nep-int New Economics Papers
on International Trade
Issue of 2009‒11‒27
38 papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Trade, wages, and productivity By Behrens, Kristian; Mion, Giordano; Murata, Yasusada; Südekum, Jens
  2. Markups and Firm-level Export Status By De Loecker, Jan; Warzynski, Frederic
  3. International Welfare and Employment Linkages Arising from Minimum Wages By Egger, Hartmut; Egger, Peter; Markusen, James R.
  4. Die neue neue Außenhandelstheorie: das Melitz-Modell By Patricia Hofmann
  5. International Trade, Foreign Direct Investment, and Technology Spillovers By Keller, Wolfgang
  6. Tear Down this Wall: On the Persistence of Borders in Trade By Nitsch, Volker; Wolf, Nikolaus
  7. Time as a determinant of comparative advantage By Li , Yue; Wilson, John S.
  8. Product-Based Cultural Change: Is the Village Global? By Maystre, Nicolas; Olivier, Jacques; Thoenig, Mathias; Verdier, Thierry
  9. The Determinants of Intra-Firm Trade By Corcos, Gregory; Irac, Delphine; Mion, Giordano; Verdier, Thierry
  10. How do different exporters react to exchange rate changes? Theory, empirics and aggregate implications By Berman, Nicolas; Martin, Philippe; Mayer, Thierry
  11. Breach, Remedies and Dispute Settlement in Trade Agreements By Maggi, Giovanni; Staiger, Robert
  12. EU Integration and Trade: a Look from the Outside of the EU Eastern Border? By Oleksandr Shepotylo
  13. Gravity in the Weightless Economy By Keller, Wolfgang; Yeaple, Stephen R
  14. On the Robustness of the Trade-Inducing Effects of Trade Agreements and Currency Unions By Jayjit Roy
  15. The Distance Effect and the Regionalization of the Trade of Low-Income Countries By Carrère, Céline; de Melo, Jaime; Wilson, John
  16. Financial Choice in a Non-Ricardian Model of Trade By Katheryn N. Russ; Diego Valderrama
  17. Financial health, exports, and firm survival: A comparison of British and French firms By Görg, Holger; Spaliara, Marina-Eliza
  18. Labor Market Rigidities, Trade, and Unemployment By Helpman, Elhanan; Itskhoki, Oleg
  19. Conclude Doha : it matters ! By Hoekman, Bernard; Martin, Will; Mattoo, Aaditya
  20. The effects of local systems on the international de-localisation of production.The case of made in taly By Maria Savona; Roberto Schiattarella
  21. Effects of World Price and Oil Export Price Increases in the Framework of One-sector and Two-Sector Stylized Models By Kapsalyamova, Zhanna
  22. Effects of Trade on Female Labor Force Participation By Sauré, Philip; Zoabi, Hosny
  23. Do Food Scares Explain Supplier Concentration? An Analysis of EU Agri-food Imports By Cadot, Olivier; Jaud, Mélise; Suwa Eisenmann, Akiko
  24. How Important is the Currency Denomination of Exports in Open-Economy Models? By Michael Dotsey; Margarida Duarte
  25. A World Factory in Global Production Chains: Estimating Imported Value Added in Chinese Exports By Koopman, Robert; Wang, Zhi; Wei, Shang-Jin
  26. Trade, Technology and Skills: Evidence from Turkish Microdata By Elena Meschi; Erol Taymaz; Marco Vivarelli
  27. Offshoring, Firm Performance and Establishment-Level Employment: Identifying Productivity and Downsizing Effects By Moser, Christoph; Urban, Dieter M; Weder di Mauro, Beatrice
  28. Trade and trade finance developments in 14 developing countries post September 2008 - a World Bank survey By Malouche, Mariem
  29. A Cost-Benefit Framework for the Assessment of Non-Tariff Measures in Agro-Food Trade By Frank van Tongeren; John Beghin; Stéphan Marette
  30. Market Imperfections, Wealth Inequality, and the Distribution of Trade Gains By Foellmi, Reto; Oechslin, Manuel
  31. Trade reform in a corrupt economy : A note By Mandal, Biswajit
  32. Bounded Love of Variety and Patterns of Trade By Sauré, Philip
  33. Financial Constraints and the Margins of FDI By Buch, Claudia M.; Kesternich, Iris; Lipponer, Alexander; Schnitzer, Monika
  34. The potential impact of the global financial crisis on world trade By McKibbin, Warwick J.; Stoeckel, Andrew
  35. Integration of the North American economy and new-paradigm globalisation By Baldwin, Richard
  36. One TV, One Price? By Imbs, Jean; Mumtaz, Haroon; Ravn, Morten O.; Rey, Hélène
  37. Offshoring and the Onshore Composition of Tasks and Skills By Becker, Sascha O.; Ekholm, Karolina; Muendler, Marc-Andreas
  38. Services outsourcing and innovation: An empirical investigation By Görg, Holger; Hanley, Aoife

  1. By: Behrens, Kristian; Mion, Giordano; Murata, Yasusada; Südekum, Jens
    Abstract: We develop a new general equilibrium model of monopolistic competition with heterogeneous firms, variable demand elasticity and multiple asymmetric regions, in which trade integration induces wage and productivity changes. Using Canada-US interregional trade data, we structurally estimate a theory-based gravity equation system featuring endogenous wages and productivity. Given the estimated parameter values, we first decompose ‘border effects’ into a ‘pure’ border effect, relative and absolute wage effects, and a selection effect. We then quantify the impacts of removing the trade distortions generated by the Canada-US border on regional market aggregates such as wages, productivity, markups, the mass of varieties produced and consumed, as well as welfare. Last, we extend the counterfactual analysis to the firm level by generating productivity distributions and their changes via simulation.
