nep-int New Economics Papers
on International Trade
Issue of 2010‒02‒13
ten papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Does ASEAN Freer Trade Benefit Malaysia? By Othman, Jamal; Yaghoob, Jafari
  2. Trade Creation and Diversion Effects of Regional Trade Agreements on Commodity Trade By URATA Shujiro; OKABE Misa
  3. Greasing the Wheels of International Commerce: How Services Facilitate Firms' International Sourcing By Peter Debaere; Holger Görg; Horst Raff
  4. Global Production Sharing, Trade Patterns, and Determinants of Trade Flows in East Asia By Athukorala, Prema–Chandra; Menon, Jayant
  5. The Global Arms Trade Network 1950-2007 By Akerman, Anders; Larsson, Anna
  6. International Specialization and the Return to Capital By Batista, Catia; Potin, Jacques
  7. Agglomeration Premium and Trading Activity of Firms By Gábor Békés; Péter Harasztosi
  8. Industrial structure, trade and regional economics : market segmentation By Vito Amendolagine; Gabriel Talmain
  9. Trends in International Prices By Philippe Andrade; Marios Zachariadis
  10. Wage Inequality, Linkages and FDI By Driffield, Nigel; Girma, Sourafel; Henry, Michael; Taylor, Karl

  1. By: Othman, Jamal; Yaghoob, Jafari
    Abstract: This paper examines the impact of intra-ASEAN trade liberalization (AFTA) using a multi-country, computable general equilibrium model (GTAP Model) with special focus on Malaysia. The study considers the full elimination of intra-ASEAN import taxes and export subsidies. Results suggest that Malaysia‟s GDP would only increase marginally while the effects on the individual commodity sectors in the country differ substantially.
    Keywords: ASEAN Free Trade (AFTA); GTAP; CGE Trade Model; AFTA Impacts on Malaysia; Trade liberalization
    JEL: F15 D58
    Date: 2009–06–02
  2. By: URATA Shujiro; OKABE Misa
    Abstract: This paper examines the impacts of regional trade agreements (RTAs) on commodity trade, with a particular focus on trade creation and diversion effects. Based on the estimation of the gravity equation for commodity trade, dealing with zero-trade flow and endogeneity problems, we analyze the impacts of various types of RTAs involving 67 countries for 20 commodities during 1980-2006. We identify that partial scope (PS) RTAs and RTAs among developing countries tend to cause trade diversion. Taking tariff rates into consideration explicitly, our results suggest that trade diversion is likely to be caused by the remaining tariffs on imports from non-members, while trade creation would be caused by various factors besides the reduction in tariff rates. As for specific RTAs, the EU is shown to have a trade creation effect in trade of agricultural commodities, while the AFTA and the NAFTA have trade creation effects in all types of machinery trade. These results seem to indicate that regional production and distribution networks in machinery have been formulated thanks to the reduction of tariffs under RTAs.
    Date: 2010–01
  3. By: Peter Debaere; Holger Görg; Horst Raff
    Abstract: We use unique plant-level data to study the link between the local availability of services and the decision of manufacturing firms to source materials from abroad. To guide our empirical analysis we develop a monopolitic-competition model of the materials sourcing decisions of heterogeneous firms. The model generates predictions about how the intensity of international sourcing of materials depends on a firm's productivity and the availability of local services. These predictions are supported by the data. We find evidence that more productive manufacturing firms tend to have a higher ratio of imported materials to sales. In addition, we find evidence that services grease the wheels of international commerce: A greater availability of services across regions, industries and time increases a firmÄs foreign sourcing of materials relative to sales. Interestingly, this positive impact of local service availability on imports especially applies to stand-alone firms that, unlike multinationals, are less likely to rely on imported or internally provided services
    Keywords: international trade, services, off-shoring, supply chain management, firm heterogeneity
    JEL: F12 L23
    Date: 2010–01
  4. By: Athukorala, Prema–Chandra (Australian National University); Menon, Jayant (Asian Development Bank)
    Abstract: Global production sharing—the breakup of a production process into vertically separated stages that are carried out in different countries—has become one of the defining characteristics of world trade over the past few decades. Any analysis of trade patterns or its determinants that ignores this phenomenon, and the trade in parts and components that it generates, is likely to result in erroneous conclusions. This study examines the extent and pattern of these flows, focusing on East Asia, and probes its implications for the analysis of the determinants of trade flows. World trade in parts and components increased from about 18.9% to 22.3% of total exports between 1992/93 and 2005/06. Most of this growth emanates from East Asia, with its share in total world exports increasing from 27% to 39% over the same period. There was a notable decline in Japan’s share toward the end of this period, but this was more than offset by the rising importance of the People's Republic of China (PRC). In East Asia, most of this trade is in electronics. The econometric analysis reveals that parts and components are remarkably less sensitive to changes in relative prices; as a result, the sensitivity of aggregate trade flows to relative price changes diminishes as its share increases. This implies that exchange rate policy may be less effective in balance of payments adjustment, in countries where component trade is high and growing.
    Keywords: Global production sharing; product fragmentation trade; determinants of trade flows; exchange rate policy
    JEL: F10 F13 F23
    Date: 2010–01–01
  5. By: Akerman, Anders (Dept. of Economics, Stockholm University); Larsson, Anna (Dept. of Economics, Stockholm University)
    Abstract: We study the evolution of the global arms trade network using a unique dataset on all international transfers of major conventional weapons over the period 1950-2007. First, we provide a careful description of the characteristics of global arms trade using tools from social network analysis. Second, we relate our …findings to political regimes by studying whether differences in polity scores affect the likelihood of arms trade by estimating an augmented gravity equation. Our findings from the network analysis are much in line with common views of the Cold War. We see a clear division between the Warsaw Pact and NATO, with the Soviet Union being more central to the former than the United States to the latter. We find that differences in polity has a significant, negative effect on the likelihood of arms trade between two countries. The relationship is remarkably robust throughout the sample period and does not hold for trade in any other good that we investigate. The result suggests that democracies are indeed more likely to trade arms with other democracies than with autocracies since the former are not perceived as potential adversaries. We view this finding as evidence in favour of the Democratic Peace Theory.
