nep-int New Economics Papers
on International Trade
Issue of 2010‒02‒20
fifteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Are Unit Export Values Correct Measures of the Exports' Quality? By Wojciech Grabowski; Krzysztof Szczygielski
  2. The Role of Intermediaries in Facilitating Trade By JaeBin Ahn; Amit K. Khandelwal; Shang-Jin Wei
  3. Greasing the Wheels of International Commerce: How Services Facilitate Firms' International Sourcing By Debaere, Peter; Görg, Holger; Raff, Horst
  4. Envy, Altruism, and the International Distribution of Trade Protection By Xiaobo Lü; Kenneth F. Scheve; Matthew J. Slaughter
  5. Trade performances and technology in the enlarged European Union By Alessandro Antimiani; Valeria Costantini
  6. International Supply Chains and Trade Elasticity in Times of Global Crisis By Escaith, Hubert; Lindenberg, Nannette; Miroudot, Sébastien
  7. Non-Tariff measures affecting India's textiles and clothing exports: Findings from the survey of exporters By Gordhan K. Saini
  8. Firm Heterogeneity in the Choice of Offshoring: Evidence from Korean Manufacturing Firms By Hea-Jung Hyun
  9. Does product market integration lead to decentralised wage bargaining institutions? By Michele Santoni
  10. Political Limits to Globalization By Daron Acemoglu; Pierre Yared
  11. East-West Integration and the Economic Geography of Europe By Arne Melchior
  12. Managing Foreign Trade By Mills, W. Raymond
  13. Climate Shocks and Exports By Benjamin F. Jones; Benjamin A. Olken
  14. Export Diversification and Economic Growth in Malaysia By Arip, Mohammad Affendy; Yee, Lau Sim; Abdul Karim, Bakri
  15. Marshall-Lerner Condition and Economic Globalization By Paul J.J. Welfens

  1. By: Wojciech Grabowski; Krzysztof Szczygielski
    Abstract: It has become common to measure the quality of exports using their unit export value (UEV). Applications of this method include studies of intra-industry trade (IIT) and analyses of industrial 'competitiveness'. This literature seems to assume that export quality and export price (the most natural interpretation of UEV) are not merely correlated but that they follow each other one-for-one. We put this assumption under scrutiny from both a theoretical and empirical point of view. In terms of theory, we formalize this assumption as a hypothesis of the proportionality of equilibrium prices and equilibrium qualities. We discuss several cases for which this hypothesis is theoretically doubtful (non-linear utility- and cost functions; strong and asymmetric horizontal product differentiation). We also suggest two methods of verifying the hypothesis for cases in which it cannot be easily rejected theoretically. These two methods are then applied to German imports in the period of 1994-2006. We find that the implications of the proportionality hypothesis are largely contradicted by the data.
    Keywords: export quality, unit export value, intra-industry trade, competitiveness
    JEL: F10 F12 F14
    Date: 2009
  2. By: JaeBin Ahn; Amit K. Khandelwal; Shang-Jin Wei
    Abstract: We provide systematic evidence that intermediaries play an important role in facilitating trade using a firm-level the census of China's exports. Intermediaries account for around 20% of China's exports in 2005. This implies that many firms engage in trade without directly exporting products. We modify a heterogeneous firm model so that firms endogenously select their mode of export - either directly or indirectly through an intermediary. The model predicts that intermediaries will be relatively more important in markets that are more difficult to penetrate. We provide empirical confirmation for this prediction, and generate new facts regarding the activity of intermediaries.