    Keywords: counterfactual analysis; endogenous markups; firm heterogeneity; general equilibrium; gravity equation system; monopolistic competition
    JEL: F12 F15 F17
    Date: 2009–07
  2. By: De Loecker, Jan; Warzynski, Frederic
    Abstract: Estimating markups has a long tradition in industrial organization and international trade. Economists and policy makers are interested in measuring the effect of various competition and trade policies on market power, typically measured by markups. The empirical methods that were developed in empirical industrial organization often rely on the availability of very detailed market-level data with information on prices, quantities sold, characteristics of products and more recently supplemented with consumer-level attributes. Often, both researchers and government agencies cannot rely on such detailed data, but still need an assessment of whether changes in the operating environment of firms had an impact on markups and therefore on consumer surplus. In this paper, we derive an estimating equation to estimate markups using standard production plant-level data based on the insight of Hall (1986) and the control function approach of Olley and Pakes (1996). Our methodology allows for various underlying price setting models, dynamic inputs, and does not require measuring the user cost of capital or assuming constant returns to scale. We rely on our method to explore the relationship between markups and export behavior using plant-level data. We find that i) markups are estimated significantly higher when controlling for unobserved productivity, ii) exporters charge on average higher markups and iii) firms’ markups increase (decrease) upon export entry (exit). We see these findings as a first step in opening up the productivity-export black box, and provide a potential explanation for the big measured productivity premia for firms entering export markets.
    Keywords: control function; exporting behaviour; markups; plant-level data; productivity
    JEL: C13 F10 L11
    Date: 2009–09
  3. By: Egger, Hartmut; Egger, Peter; Markusen, James R.
    Abstract: We formulate a two-country model with monopolistic competition and heterogeneous firms to reconsider labor market linkages in open economies. Labor-market imperfections arise by virtue of country-specific real minimum wages. Two principal experiments are considered. First, we show that trade liberalization under minimum wages differs significantly from trade liberalization under standard assumptions. In the former case, there is effectively a perfectly elastic supply of labor to production whereas in the conventional case it is assumed that aggregate labor supply is perfectly inelastic. Standard effects on marginal and average firm productivity are reversed in our model, yet there are significant gains from trade arising from employment expansion, an effect quite different from the source of gains from trade in the conventional approach. Second, we show that with firm heterogeneity an increase in one country's minimum wage triggers firm exit in both countries and thus harms workers at home and abroad. In an extension to our baseline model, we illustrate that offshoring production from the high-wage to the low-wage country within multinational firms lowers the scope for exporting the costs of a higher minimum wage to the trading partner.
    Keywords: Heterogeneous Firms; International Trade; Labour Market Linkages; Minimum Wages; Offshoring; Unemployment
    JEL: F12 F15 F16 F23 J30
    Date: 2009–08
  4. By: Patricia Hofmann (Universität Hohenheim)
    Abstract: Standard international trade lectures normally comprises three central theories: the Ricardian Model, the Heckscher-Ohlin-Samuelson Modell and New Trade Theory `a la Krugman 1979 and 1980. Nowadays this trilogy needs to be enhanced with the basic concepts of a new class of trade models: the New New Trade Theory which accounts for firm heterogeneity and market entry costs. The basic objective of this paper is to present the contribution of Marc J. Melitz in Econometrica 2003 which is central to this new class of trade theory. I show how it is embedded in antecedent theory and highlight the new insights for trade patterns stemming from it.
    Keywords: Trade Theory, Heterogenous Firms, Monopolistic Competition, Entry, Exit, Firm Size, Export Decision
    JEL: F10 F12 L11 L13
    Date: 2009–11
  5. By: Keller, Wolfgang
    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.
