nep-int New Economics Papers
on International Trade
Issue of 2010‒01‒16
twenty-two papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Productivity and Firm Selection: Quantifying the “New” Gains from Trade By Gianmarco I.P. Ottaviano; Gregory Corcos; Massimo Del Gatto; Giordano Mion
  2. Whatever next? Export market choices of New Zealand firms By Richard Fabling; Arthur Grimes; Lynda Sanderson
  3. Exports, Productivity, and Credit Constraints: A Firm-Level Empirical Investigation of China By Zhiyuan Li; Miaojie Yu
  4. Regional Liberalization of Trade in Services By Park, Innwon; Park, Soonchan
  5. Beyond the Home Market Effect: Market Size and Specialization in a Multi-Country World By Gianmarco I.P. Ottaviano; Kristian Behrens; Andrea R. Lamorgese; Takatoshi Tabuchi
  6. Exports, Imports and Wages: Evidence from Matched Firm-Worker-Product Panels By Martins, Pedro S.; Opromolla, Luca David
  7. Learning-by-exporting in Korean Manufacturing: A Plant-level Analysis By Chin Hee Hahn; Chang Gyun Park
  8. A third sector in the core-periphery model: non-tradable goods By Vasco Leite; Sofia B.S.D. Castro; João Correia-da-Silva
  9. Exports and FDI motivations: empirical evidence from US foreign subsidiaries By C. Franco
  10. Intergenerational Effects of Trade Liberalization By Erhan Artuç
  11. Do All Exporters Benefit from Export Boom? -Evidence from Japan By Naomitsu Yashiro; Daisuke Hirano
  12. Firm Performance and the Geography of FDI: Evidence from 46 Countries By Yong Yang; Pedro S. Martins
  13. Trade finance in crisis : should developing countries establish export credit agencies ? By Chauffour, Jean-Pierre; Saborowski, Christian; Soylemezoglu, Ahmet I.
  14. Entry into Export Markets and Product Quality Differences By Roberto Álvarez; Rodrigo Fuentes.; Rodrigo Fuentes.
  15. Gains from Fragmentation at the Firm Level: Evidence from Japanese Multinationals in East Asia By Kazunobu Hayakawa; Fukunari Kimura; Toshiyuki Matsuura
  16. “Exchange Rate Volatility and International Trade Growth: Evidence from Bangladesh” By Md Shoaib Ahmed, Shoaib
  17. An Empirical Study on Exchange Rate Volatility and it Impacts on Bilateral Export Growth: Evidence from Bangladesh By Md Shoaib Ahmed, Shoaib
  18. Regional Trade Agreements By Caroline Freund; Emanuel Ornelas
  19. Wage Bargaining and the Boundaries of the Multinational Firm By Maria Bas; Juan Carluccio
  20. Environmentally Damaging Electricity Trade By De Villemeur, Étienne; Pineau, Pierre-Olivier
  21. What Explains the International Location of Industry? -The Case of Clothing By Tengstam, Sven
  22. Trade Structure and Equilibrium Indeterminacy in a Two-Country Model By Yunfang Hu; Kazuo Mino

  1. By: Gianmarco I.P. Ottaviano (Bocconi University, KITeS, FEEM and CEPR); Gregory Corcos (Norwegian School of Economics and Business Administration); Massimo Del Gatto ("G. d'Annunzio" University and CRENoS); Giordano Mion (LSE, Department of Geography, NBB, CEP and CEPR)
    Abstract: We discuss how standard computable equilibrium models of trade policy can be enriched with selection effects without missing other important channels of adjustment. This is achieved by estimating and simulating a partial equilibrium model that accounts for a number of real world effects of trade liberalisation: richer availability of product varieties; tougher competition and weaker market power of firms; better exploitation of economies of scale; and, of course, efficiency gains via the selection of the most efficient firms. The model is estimated on E.U. data and simulated in counterfactual scenarios that capture several dimensions of European integration. Simulations suggest that the gains from trade are much larger in the presence of selection effects. Even in a relatively integrated economy as the E.U., dismantling residual trade barriers would deliver relevant welfare gains stemming from lower production costs, smaller markups, lower prices, larger firm scale and richer product variety. We believe our analysis provides enough ground to support the inclusion of firm heterogeneity and selection effects in the standard toolkit of trade policy evaluation.
