We find that the revenue consequences of the first scenario may be substantial, while our analysis of the second scenario suggests that the number of tariff bands can be reduced to a lower number, while ensuring revenue neutrality, via the introduction of a VAT of sufficient but reasonable size.
    Keywords: Trade policy; trade adjustment costs; tariff reform; Syria
    JEL: P33 O24 O53 F14
    Date: 2009–10–01
  7. By: Kühl Teles, Vladimir; Denadai, Ricardo
    Abstract: The article suggests a new test for strong hysteresis in international trade. The variables that capture the effects of hysteresis are based on the model of Dixit (1989) with calibrations using a state-space model to determine the parameters for each point in time. These variables are then applied to a cointegration test with breaks, where it is possible to verify whether the hysteresis effect is essential in determining the long-term equilibrium.
    Date: 2009–08–26
  8. By: Joseph A. Clougherty (ESMT European School of Management and Technology); Michal Grajek (ESMT European School of Management and Technology)
    Abstract: International standards have the potential to both promote and hinder international trade. Yet empirical scholarship on the standards-trade relationship has been held up due to some methodological challenges: measurement problems, varied effects, and endogeneity concerns. We are able to surmount these challenges while considering the impact of one particular standard on the country-pair trade flows between 91 nations over the 1995-2005 period. To deal with these challenges, we measure the degree of standardization via the penetration of ISO 9000 in individual nations, allow ISO diffusion to manifest via multiple (quality-signaling, information/compliance-cost, and common-language) effects, and use instrumental variable and panel data techniques to overcome endogeneity concerns. We find strong evidence in support of ISO 9000 involving a common-language effect that enhances country-pair trade; yet, the evidence is more mixed with regard to the quality-signaling and information/compliance-cost effects. While we find ISO-rich nations (most notably European) to clearly benefit from the worldwide diffusion of standardization, ISO 9000 represents a de facto trade barrier for nations (e.g., the US and Mexico) lagging behind in terms of adoption.
    Keywords: international trade, standards, technical trade barriers, ISO 9000, networks
    JEL: F13 L15 C51
    Date: 2009–09–15
  9. By: Nin Pratt, Alejandro; Diao, Xinshen; Bahta, Yonas
    Abstract: "We develop a detailed trade analysis to assess the potential welfare impacts of a free trade agreement (FTA) on the agricultural sector of southern African countries and to determine opportunities and challenges faced by the region as a consequence of the agreement. Our approach combines an in-depth look at the current trading patterns of southern African countries with the application of a partial equilibrium analysis that uses bilateral trade data at the four-digit standard international trade classification (SITC) level for 193 agricultural industries in 14 southern African countries. Low diversification of agricultural exports in most southern African countries seems to be a major constraint for promoting regional trade. In most countries, overall welfare effects of an FTA would be positive but small. Inefficient agricultural producers with a regional comparative advantage for agriculture would benefit from trade creation with the rest of the world. Welfare results for regional importers would be negative because of increased imports from inefficient regional producers. These results suggest that the region should be looking at regional policies and interventions beyond trade arrangements, such as those targeting investment, agricultural productivity, and diversification, to enhance benefits of regional trade liberalization." from authors' abstract
    Keywords: Regional trade agreement, Agricultural trade, Development strategies,
    Date: 2009

This nep-int issue is ©2009 by Alessia A. Amighini. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.