    Keywords: Intra-firm trade; Learning-by-exporting; Multinational firms; Tacit knowledge; Technological externalities; Technology diffusion; Total factor productivity
    JEL: F1 F2 O3 O4
    Date: 2009–10
  6. By: Nitsch, Volker; Wolf, Nikolaus
    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: globalization; home bias; integration
    JEL: F14 F15
    Date: 2009–11
  7. By: Li , Yue; Wilson, John S.
    Abstract: It is assumed that added time to export adds cost to and lowers the volume of trade. Time delays may also affect the composition of trade and can disproportionately reduce trade in time-sensitive goods. This paper investigates the validity of these propositions using the World Bank Doing Business database and Enterprise Surveys for 64 developing countries. The authors find that in countries where there is longer time needed to export firms in time-sensitive industries are less likely to become exporters. Moreover, firms that do export have lower export intensities. Their findings imply that time to export is a significant determinant of comparative advantage. For example, consider two industries that have the same export probability and intensity - but differ in time-sensitivity by one standard deviation. Action taken to cut time to export by 50 percent for one industry opens a 6 percentage point difference between the export probabilities of the two industries. In addition, steps to cut time delays increase export intensities by 1.9 percentage points. This impact applies to industries with different productivity levels -- and those in developing countries with different income levels.
    Keywords: Transport Economics Policy&Planning,Economic Theory&Research,Scientific Research&Science Parks,Science Education,Free Trade
    Date: 2009–11–01
  8. By: Maystre, Nicolas; Olivier, Jacques; Thoenig, Mathias; Verdier, Thierry
    Abstract: This paper makes three contributions to the growing literature on culture and economics. Using answers to the World Values Survey for a sample of 79 countries over the 1989-2004 period, we first provide evidence of cultural homogenization between countries. Second, we provide a model of product-based cultural change. Our main theoretical predictions are: (i) bilateral trade openness reduces bilateral cultural distance; (ii) the more differentiated the products, the more trade reduces cultural distance; (iii) trade openness has a lock-in effect on culture. Third, we test the model using an instrumental variable approach and including various time and country-pair fixed effects. We find that a one standard deviation increase in bilateral trade openness translates into a 43% standard deviation decrease in bilateral cultural distance.
    Keywords: culture; homogenization; persistence; trade
    JEL: F10 O10 Z1
    Date: 2009–08
  9. By: Corcos, Gregory; Irac, Delphine; Mion, Giordano; Verdier, Thierry
    Abstract: How successful is the theory of the firm in explaining intra-firm trade? To answer this question we exploit a unique dataset of 1,141,393 French import transactions, spanning across firm, countries and products in 1999, and reporting whether a transaction is intra-firm. Overall, we find support for the main predictions of the partial equilibrium property-rights approach and further deliver facts that can be useful for further theoretical development. We document substantial within-industry heterogeneity while providing evidence of the importance of the firm dimension of sourcing choices as well as of the key distinction between the extensive and intensive margins.
    Keywords: extensive margin; firm heterogeneity; incomplete contracts; intensive margin; internationalization strategies; intra-firm trade; outsourcing; quality of institutions
    JEL: F12 F19 F23
    Date: 2009–11
  10. By: Berman, Nicolas; Martin, Philippe; Mayer, Thierry
    Abstract: This paper analyzes the reaction of exporters to exchange rate changes. We present a model where, in the presence of distribution costs in the export market, high and low productivity firms react differently to a depreciation . Whereas high productivity firms optimally raise their markup rather than the volume they export, low productivity firms choose the opposite strategy. Hence, pricing to market is both endogenous and heterogenous. This heterogeneity has important consequences for the aggregate impact of exchange rate movements. The presence of fixed costs to export means that only high productivity firms can export, firms which precisely react to an exchange rate depreciation by increasing their export price rather than their sales. We show that this selection effect can explain the weak impact of exchange rate movements on aggregate export volumes. We then test the main predictions of the model on a very rich French firm level data set with destination-specific export values and volumes on the period 1995-2005. Our results confirm that high performance firms react to a depreciation by increasing their export price rather than their export volume. The reverse is true for low productivity exporters. Pricing to market by exporters is also more pervasive in sectors and destination countries with higher distribution costs. Consistent with our theoretical framework, we show that the probability of firms to enter the export market following a depreciation increases. The extensive margin response to exchange rate changes is modest at the aggregate level because firms that enter, following a depreciation, are smaller relative to existing firms.
    Keywords: distribution costs; Exchange rates; exports; heterogeneity; pricing to market; productivity
    JEL: F12 F41
    Date: 2009–10
  11. By: Maggi, Giovanni; Staiger, Robert
    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."
    Keywords: breach remedies; dispute settlement; international trade agreements
    JEL: D02 D86 F13 K12 K33
    Date: 2009–11
  12. By: Oleksandr Shepotylo (Kyiv School of Economics and Kyiv Economics Institute)
    Abstract: This paper develops a methodology for trade policy analysis of costs and benefits of alternative regional integration scenarios, based on the disaggregated gravity equation, and applies it to calculate the impact of the EU enlargement on integration strategies of non-member countries. In particular, the paper measures the impact of the 2004 EU enlargement from the standpoint of Ukraine – a country that has been lost in transition; Ukraine moves away from CIS, but does not get closer to EU. This angle allows estimating the costs of non-integration that occurred due to trade and investment diversion, and forgone opportunity to carry our structural changes in the Ukrainian economy. According to the results, EU accession would have had a small positive effect on total export volumes but would have dramatically changed the composition of Ukrainian exports by almost doubling exports of manufactured goods by 2007. The costs of non-integration accumulate towards the end of the investigated period. Projecting the results into the future clearly indicates that the benefits of EU accession for Ukraine would have been unambiguously positive and would overweight benefits of CIS integration.