    Keywords: European Integration, Firm-level Data, Firm Selection, Gains from Trade, Total Factor Productivity
    JEL: F12 R13
    Date: 2009–12
  2. By: Richard Fabling; Arthur Grimes; Lynda Sanderson (Reserve Bank of New Zealand)
    Abstract: We examine product and market entry choices of New Zealand exporters, using an enterprise level dataset which links firm performance measures with detailed data on merchandise trade. We focus our enquiry not on the broad question of what determines a firm's ability to export, but on the subsequent question: given that a firm has the ability to export, what determines the choices they make about what and where to export? We simultaneously consider firm and market level determinants of export market entry. At the firm level we find that measures of general and specific prior trade experience play an important role in determining the firm's future export activities. That is, we find evidence of path dependence within firms. We also find evidence of path dependence across firms, with entry into new export relationships reflecting demonstration effects from the export activities of other firms in the local area. These results are robust to the inclusion of other determinants of exporting, including the macroeconomic performance of destination countries, exchange rate movements, and the past performance of the exporting firm.
    JEL: D21 F10 L25
    Date: 2009–12
  3. By: Zhiyuan Li; Miaojie Yu
    Abstract: Recent Melitz-type (2003) intra-industry heterogonous trade models argue that a firmfs productivity has significant effects on the firmfs exports. This paper examines how a firmfs credit constraints as well as its productivity affect its export decisions. We imbed the firmfs credit constraints into a Melitz-type general-equilibrium model by endogenizing the probability of the success of firm-specific projects. We show that, all else equal, it is easier for firms to enter the export market if (1) the probability of the success of their project is higher and consequently they have easier access to external finance from financial intermediaries; or (2) they have alternative sources, other than from financial intermediaries, to obtain funds. We test these theoretical hypotheses using firm-level data from Chinese manufacturing industries and find strong evidence supporting the predictions of the model.
    Keywords: Credit Constraints, Heterogeneous Firms, Productivity, Trade
    JEL: F1 F3 D9 G2
    Date: 2009–12
  4. By: Park, Innwon; Park, Soonchan
    Abstract: As the impact of trade in services on the current global financial crisis appears to overtake that of trade in goods, we propose to examine liberalization of trade in services through regional trade agreements (RTAs). The regional liberalization of trade in services is expected to generate significant welfare gains both in the services and goods sectors. However, the quantitative effect of RTAs under GATS (General Agreement on Trade in Services) Article V has not been sufficiently investigated. We attempt to fill this gap by applying a gravity regression analysis to four major services sectors—financial services, business services, communication services, and transportation services—while controlling for both country-specific and time-varying importer and exporter fixed effects. We find that (i) the RTAs under GATS Article V create services trade among members and do not divert services trade from nonmembers, but the trade-enhancing effect is sector-specific; (ii) the sector-specific trade-enhancing effect ranges from the highest in business services sector to the lowest in transportation services; (iii) the trade effect on aggregate services trade is weaker when we control for the time-varying multilateral trade resistance factor with the time-varying exporter and importer fixed effect, however, the sectoral effects show a reverse pattern; (iv) there is no anticipatory effect expected from services RTA negotiations, unlike the case of trade in goods; (v) there is a complementary relationship between goods and services imports; and (vi) the trade-enhancing effect of RTAs is stronger between developed members compared to the effect between developed and developing countries.
    Keywords: trade in services; regional trade agreements; gravity; GATS
    JEL: F15 F13 C23
    Date: 2010–01–04
  5. By: Gianmarco I.P. Ottaviano (Bocconi University, FEEM and CEPR); Kristian Behrens (Université du Québec à Montréa, CORE, Université catholique de Louvain, CIRPÉE and CEPR); Andrea R. Lamorgese (Bank of Italy); Takatoshi Tabuchi (University of Tokyo)
    Abstract: The standard two-country model of international trade with monopolistic competition predicts a more-than-proportional relationship between a country’s share of world production of a good and its share of world demand for that same good, a result known as the “home market effect”. We first show that this prediction does not generally carry through to the multi-country case, as production patterns are crucially affected by third country effects. We then derive an alternative prediction that holds whatever the number of countries considered. This new prediction takes into account important features of the real world such as comparative advantage due to cross-country technological differences and lack of factor price equalization.