    JEL: F1
    Date: 2010–01
  3. By: Debaere, Peter (University of Virginia); Görg, Holger (Kiel Institute for the World Economy); Raff, Horst (Kiel Institute for the World Economy)
    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 monopolistic-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 firm’s 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: Xiaobo Lü; Kenneth F. Scheve; Matthew J. Slaughter
    Abstract: One important puzzle in international political economy is why lower-earning and less-skilled intensive industries tend to receive relatively high levels of trade protection. This pattern of protection holds even in low-income countries in which less-skilled labor is likely to be the relatively abundant factor of production and therefore would be expected in many standard political-economy frameworks to receive relatively low, not high, levels of protection. We propose and model one possible explanation: that individual aversion to inequality—both envy and altruism—lead to systematic differences in support for trade protection across industries, with sectors employing lower-earning workers more intensively being relatively preferred recipients for trade protection. We conduct original survey experiments in China and the United States and provide strong evidence that individual policy opinions about sector-specific trade protection depend on the earnings of workers in the sector. We also present structural estimates of the influence of envy and altruism on sector-specific trade policy preferences. Our estimates indicate that both envy and altruism influence support for trade protection in the United States and that altruism influences policy opinions in China.
    JEL: D63 D64 F13 F59
    Date: 2010–01
  5. By: Alessandro Antimiani; Valeria Costantini
    Abstract: We analyse the role of the enlargement process of the European Union as a factor fostering international competitiveness of EU Member States. We argue that the economic integration process has partially reduced the technological gap between old and new EU Member States, and this pattern of technological innovation can partially explain the strong impulse on the export dynamics of European countries. We have built an augmented gravity model by including the role of technological innovation, proxied by the stock of knowledge at the sector level. By using a dynamic panel data estimator we find three main empirical evidences. First, the enlargement process has produced an overall larger positive impact on export flows for new members than for old ones, and more importantly that sectors with the higher technological content have received the strongest impulse. Second, the augmented gravity model allows shaping the crucial role of technological innovation in fostering export competitiveness. Third, this impact seems to be stronger for old EU member states than for new ones. The policy implication we derive is that the more the new EU members catch up technologically as a result of the integration process, the more they will benefit in terms of economic development.
    Keywords: EU enlargement, gravity model, international trade, economic integration, technological innovation
    JEL: F14 F15 O14 O33
    Date: 2010
  6. By: Escaith, Hubert; Lindenberg, Nannette; Miroudot, Sébastien
    Abstract: The paper investigates the role of global supply chains in explaining the trade collapse of 2008-2009 and the long-term variations observed in trade elasticity. Building on the empirical results obtained from a subset of input-output matrices and the exploratory analysis of a large and diversified sample of countries, a formal model is specified to measure the respective short-term and long-term dynamics of trade elasticity. The model is then used to formally probe the role of vertical integration in explaining changes in trade elasticity. Aggregated results on long-term trade elasticity tend to support the hypothesis that world economy has undertaken in the late 1980s a "traverse" between two underlying economic models. During this transition, the expansion of international supply chains determined an apparent increase in trade elasticity. Two supply chains related effects (the composition and the bullwhip effects) explain also the overshooting of trade elasticity that occurred during the 2008-2009 trade collapse. But vertical specialization is unable to explain the heterogeneity observed on a country and sectoral level, indicating that other contributive factors may also have been at work to explain the diversity of the observed results.