    Keywords: Gravity model, EU enlargement, Ukraine, CIS, heterogeneous firms, trade policy
    JEL: C33 F12 F17
    Date: 2009–11
  13. By: Keller, Wolfgang; Yeaple, Stephen R
    Abstract: This paper studies the international mobility of technology through the lens of multinational firms. We show that gravity applies to the activity of multinational firms, and the strength of gravity is greatest in technologically-complex, research and development intensive industries. To explain gravity in the weightless economy, we develop a model in which a multinational's production can be fragmented into intermediates that vary in the codifiability of their technology. Poorly codified technology requires face-to-face communication to transfer accurately, leading to production inefficiencies that can be avoided if an affiliate instead imports intermediates embodying this technology from its parent firm. Because intermediate input trade incurs shipping costs, affiliates' sales are subject to the force of gravity, and this force is strongest in technologically complex industries. An additional implication of this mechanism is that affiliates are more constrained in their ability to substitute local production for intermediate imports in technologically complex industries. We confirm these predictions and show that trade costs increase the average technological complexity of intra-firm trade. Our analysis offers a new perspective on the mobility of technology, which is a topic crucial to a wide range of fields in economics.
    Keywords: communication; foreign direct investment; intra-firm trade; Multinational firms; noncodified knowledge; offshoring; technology transfer; vertical production sharing
    JEL: F1 F2 O23
    Date: 2009–11
  14. By: Jayjit Roy (SMU)
    Abstract: Regional trade agreements (RTAs) and currency unions (CUs) share the characteristic of being potentially endogenous trade cost proxies in gravity equations. In both cases, this problem is magnified by the paucity of reliable instruments. Instead of resorting to the often-employed alternative of panel data in order to address selection on just the time-invariant unobservables, this paper provides the first empirical analysis of the extent to which the positive association between CU or RTA membership and bilateral trade can be considered causal. Despite not identifying point estimates, striking results are obtained. Although most cross-sections find both RTAs and CUs to be associated with increased bilateral trade, the evidence in favor of a causal effect is strong only for CUs, and is also witnessed at the extensive margin of trade.
    Date: 2009–11
  15. By: Carrère, Céline; de Melo, Jaime; Wilson, John
    Abstract: The “distance effect” measuring the elasticity of trade flows to distance has been to be rising since the early 1970s in a host of studies based on the gravity model, leading observers to call it the “distance puzzle”. We review the evidence and explanations. Using an extensive data set of 124 countries over the period 1970-2005, we confirm the existence of this puzzle and identify that it only applies to poor countries (the bottom third in per capita income terms in our sample—i.e. the low-income countries according to the World Bank classification, 2006). We show that this group has intensified trade with closer partners and have chosen new partners that are closer than existing partners, leading to a regionalization of their trade at both extensive and intensive margins (regionalization of trade is absent for the other countries). Combining several methods on cross-section and panel estimates of the gravity equation, we estimate that low-income countries exhibit a significant rising distance effect on their trade around 18% between 1970 and 2006 while there is no more distance “puzzle” for trade within richer countries (the top third in per capita income terms in our sample). We dispose of several previous explanations of the puzzle, and note that this regionalization could well be a reflection of both increased integration of this group of countries in the world economy or a greater marginalization.
    Keywords: Distance Effect; Gravity Model; International Trade
    JEL: F10 F40
    Date: 2009–09
  16. By: Katheryn N. Russ; Diego Valderrama
    Abstract: We join the new trade theory with a model of choice between bank and bond financing to show the differential effects of financial policy on the distribution of firm size, welfare, aggregate output, gains from trade, and the real exchange rate in a small open economy. Increasing bank efficiency and reducing bond transaction costs both increase welfare but have opposite effects on the extensive margin of trade, aggregate exports, and the real exchange rate. Increasing the degree of trade openness increases firms' relative demand for bond versus bank financing. We identify a financial switching channel for gains from trade where increasing access to export markets allows firms to overcome high fixed costs of bond issuance to secure a lower marginal cost of capital.
    JEL: E44 F12 F4 F41 G1
    Date: 2009–11
  17. By: Görg, Holger; Spaliara, Marina-Eliza
    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 G3 L2
    Date: 2009–11
  18. By: Helpman, Elhanan; Itskhoki, Oleg
    Abstract: We study a two-country two-sector model of international trade in which one sector produces homogeneous products while the other produces differentiated products. The differentiated-product industry has firm heterogeneity, monopolistic competition, search and matching in its labor market, and wage bargaining. Some of the workers searching for jobs end up being unemployed. Countries are similar except for frictions in their labor markets, which include efficiency of matching, cost of vacancies, firing costs, and unemployment benefits. We study the interaction of labor market rigidities and trade impediments in shaping welfare, trade flows, productivity, and unemployment. We show that both countries gain from trade but that the flexible country - which has lower labor market frictions - gains proportionately more. A flexible labor market confers comparative advantage; the flexible country exports differentiated products on net. A country benefits from lowering frictions in its labor market, but this harms the country’s trade partner. And the simultaneous proportional lowering of labor market frictions in both countries benefits both of them. The model generates rich patterns of unemployment. In particular, better labor market institutions do not ensure lower unemployment, and unemployment and welfare can both rise in response to a policy change or falling trade costs.