    Keywords: Comparative Advantage, Home Market Effect, Hub Effect, International Trade, Monopolistic Competition, Multi-country Models
    JEL: F12 R12
    Date: 2009–12
  6. By: Martins, Pedro S. (Queen Mary, University of London); Opromolla, Luca David (Banco de Portugal)
    Abstract: The analysis of the effects of firm-level international trade on wages has so far focused on the role of exports, which are also typically treated as a composite good. However, we show in this paper that firm-level imports can actually be a wage determinant as important as exports. Furthermore, we also find significant differences in the relationship between trade and wages across types of products. In particular, firms that increase their exports (imports) of high- (intermediate-) technology products tend to increase their salaries. Our analysis is based on unique data from Portugal, obtained by merging a matched firm-worker panel and a matched firm-transaction panel. Our data set follows the population of manufacturing firms and all their workers from 1995 to 2005 and allows for several control variables, including job-spell fixed effects.
    Keywords: transaction data, globalisation and labour, wage differentials
    JEL: F16 J31 F15
    Date: 2009–12
  7. By: Chin Hee Hahn; Chang Gyun Park
    Abstract: The paper analyzes whether firms that start exporting become more productive utilizing recently developed sample matching procedures to control the problems from self-selection into the export market. We use plant level panel data on Korean manufacturing sector from 1990 to 1998. We find clear and robust empirical evidence in favor of the learning-by-exporting effect; total factor productivity differentials between exporters and their domestic counterparts arises and widens during several years after export market entry. We also find that the effect is more pronounced for firms that have higher skill-intensity, higher share of exports in production, and are small in size. Overall, the evidence suggests that exporting is one important channel through which domestic firms acquire accesses to advanced knowledge and better technology. Also, the stronger learning-by-doing effect for firms with higher skill-intensity seems to support the view that gabsorptive capacityh matters to receive knowledge spillovers from exporting activity.
    Keywords: Learning-by-exporting, Productivity, Propensity score matching
    JEL: F14 O12 O19
    Date: 2009–12
  8. By: Vasco Leite (Faculdade de Economia, Universidade do Porto); Sofia B.S.D. Castro (CMUP and Faculdade de Economia, Universidade do Porto); João Correia-da-Silva (CEF.UP and Faculdade de Economia, Universidade do Porto)
    Abstract: We extend an analytically solvable core-periphery model by introducing a monopolistically competitive sector of non-tradable goods. We study how trade costs affect the spatial distribution of economic activity. Trade costs have no effect when the elasticity of substitution among non-tradable goods is low. In this case, concentration of all production (of tradable and non-tradable goods) is the unique equilibrium. When the elasticity of substitution among non-tradable goods is high, we find two equilibrium configurations: symmetric dispersion of the production of tradable and non-tradable goods, if trade costs are high; and concentration of production of tradable goods with asymmetric dispersion of production of non-tradable goods, if trade costs are low.
    Keywords: New economic geography, Core-periphery model, Footloose entrepreneur, Nontradable goods
    JEL: F12 R12
    Date: 2009–12
  9. By: C. Franco
    Abstract: The expected indirect benefits Foreign Direct Investments (FDI) are supposed to bring into the host countries are drawn mainly from studies at the microeconomic level. Empirical analyses examine whether FDI may be the source of productivity spillover effect on local firms and a new emerging literature analyses the effect with regard to the their export performance. However, conclusive results have not been reached so far. Two main shortcomings affect this literature: firstly, it is difficult to generalize results valid across countries; secondly, the role played by FDI motivations is largely disregarded. For these reasons, the aim of the paper is that of testing the effects of US FDI on export intensity at the sectoral level in 16 OECD countries over the period 1990-2001. Through these data, we are able to disentangle asset seeking and asset exploiting motivations and especially we are able to distinguish the channels through which the effect is going to occur. The findings show that taking into consideration the different motivations for which Multinational Enterprises (MNEs) invest abroad is relevant. The asset exploiting motivations, and in particular market seeking FDI, are those that affect export intensity to a greater extent.
