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

  1. Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement By Andrei A. Levchenko; Julian di Giovanni
  2. Intra-Industry Adjustment to Import Competition: Theory and Application to the German Clothing Industry By Raff, Horst; Wagner, Joachim
  3. Market Experiences and Export Decisions in Heterogeneous Firms By Johansson, Sara
  4. Trade Liberalization, Exports and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinean Firms By Paula Bustos
  5. Subsidizing Firm Entry in Open Economies By Pflüger, Michael P.; Suedekum, Jens
  6. Asian Trade: Long-Term Patterns and Key Policy Issues By Prema-chandra Athukorala; Hal Hill
  7. One Money, One Market - A Revised Benchmark By Theo S. Eicher; Christian Henn
  8. Trade with China and Skill Upgrading: Evidence from Belgian Firm Level Data By Giordano Mion; Hylke Vandenbussche; Linke Zhu
  9. Scale and Scope - human capital and the structure of regional export flows By Andersson, Martin; Johansson, Sara
  10. Aid for trade facilitation By Helble, Matthias; Mann, Catherine; Wilson, John S.
  11. Competitiveness in Central-Europe: What Has Happened Since EU Accession? By Céline Allard
  12. U.S. Trade Policy Since 1934: An Uneven Path Toward Greater Trade Liberalization By Robert E. Baldwin
  13. Is China's Export-Oriented Growth Sustainable? By Kai Guo; Papa M'B. P. N'Diaye
  14. Madagascar: A Competitiveness and Exchange Rate Assessment By Luc Eyraud

  1. By: Andrei A. Levchenko; Julian di Giovanni
    Abstract: Countries that trade more with each other exhibit higher business cycle correlation. This paper examines the mechanisms underlying this relationship using a large cross-country industry-level panel dataset of manufacturing production and trade. We show that sector pairs that experience more bilateral trade exhibit stronger comovement. Vertical linkages in production are an important explanation behind this effect: bilateral international trade increases comovement significantly more in cross-border industry pairs that use each other as intermediate inputs. Our estimates imply that these vertical production linkages account for some 30% of the total impact of bilateral trade on the business cycle correlation.
    Keywords: Bilateral trade , Business cycles , Cross country analysis , Economic models , Globalization , Industrial production , Industrial sector , Industrial trade , International trade , Manufacturing sector , Trade relations ,
    Date: 2009–08–25
  2. By: Raff, Horst (Kiel Institute for the World Economy); Wagner, Joachim (Leuphana University Lüneburg)
    Abstract: This paper uses an oligopoly model with heterogeneous firms to examine how an industry adjusts to rising import competition. The model predicts that in the short run the least efficient firms in the industry become inactive, surviving firms face a fall in output, mark-ups and profits, and the average productivity of survivors increases. These pro-competitive effects of import penetration on the domestic industry disappear in the long run. The predictions for the short run are confirmed in an empirical study of the German clothing industry.
    Keywords: international trade, firm heterogeneity, productivity, clothing industry
    JEL: F12 F15
    Date: 2009–09
  3. By: Johansson, Sara (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This empirical analysis focus on the impact of firm characteristics, firms’ export experiences and location-specific variables on export decisions in Swedish manufacturing firms. Three choices of export market participation are considered: permanent export, occasional export and no export. The paper also analyzes firms’ choice of expanding export activities. The empirical results indicate that firm-level variables such as size, human capital intensity and labor productivity increases the probability of a firm being a permanent exporter rather than an occasional or non-exporter. Moreover, firms located in regions with a high concentration of other firms exporting commodities in the same product group have a higher probability of both permanent and occasional export market participation. The results also show a significant positive effect of firms’ export experiences in the previous period on the probability that a firm becomes a permanent exporter in the current period. The analysis of export market expansion suggest that firms with high human capital intensity and experiences from exporting several products to several markets are more likely to introduce a new export product. The probability of expanding to new geographical markets seems to be increasing with firm-level labor productivity and export experiences from multiple markets in previous periods.
    Keywords: export behavior; firm heterogeneity; learning-by-exporting; experiential knowledge; knowledge spillover; agglomeration economies
    JEL: F14
    Date: 2009–09–28
  4. By: Paula Bustos
    Abstract: This paper studies the impact of a regional free trade agreement, MERCOSUR, on technology upgrading by Argentinean firms. To guide empirical work, I introduce technology choice in Melitz’s (2003) model of trade with heterogeneous firms. The joint treatment of the technology adoption and exporting choices shows that the increase in revenues produced by trade integration can induce exporters to upgrade technology. An empirical test of the model reveals that firms in industries facing higher reductions in Brazil’s tariffs increase their investment in technology faster. The effect of tariffs on entry in the export market and technology adoption is highest in the upper-middle range of the firm size distribution, as predicted by the model.
