nep-int New Economics Papers
on International Trade
Issue of 2010‒05‒15
fifteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Innovation, firm dynamics, and international trade By Andrew Atkeson; Ariel Burstein
  2. Per Capita Income, Market Access Costs, and Trade Volumes By Tarasov, Alexander
  3. ASEAN-New Zealand Trade Relations and Trade Potential By Sayeeda Bano
  4. Not All Trade Restrictions are Created Equally By Matthew T Cole
  5. Vertical Trade and China's Export Dynamics By Wei Liao; Kang Shi; Zhiwei Zhang
  6. The Distorted Effect of Financial Development on International Trade Flows By Antoine Berthou
  7. The Heterogeneous Effect of International Outsourcing on Firm Productivity By Fergal McCann
  8. Tainted Food, Low-Quality Products and Trade By Jean-Marie Viaene; Laixun Zhao
  9. A Decomposition of Ricardian Trade Gains under External Economies of Scale By Toru Kikuchi; Ngo Van Long
  10. Fragmentation and immiserising specialisation : the case of the textile and clothing sector By Céline Gimet; Bernard Guilhon; Nathalie Roux
  11. Is there an environmental benefit to being an exporter? Evidence from firm level data By Svetlana Batrakova; Ronald B Davies
  12. An alternative theory of the plant size distribution with an application to trade By Thomas J. Holmes; John J. Stevens
  13. Pollution Policy and Liberalization of Trade in Environmental Goods By Alain-Désiré Nimubona
  14. A Decomposition of the Home-Market Effect By Toru Kikuchi; Ngo Van Long
  15. Be Careful! A Short Note on a Possible Bias in (Trade) Structural Change Analysys By Massimo TAMBERI

  1. By: Andrew Atkeson; Ariel Burstein
    Abstract: We present a general equilibrium model of the response of firms' decisions to operate, innovate, and engage in international trade to a change in the marginal cost of international trade. We find that, although a change in trade costs can have a substantial impact on heterogeneous firms' exit, export, and process innovation decisions, the impact of changes in these decisions on welfare is largely offset by the response of product innovation. Our results suggest that microeconomic evidence on firms' responses to changes in international trade costs may not be informative about the implications of changes in these trade costs for aggregate welfare.
    Date: 2010
  2. By: Tarasov, Alexander
    Abstract: There is strong empirical evidence that countries with lower per capita income tend to have smaller trade volumes even after controlling for aggregate income. Furthermore, poorer countries do not just trade less, but have a lower number of trading partners. In this paper, I construct and estimate a general equilibrium model of trade that captures both these features of the trade data. There are two novelties in the paper. First, I introduce an association between market access costs and countriesdevelopment levels, which can account for the effect of per capita income on trade volumes and explain many zeros in bilateral trade ows. Secondly, I develop an estimation procedure, which allows me to estimate both variable and …fixed costs of trade. I …nd that given the estimated parameters, the model performs well in matching the data. In particular, the predicted trade elasticity with respect to income per capita is close to that in the data.
    Keywords: export zeros; …xed costs of trade; country extensive margin
    JEL: F1
    Date: 2010–04
  3. By: Sayeeda Bano (University of Waikato)
    Abstract: This paper explores trade development by the Association of South East Asian Nations (ASEAN) with a particular reference to New Zealand and in the context of free trade agreements and partnerships. It describes the history of ASEAN, its trade composition, diversity and intensity. The paper includes an analysis of Kojima indices of trade intensities, the trade potential index and a gravity trade model using panel data and multivariate analysis. Hypotheses derived from trade theories are then tested to identify the key determinants of trade and the implications for policy. Overall, the study shows that economic integration has had a positive impact on ASEAN nations and with New Zealand and with ongoing potential.
    Keywords: international trade; regional economic integration; trade potential; ASEAN-New Zealand trade; FTA; CEP
    JEL: F10 F02 F13 F14 F15
    Date: 2010–04–15
  4. By: Matthew T Cole (University College Dublin)
    Abstract: There has been great focus in the recent trade theory literature on the introduction of firm heterogeneity into trade models. This introduction has highlighted the importance of the entry/exit decision of firms in response to changes in trade barriers. However, it is typical in many of these models to use iceberg transport costs as a general form of trade barriers that can be interchangeable with ad valorem tariffs. I show that this is not always an appropriate conclusion. Specifically, I illustrate that profit for an exporter is more elastic in response to tariffs than iceberg transport costs, which has implications for total product variety. One such implication is the possibility for there to be an anti-variety effect associated with lower transport costs while there also being a pro-variety effect associated with lower tariffs.
