nep-int New Economics Papers
on International Trade
Issue of 2009‒10‒31
thirteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. International trade and income differences By Michael E. Waugh
  2. Delocation and Trade Agreements in Imperfectly Competitive Markets By Kyle Bagwell; Robert W. Staiger
  3. Tainted Food, Low-Quality Products and Trade By Jean Marie Viaene; Laixun Zhao
  4. International Trade, Foreign Direct Investment, and Technology Spillovers By Wolfgang Keller
  5. Breach, Remedies and Dispute Settlement in Trade Agreements By Giovanni Maggi; Robert W. Staiger
  6. Product and Process Innovation and the decision to Export: Firm-level evidence for Belgium By Ilke VAN BEVEREN; Hylke VANDENBUSSCHE
  7. Commodity Terms of Trade: The History of Booms and Busts By Irina Tytell; Nikola Spatafora
  8. Spatial implications of international trade under the new economic geography approach By Ramírez Grajeda, Mauricio; de León Arias, Adrián
  9. Globalization and Protection of Employment By Justina A.V. Fischer; Frank Somogyi
  10. FDI and growth: A new look at a still puzzling issue By Dalila NICE-CHENAF (GREThA UMR CNRS 5113); Eric ROUGIER (GREThA UMR CNRS 5113)
  11. Do Trading Partners Still Matter for Nigeria's Growth? A Contribution to the Debate on Decoupling and Spillovers By Kingsley I. Obiora
  12. The WTO: Theory and Practice By Kyle Bagwell; Robert W. Staiger
  13. Trade openness and city interaction By Ramírez Grajeda, Mauricio; Sheldon, Ian

  1. By: Michael E. Waugh
    Abstract: I develop a novel view of the trade frictions between rich and poor countries by arguing that to reconcile bilateral trade volumes and price data within a standard gravity model, the trade frictions between rich and poor countries must be systematically asymmetric, with poor countries facing higher costs to export relative to rich countries. I provide a method to model these asymmetries and demonstrate the merits of my approach relative to alternatives in the trade literature. I then argue that these trade frictions are quantitatively important to understanding the large differences in standards of living and total factor productivity across countries.
    Keywords: Trade ; Developed countries ; Developing countries ; Exports
    Date: 2009
  2. By: Kyle Bagwell; Robert W. Staiger
    Abstract: We consider the purpose and design of trade agreements in imperfectly competitive environments featuring firm-delocation effects. In both the segmented-market Cournot and the integrated-market monopolistic competition settings where these effects have been identified, we show that the only rationale for a trade agreement is to remedy the inefficiency attributable to the terms-of-trade externality, the same rationale that arises in perfectly competitive markets. Furthermore, and again as in the perfectly competitive benchmark case, we show that the principle of reciprocity is efficiency enhancing, as it serves to "undo" the terms-of-trade driven inefficiency that occurs when governments pursue unilateral trade policies. Our results therefore indicate that the terms-of-trade theory of trade agreements applies to a broader set of market structures than previously thought.
    JEL: F12 F13
    Date: 2009–10
  3. By: Jean Marie Viaene (Erasmus University Rotterdam, Tinbergen Institute and CESifo); Laixun Zhao (Research Institute for Economics and Business Administration, Kobe University)
    Abstract: This paper examines international trade in tainted food and other low-quality products. We first find that for a large class of environments, free trade is the trading system that conveys the highest incentives to produce non-tainted high-quality goods by foreign exporters. However, free trade is neither a necessary nor a sufficient condition to exclude trade in tainted products. This condition is less easily satisfied if the marginal cost of high-quality production increases, or if errors of testing product quality matter. We also examine cases of image-building investments and sabotage. In particular, sabotage by the domestic firm reduces the foreign firm's incentives to produce high quality, and as a consequence tends to increase import tainting.
    Keywords: asymmetric information, experience good, product differentiation, sabotage, tainting, trade.
    JEL: D43 F12 F13 I12
    Date: 2009–10
  4. By: Wolfgang Keller
    Abstract: This paper examines how international flows of technological knowledge affect economic performance across industries and firms in different countries. Motivated by the large share of the world's technology investments made by firms that are active across borders, we focus on international trade and multinational enterprise activity as conduits for technological externalities, or spillovers. In addition to reviewing the recent empirical research on technology spillovers, the discussion is guided by a new model of foreign direct investment, trade, and endogenous technology transfer. We find evidence for technology spillovers through international trade and the activity of multinational enterprises. The analysis also highlights challenges for future empirical research, as well as the need for additional data on technology and innovation.
    JEL: F1 F2 L2 O3 O4
    Date: 2009–10
  5. By: Giovanni Maggi; Robert W. Staiger
    Abstract: We provide a simple but novel model of trade agreements that highlights the role of transaction costs, renegotiation and dispute settlement. The model allows us to characterize the appropriate remedy for breach and whether the agreement should be structured as a system of "property rights" or "liability rules." We then study how the optimal rules depend on the underlying economic and contracting environment. Our model also delivers predictions about the outcome of trade disputes, and in particular about the propensity of countries to settle early versus "fighting it out."
    JEL: D02 D86 F13 K12 K33
    Date: 2009–10
  6. By: Ilke VAN BEVEREN (Lessius University College, Department of Business Studies, Antwerp and UniversitŽ catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)); Hylke VANDENBUSSCHE (UniversitŽ catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), Katholieke Universiteit Leuven, LICOS Centre for Institutions and Economic Performance and ¤ CEPR.)
    Abstract: Using data from the Community Innovation Survey for Belgium in two consecutive periods, this paper explores the relationship between firm-level innovation activities and the propensity to start exporting. To measure innovation, we include indicators of both innovative effort (R&D activities) as well as innovative output (product and process innovation). Our results suggest that the combination of product and process innovation, rather than either of the two in isolation, increases a firmÕs probability to enter the export market. After controlling for potential endogeneity of the innovation activities, only firms with a sufficiently high probability to start exporting engage in product and process innovation prior to their entry on the export market, pointing to the importance of self-selection into innovation.
    Keywords: Exports, Product innovation, Process innovation, Self-selection, Firm heterogeneity
    JEL: D24 F14 L25 O31 O33
    Date: 2009–09–14
  7. By: Irina Tytell; Nikola Spatafora
    Abstract: We compile a historical dataset covering nearly 40 years of booms and busts in the commodity terms of trade of over 150 countries. We discuss the characteristics of these events and their effects on macroeconomic performance and, in particular, compare the most recent commodity-price cycle with its historical precedents.
    Keywords: Business cycles , Commodities , Commodity price fluctuations , Commodity prices , Cross country analysis , Data analysis , Data collection , Terms of trade , Time series ,
    Date: 2009–09–25
  8. By: Ramírez Grajeda, Mauricio; de León Arias, Adrián
    Abstract: In 2008, Paul Krugman from Princeton University was awarded the Nobel Prize in Economic Sciences by the Central Bank of Sweden, for his “analysis of trade patterns and location of economic activity”. In this paper we survey the literature, known as the New Economic Geography (NEG), launched by Krugman (1991). In particular, we focus on four topics: (i) NEG roots, (ii) NEG rationale; (ii) the spatial impact of international trade on global economic imbalances; and (iv) the impact of international trade on urban structure.
    Keywords: New Economic Geography; Trade Openness; Agglomeration and Urban Economics.
    JEL: F15 F12 R12
    Date: 2009–10–01
  9. By: Justina A.V. Fischer (OECD, ELS/SPD, Paris and Universitaet Hohenheim, Stuttgart); Frank Somogyi (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: Unionists and politicians frequently claim that globalization lowers employment protection of workers. This paper tests this hypothesis in a panel of 28 OECD countries from 1985 to 2003, differentiating between three dimensions of globalization and two labor market segments. While overall globalization is shown to loosen protection of the regularly employed, it increases regulation in the segment of limited-term contracts. We find the economic one to drive deregulation for the regularly employed, but the social one to be responsible for the better protection of workers in atypical employment. We offer political economy arguments as explanations for these differential effects.
    Keywords: Globalization, international trade, integration, employment protection, labor standards, unions, cross-country analysis, panel data analysis
    JEL: C33 F15 F16 J81 J83 O57
    Date: 2009–09
  10. By: Dalila NICE-CHENAF (GREThA UMR CNRS 5113); Eric ROUGIER (GREThA UMR CNRS 5113)
    Abstract: In this paper, we argue that the inadequacy of their underlying formal model can explain the failure of the existing empirical studies to exhibit a robust and convergent estimation of the effect of FDI on growth. We build a structural model of growth with endogenous attraction to FDI, and we estimate it on panel data for a sample of Middle East and North Africa countries (MENA). Direct effects of FDI on growth are not significant, and we show that FDI is not only responsive to growth, but it is also likely to promote increases of GDP through indirect channels as it spurs the formation of human capital and exports.
    Keywords: FDI, growth, attraction, MENA, simultaneous equations
    JEL: F21 F43 O11 O15
    Date: 2009
  11. By: Kingsley I. Obiora
    Abstract: Should policymakers still be concerned about economic growth in trading partners? Have developing and emerging market countries decoupled from the US enough to grow despite significant recession in the US? Using VAR models, this paper addresses these questions for Nigeria in the context of the global crisis. The results seem to debunk the "decoupling theory" and suggest there are still significant spillovers from Nigeria's main trading partners, including the US, with trade and commodity price linkages being the dominant transmission channels. Given the sharp fall in both trade financing and commodity prices in aftermath of the crisis, these results provide some explanation to the realization of adverse second-round effects in Nigeria.
    Keywords: Brazil , Cross country analysis , Direction of trade , Economic growth , Economic models , European Union , Financial crisis , Global competitiveness , International trade , Nigeria , Spillovers , Trade policy , United States ,
    Date: 2009–10–07
  12. By: Kyle Bagwell; Robert W. Staiger
    Abstract: We consider the purpose and design of the World Trade Organization (WTO) and its predecessor, GATT. We review recent developments in the relevant theoretical and empirical literature. And we describe the GATT/WTO architecture and briefly trace its historical antecedents. We suggest that the existing literature provides a useful framework for understanding and interpreting central features of the design and practice of the GATT/WTO, and we identify key unresolved issues.
    JEL: F02 F13
    Date: 2009–10
  13. By: Ramírez Grajeda, Mauricio; Sheldon, Ian
    Abstract: The New Economic Geography framework supports the idea that economic integration plays an important role in explaining urban concentration. By using Fujita et al. (1999) as a theoretical motivation, and information on the 5 most important cities of 84 countries, we find that the size of main cities declines and the size of secondary cities increases as a result of external trade. Similar results are obtained for cities with a population over a million. However, cities with a large fraction of the urban population grow independently of their position in the urban ranking. The implications for urban planners and development economists is that investment in infrastructure must take place in secondary cities when a country is involved in a process of trade liberalization, especially, those located near ports.
    Keywords: New Economic Geography; Trade Openness; Agglomeration and Urban Economics.
    JEL: F15 F12 R12
    Date: 2009–05–01

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