nep-int New Economics Papers
on International Trade
Issue of 2010‒04‒11
fourteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Trade in Intermediate Goods and Services By Sébastien Miroudot; Rainer Lanz; Alexandros Ragoussis
  2. Trade and Monopolistic Competition without CES: Estimating Translog Gravity By Novy, Dennis
  3. Preferential Trade Agreements and the Structure of International Trade By Neil Foster; Robert Stehrer
  4. Trade in Services: Cross-Border Trade vs. Commercial Presence. Evidence of Complementarity By Carolina Lennon
  5. Services Trade and Policy By Joseph Francois; B. Hoekman
  6. Productivity, Quality and Exporting Behavior Under Minimum Quality Requirements By Juan Carlos Hallak
  7. Trade and Investment Policies and Regional Economic Integration in East Asia By Chia, Siow Yue
  8. National borders matter... where one draws the lines too. By Lavallée, E.; Vicard, V.
  9. Innovation, Trade and Finance By Christian Keuschnigg; Peter Egger
  10. Binding Constraints to Trade Expansion: Aid for Trade Objectives and Diagnostics Tools By Jean-Jacques Hallaert; Laura Munro
  11. Russian trade and foreign direct investment policy at the crossroads By Tarr, David; Volchkova, Natalya
  12. The effect of grant receipt on start-up size: Evidence from plant level data By Sourafel Girma; Holger Görg; Aoife Hanley; Eric Strobl
  13. Direct and indirect effects of FDI in emerging European markets : a survey and meta-analysis. By Jan Hanousek; Evžen Ko?enda; Mathilde Maurel
  14. Firm Heterogeneity and Location Choice By Toshihiro Okubo

  1. By: Sébastien Miroudot; Rainer Lanz; Alexandros Ragoussis
    Abstract: This study analyses trade flows in intermediate goods and services among OECD countries and with their main trading partners. Combining trade data and input-output tables, bilateral trade in intermediate goods and services is estimated according to the industry of origin and the using industry for the period 1995-2005. Trade in intermediate inputs takes place mostly among developed countries and represents respectively 56% and 73% of overall trade flows in goods and services. Gravity regressions indicate that in comparison to trade in final goods and services, imports of intermediates are more sensitive to trade costs and are less attracted by bilateral market size. Further findings are that the activities of multinational enterprises can be associated with higher trade flows of intermediate inputs and with a higher ratio of foreign to domestic inputs in using industries. Results from production function regressions and from a stochastic frontier analysis suggest that a higher share of imported inputs leads to productivity gains in domestic industries and reduces inefficiencies in the use of technology.
    Keywords: trade policy, FDI, fragmentation, outsourcing, multinational enterprises, offshoring, trade in intermediates, intermediate inputs, parts and components, trade and productivity
    JEL: D57 F13 F23
    Date: 2009–11–03
  2. By: Novy, Dennis (Department of Economics, University of Warwick and CESifo)
    Abstract: This paper derives a micro-founded gravity equation in general equilibrium based on a translog demand system that allows for endogenous markups and rich substitution patterns across goods. In contrast to standard CES-based gravity equations, trade is more sensitive to trade costs if the exporting country only provides a small share of the destination country?s imports. As a result, trade costs have a heterogeneous impact across country pairs, with some trade flows predicted to be zero. I test the translog gravity equation and find strong empirical support in its favor. In an application to the currency union effect, I find that a currency union is only associated with substantially higher bilateral trade if the exporting country provides a small share of the destination country's imports. For other pairs, the currency union effect is modest or indistinguishable from zero. Keywords: Translog ; Trade Costs ; Gravity ; Currency Union ; Monopolistic Competition ; Trade Cost Elasticity ; Heterogeneity ; Zero Trade JEL Codes: F11 ; F12 ; F15
    Date: 2010
  3. By: Neil Foster (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: In this paper we examine the impact of membership in Preferential Trade Agreements (PTAs) on trade between PTA members. Rather than considering the impact of PTA membership on the volume of trade we consider the impact of membership on the structure of trade. For a large sample of countries over the period 1962-2000 we find that membership in a PTA is associated with an increase in the extent of intra-industry trade. In addition, we find that the effect of PTA membership on IIT is larger when a PTA is formed between two developed countries.