    JEL: F14 F21 F23
    Date: 2009–12
  10. By: Erhan Artuç (Koc University)
    Abstract: 2002 Pew Global Attitudes survey shows that workers’ support for free trade decreases with age. The relation between age and supporting free trade is a phenomenon previously unexplored by economists. We study distributional effects of trade liberalization, in particular age and gains from free trade, using a dynamic structural general equilibrium model. The method we use here is complimentary to Artuc, Chaudhuri and McLaren (forthcoming), and can handle a much richer treatment of ex-ante, endogenous and unobserved worker heterogeneity. This more efficient method allows us to calculate distributional effects of trade liberalization in detail but it requires a completely different estimation strategy, which comes at a cost of more computation time and stronger assumptions on workers’ expectations. After estimating the structural model with U.S. data sets NLSY and CPS, we simulate a hypothetical trade liberalization in metal manufacturing sector (which has been especially vulnerable to trade shocks in the past, the steel industry in particular). We show gradual adjustment of labor allocation, wages and prices in response to this trade shock. We find a “mirror effect”where very young workers in the metal sector are moderately worse off and older workers are extremely worse off, while young workers in manufacturing sector are moderately better off and older workers are extremely better off.
    Keywords: Trade Liberalization, Sectoral Mobility, Labor Market Equilibrium
    JEL: F1 D58 J2 J6
    Date: 2009–12
  11. By: Naomitsu Yashiro (Institute of Economic Research, Kyoto University); Daisuke Hirano (Institute of Economic Research, Kyoto University)
    Abstract: We use a large dataset of Japanese manufacturing firms to investigate the effect of the late export boom to the productivity growth and various productivity enhancing investments by exporting firms. We find that while the exporters with large exports value enjoyed significantly higher productivity growth over non-exporters during 2002-2005, it was not the case for the small exporters which constitute a large mass of Japanese exporters. We also find striking evidence that only the exporters serving worldwide actually enjoyed significant advantage in productivity growth. On the other hand, both large and small exporters engaged in more intensive innovation activities and capital investments as well as faster skill up-grade during this period. Therefore, although the late export boom did not reward all exporters in an even way, it did encourage wide range of exporter investments that should enhance their productivity. We thus provide a case where exporters grow substantially faster than non-exporters even long after their entry, offering additional explanation on formation of the universally observed exporters’ premium on productivity level.
    Date: 2009–12
  12. By: Yong Yang; Pedro S. Martins
    Abstract: The literature on the link between multinationality and firm performance has generally disregarded the role of geography. However, the geography of FDI may matter, particularly now that globalisation has increased the heterogeneity of overseas investments. Moreover, although the range of countries that conducts FDI has widened considerably, the literature still tends to focus on the case of a relatively small number of US firms. In contrast, our paper draws on firm-level data covering over 16,000 multinationals from 46 countries and allows for different effects upon the performance of the multinational firm depending on the level of development of the host economy. In our results, we find a clear positive and linear relation between multinationality and firm performance. However, investment in developing countries is associated with larger and increasing effects on performance than in the case of investment in developed countries. Overall, our results suggest that the net gains for multinationals from greater geographical diversification have not yet been fully met.
    Keywords: Multinationality, Firm Performance, Location Choices
    JEL: F20 F23 F02
    Date: 2010–01
  13. By: Chauffour, Jean-Pierre; Saborowski, Christian; Soylemezoglu, Ahmet I.
    Abstract: New data on export insurance and guarantees suggest that publicly backed export credit agencies have played a role to prevent a complete drying up of trade finance markets during the current financial crisis. Given that export credit agencies are mainly located in advanced and emerging economies, the question arises whether developing countries that are not equipped with these agencies should establish their own agencies to support exporting firms and avoid trade finance shortages in times of crisis. This paper highlights a number of issues requiring attention in the decision whether to establish such specialized financial institutions. It concludes that developing countries should consider export credit agencies only when certain pre-requirements in terms of financial capacity, institutional capability, and governance are met.