    Date: 2009–08
  5. By: Pflüger, Michael P. (University of Passau); Suedekum, Jens (University of Duisburg-Essen)
    Abstract: Entrepreneurs who decide to enter an industry are faced with different levels of effective entry costs in different countries. These costs are heavily influenced by economic policy. What is not well understood is how international trade affects the government incentive to impact on entry costs, and how entry subsidies can be used strategically in open economies. We present a general equilibrium model of monopolistic competition with two (potentially) asymmetric countries and heterogeneous firms where government subsidizes entry of domestic entrepreneurs. Under autarky the entry subsidy indirectly corrects for the monopoly pricing distortion. In the autarky equilibrium these subsidies trigger entry, but they eventually do not lead to more but to better firms in the market. In the open economy there is another, strategic motive for entry subsidies as the tightening of domestic market selection also affects exporting decisions for domestic and foreign firms. Our analysis shows that entry subsidies in the Nash-equilibrium are first increasing, then decreasing in the level of trade openness. This implies a U-shaped relationship between openness and effective entry costs. Merging cross-country data on entry costs with international trade openness indices we empirically confirm this theoretical prediction.
    Keywords: firm entry, subsidies, heterogeneous firms, international trade, monopolistic competition, entry regulation, strategic trade policy
    JEL: F12 F13 H25 L11
    Date: 2009–08
  6. By: Prema-chandra Athukorala; Hal Hill
    Abstract: This paper offers an analytical interpretation of Asian trade patterns since the late 1960s, in the context of three general, conditioning factors: rapid growth and structural change, host country commercial policy environments, and institutional and technological factors governing global trade and investment patterns. Highlighting the diversity of trade structures and export performance across Asia, the paper documents the successive waves of policy reforms leading to the adoption of export-oriented strategies first in Japan and the four NIEs, then the ASEAN Four, followed by China and the Indo China states, and most recently India. Particular attention is paid to the rapidly growing phenomenon of ‘international production fragmentation’, that is, the geographic separation of activities involved in producing a good (or service) across two or more countries, and its implications for both the analysis of trade flows and trade policy. Our analysis of China’s rise as a global trading giant demonstrates that the alleged fears of China ‘crowding out’ small, latecomer exporters are overstated, as is the associated notion of ‘export pessimism’. Finally, notwithstanding India’s recent rapid growth, the comparative analysis highlights the small scale of its international trade, as compared to East Asia in general and China in particular.
    Keywords: Asia, China, India, trade patterns, production fragmentation
    JEL: F10 F11 O24
    Date: 2009
  7. By: Theo S. Eicher; Christian Henn
    Abstract: The introduction of the euro generated substantial interest in measuring the impact of currency unions (CUs) on trade flows. Rose's (2000) initial estimates suggested a tripling of trade and created a literature in search of "more reasonable" CU effects. A recent meta-analysis of this literature shows that subsequent papers quantify CU trade impacts at 30-90 percent. However, most recent studies use shorter time series and fewer countries than Rose in his original work. We revisit Rose's original benchmark, extend the dataset, and address Baldwin's (2006) critiques regarding the proper specification of gravity models in large panels by simultaneously accounting for multilateral resistance and unobserved bilateral heterogeneity. This produces a robust average CU trade effect of 45 percent. Yet, the trade impacts of individual CUs vary substantially and are generally lower than those of preferential trade agreements (PTAs). Our revised benchmark can be used as a yardstick for future studies to delineate how estimates differ due to new data or differences in econometric specifications.
    Keywords: Bilateral trade , Economic models , Markets , Monetary systems , Monetary unions , Trade integration , Trade relations ,
    Date: 2009–09–02
  8. By: Giordano Mion; Hylke Vandenbussche; Linke Zhu
    Abstract: We use Belgian ?rm level data over the period 1996-2006 to analyze the impact of imports from China and other low wage countries on ?rm growth, death, and skill upgrading. We distinguish the impact of imports into two di¡èerent channels: industry-level import competition and ?rm-level outsourcing. We ?nd that imports from China are much more important than imports from other low-wage countries. Industry-level import competition from China reduced ?rm employment and induced skill upgrading. Import competition from China alone can explain around 30 percent of the total skill upgrading in Belgian manufacturing during 1996- 2006. Our IV results con?rm the ambiguous role of outsourcing in ?rm employment growth, but we also ?nd that outsourcing to China will increase the relative employment of non-production workers and is bene?cial for ?rm survival.
    Keywords: import competition; outsourcing; China; skill upgrading
    JEL: F11 F14 F16
    Date: 2009
  9. By: Andersson, Martin (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Johansson, Sara (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper presents an empirical analysis of the relationship between human capital endowments and the structure of regional export flows. Since the development of each export product may be assumed to be associated with innovation activity, requiring human capital inputs, the core hypothesis tested in this paper is that cross-regional variations in endowments of human capital influence the extensive margin (number of export products) rather than the intensive margin (average export value per product). The hypothesis is tested in a cross-regional regression model, applied to aggregate and within-industry export flows from Swedish regions. The empirical results confirm the theoretical prediction that the response of regional export flows to cross-regional variations in human capital is an increase in the extensive margin. To the extent that the regional human capital endowment affects the intensive margin, the effect is a higher average price per export product.