    Keywords: Preferential Trade Agreements, intra-industry trade, gravity equation, International Trade and Competitiveness
    JEL: F10 F15
    Date: 2010–01
  4. By: Carolina Lennon (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This paper investigates empirically the relationship between trade and FDI in services. Using bilateral data on US foreign affiliates' sales and trade as well as data on barriers to FDI, the relationship is investigated using different panel techniques, including fixed effects and pseudo-maximum-likelihood techniques. As a first step, bilateral exports are explained by foreign affiliates' sales. Then, in order to control for endogeneity, a cross-price elasticity approach is used, in which exports are explained by the cost of investing abroad. The paper additionally investigates whether the relationship in services differs from that in goods, whether it depends on the motivations for FDI and varies across services. The main findings indicate a robust complementary relationship between trade and FDI in services, which is higher than that found in the goods case and mainly related to the horizontal type of FDI as well as to 'other private services'.
    Keywords: international trade in services, modes of supply, FDI, USA, Foreign Direct Investment, International Trade and Competitiveness, Services
    JEL: F10 F14 F23 L80
    Date: 2009–11
  5. By: Joseph Francois (The Vienna Institute for International Economic Studies, wiiw); B. Hoekman
    Abstract: Since the mid-1980s a substantial body of research has taken shape on trade in services. Much of this is inspired by the WTO and regional trade agreements. However, an increasing number of papers focus on the impacts of unilateral services sector liberalization. The literature touches on important linkages between trade and FDI in services and the general pattern of productivity growth and economic development. This paper surveys the literature on services trade, focusing on contributions that investigate the determinants of international trade and investment in services, the potential gains from greater trade, and efforts to cooperate to achieve such liberalization through trade agreements. There is increasing evidence that services liberalization is a major potential source of gains in economic performance, including productivity in manufacturing and the coordination of activities both between and within firms. The performance of service sectors, and thus services policies, may also be an important determinant of trade volumes, the distributional effects of trade, and overall patterns of economic growth and development. At the same time, services trade is also a source of increasing political unease about the impacts of globalization on labour markets, linked to worries about offshoring and the potential pressure this places on wages in high income countries.
    Keywords: trade in services, outsourcing, modes of supply, trade and FDI, foreign affiliate trade, WTO, GATS, trade agreements, economic development, International Trade and Competitiveness
    JEL: F1 F2 F5 L80
    Date: 2009–12
  6. By: Juan Carlos Hallak (Department of Economics, Universidad de San Andres)
    Abstract: We develop a model of international trade with two sources of firm heterogeneity: "productivity" and "caliber". Productivity is modeled as is standard in the literature. Caliber is the ability to produce quality using few fixed inputs. While there is no quality restriction to sell domestically, exporting requires the attainment of minimum quality levels. Compared to single-attribute models of firm heterogeneity emphasizing either productivity or the ability to produce quality, our model provides a more nuanced characterization of firms' export behavior. In particular, it explains the empirical fact that firm size is not monotonically related with export status; there are small firms that export while there are large firms that only operate in the domestic market. The model also delivers novel testable predictions. Conditional on size, exporters sell products of higher quality and at higher prices, they pay higher wages and use capital more intensively. We test these predictions using data on manufacturing establishments in India, the U.S., Chile, and Colombia. The empirical findings confirm the theoretical predictions.
    Keywords: Productivity, quality, exports, firm heterogeneity
    JEL: F10 F12 F14
    Date: 2010–03
  7. By: Chia, Siow Yue (Asian Development Bank Institute)
    Abstract: The global economic crisis has affected the East Asian economies via trade and investment. The export-led model which had been responsible for the “East Asian Miracle” now must redirect the basis of growth from exports sent to the US and Europe to regional and domestic demand. Regional trade integration has been market-led through production networks and foreign direct investment (FDI). Since the proliferation of bilateral and plurilateral free trade agreements (FTA) and economic partnership agreements (EPA) has not resulted in an integrated regional market, it is important that East Asia seek an arrangement for a region-wide FTA/EPA. Currently, there are proposals for an ASEAN+3, an ASEAN+6, Pan-Asia, and Asia Pacific initiatives. While proponents of a region-wide FTA/EPA highlight its benefits, skeptics and critics point to the difficulties of reaching consensus in a region with widely varying political, economic, and social systems. Ultimately it will depend on a political-economic decision based on a cost-benefit analysis of liberalization, facilitation, and cooperation in a region-wide FTA.