    Keywords: international supply chain; trade elasticity; global crisis; trade collapse; input-output analysis; error-correction-model
    JEL: R3 D57 F14 R15 F1
    Date: 2010–02–01
  7. By: Gordhan K. Saini (Indira Gandhi Institute of Development Research)
    Abstract: This paper reports findings from the survey of India's textiles and clothing exporters. The survey method has been used to identify and assess the impact of Non-Tariff Measures (NTMs) and the Cost of Compliance (COC) expenditure by the exporters. A structured questionnaire has been used to gather data from a sample of 135 exporters across eight export centers of India i.e. Bangalore, Chennai, Coimbatore, Ludhiana, Mumbai, New Delhi, Panipat and Tirupur. Results reveal that the EU and USA are most restrictive region/country covering nearly three-fourth of total NTM incidences. The technical regulations, product & production process standards and conformity assessment for technical barriers are the most frequently used NTMs among the aggregated five categories. The average COC as percentage of turnover is inversely related to the firm size, which is 0.63 for large firms and 1.32 for small firms. However, about 58 of the firms spend less than 0.5 of their turnover on COC which is much lower than overall average of 1.12 and only 26 firms spend more than 1 of their turnover in complying with NTM standards. The COC is not exorbitant and justifiable given its long term benefits. Some of the common issues about NTMs are buyer nomination of the suppliers and testing & certification agencies, stringent social compliance measures, and discriminatory treatment on the basis of standards, import duty and other benefits. Unexpectedly, the NTMs are not only seen as marketing and promotional tool but also they promote efficiency and competitiveness within the industry. Further, financial crisis has reduced the export orders/volumes and the impact is more severe on high end fashion garments where product and market diversification is unlikely due to ever changing customer preferences
    Keywords: Non-Tariff Barriers, Non-Tariff Measures, Cost of Compliance
    JEL: F10 F13 F14
    Date: 2009–12
  8. By: Hea-Jung Hyun (Korea Institute for International Economic Policy)
    Abstract: Using firm-level data on offshoring of Korean manufacturers, the paper examines the relationship between firm heterogeneity and the probability of adopting offshoring. The results of the paper suggest that firm productivity may not be an important determinant for Korean firms’ offshoring decision. Firm’s global sourcing decision may rather depend on other characteristics such as factor intensity, R&D intensity, ICT level, and affiliation with foreign markets, when industry specificity is controlled for.
    Keywords: Offshoring, Outsourcing, Insourcing, Firm Heterogeneity.
    JEL: F23 L23 D21
    Date: 2009
  9. By: Michele Santoni (Università degli Studi di Milano)
    Abstract: This paper studies the effects of product market integration on wage-bargaining institutions. It first shows evidence of a negative correlation between the level of wage bargaining and proxy measures of integration, such as the degree of openness and import penetration, for a macro-panel of 17 OECD countries over the 1975-2000 period. It then develops a theoretical model of an import-competing unionised Cournot-Nash oligopoly. The model shows that a reduction in trade barriers, by lowering the sharable surplus between home firms and labour when the final goods are substitutes, gives unions incentives to choose more decentralised wage-bargaining institutions. This industry-level mechanism, however, works in the opposite direction with either complements or two-way trade and homogeneous goods. In these cases, cutting trade barriers raises the sharable surplus and encourages domestic wage-setters to choose more centralised institutions.
    Keywords: Endogenous wage bargaining institutions, Unionised oligopolies, Trade integration,
    Date: 2009–10–29
  10. By: Daron Acemoglu; Pierre Yared
    Abstract: Despite the major advances in information technology that have shaped the recent wave of globalization, openness to trade is still a political choice, and trade policy can change with shifts in domestic political equilibria. This paper suggests that a particular threat and a limiting factor to globalization and its future developments may be militarist sentiments that appear to be on the rise among many nations around the globe today. We proxy militarism by spending on the military and the size of the military, and document that over the past 20 years, countries experiencing greater increases in militarism according to these measures have had lower growth in trade. Focusing on bilateral trade flows, we also show that controlling flexibly for country trends, a pair of countries jointly experiencing greater increases in militarism has lower growth in bilateral trade.
    JEL: F01 F10 F52
    Date: 2010–01
  11. By: Arne Melchior
    Abstract: Implementation of the European internal market and East-West integration has been accompanied by dramatic change in the spatial distribution of economic activity, with higher growth west and east of a longitude degree through Germany and Italy. In the east, income growth has been accompanied by increasing regional disparities within countries. We examine theoretically and empirically whether European integration as such can explain these developments. Using a numerical simulation model with 9 countries and 90 regions, theoretical predictions are derived about how various patterns of integration may affect the income distribution. Comparing with reality, we find that a reduction in distance-related trade costs combined with east-west integration is best able to explain the actual changes in Europe's economic geography. This suggests that the implementation of the European internal market or the Euro has "made Europe smaller". In Central Europe, capital regions grow faster and there are few east-west growth differences inside countries. There is no convincing support for the hypothesis that European integration had adverse effects on non-members.
    Keywords: Income distribution, regional inequality, economic growth and convergence, European integration.