    Keywords: Debt Markets,Emerging Markets,Access to Finance,Banks&Banking Reform,Financial Intermediation
    Date: 2010–01–01
  14. By: Roberto Álvarez; Rodrigo Fuentes.; Rodrigo Fuentes.
    Abstract: Using a rich dataset of Chilean exporters, we analyze several issues related to the relationship between entry into export markets and product quality. We find that every year a large number of new exporting relationships are initiated, but the survival rate of these entries is very low and declines over time. Using unit values as a proxy for product quality, our estimations show that entry is generally associated with higher product quality. This higher product quality, however, tends to reduce over time and eventually disappears three years after entry. To better identify this effect, we explore whether there are systematic differences across sectors. As expected, for sectors in which quality differentiation may be important, our findings reveal that reference-price and differentiated products show a higher price in the year of entry and it takes longer to converge to the incumbent prices. These results hold after controlling for potential sample selection bias.
    Keywords: Unit-value exports, product quality, price dynamics.
    JEL: F14
    Date: 2009
  15. By: Kazunobu Hayakawa; Fukunari Kimura; Toshiyuki Matsuura
    Abstract: The unprecedented development of production networks in East Asia has been investigated, both theoretically and empirically, employing the conceptual framework of fragmentation theory and its extensions. However, the benefits of production fragmentation at the firm level, particularly benefits deriving from different location advantages, have never been directly measured empirically. This paper presents the very first attempt, to the authorsf knowledge, to empirically capture the benefits of fragmentation. Specifically, using Japanese firm-level data, we find that the larger the gap in the capital-labor ratios between fragmenting firmsf home and overseas activities, the more greatly their cost efficiency improves.
    Keywords: Firm heterogeneity, multinational enterprises, fragmentation, factor intensity, micro data
    JEL: F21 F23
    Date: 2009–12
  16. By: Md Shoaib Ahmed, Shoaib
    Abstract: This is a study to investigate the exchange rate volatility and it impacts on international trade growth: evidence from Bangladesh. To establish the empirical relationship between exchange rate volatility and impact on international trade growth in Bangladesh, different quantitative techniques are used by considering the data from May 2003 to December 2008. In the analysis co-integration and error correction methods have been used to do the analysis the relationship between exchange rate volatility and international trade growth in Bangladesh. From the investigation, the result shows that the exchange rate volatility has a negative and major effect both in short run and long run with Western European and North American countries. There is a negative and significant relationship has been observed between exchange rate volatility and the international trade growth.
    Keywords: Key words: Co-integration; Error Correction; Exchange Rate; Volatility; Export growth; Trade growth.
    JEL: C0 C22 C01
    Date: 2009–01–26
  17. By: Md Shoaib Ahmed, Shoaib
    Abstract: This is an empirically study to investigate the exchange rate volatility and it impacts on bilateral exports growth: evidence from Bangladesh. The countries are considered to determine based on the bilateral relationship between Bangladesh and the other countries under a range of regional economic blocks such as North America, Western Europe, Eastern Europe, SAARC, ASEAN, and Asia-Pacific regions. To establish the empirical relationship between exchange rate volatility and impact on exports growth, cointegration and error correction techniques are used by considering the data from 2003 to 2008. From the investigation, the result shows that the exchange rate volatility has a negative and major effect both in short run and long run with important trading partners, which are Western European and North American countries. Similar pattern was also experienced in case of few countries such as Singapore, Japan, Malaysia and China where the volume of trade with Bangladesh is comparatively consistent and less volatile. The relationship between exchange rate volatility and growth of export for India and Pakistan is observed only in long run perspective. However, there is no empirical relationship being observed of exchange rate volatility and it impacts on export growth between Bangladesh and Iran and other s Gulf countries.
    Keywords: Cointegration, Exchange Rate, Volatility, Export growth, Regional integration and Gulf.