    Keywords: east asia trade policy; east asia regional integration; free trade agreements
    JEL: F13 F14 F16 O24
    Date: 2010–04–05
  8. By: Lavallée, E.; Vicard, V.
    Abstract: The fact that crossing a political border dramatically reduces trade flows has been widely documented in the literature. The increasing number of borders has surprisingly attracted much less attention. The number of independent countries has indeed risen from 72 in 1948 to 192 today. This paper estimates the effect of political disintegration since World War II on the measured growth in world trade. We first show that trade statistics should be considered carefully when assessing globalization over time, since the definition of trade partners varies over time. We document a sizeable resulting accounting artefact, which accounts for 17% of the growth in world trade since 1948. Second, we estimate that political disintegration alone since World War II has raised measured international trade flows by 9% but decreased actual trade flows (including inter-regional trade) by 4%...
    Keywords: Trade, Borders, Political disintegration, Trade statistics.
    JEL: F1 N70
    Date: 2010
  9. By: Christian Keuschnigg; Peter Egger
    Abstract: The paper proposes a model where heterogeneous firms choose whether to undertake R&D or not. Depending on R&D choice, innovative firms are more productive, have larger investment opportunities and lower own funds than non-innovating firms. As a result, innovative firms are financially constrained while standard firms are not. The efficiency of the financial sector and a country's institutional quality relating to corporate governance determine the share of R&D intensive firms and the comparative advantage in innovative goods. We show how protection, R&D subsidies and financial development improve access to external finance in distinct ways, support the expansion of innovative industries and boost national welfare. International welfare spillovers depend on the interaction between terms of trade effects and financial frictions and may be positive or negative, depending on foreign countries' trade position.
    Keywords: Innovation, financial development, R&D subsidies, protection
    JEL: F11 G32 L26 O38
    Date: 2010–03
  10. By: Jean-Jacques Hallaert; Laura Munro
    Abstract: Trade can be a powerful engine for economic growth, poverty reduction, and development. However, harnessing the power of trade is often difficult for developing countries, particularly the least developed countries, because of supply-side domestic constraints (lack of trade-related infrastructure and capacity). The Aid for Trade Initiative was launched to address these constraints. This paper sets forth strategies to identify the most binding constraints to trade expansion so countries and donors can channel resources toward reforms and projects that have the largest effect. It shows that the four most common objectives of aid-for-trade projects (increasing trade, diversifying exports, maximizing the linkages with the domestic economy, and increasing adjustment capacity) have the potential to boost growth and reduce poverty in developing countries. However, the potential of trade may not be realized as developing countries often face binding constraints that prevent them from turning trade opportunities into trade, and trade into growth. First, they face difficulties turning trade opportunities into trade flows because of capacity constraints and lack of adequate trade-related infrastructure. Second, some domestic constraints choke the impact of trade expansion on economic growth. The paper focuses on the first set of constraints and presents various diagnostic tools available to identify them. These tools often pinpoint a long list of constraints. As all constraints cannot be addressed simultaneously, there is a need to identify the most binding ones in order to prioritize reforms. The paper suggests combining the different diagnostic tools in an appropriate framework to achieve this prioritization. An adaptation of the growth diagnostics— originally developed by Hausmann et al. (2005) for guiding growth strategies—can be such a framework. By shifting the focus from growth to trade, this framework can be readily adapted by local authorities and development practitioners.