    JEL: F12 F15 R12 O18
    Date: 2009
  12. By: Mills, W. Raymond
    Abstract: The U.S. economy is suffering because of misguided theorists/economists who continue to insist that the federal government should not intrude in international trade in a way that reduces imports into the U.S. This essay answers that perspective. A new way of looking at trade - in terms of the effect of trade on Gross Domestic Product - is developed that shows clearly the harm done to the U.S. economy by the trade deficit. The proposed intervention takes the form of a gradual increase in tariff rates for ALL imports manufactured in the 5 nations that are the main reason for the large trade deficit experienced by the U.S. By proposing a uniform tariff rates on all imports from selected nations, it avoids the problems created by traditional protectionism. No products, no industry receives favored treatment. This solution shows that an alternative to Free Trade can be developed other than traditional protectionism. One merit of this proposal is that it bypasses negotiations with other nations. It is unilateral action by the U.S. to change foreign trade so that trade supports the U.S. manufacturing sector. Seeking to approach equal trade with all trading partners is a stance recommended for all trade deficit nations. This action, if duplicated, will move the world trading system toward the balance often advocated as a way to insure continuation of the international trading system.
    Keywords: Trade Deficit; Tariffs by country; Gross Domestic Product
    JEL: F13 F43
    Date: 2010–02–02
  13. By: Benjamin F. Jones; Benjamin A. Olken
    Abstract: This paper uses international trade data to examine the effects of climate shocks on economic activity. We examine panel models relating the annual growth rate of a country’s exports in a particular product category to the country’s weather in that year. We find that a poor country being 1 degree Celsius warmer in a given year reduces the growth rate of that country’s exports by between 2.0 and 5.7 percentage points, with no detectable effects in rich countries. We find negative effects of temperature on exports of both agricultural products and light manufacturing products, with little apparent effects on heavy industry or raw materials. The results confirm large negative effects of temperature on poor countries’ economies and suggest that temperature affects a much wider range of economic activity than conventionally thought.
    JEL: F18 Q54
    Date: 2010–01
  14. By: Arip, Mohammad Affendy; Yee, Lau Sim; Abdul Karim, Bakri
    Abstract: This paper examines the relationship between export diversification and economic growth in Malaysia. We use annual data from 1980-2007 and time-series techniques of cointegration and Granger causality tests to examine the long-run relationship and dynamic interactions among the variables. The results show the presence of a unique cointegrating vector among the four variables. Consistent with previous studies, we found that export diversification plays significant roles to economic growth in Malaysia. This finding suggests that, in order to sustain future economic growth under the static effect of multilateral and regional trade liberalization, Malaysia should diversify its export commodities and develop greater social and economic cooperation with the rest of the world. As an export-oriented economy, in the long run, export diversification strategy could help stabilizing Malaysia’s export earnings.
    Keywords: export diversification; economic growth; revealed comparative advantage
    JEL: F10 C30
    Date: 2010–02–09
  15. By: Paul J.J. Welfens (Department of Economics University of Wuppertal - Europäisches Institut für internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: The analysis considers the impact of FDI inflows and FDI outflows and shows that the presence of (cumulated) FDI requires higher import elasticities in absolute terms than stated in the standard Marshall Lerner condition. One may derive a range for the elasticity of the ratio of exports to imports with respect to the real exchange rate, namely that the sum of the absolute import elasticities at home and abroad must exceed unity plus an addi-tional parameter – for standard special cases the sum of both elasticities must exceed 2 if a real depreciation is to improve the real current account. Not only can one determine a modified Marshall Lerner condition for a world economy with economic globalization, rather one also can get new insights from considering a broader macroeconomic perspective. The insights obtained are highly relevant for the discussion about high deficits of the US and high surplus positions of countries such as Japan, China and Germany. The relevance of real income effects for current account adjustment – much emphasized by McKinnon – is emphasized here in a specific way: there is a direct real income effect of changes of the real exchange rate
    Keywords: Marshall-Lerner Condition, FDI, Current Account, Globalization
    JEL: F02 F21 F32
    Date: 2009–04

This nep-int issue is ©2010 by Alessia A. Amighini. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.