    Keywords: labor market frictions; productivity; trade; unemployment
    JEL: F12 F16 J64
    Date: 2009–10
  19. By: Hoekman, Bernard; Martin, Will; Mattoo, Aaditya
    Abstract: The Doha Round must be concluded not because it will produce dramatic liberalization but because it will create greater security of market access. Its conclusion would strengthen, symbolically and substantively, the WTO’s valuable role in restraining protectionism in the current downturn. What is on the table would constrain the scope for tariff protection in all goods, ban agricultural export subsidies in the industrial countries and sharply reduce the scope for distorting domestic support - by 70 per cent in the EU and 60 per cent in the US. Average farm tariffs that exporters face would fall to 12 per cent (from 14.5 per cent) and the tariffs on exports of manufactures to less than 2.5 per cent (from about 3 per cent). There are also environmental benefits to be captured, in particular disciplining the use of subsidies that encourage over-fishing and lowering tariffs on technologies that can help mitigate global warming. An agreement to facilitate trade by cutting red tape will further expand trade opportunities. Greater market access for the least-developed countries will result from the"duty free and quota free"proposal and their ability to take advantage of new opportunities will be enhanced by the Doha-related"aid for trade"initiative. Finally, concluding Doha would create space for multilateral cooperation on critical policy matters that lie outside the Doha Agenda, most urgently the trade policy implications of climate change mitigation.
    Keywords: Economic Theory&Research,Free Trade,Emerging Markets,Trade Policy,Trade Law
    Date: 2009–11–01
  20. By: Maria Savona (University of Sussex(UK)); Roberto Schiattarella (University of Camerino (Italy))
    Abstract: The paper examines the fragmentation of production from the view-point of industrialised countries. From this perspective, the following questions are addressed: how do local systems evolve in the process of de-localisation of productions? Which are the short term and long term effects to be expected? Can we interpret these processes under the light of changing specialization of economic systems, necessarily associated with gains from trade? Evidence is provided on the internationalization of manufacturing activities that are commonly identified as “made in Italy”, with specific reference to the textile and footwear industries. The focus will be on the re-organization of economic activities at the level of local systems specialized in these industries, rather than on individual firms; on the whole set of international operations involved in this process, regardless of the legal form adopted (FDIs, import-export, cooperative agreements and licensing); and on how changes in the international organisation of production in these industries are associated with changes in the economic performances within these industries as well as in related sectors, such as service industries.
    Keywords: Foreign Direct Investments,Import-export cooperative agreements, Licensing.
    JEL: R3 F21 F23
    Date: 2009
  21. By: Kapsalyamova, Zhanna
    Abstract: Interesting stylized models that discuss the implications of the oil boom or oil export price increase on an oil-rich economy must involve a tension between effects that tend to boost oil sector and harm non-oil sector and effects that vice versa tend to boost non-oil sector and harm oil sector. This paper explores such models and examines at large the implications of the oil export price increase through the prism of interaction between these two effects. This paper applies the 1-2-3-model of Devarajan et al. (1990) and develops two stylized models that examine the effects of the world price increase and oil export price increase on the economy respectively. A central feature of the developed stylized models is that they can distinguish between the two effects generated by the oil export price increase, namely the balance-of-trade effect and the import-competing effect. The balance-of-trade effect shows the response of the economy to the oil export price increase, depending on whether the economy runs a trade surplus or a trade deficit in the benchmark equilibrium, with the import-competing effect set equal to one. It shows conditions that cause changes in the producers’ real costs and hence determines which sector grows and which sector shrinks in the wake of the oil export price increase. The import-competing effect, under the assumption that trade is balanced, shows the effect of the variation in the Armington elasticity of substitution between oil goods in the second model and non-oil goods in the third model. It shows how competition between imported and import-competing goods affects producers’ real costs and hence determines which sector grows and which sector shrinks in the wake of the oil export price increase.
    Keywords: oil export price increase; Armington elasticity of substitution; balance-of-trade effect; import-competing effect
    JEL: O13 Q33
    Date: 2009–11–10
  22. By: Sauré, Philip (Swiss National Bank); Zoabi, Hosny (The Eitan Berglas School of Economics)
    Abstract: Male and female labor are imperfect substitutes and some sectors are more suitable for female employment than others. Clearly, expansions of those sectors that use female labor intensively must affect aggregate female labor force participation (FLFP). We suggest that FLFP actually drops when trade and international specialization expand sectors that use female labor intensively. This effect arises because expansions of the former sectors come along with contractions of others. The latter contractions, in turn, induce male workers to move to the expanding sectors, driving female workers out of formal employment. Thus, a country that is exporting female labor content is actually substituting male labor for female. Finally, building on U.S.-Mexican trade data, we provide empirical evidence that support our argument.