    Keywords: trade and growth, infrastructure, trade reform, aid for trade, binding constraints to trade, diagnostic tools, export diversification, supply-side constraints, trade capacities, trade expansion
    Date: 2009–12–02
  11. By: Tarr, David; Volchkova, Natalya
    Abstract: This paper summarizes the estimates of what Russia will get from World Trade Organization accession and why. A key finding is the estimate that Russia will gain about $53 billion per year in the medium term from World Trade Organization accession and $177 billion per year in the long term, due largely to its own commitments to reform its own business services sectors. The paper summarizes the principal reform commitments that Russia has undertaken as part of its World Trade Organization accession negotiations, and compares them with those of other countries that have acceded to the World Trade Organization. It finds that the Russian commitments represent a liberal offer to the members of the World Trade Organization for admission, but they are typical of other transition countries that have acceded to the World Trade Organization. The authors discuss the outstanding issues in the Russian World Trade Organizaiton accession negotiations, and explain why Russian accession will result in the elimination of the Jackson-Vanik Amendment against Russia. They discuss Russian policies to attract foreign direct investment, including an assessment of the impact of the 2008 law on strategic sectors and the increased role of the state in the economy. Finally, the authors assess the importance of Russian accession to Russia and to the international trading community, and suggestions for most efficiently meeting the government’s diversification objective.
    Keywords: Economic Theory&Research,World Trade Organization,Emerging Markets,Debt Markets,Free Trade
    Date: 2010–03–01
  12. By: Sourafel Girma; Holger Görg; Aoife Hanley; Eric Strobl
    Abstract: In this paper we use plant level data on the start-up size of new plant entries and detailed information on the grants received by such plants in order to investigate whether grant receipt encourages plants to start-up with more employment than without support. The data relate to manufacturing plants in the Republic of Ireland, where industrial policy has a long history of using discretionary grants to encourage employment growth. We use a matching procedure to deal with the issue of selectivity into grant receipt, and a quantile regression estimator to allow for different effects of grants on plants depending on their position in the start-up size distribution. Our results provide evidence that grants do indeed encourage plants to start-up larger. We also find that this effect is generally higher for foreign than for domestic plants, and that it differs for plants at different quantiles of the start-up size distribution
    Keywords: grants, subsidies, entry, start-up size
    JEL: H2 L2
    Date: 2010–03
  13. By: Jan Hanousek (CERGE-EI and CEPR); Evžen Ko?enda (CERGE-EI and CEPR); Mathilde Maurel (Centre d'Economie de la Sorbonne)
    Abstract: We review a large body of literature dealing with the effects of Foreign Direct Investment (FDI) on economies during their transformation from a command economic system toward a market system. We report the results of a meta-analysis based on the literature on externalities from FDI. The studies on emerging European markets covered in our survey report direct and indirect FDI effects weakening over time, similarly as in other FDI destination countries. This is imputable to a publication bias that is detected and to the fact that more sophisticated methods and more controls can be used once a sufficient time span is available. Panel studies are likely to find relatively lower spillover effects. The choice of the research design (definition of firm performance and foreign firm presence) matters. More specific to the sampled studies is the role played by forward and backward linkages, which dominate other channels in driving FDI externalities.
    Keywords: FDI, productivity spillovers, economic transformation, emerging markets, meta-analysis.
    JEL: C42 D62 F21 F23 O3
    Date: 2010–03
  14. By: Toshihiro Okubo (Research Institute for Economics and Business Administration, Kobe University)
    Abstract: Heterogeneity in firm productivity affects the location patterns of firm and agglomeration. Here we provide an economic geography model, involving forward and backward linkages driven by the migration of a footloose entrepreneur (capital owner) with different productivity. As a result we find a sorting equilibrium characterised by co-agglomeration of similar productivity firms, however, in contrast to previous studies, unproductive firms are more likely to agglomerate than their more productive counterparts. This is due to the increasingly severe competition induced by productive firms. Productive firms prevent severe local competition through their co-agglomeration. In terms of social welfare, although the sorting equilibrium involves higher social welfare than a perfectly symmetric pattern of firm location, the market outcome is sub-optimal and induces too much agglomeration.
    Keywords: heterogeneous firms, footloose entrepreneurs, competition, productivity, economic geography
    JEL: F15 F23
    Date: 2010–04

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