    Keywords: Arms Trade; Networks; Democracy; Autocracy; NATO; The Warsaw Pact
    JEL: F19 F51 F59 P51
    Date: 2010–02–02
  6. By: Batista, Catia (Trinity College Dublin); Potin, Jacques (ESSEC Business School)
    Abstract: How does factor accumulation affect the pattern of international specialization and returns to capital? We provide a new integrated treatment to this question using a panel of 44 developing and developed countries over the period 1976-2000. We confirm the Heckscher-Ohlin prediction that, with sufficient differences in country endowments, there is no factor price equalization and countries specialize in different subsets of goods. Innovatively, we obtain the returns to capital implied by this model: these are consistent with the Lucas paradox, which we explain after accounting for cross-country differences in the cost of capital goods. We also find that, along their development path, countries have often experienced structural change in the form of intra-industry specialization. Our findings are consistent with Ventura's hypothesis that growth can be promoted in this way through "beating the curse of diminishing returns" – indeed we find no decrease in the return to capital at any given capital-labor ratio despite capital accumulation by most countries within a cone of diversification.
    Keywords: economic growth and international trade, Heckscher-Ohlin, multiple cones of diversification, marginal product of capital, return to capital, Lucas paradox, specialization
    JEL: F11 F21 O40
    Date: 2010–01
  7. By: Gábor Békés; Péter Harasztosi
    Abstract: Firms may benefit from proximity to each other due to the existence of several externalities. The productivity premia of firms located in agglomerated regions can be attributed to savings and gains from external economies. However, the capacity to absorb information may depend on activities of the firm, such as involvement in international trade. Importers, exporters and two-way traders are likely to employ a different bundle of resources and be organised differently so that they would appreciate inputs and information from other firms in a different fashion and intensity. Getting a better understanding of such external economies by looking at various types of firms is the focus of present paper. Using Hungarian manufacturing data from 1992-2003, we confirm that firms perform better in agglomerated areas and show that traders gain more in terms of productivity than non-traders when agglomeration rises. Firms that are stable participants of international trade gain 16 % in terms of total factor productivity growth as agglomeration doubles while non-traders may not benefit from agglomeration at all. Results also suggest that traders' productivity premium is most apparent in urbanised economies.
    Date: 2010–01–28
  8. By: Vito Amendolagine; Gabriel Talmain
    Abstract: TWe consider a general equilibrium model a la Bhaskar (Review of Economic Studies 2002): there are complementarities across sectors, each of which com- prise (many) heterogenous monopolistically competitive …rms. Bhaskars model is extended in two directions: production requires capital, and labour markets are segmented. Labour market segmentation models the difficulties of labour migrating across international barriers (in a trade context) or from a poor region to a richer one (in a regional context), whilst the assumption of a single cap- ital market means that capital flows freely between countries or regions. The model is solved analytically and a closed form solution is provided. Adding labour market segmentation to Bhaskar's two-tier industrial structure allows us to study, inter alia, the impact of competition regulations on wages and financial flows both in the regional and international context, and the output, welfare and financial implications of relaxing immigration laws. The analytical approach adopted allows us, not only to sign the effect of policies, but also to quantify their e¤ects. Introducing capital as a factor of production improves the realism of the model and refines its empirically testable implications.
    Keywords: market segmentation, monopolistic competition, industry competition, regional competition, capital flows
    JEL: F22 L11 F16 R13
    Date: 2010–01
  9. By: Philippe Andrade; Marios Zachariadis
    Abstract: We exploit the panel dimension of a price levels dataset for more than one hundred product items across 140 cities in 90 countries for the period from 1990 to 2009 in order to improve our understanding of international price dispersion and the evolution of prices over time. We consider a panel data model with exchangeable units that allows for the possibility of common components for different dimensions of the panel. This allows one to gauge the contribution of each dimension of the data to total variation and to disentangle the sources of potential non-stationarity. It also allows us to identify differences in the speed of convergence for different time-varying components in response to location-specific, product-specific, and idiosyncratic shocks. Finally, we proceed to identify the economic determinants of different components to show that particular dimensions of the data are more suited for examining particular theories.
    Keywords: Price levels, Variance decomposition, Convergence, Non-stationarity, International price dispersion
    Date: 2010–01
  10. By: Driffield, Nigel (Aston University); Girma, Sourafel (University of Nottingham); Henry, Michael (Aston University); Taylor, Karl (University of Sheffield)
    Abstract: This paper extends the existing literature on FDI and wage inequality. We do this in two ways. Firstly, we incorporate more precise measures of inward investment into the model, by allowing for differences in the effects between horizontal and vertical FDI. Secondly, after establishing the effects that inward investment has on wage inequality, we then analyse the reasons for this in terms of the wages paid to skilled and unskilled workers, and the effect that inward investment has on this. We illustrate the important differences that horizontal and vertical FDI have on both wages and wage inequality, and the importance of allowing for regional differences in the results. FDI nationally tends to increase wage inequality, while the local, effects are opposite. FDI into assisted areas tends to increase wage inequality nationally, when the MNEs purchase inputs in the local region.
    Keywords: wage inequality, FDI spillovers, backwards and forwards linkages
    JEL: F21 F23 J31
    Date: 2010–01

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