    Keywords: Trade; Female Labor Force Participation; Fertility; Technological Change
    JEL: F10 F16 J13 J16
    Date: 2009–11–01
  23. By: Cadot, Olivier; Jaud, Mélise; Suwa Eisenmann, Akiko
    Abstract: This paper documents a decreasing trend in the geographical concentration of EU agro-food imports. Decomposing the concentration indices into intensive and extensive margins components, we find that the decrease in overall concentration indices results from two diverging trends: the pattern of trade diversifies at the extensive margin (EU countries have been sourcing their agri-food products from a wider range of suppliers), while geographical concentration increases at the intensive-margin (EU countries have concentrated their imports on a few major suppliers). This leads to an increasing inequality in market shares between a small group of large suppliers and a majority of small suppliers. We then move on to exploit a database of food alerts at the EU border that had never been exploited before. After coding it into HS8 categories, we regress the incidence of food alerts by product on determinants including exporter dummies as well as HS8 product dummies. Coefficients on product dummies provide unbiased estimates of the intrinsic vulnerability of exported products to food alerts, as measured at the EU border. We incorporate the product risk coefficient as an explanatory variable in a regression of geographical concentration and show that concentration is higher for risky products.
    Keywords: agricultural trade; European Union; food; import concentration; sanitary risk
    JEL: F1 O3
    Date: 2009–09
  24. By: Michael Dotsey; Margarida Duarte
    Abstract: We show that standard alternative assumptions about the currency in which firms price export goods are virtually inconsequential for the properties of aggregate variables, other than the terms of trade, in a quantitative open-economy model. This result is in contrast to a large literature that emphasizes the importance of the currency denomination of exports for the properties of open-economy models.
    Keywords: local currency pricing; producer currency pricing; international relative prices; exchange rates; nontraded goods; distribution services
    JEL: F3 F41
    Date: 2009–11–20
  25. By: Koopman, Robert; Wang, Zhi; Wei, Shang-Jin
    Abstract: The rise of the People’s Republic of China (PRC) in world trade has brought both benefits and anxiety to other economies. For many policy questions, it is crucial to know the extent of foreign value added (FVA) in exports. We review a general formula in Koopman, Wang and Wei (2008) for computing domestic and foreign contents when processing exports are pervasive. In addition, we develop another formula for slicing up foreign content to allocate it among key individual economy’s supply chains, including sourcing from Japan and the United States. By our estimation, the share of foreign content in exports by the PRC is about 50%. There are also interesting variations across sectors. Those sectors that are likely labeled as relatively sophisticated such as electronic devices have particularly high foreign content (about 80%). By our estimation, Japan; the United States; Hong Kong, China; and the European Union are the major sources of foreign content in the PRC’s exports of computers and consumer electronics, two of its largest and fastest growing export categories.
    Keywords: domestic content; foreign value added; processing trade
    JEL: C67 C82 F1
    Date: 2009–09
  26. By: Elena Meschi (CEE, Institute of Education, University of London); Erol Taymaz (Department of Economics, Middle East Technical University, Ankara); Marco Vivarelli (Universita Cattolica del Sacro Cuore, Milano; Institute for the Study of Labour (IZA), Bonn; Max Planck Institute of Economics, Jena; Centre for the Study of Globalisation and Regionalisation (CSGR), Warwick University)
    Abstract: In this paper we report evidence on the relationship between trade openness, technology adoption and the relative demand for skilled labour in the Turkish manufacturing sector, using firm level data over the period 1980-2001. In a dynamic panel data setting, using a unique database comprising data from 17,462 firms, we estimate an augmented cost share equation whereby the wage bill share of skilled workers in a given firm is related to international exposure and technology adoption. Both at the sectoral and firm level, it emerged that R&D expenditures are positive and significantly related to skill upgrading. This result supports the skill biased technological change argument in the case of a middle-income country such as Turkey. Moreover, the sectoral analysis revealed that increasing export towards more industrialised countries (mainly the E.U.) tends to shift the production toward less skill-intensive activities. While this result is consistent with the HOSS theorem, on the other hand import penetration from more developed countries turns out to facilitate the adoption of new technologies embodied in capital and intermediate goods, thus shifting the production toward more skill-intensive technologies. This result is confirmed by the firm level analysis that finds a positive impact of technological transfer from abroad, foreign ownership and export on the demand for skills, highlighting the role of increasing globalisation in fostering skill upgrading within firms. Our microdata also allowed us to investigate the direct impact of import flows in shaping the relative demand for skills. The results showed that those firms belonging to the sectors that most raised their inputs from more developed countries also experienced a higher increase in their labour cost share of skilled workers. This finding is a further support to the hypothesis that imports from industrialised countries imply a transfer of new technologies, in turn leading to a higher demand for skilled labour.