    Keywords: Intra-industry Trade; Trade policy; Firm heterogeneity; Monopolistic competition
    Date: 2010–04–12
  5. By: Wei Liao (Hong Kong Institute for Monetary Research); Kang Shi (The Chinese University of Hong Kong and Hong Kong Institute for Monetary Research); Zhiwei Zhang (China International Capital Corporation)
    Abstract: This paper examines how China's exports are affected by exchange rate shocks from countries who supply intermediate inputs to China. We build a simple small open economy model with intermediate goods trade to show that due to the intraregional trade in intermediate goods, a devaluation of other Asian currencies does not necessarily damage China's exports, as imported intermediate goods could become cheaper. This channel through the cost of intermediate goods depends critically on the share of intermediate goods used in China's export goods production and the degree of exchange rate pass-through in imported intermediate goods prices. If prices for intermediate goods are not very sticky, the effect through this channel could be large and China's exports could even benefit. We find the above findings do not depend on China's choice of currency invoicing between RMB and the US dollar or the choice between fixed and flexible exchange rate regimes.
    Keywords: Vertical Trade, Exchange Rates, Export Dynamics, Currency Invoicing
    JEL: F3 F4
    Date: 2010–04
  6. By: Antoine Berthou
    Abstract: This paper investigates the effects of financial development on the intensive and extensive margins of countries exports, at different stages of economic development. The paper develops a partial equilibrium model with monopolistic competition. In this model, firms are heterogeneous in terms of productivity and have access to external liquidity. The effect of financial development on the intensive and extensive margins of countries exports is predicted to be positive, especially in sectors with a higher demand for external finance. In countries with poor financial institutions though, only the most productive firms benefit from an increased access to financial resources and start exporting, with little effect on aggregate exports. The effect of financial development on exports is therefore higher for a better initial development of financial institutions. The empirical analysis confirms that financial development promotes both the intensive and extensive margins of countries’ exports. This is more the case in industries with a higher demand for external finance. Though, more than 60% of the effect of financial development channels through the intensive margin. In industries where the demand for external finance is high, the effect of financial development is the highest in economies characterized by an intermediate development of financial institutions, and the lowest in countries with poor or advanced financial institutions. This contradicts the traditional expectation that financial development benefits more in terms of exports to countries where financial constraints are the most binding.
    Keywords: Bilateral trade; trade margins; financial development
    JEL: F12 G20 O16
    Date: 2010–04
  7. By: Fergal McCann
    Abstract: This paper analyses how international outsourcing affects plant productivity. The results point to a striking pattern: the status of being an outsourcer matters strongly for firms that are indigenous and not exporting, while for exporters and foreign affiliates, tfp increases are lower, insignificant and sometimes negative. On the other hand, higher intensity of outsourcing matters for both exporters and foreign affiliates. Similarly, in dynamic analysis, indigenous non-exporters are found to increase tfp for two periods after entering into international outsourcing, while indigenous exporters experience one more weakly significant period of growth. The message is clear: international outsourcing’s effect on tfp is most pronounced when it serves as a first exposure to international markets.
    Keywords: International outsourcing; heterogeneous firms; productivity; firm structure
    JEL: F23 L23
    Date: 2010–03
  8. By: Jean-Marie Viaene (Erasmus University Rotterdam, and CESifo); Laixun Zhao (Kobe University)
    Abstract: This paper examines international trade in tainted food and other low-quality products. We
    Keywords: asymmetric information; experience good; product differentiation; sabotage; tainting; testing errors; trade
    JEL: D43 F12 F13 I12
    Date: 2010–01–04
  9. By: Toru Kikuchi (Graduate School of Economics, Kobe University); Ngo Van Long (Department of Economics, McGill University)
    Abstract: Although the one-factor Ricardian trade model with external economies of scale plays a significant role for the understanding of important trade issues under increasing returns, it lacks a compelling graphical representation. We propose a convincing graphical exposition that uses both the PPF and a labor market graph.
    Keywords: Trade Gains; Ricardian Trade Model; External Economies of Scale; Graph of the Labor Market
    JEL: F10
    Date: 2010–03
  10. By: Céline Gimet (UMR CNRS 5824 GATE Lyon-Saint-Etienne,93, chemin des Mouilles B.P. 167 69131 Ecully, France); Bernard Guilhon (DEFI EA 4265, Faculty of Economics and Management, University of the Mediterranean, Château Lafarge, route des Milles, 13290 Aix-en-Provence); Nathalie Roux (DEFI EA 4265, Faculty of Economics and Management, University of the Mediterranean, Château Lafarge, route des Milles, 13290 Aix-en-Provence)
    Abstract: With production activity tending rapidly towards international fragmentation, this study examines the consequences for labour countries of the forms of specialisation brought about by fragmentation processes. It further addresses the risk that fragmented sectors may become excluded from greater developments within the manufacturing industry as a whole. An empirical analysis using panel data reveals that, contrary to expectation, the textile and clothing sector in labour countries does not always reap the positive benefits of this form of international trade integration. Rather, we observe a phenomenon of immiserising specialisation, due to a drop in relative wages within this sector.