    JEL: C22 D51 C01
    Date: 2009–01
  18. By: Caroline Freund; Emanuel Ornelas
    Abstract: This paper reviews the theoretical and the empirical literature on regionalism. The formationof regional trade agreements has been, by far, the most popular form of reciprocal tradeliberalization in the last fifteen years. The discriminatory character of these agreements hasraised three main concerns: that trade diversion would be rampant, because special interestgroups would induce governments to form the most distortionary agreements; that broaderexternal trade liberalization would stall or reverse; and that multilateralism could beundermined. Theoretically, all of these concerns are legitimate, although there are alsoseveral theoretical arguments that oppose them. Empirically, neither widespread tradediversion nor stalled external liberalization have materialized, while the undermining ofmultilateralism has not been properly tested. There are also several aspects of regionalismthat have received too little attention from researchers, but which are central to understandingits causes and consequences.
    Keywords: regionalism, trade creation, trade diversion, external tariffs, trade liberalization
    JEL: F13 F15
    Date: 2009–12
  19. By: Maria Bas; Juan Carluccio
    Abstract: Do variations in labor market institutions across countries affect the cross-borderorganization of the firm? Using firm-level data on multinationals located in France, we showthat firms are more likely to outsource the production of intermediate inputs to externalsuppliers when importing from countries with empowered unions. Moreover, this effect isstronger for firms operating in capital-intensive industries. We propose a theoreticalmechanism that rationalizes these findings. The fragmentation of the value chain weakens theunion's bargaining position, by limiting the amount of revenues that are subject to unionextraction. The outsourcing strategy reduces the share of surplus that is appropriated by theunion, which enhances the firm's incentives to invest. Since investment creates relativelymore value in capital-intensive industries, increases in union power are more likely to beconducive to outsourcing in those industries. Overall, our findings suggest that multinationalfirms use their organizational structure strategically when sourcing intermediate inputs fromunionized markets.
    Keywords: wage bargaining, trade unions, sourcing, multinational firms
    JEL: F10 J52 L22
    Date: 2009–12
  20. By: De Villemeur, Étienne; Pineau, Pierre-Olivier
    Abstract: Electricity trade across regions is often considered welfare enhancing. We show in this paper that this could be reconsidered if environmental externalities are taken into account. We consider two cases where trade is beneficial, before accounting for environmental damages: first, when two regions with the same technology display some demand heterogeneity; second when one region endowed with hydropower arbitrages with its "thermal" neighbor. Our results show that under reasonable demand and supply elasticities, trade comes with an additional environmental cost. This calls for integrating environmental externalities into market reforms when redesigning the electricity sector. Two North American applications illustrate our results: trade between Pennsylvania and New York, and trade between hydro-rich Quebec and New York.
    Keywords: Electricity trade, hydropower, greenhouse gas emissions
    Date: 2009–11
  21. By: Tengstam, Sven (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: The clothing sector has been a driver of diversification and growth for countries that have graduated into middle income. Using a partial adjustment panel data model for 61 countries 1975-2000, we investigate the global international location of clothing production by using a combination of variables suggested by the Heckscher-Ohlin theory and the New Economic Geography (NEG) theory. Our Blundell-Bond system estimator results confirm that the NEG variables do help explain the location of the clothing industry, and point to that convergence is not as inevitable as sometimes assumed. We find that closeness to various intermediates such as low-cost labor and textile production has strong effects on output. Factor endowments and closeness to the world market have inverted U-shaped effects. This is expected since above a certain level several other sectors benefit even more from closeness and factor endowments, driving resources away from the clothing industry.<p>
    Keywords: global clothing industry; new economic geography; comparative advantages; industrial agglomeration
    JEL: F12 F13 L13 L67 R12 R30
    Date: 2009–12–21
  22. By: Yunfang Hu (Graduate School of International Cultural Studies, Tohoku University); Kazuo Mino (Institute of Economic Research, Kyoto University)
    Abstract: This paper explores a dynamic two-country model with production externalities in which capital goods are not traded and international lending and borrowing are allowed. Unlike the integrated world economy model based on the Heckscher-Ohlin setting, our model yields indeterminacy of equilibrium under a wider set of parameter values than in the corresponding closed economy model. Our finding demonstrates that the assumption on trade structure would be a relevant determinant in considering the relation between globalization and economic volatility.
    Keywords: two-country model, non-traded goods, equilibrium indeterminacy, social constant returns
    JEL: F43 O41
    Date: 2009–12

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