    Keywords: globalization, technology transfer, skills, panel data, GMM-SYS
    JEL: F16 O15 O33
    Date: 2009–11–18
  27. By: Moser, Christoph; Urban, Dieter M; Weder di Mauro, Beatrice
    Abstract: This paper examines the channels through which offshoring affects employment in a representative sample of German establishments, using a difference-in-differences matching approach. Offshoring establishments are identified by an increase in the share of foreign to total inputs. We find that an average offshoring establishment has higher employment, higher productivity, and higher domestic and foreign market share than if it did not engage in offshoring. Furthermore, its production depth remains unchanged indicating that offshoring predominantly operates through a substitution of domestic for foreign suppliers, rather than through a reduction of home production. This result enables us to isolate a positive productivity effect from offshoring on employment. However, employment in an establishment decreases - relative to its counterfactual - when it simultaneously engages in offshoring and restructuring of the home plant. Therefore, we are also able to isolate a negative downsizing effect of offshoring on employment.
    Keywords: difference-in-differences matching estimator; export performance; offshoring; stable unit treatment value assumption
    JEL: C21 F16 F23
    Date: 2009–09
  28. By: Malouche, Mariem
    Abstract: In the aftermath of the Lehman Brothers collapse in September 2008, drop in the supply of trade finance, a critical engine for trade transactions, has become an acute concern for the development community. Banks were increasing pricing on trade finance transactions to cover increased funding costs and higher credit risks, and trade was dropping drastically in most countries, with global trade projected to decline in 2009 for the first time in decades. Yet, little was known about the real impact of the crisis on developing country’s capacity to export. The World Bank has commissioned a firm and bank survey on trade and trade finance developments in developing countries during the first quarter of 2009 to collect field information. In total, 425 firms and 78 banks were surveyed in 14 developing countries across five regions. This paper summarizes the findings of the survey as well as discusses the type of policies governments and international organizations put in place to mitigate the impact of the crisis. In sum, the survey findings confirmed that the global financial crisis has constrained trade finance for exporters and importers in developing countries. But the impact varied by the firm size, sectoral activity, and countries’ integration into the global economy. In particular, SMEs were particularly affected, and export diversification was made more difficult, especially in low income countries. Nevertheless, drop in demand has emerged as the top concern of firms at the time when the survey was conducted in March-April 2009.
    Keywords: Banks&Banking Reform,Access to Finance,Debt Markets,Emerging Markets,Economic Theory&Research
    Date: 2009–11–01
  29. By: Frank van Tongeren; John Beghin; Stéphan Marette
    Abstract: This report develops a conceptual framework for the assessment of costs and benefits associated with non-tariff measures that allows an evidence-based comparative assessment of alternative regulatory approaches.
    Keywords: agriculture in international trade, economics of regulation, information and product quality, international trade organisations, standardization and compatibility, trade policy
    JEL: F13 L15 L51 Q17
    Date: 2009–11
  30. By: Foellmi, Reto; Oechslin, Manuel
    Abstract: Globalization increasingly involves less-developed countries (LDCs), i.e., economies which usually suffer from severe imperfections in their financial systems. Taking these imperfections seriously, we analyze how credit frictions affect the distributive impact of trade liberalizations. We find that free trade significantly widens income differences among firm owners in LDCs: While wealthy entrepreneurs are better off, relatively poor business people lose. Intuitively, with integrated markets, profit margins shrink -- which makes access to credit particularly difficult for the least affluent agents. Richer entrepreneurs, by contrast, win because they can take advantage of new export opportunities. Our findings resonate well with a number of empirical regularities, in particular with the observation that some liberalizing LDCs have observed a surge in top-income shares.
    Keywords: credit market frictions; top incomes; trade liberalization; Wealth inequality
    JEL: F13 O11 O16
    Date: 2009–10
  31. By: Mandal, Biswajit
    Abstract: We construct a general equilibrium model and analyze the effectiveness of trade reform in a distorted economy where distortion exists in form of bureaucratic corruption that arises because of trade protection at the border. In this kleptocratic set up, intermediaries are employed in order to run off from paying a part of import tariff. We use HOSV kind of framework to prove that whether trade liberalization necessarily helps reducing corruption activities and to check what happens to the production of commodities.
    Keywords: Corruption; International Trade; Tariff Reform; General Equilibrium
    JEL: D73 D5 F11 F1
    Date: 2009–07
  32. By: Sauré, Philip (Swiss National Bank)
    Abstract: Recent trade data exhibit the following four empirical regularities: (i) countries import only a small fraction of all traded varieties (ii) per capita income and the number of imported varieties correlate positively (iii) per capita income and trade shares correlate positively and, finally, (iv) world trade shares have increased substantially. The present paper argues that standard theories fail to explain at least some of these patterns and subsequently shows that a small and reasonable change in the demand structure can reconcile the New Trade model with the data. Its key assumption imposes an upper bound on consumers’ marginal utility from varieties. This implies that consumers purchase only the cheaper share of varieties, while expensive foreign varieties bearing high transport costs are not consumed. Technological progress that increases per capita consumption of those varieties in the consumption basket decreases marginal utility derived from them and induces consumers to extend their consumption to more expensive varieties produced at distant locations. Through this additional margin trade shares increase as productivity grows. Productivity growth is thus identified as a joint determinant of trade shares, the number imported varieties, and per capita income.
    Keywords: Marginal Utility; Variety
    JEL: F10 F13
    Date: 2009–11–09
  33. 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 im-pact on the FDI decision (the extensive margin) and foreign affiliate sales (the intensive mar-gin). 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 on 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: financial constraints; heterogeneity; multinational firms; productivity
    JEL: F2 G2
    Date: 2009–09
  34. By: McKibbin, Warwick J.; Stoeckel, Andrew
    Abstract: This paper models the global financial crisis as a combination of shocks to global housing markets and sharp increases in risk premia of firms, households and international investors in a global economic model. The model has six sectors of production and trade in 15 major economies and regions. The paper shows that the shocks observed in financial markets can be used to generate the severe economic contraction in global trade and production experienced in 2009. In particular the distinction between the production and trade of durable and non durable goods plays a key role in explaining the much larger contraction in trade than GDP experienced by most economies. The paper explores the implications of the large increase in fiscal deficits and the implications of a global trade war in response to the financial crisis.
    Keywords: Economic Theory&Research,Debt Markets,Emerging Markets,Banks&Banking Reform,Labor Policies
    Date: 2009–11–01
  35. By: Baldwin, Richard
    Abstract: This paper presents the trade-in-tasks conceptual framework and extends it to consider a setting where offshoring occurs between high wage nations and where agglomeration forces are important. It also considers the policy implications ranging from rules of origin and trade facilitation to external trade policy and R&D subsidies. The focus is on policy initiatives that could support the development of North American production platforms.
    Keywords: Globalisation; industrial policy; supply chains; Trade in tasks; unbundling
    JEL: F14 F21 L5
    Date: 2009–10
  36. By: Imbs, Jean; Mumtaz, Haroon; Ravn, Morten O.; Rey, Hélène
    Abstract: We use a unique dataset on television prices across European countries and regions to investigate the sources of differences in price levels. Our findings are as follows: (i) Quality is a crucial determinant of price differences. Even in an integrated economic zone as Europe, rich economies tend to consume higher quality goods. This effect accounts for the lion’s share of international price dispersion. (ii) Sizable international price differentials subsist even for the same television sets. The average bilateral price difference is as high as 80 euros, or 8% of the average TV price in our sample. (iii) EMU countries display lower price dispersion than non-EMU countries. (iv) Absolute price differentials and relative price volatility are positively correlated with exchange rate volatility, but not with conventional measures of transport costs. (v) Importantly we show brand premia are sizable. They differ markedly across borders, in a way that does not correlate with transport costs, nor exchange rate movements. Taken together, the evidence is consistent firms exploiting market power through brand values to price discriminate across borders.
    Keywords: border effects; brand perception; international and regional price differences
    JEL: F15 F23 F41
    Date: 2009–10
  37. By: Becker, Sascha O.; Ekholm, Karolina; Muendler, Marc-Andreas
    Abstract: We analyze the relationship between offshoring and the onshore workforce composition in German multinational enterprises (MNEs), using plant data that allow us to discern tasks, occupations, and workforce skills. Offshoring is associated with a statistically significant shift towards more non-routine and more interactive tasks, and with a shift towards highly educated workers. Moreover, the shift towards highly educated workers is in excess of what is implied by changes in either the task or the occupational composition. Whether offshored activities are located in low-income or high-income countries does not alter the direction of the relationship. We find offshoring to predict between 10 and 15 percent of observed changes in wage-bill shares of highly educated workers and measures of non-routine and interactive tasks.
    Keywords: demand for labor; linked employer-employee data; multinational enterprises; trade in tasks
    JEL: F14 F16 F23 J23 J24
    Date: 2009–08
  38. By: Görg, Holger; Hanley, Aoife
    Abstract: We provide a comprehensive empirical analysis of the links between international services outsourcing, domestic outsourcing, profits and innovation using plant level data. We find a positive effect of international outsourcing of services on innovative activity at the plant level. Such a positive effect can also be observed for domestic outsourcing of services, but the magnitude is smaller. This makes intuitive sense, as international outsourcing allows more scope for exploiting international factor price differentials, therefore giving the establishment higher profits and more scope to restructure production activities towards innovation. We also find that international services outsourcing has a positive effect on profitability, as predicted by theory, while this is not true for domestic sourcing. The results are robust to various specifications and an instrumental variables analysis.
    Keywords: innovation; offshoring; R&D; services outsourcing
    JEL: F19 O31
    Date: 2009–08

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