    Keywords: offshoring, outsourcing, fragmentation, immiserising specialisation, relative wages, textile and clothing sector
    JEL: F14 F16 L23 L67
    Date: 2010
  11. By: Svetlana Batrakova (University College Dublin); Ronald B Davies (University College Dublin)
    Abstract: One of the greatest concerns over globalisation is its impact on the environment. This paper contributes to this debate by analysing the consequences of becoming an exporter on a firm's energy consumption. We show both theoretically and empirically that for low fuel intensity firms exporting status is associated with higher fuel consumption while for high fuel intensity firms exporting is results in decreased fuel consumption. Further analysis reveals that higher fuel consumption of low fuel intensity firms occurs after exporting, perhaps as a response to increased production. In contrast, firms using relatively large quantities of fuel decrease their energy use after exporting, perhaps by adopting more fuel-efficient technology. These results indicate that the use of aggregate data, as is the case in almost all studies of trade and the environment, is likely to conceal important connections between the two.
    Keywords: Exporting, Energy, Heterogeneity, Quantiles, Matching
    Date: 2010–03–31
  12. By: Thomas J. Holmes; John J. Stevens
    Abstract: There is wide variation in the sizes of manufacturing plants, even within the most narrowly defined industry classifications used by statistical agencies. Standard theories attribute all such size differences to productivity differences. This paper develops an alternative theory in which industries are made up of large plants producing standardized goods and small plants making custom or specialty goods. It uses confidential Census data to estimate the parameters of the model, including estimates of plant counts in the standardized and specialty segments by industry. The estimated model fits the data relatively well compared with estimates based on standard approaches. In particular, the predictions of the model for the impacts of a surge in imports from China are consistent with what happened to U.S. manufacturing industries that experienced such a surge over the period 1997--2007. Large-scale standardized plants were decimated, while small-scale specialty plants were relatively less impacted.
    Keywords: Productivity ; Imports
    Date: 2010
  13. By: Alain-Désiré Nimubona (Department of Economics, University of Waterloo)
    Abstract: During the Doha Round at the World Trade Organization (WTO), reductions in trade barriers on environmental goods (EG) were put forward as a means of helping developed and developing countries alike deal with current environmental problems. We examine the potential effectiveness of such a strategy in countries that rely on imports for their needs in EG. We point out that liberalizing trade in EG might in fact lead to less stringent environmental regulations, resulting in an actual rise in pollution levels. We then show conditions under which the environmental effectiveness and the welfare improvement objective of this trade reform are compromised.
    JEL: F12 F18 H23 Q58
    Date: 2010–05
  14. By: Toru Kikuchi (Graduate School of Economics, Kobe University); Ngo Van Long (Department of Economics, McGill University)
    Abstract: Although the home-market effect has become one of the most important concepts in both trade theory and the new economic geography, it lacks a compelling graphical representation. The purpose of this note is to offer such a representation. We will decompose the homemarket effect into two steps: a short-run response to population shift, creating entry-stimulating excess profits (in the short run) for firms of the country that experiences a population gain, and a further round of entries into the monopolistic sector of the expanding country induced by exits in the foreign industry.
    Keywords: Monopolistic Competition; Home-Market Effect; Entry-Exit Process
    JEL: F12
    Date: 2010–05
  15. By: Massimo TAMBERI (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: I was accustomed to think that the world, in this of "modern economic growth", is becoming less specialized: the invention of new goods is, only partially, a "Schumpeterian" process, in the sense that new goods sometimes replace old ones, but it can also happens that these new goods simply are added to the old ones. Also in modern theoretical literature emerges (at least) the idea that producers use an increasing variety of intermediate goods and that consumers are likely better with more variety of goods in their hands. The process of change in the produced/consumed goods is one of the aspects of the broader spectrum of economic structural change that accompanies economic growth, "structural change" being one of the basic stylized facts of growth according to the Nobel Lecture of Simon Kuznets. In this paper, I will suggest that sector disaggregated data, necessary to study structural change, contain a bias that "hides" this process and causes a drift. By using trade data (because of their higher sector disaggregation richness) I'll first show that there is a tendency for a steady increase in sector concentration. Next, I will argue that this is due to the impossibility to properly register product innovation and finally, through a very rough model and an empirical example of two countries, I will also suggest that this reflects differently in developing and developed countries.
    Keywords: Economic Growth, International Trade, Structural Change
    JEL: F43 O14 O40
    Date: 2010–05

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.