    Keywords: product differentiation; knowledge; human capital; accessibility; export diversity; extensive margin; economies of scale
    JEL: F12 F14 R12 R32
    Date: 2009–09–28
  10. By: Helble, Matthias; Mann, Catherine; Wilson, John S.
    Abstract: Does foreign aid spent on trade facilitation increase trade flows of developing countries? There is an on-going and high profile discussion of aid-for-trade associated with the Doha negotiations of the World Trade Organization. There continue also questions about how best to achieve the Millennium Development Goals. The analysis in this paper explicitly considers how to target aid most effectively to increase trade – a fundamental question related to the crisis and policy debate over restarting the world trading system. Using detailed data on aid flows from the OECD, the analysis here estimates the responsiveness of trade flows to specific types of foreign aid. The findings indicate that aid directed toward promoting trade enhances the trade performance of recipient countries: a 1 percent increase in aid directed toward trade policy and regulatory reform (amounting to about US$11.7 million more such aid) could generate an increase in global trade of about US$818 million. This yields a"rate of return"on every dollar of this type of aid of about US$697 in additional trade. As the dollar aid flow is relatively small, such targeted aid mitigates concerns about absorptive capacity and real exchange rate appreciation, which may accompany larger disbursements.
    Date: 2009–09–01
  11. By: Céline Allard
    Abstract: Since EU accession, trade flows have exhibited strong dynamics in Central-Eastern Europe (CEE). During the period leading to the current global turmoil, the region has also experienced continuous exchange rate appreciation and rapid FDI inflows, both likely to have affected these countries' competitiveness. This paper describes how the determinants of exports and imports have evolved in CEE countries over 2002-07 and econometrically derives their contribution to trade, with a view to assessing competitiveness developments. The analysis reveals that the global and domestic upswings, along with rising trade market shares, go a long way toward accounting for trade developments in CEE countries until 2007, pointing to continuous nonprice competitiveness gains. It also finds that exchange rate appreciation did not unduly weigh on export and import growth, suggesting that most of it reflected an upward movement in its equilibrium value. While the region entered the current period of global slowdown from a strong competitiveness position, the crisis also exposed the vulnerability of its heavy reliance on global demand to a trade shock.
    Keywords: Central and Eastern Europe , Cross country analysis , Economic models , European Union , Exchange rate appreciation , Exports , Foreign direct investment , Global competitiveness , Imports , Trade ,
    Date: 2009–06–02
  12. By: Robert E. Baldwin
    Abstract: This paper presents a comprehensive but relatively brief historical survey of U.S. trade-policy over the last 75 years. It is aimed at individuals who are not already familiar with the concepts and terminology used in discussions of trade policy and the domestic and international institutional framework within which U.S. trade policies are formulated and implemented. Particular attention is devoted to exploring the underlying economic and political conditions that have shaped U.S. trade policies over the period.
    JEL: A22 A23 F02 F1 F13 F5 F53 F59
    Date: 2009–10
  13. By: Kai Guo; Papa M'B. P. N'Diaye
    Abstract: This paper assesses the sustainability of China's export-oriented growth over the medium to longer term. It shows that maintaining the current export-oriented growth would require significant gains in market share through lower prices in a range of industries. This, in turn, could be achieved through a combination of increases in productivity, lower profits, and higher implicit or explicit subsidies to industry. However, the evidence suggest that it will prove difficult to accommodate such price reductions within existing profit margins or through productivity gains. Moving up the value-added chain, shifting the composition of exports, diversifying the export base, and increasing domestic value added of exports could give room to further export expansion. However, experiences from Asian economies that had similar export-oriented growth suggest there are limits to the global market share a country can occupy. Rebalancing growth toward private consumption would provide a large impetus to output growth and reduce the need for gaining further market share.
    Keywords: China, People's Republic of , Cross country analysis , Economic growth , Export markets , Export performance , Export prices , Export sector , Exports , Fiscal reforms , Global competitiveness , Industrial sector , Private consumption , Productivity ,
    Date: 2009–08–12
  14. By: Luc Eyraud
    Abstract: The purpose of this paper is to assess Madagascar's competitiveness in recent years, using both price and nonprice indicators and an exchange rate assessment of the currency. We estimate the distance between the equilibrium and the actual real exchange rates using three methods: the macroeconomic balance approach, the external sustainability approach, and the reduced-form equilibrium real exchange rate approach. These methods suggest that in the medium term the real exchange rate is only slightly overvalued. We also carry out a comparative analysis of nonprice indicators and find that Madagascar performs less favorably than its competitors on structural competitiveness.
    Keywords: Cross country analysis , Exchange rate assessments , Export markets , Global competitiveness , International trade , Madagascar , Price structures , Real effective exchange rates ,
    Date: 2009–05–21

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.