nep-int New Economics Papers
on International Trade
Issue of 2010‒06‒18
fourteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Distorted Trade Barriers: A Comment on “Distorted Gravity” By Matthew T Cole
  2. Multi-product Exporters: Product Churning, Uncertainty and Export Discoveries. . By Iacovone, Leonardo; Javorcik, Beata S.
  3. Do Developed and Developing Countries Compete Head to Head in High Tech? By Robert Z. Lawrence; Lawrence Edward
  4. New Measures of Intra-Industry Trade Between Colombia and the United States: 1995-2005 By Carolina Caicedo
  5. Trade, Capital Redistribution and Firm Structure By Larry D. Qiu; Wen Zhou
  6. Productivity Premia for German Manufacturing Firms Exporting to the Euro-Area and Beyond: First Evidence from Robust Fixed Effects Estimations By Verardi, Vincenzo; Wagner, Joachim
  7. Does the Gravity Model Suffer from Selection Bias? By Haq, Zahoor; Meilke, Karl; Cranfield, John
  8. US Trade and Wages: The Misleading Implications of Conventional Trade Theory By Robert Z. Lawrence; Lawrence Edward
  9. Agricultural Trade Policy Options for Sri Lanka During Crisis Times By Weerahewa, Jeevika; Meilke, Karl
  10. Agriculture and the World Trade Organization: Does Membership Make a Difference By Grant, Jason H.; Boys, Kathryn A.
  11. Do Additional Bilateral Investment Treaties Boost Foreign Direct Investments? By Chang Hoon Oh; Michele Fratianni
  12. Do Labour Standards have a Role in International Trade?: Private Standards, Preferential Trade Agreements or the WTO By Bakhshi, Samira; Kerr, William
  13. A Quantile-based Test of Protection for Sale Model By Imai, Susumu; Katayama, Hajime; Krishna, Kala
  14. The Location Choices of Foreign Investors: A District-level Analysis in India By Megha Mukim; Peter Nunnenkamp

  1. By: Matthew T Cole (University College Dublin)
    Abstract: Since firm heterogeneity has been introduced into international trade models, the importance of firm entry and exit (the extensive margin) has been highlighted. Thomas Chaney (2008) illustrates how accounting for heterogenous firms (and this extensive margin) alters the standard gravity equation. In particular, it reverses the previously predicted effect the elasticity of substitution has on the elasticity of trade flows. Further, Chaney shows that the elasticity of trade flows with respect to variable trade costs is a constant. As is common, iceberg transport costs are used as the variable trade barrier. However, in many empirical studies, ad valorem tariffs are also used as a form of trade barrier, which as Cole (2010) points out, is not isomorphic to iceberg transport cost in a monopolistically competitive setting. In this comment, I solve the Chaney (2008) model using ad valorem tariffs instead of iceberg transport costs and show the elasticity of trade flows with respect to tariffs is not constant, but depends on the elasticity of substitution.
    Keywords: Intra-industry Trade; Gravity; Firm heterogeneity; Monopolistic competition
    Date: 2010–06–08
  2. By: Iacovone, Leonardo; Javorcik, Beata S.
    Abstract: Recent research on international trade focuses on firm-product-level heterogeneity and the role of uncertainty in shaping international trade. This article contributes to the literature by examining product-level dynamics within firms in the context of Mexican trade integration under NAFTA. The data show intense product churning within firms and confirm the existence of within-firm product heterogeneity. The data indicate that new exporters enter foreign markets with a small number of varieties, most of which were previously sold at home, and with a small export small volume. The data also suggest that export discoveries are relatively rare and are imitated within a short period of time.
    JEL: F14 F13 F12
    Date: 2010
  3. By: Robert Z. Lawrence (Harvard University, John F. Kennedy School of Government); Lawrence Edward (University of Cape Town)
    Abstract: Concerns that (1) growth in developing countries could worsen the US terms of trade and (2) that increased US trade with developing countries will increase US wage inequality both implicitly reflect the assumption that goods produced in the United States and developing countries are close substitutes and that specialization is incomplete. In this paper we show on the contrary that there are distinctive patterns of international specialization and that developed and developing countries export fundamentally different products, especially those classified as high tech. Judged by export shares, the United States and developing countries specialize in quite different product categories that, for the most part, do not overlap. Moreover, even when exports are classified in the same category, there are large and systematic differences in unit values that suggest the products made by developed and developing countries are not very close substitutes-developed country products are far more sophisticated. This generalization is already recognized in the literature but it does not hold for all types of products. Export unit values of developed and developing countries of primary commodity-intensive products are typically quite similar. Unit values of standardized (low-tech) manufactured products exported by developed and developing countries are somewhat similar. By contrast, the medium- and high-tech manufactured exports of developed and developing countries differ greatly. This finding has important implications. While measures of across product specialization suggest China and other Asian economies have been moving into high-tech exports, the within-product unit value measures indicate they are doing so in the least sophisticated market segments and the gap in unit values between their exports and those of developed countries has not narrowed over time. These findings shed light on the paradoxical finding, exemplified by computers and electronics, that US-manufactured imports from developing countries are concentrated in US industries, which employ relatively high shares of skilled American workers. They help explain why America’s nonoil terms of trade have improved and suggest that recently declining relative import prices from developing countries may not produced significant wage inequality in the United States. Finally they suggest that inferring competitive trends based on trade balances in products classified as "high tech" or "advanced" can be highly misleading.
    Keywords: Terms of Trade, Technology
    JEL: F10 F11
    Date: 2010–06
  4. By: Carolina Caicedo
    Abstract: This paper analyzes the existence of intra-industry trade between Colombia and the United States, using the information of the CEPII BAC database for the period between 1995 and 2005. The relevance of establishing a measure of intra-industry trade flows between Colombia and the United States relies primarily on the relative importance of representing the United States as a trading partner for Colombia. Bilateral trade between Colombia and the United States includes about 5,000 different products, however, only 451 products have simultaneous flow of exports and imports of these 119 have an index G & L under 25, for example 4.7% of intra-industry trade exist between Colombia and the USA. The export supply from Colombia to the United States consists mainly of 11 products, which have been included in the negotiations of the Free Trade Colombia United States
    Date: 2010–06–12
  5. By: Larry D. