nep-int New Economics Papers
on International Trade
Issue of 2009‒11‒07
twenty papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. The Choice of Modeling Firm Heterogeneity and Trade Restrictions By Matthew T Cole
  2. Optimal Tariffs, Tariff Jumping, and Heterogeneous Firms By Matthew T Cole; Ronald B Davies
  3. Production Networks and Trade Patterns:East Asia in a Global Context By Prema-chandra Athukorala
  4. Expatriates and Trade By Tomas Konecny
  5. Trade, Firm Structure, and Migration of Talent By Maroula Khraiche
  6. Enhancing Trade Through Migration. A Gravity Model of the Network Effect. By Laura Casi.
  7. Tear Down this Wall : On the Persistence of Borders in Trade By Nitsch, Volker; Wolf, Nikolaus
  8. Unionisation Structures and Heterogeneous Firms By Sebastian Braun
  9. Trade and Profitability: Is there an export premium? Evidence from Italian manufacturing firms By Marco Grazzi
  10. Trading Cultural Goods in the Era of Digital Piracy By Stefania Lionetti; Roberto Patuelli
  11. The Collapse of International Trade During the 2008-2009 Crisis: In Search of the Smoking Gun By Andrei A. Levchenko; Logan Lewis; Linda L. Tesar
  12. Plant-Level Responses to Antidumping Duties: Evidence from U.S. Manufacturers By Justin Pierce
  13. Firm Dynamics and Real Exchange Rate Fluctuations: Does Trade Openness Matter? Evidence from Mexico’s Manufacturing Sector By Fuentes, Miguel; Ibarrarán, Pablo
  14. Financial health, exports and firm survival: A comparison of British and French firms By Holger Görg; Marina-Eliza Spaliara
  15. The Exchange Rate and US Tourism Balance of Trade By Cheng, Ka Ming; Kim, Hyeongwoo; Thompson, Henry
  16. Financial constraints and the margins of FDI By Buch, Claudia M.; Kesternich, Iris; Lipponer, Alexander; Schnitzer, Monika
  17. Why Don’t Labor and Capital Flow Between Young and Old Countries? By Lena Calahorrano; Philipp an de Meulen
  18. Interaction between foreign financial services and foreign direct investment in Transition Economies: An empirical analysis with focus on the manufacturing sector By Guido Cazzavillan; Krzysztof Olszewski
  19. The power of exports By Easterly, William; Reshef, Ariell; Schwenkenberg, Julia
  20. Openness and Technological Innovation in East Asia: Have They Increased the Demand for Skills? By Almeida, Rita K.

  1. By: Matthew T Cole (University College Dublin)
    Abstract: There has been great focus in the recent trade theory literature on the introduction of firm heterogeneity into trade models. However, these models tend to rely heavily on symmetry assumptions and assume melting iceberg transport costs as the only form of trade restrictions. Moreover, a standard assumption is that firms differ across marginal cost, yet empirical evidence suggests this is not the only important source of heterogeneity. I provide a highly tractable model, in which firms differ across fixed costs, that qualitatively maintains the main results of these models, but allows for asymmetric changes in trade restrictions, a necessary step towards studying strategic trade policy. In addition, I highlight the differences in the effects on product variety associated with changes in an ad valorem tariff, iceberg transport costs, and additional beachhead costs to become an exporter. This is important as there are potential offsetting effects on firm entry.
    Keywords: Intra-industry Trade; Trade policy; Firm heterogeneity; Monopolistic competition
    Date: 2009–10–01
  2. By: Matthew T Cole (University College Dublin); Ronald B Davies (University College Dublin)
    Abstract: The majority of research to date investigating strategic tariffs in the presence of multinationals finds a knife-edge result where, in equilibrium, all foreign firms are either multinationals or exporters. Utilizing a model of heterogeneous firms, we find equilibria in which both pure exporters and multinationals coexist. We utilize this model to study the case of endogenously chosen tariffs. As is standard, Nash equilibrium tariffs are higher than the socially optimal tariffs. Unlike existing models with homogeneous firms, we find that non-cooperative tariffs promote the existence of low-productivity firms relative to the socially optimal tariffs. This highlights a new source of inefficiency from tariff competition not found in models of homogeneous firms. In addition, we find that in many cases the Nash equilibrium tariff when FDI is a potential firm structure is lower than when it is not. As a result, FDI improves welfare by mitigating tariff competition.
    Keywords: Intra-industry Trade; Trade policy; Firm heterogeneity; Monopolistic competition
    Date: 2009–10–01
  3. By: Prema-chandra Athukorala
    Abstract: This paper examines the implications of global production sharing for regional and global trade patterns in East Asia using a new data set culled from the UN trade database. It is found that, while ‘network trade’ has generally grown faster than total world trade in manufacturing, the degree of dependence of East Asia on this new form of international specialisation is proportionately larger than elsewhere in the world. Trade within production networks has certainly strengthened economic interdependence among countries in the region, with China playing a pivotal role as the premier centre of final assembly. However, this, contrary to the popular belief, has not lessened the dependence of export dynamism of these countries on the global economy. The rise of global production sharing has strengthened the case for a global, rather than a regional, approach to trade and investment policymaking.
    Keywords: production sharing, trade patterns, East Asia, China
    JEL: F10 F14 O53
    Date: 2009
  4. By: Tomas Konecny
    Abstract: The study quantifies the contribution to bilateral trade flows of expatriates from the OECD economies living in less developed countries. Similarly to the results of the existing research that focused on immigrants moving in the opposite direction, the expatriates promote trade between the country of origin and country of residence. The expatriates’ facilitation of trade is nonetheless relatively weaker and works likely through different channels. Using a unique dataset on bilateral migration stocks, a 10 percent increase in the size of an expatriate community leads to a 0.6 percent average increase in its OECD trade partner’s imports against a 2.5 percent impact of immigrants in OECD countries. The import facilitating role of expatriate networks is centered in host countries with low institutional quality. In economies lying within the lowest third of the institutional quality distribution, a 10 percent increase in expatriate stock would lead to a 1.7 percent increase in imports into their country of origin. The figures on expatriates’ role in exports are not statistically different from zero.
    Keywords: International trade, migration, informal trade barriers.
    JEL: F22 O24
    Date: 2009–08
  5. By: Maroula Khraiche
    Abstract: Throughout economic history there have been episodes in which the liberalization of trade has been accompanied by a positive flow of migrants. Such phenomena are notable because they contradict the basic Heckscher-Ohlin conclusion that trade and labor mobility are substitutes. Also notable is the fact that migrants to the U.S. have been largely skilled rather than unskilled. This paper links these two phenomena by pointing out the simple fact that increased trade can involve different types of firm structures and different types of goods being traded, which in turn have different effects on skilled and unskilled labor. The interaction between different frictions that impact labor movements, specifically the interaction between capital adjustment costs and trade costs, has a significant effect on the gap between the returns to labor in the South and North. Although the decrease in trade costs and increase in trade dampens labor movements, the existence of asymmetric capital adjustment costs in the North and South increases it. To show these results formally, this paper calibrates and solves a two-country, two-sector model of trade and migration, in which countries differ in skill endowments and capital adjustment costs and sectors differ in structures and capital intensities. Empirical analysis is then provided, with results supporting the main qualitative implications of the model.
    Keywords: International migration, multinational firms, capital adjustment cost.
    JEL: F16 F22 F23 E2
    Date: 2009–10
  6. By: Laura Casi.
    Abstract: While trade liberalization has always been the core of common policies, only in very recent years Europe has started to address the challenge of migration in a comprehensive way. Conventional wisdom considers potential gains from liberalizing trade much higher for European countries than the benefits deriving from liberalization of migration. This paper gives evidence of the benefits European host countries had from immigration, identifying trade channel as the key driver of these benefits. It focuses on 17 European Union member states and 10 extra-European partners with the highest immigration flows towards the EU-27. The period considered is the decade 1997-2006. Controlling for endogeneity, the results I obtain suggest that migration have a statistically significant and robust enhancing effect on European countries exports, this effect being particularly important when considering differentiated commodities rather than homogeneous goods. This confirms the importance of the “network effect” of migration for European countries. Evidence on imports, instead, is puzzled. To my knowledge this is the first attempt in the literature to test the trade enhancing effect of migration using a panel, including a consistent number of European Countries and extra-European partner quite different in terms of geographical location, socio-economics and cultural characteristics and inspecting such recent years. This further extends existing evidence on the network effect and allows considering the results valid in a cross-country analysis over time.
    Keywords: International Migration, Economic Integration, Networks, Europe.
    JEL: F15 F22
    Date: 2009–10
  7. By: Nitsch, Volker (Technische Universität Darmstadt); Wolf, Nikolaus (University of Warwick and CEPR)
    Abstract: Why do borders still matter for economic activity? The reunification of Germany in 1990 provides a unique natural experiment for examining the effect of political borders on trade both in the cross-section and over time. With the fall of the Berlin Wall and the rapid formation of a political and economic union, strong and strictly enforced administrative barriers to trade between East Germany and West Germany were eliminated completely within a very short period of time. The evolution of intra-German trade flows after reunification then provides new insights for both the globalization and border effects literatures. Our estimation results show a remarkable persistence in intra-German trade patterns along the former East-West border ; political integration is not rapidly followed by economic integration. Instead, we estimate that it takes at least one generation (between 33 and 40 years or more) to remove the impact of political borders on trade. This finding strongly suggests that border effects are neither statistical artefacts nor mainly driven by administrative or “red tape” barriers to trade, but arise from economic fundamentals.
    Keywords: integration ; home bias ; globalization JEL Codes: F14 ; F15
    Date: 2009
  8. By: Sebastian Braun
    Abstract: The effects of unions on productivity and firm performance have been the topic of extensive research. Existing studies have, however, primarily focused on firm-level bargaining and on markets that are characterised by a small and fixed number of identical firms. This paper studies how different unionisation structures affect firm productivity and firm performance in a monopolistic competition model with heterogeneous firms and free entry. While centralised bargaining induces tougher selection among heterogeneous producers and thus increases average productivity, firm-level bargaining allows less productive entrants to remain in the market. Centralised bargaining also results in higher average output and profit levels than either decentralised bargaining or a competitive labour market. From the perspective of consumers, the choice between centralised and decentralised bargaining involves a potential trade-off between product variety and product prices
    Keywords: Trade unions, heterogeneous firms, productivity, firm performance
    JEL: J24 J50 D43
    Date: 2009–10
  9. By: Marco Grazzi
    Abstract: Using firm level data this study investigates the relation between export activity and firm's profitability. The paper shows that, contrary to other performance indicators such as productivity, exporting activity is not systematically associated to higher firm's profitability. This is shown both by means of non-parametric methods and, with an approach that is more standard within the empirical trade literature, by regression techniques that try to identify an "export premium".
    Keywords: export premium; productivity; profitability
    JEL: F10 D20 L60
    Date: 2009–10–27
  10. By: Stefania Lionetti (Institute of Economic Research (IRE), University of Lugano); Roberto Patuelli (Institute of Economic Research (IRE), University of Lugano; The Rimini Centre for Economic Analysis (RCEA))
    Abstract: The issue of digital piracy as violation of intellectual property rights is a hot button among many governments around the world. Until now, nor legislation or its enforcement have managed to keep up with the most recent technologies facilitating piracy. Piracy rates may significantly affect both internal demand and international trade of cultural goods. This paper aims to empirically assess the effect of digital piracy on bilateral trade in cultural goods. We focus on trade in music and media. Analysing an 11-year panel of 25 countries, we find that piracy does affect negatively bilateral trade, although to a varying extent.
    Keywords: trade; cultural goods; piracy; spatial filtering; network autocorrelation
    JEL: F1 C23 Z11
    Date: 2009–10
  11. By: Andrei A. Levchenko (University of Michigan); Logan Lewis (University of Michigan); Linda L. Tesar (University of Michigan and National Bureau of Economic Research)
    Abstract: One of the most striking aspects of the recent recession is the collapse in international trade. This paper uses disaggregated quarterly and monthly data on U.S. imports and exports to shed light on the anatomy of this collapse. We find that the recent reduction in trade relative to overall economic activity is far larger than in previous downturns. Information on quantities and prices of both domestic absorption and imports reveals a more than 50% shortfall in imports, relative to what would be predicted by a simple import demand relationship. In a sample of imports and exports disaggregated at the 6-digit NAICS level, we find that sectors used as intermediate inputs experienced significantly higher percentage reductions in both imports and exports. We also find support for compositional effects: sectors with larger reductions in domestic output had larger drops in trade. By contrast, we find no support for the hypothesis that trade credit played a role in the recent trade collapse.
    Keywords: 2008-2009 Crisis, International Trade
    JEL: F41 F42
    Date: 2009–10
  12. By: Justin Pierce
    Abstract: This paper describes the effects of a temporary increase in tariffs on the performance and behavior of U.S. manufacturers. Using antidumping duties as an example of temporary protection, I compare the responses of protected manufacturers to those predicted by models of trade with heterogeneous firms. I find that apparent increases in revenue productivity associated with antidumping duties are primarily due to increases in prices and mark-ups, as physical productivity falls among protected plants. Moreover, antidumping duties slow the reallocation of resources from less productive to more productive uses by reducing product-switching behavior among protected plants.
    Keywords: Antidumping; Temporary Protection; Heterogeneous Firms; Productivity
    JEL: F13 F14 D24
    Date: 2009–10
  13. By: Fuentes, Miguel (Central Bank of Chile); Ibarrarán, Pablo (Inter-American Development Bank)
    Abstract: In this paper we study the effect of NAFTA on the responsiveness of Mexican economy to real exchange rate shocks. We argue that, by opening the U.S. and Canadian markets to Mexican goods, NAFTA made it easier for domestic producers to take advantage of the opportunities brought by the depreciation of the real exchange rate. To identify this mechanism, we use plant-level data and compare the behavior of employment, production and investment after two big real exchange rate shocks: the first observed in the mid 1980s, the second the Tequila Crisis of 1994-5. The evidence indicates that after passage of NAFTA exporting firms exhibited higher growth rates of employment, sales, and investment vis-á-vis non-exporters. We confirm our results by analyzing the behavior of a control group of firms, that had complete access to the U.S. market during both devaluations, and we show that they responded in a similar way in both events. Finally, we also provide direct evidence on the relationship between exports and tariff reductions brought by NAFTA. Our results support the view that NAFTA has allowed Mexican producers to respond more quickly to real exchange shocks.
    Keywords: NAFTA, RER Shocks, Tequila Crisis, external adjustment, firm-level evidence of effects of RER Shocks
    JEL: F36 F41
    Date: 2009–10
  14. By: Holger Görg; Marina-Eliza Spaliara
    Abstract: We examine the differential effects of financial status and exporting activity on the likelihood of survival for firms in the UK and France - two countries with different financial systems. We aim to answer two main questions: What is the direct impact of financial characteristics and different facets of exporting activity on the likelihood of survival? Do the sensitivities of survival incidence to financial variables vary with the exporting status of firms? We find strong evidence that continuous exporters face a higher probability of survival compared to starters, continuous non-exporters and firms exiting the exporting market. Further, important sensitivities of survival prospects to financial indicators are observed for the UK firms which might be explained by the "market based" economy. Finally, a within and across countries comparison reveals that the survival of exporting groups varies substantially depending on firms' financial status, the financial system and the prolonged participation in the export market
    Keywords: exports, financial health, firm survival
    JEL: F1 L2 G3
    Date: 2009–10
  15. By: Cheng, Ka Ming; Kim, Hyeongwoo; Thompson, Henry
    Abstract: This paper investigates evidence on the effect of dollar depreciation on the US tourism balance of trade. Export revenue and import spending functions are estimated separately with structural vector autoregressive methods to better capture the dynamic adjustment to exchange rate shocks. Quarterly data cover the period of floating exchange rates from 1973 through 2007. Depreciation raises long term US export revenue but there is no effect on import spending.
    Keywords: balance of trade; exchange rate; tourism; structural vector autoregressive model; J-curve
    JEL: C32 F10
    Date: 2009–10
  16. By: Buch, Claudia M.; Kesternich, Iris; Lipponer, Alexander; Schnitzer, Monika
    Abstract: Recent literature on multinational firms has stressed the importance of low productivity as a barrier to the cross-border expansion of firms. But firms may also need external finance to shoulder the costs of entering foreign markets. We develop a model of multinational firms facing real and financial barriers to foreign direct investment (FDI), and we analyze their impact on the FDI decision (the extensive margin) and foreign affiliate sales (the intensive margin). We provide empirical evidence based on a detailed dataset of German multinationals which contains information on parent-level and affiliate-level financial constraints as well as about the location the foreign affiliates. We find that financial factors constrain firms’ foreign investment decisions, an effect felt in particular by large firms. Financial constraints at the parent level matter for the extensive, but less so for the intensive margin. For the intensive margin, financial constraints at the affiliate level are relatively more important.
    Keywords: Multinational firms,heterogeneity,productivity,financial constraints
    JEL: F2 G2
    Date: 2009
  17. By: Lena Calahorrano (RWTH Aachen University, Faculty of Business and Economics, Templergraben 64, 52062 Aachen, Germany); Philipp an de Meulen (RWTH Aachen University, Faculty of Business and Economics, Templergraben 64, 52062 Aachen, Germany)
    Abstract: In this paper we investigate the twofold effect of demographics on international factor flows in a model with endogenous policy constraints on both foreign direct investment and migration. Factor price differences between industrialized and developing countries create economic incentives for migration to developed countries and for capital flows to less developed countries. However, political barriers to immigration in developed countries and expropriation risks in developing countries impede labor and capital flows. Using a political economy approach that takes into account different generations’ conflicting attitudes towards immigration and expropriation, we explore how these policy restrictions interact. We find that, in the presence of mobility constraints, larger demographic differences between countries need not result in an increase of factor flows.
    Keywords: Demographic Change, Political Economy, Migration, Foreign Direct Investment
    JEL: D78 F21 F22 J10
    Date: 2009
  18. By: Guido Cazzavillan (Department of Economics, University Of Venice Cà Foscari); Krzysztof Olszewski (Department of Economics, University Of Venice Cà Foscari)
    Abstract: This paper studies the nexus between financial and non-financial foreign direct investment and its effect on manufacturing value added in Transition Economies, which are members of the EU. Three questions, which are pointed out in the theoretical literature, are discussed in the paper. We investigate whether financial services foreign direct investment has an effect on non-financial foreign direct investment; whether banks follow their clients; and whether there is any effect of foreign direct investment on economic growth. Those questions are tackled with empirical analysis using a dataset for 9 Transition Economies over the period 1996-2007. For most regressions we apply GMM and for one regression 2SLS, to tackle the endogeneity problem. The empirical results lead to three important statements: non-financial FDI is positively affected by financial services FDI and by market potential. Foreign banks in the EU Transition Economies are mainly driven by non-financial FDI and the capital intensity of a country. FDI crowds out domestic investment in the manufacturing sector.
    Keywords: Foreign direct investment, financial services, manufacturing sector, bilateral stocks, Transition Economies
    JEL: F21 F3 O11 O16
    Date: 2009
  19. By: Easterly, William; Reshef, Ariell; Schwenkenberg, Julia
    Abstract: The authors systematically document remarkably high degrees of concentration in manufacturing exports for a sample of 151 countries over a range of 3,000 products. For every country manufacturing exports are dominated by a few"big hits"which account for most of the export value and where the"hit"includes both finding the right product and finding the right market. Higher export volumes are associated with higher degrees of concentration, after controlling for the number of destinations a country penetrates. This further highlights the importance of big hits. The distribution of exports closely follows a power law, especially in the upper tail. These findings do not support a"picking winners"policy for export development; the power law characterization implies that the chance of picking a winner diminishes exponentially with the degree of success. Moreover, given the size of the economy, developing countries are more exposed to demand shocks than rich ones, which further lowers the benefits from trying to pick winners.
    Keywords: Markets and Market Access,Economic Theory&Research,Access to Markets,Airports and Air Services,Tax Law
    Date: 2009–10–01
  20. By: Almeida, Rita K. (World Bank)
    Abstract: This paper asks whether the increased openness and technological innovation in East Asia have contributed to an increased demand for skills in the region. We explore a unique firm level data set across eight countries. Our results strongly support the idea that greater openness and technology adoption have increased the demand for skills, especially in middle income countries. Moreover, while the presence in international markets has been skill enhancing for most middle income countries, this has not been the case for manufacturing firms operating in China and in low-income countries. If international integration in the region intensifies further and technology continues to be skilled biased, policies aimed at mitigating skills shortages in the region should produce continual and persistent increases in skills.
    Keywords: demand for skills, foreign direct investment, exports, firm level data
    JEL: J23 J24 J31 O33
    Date: 2009–10

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.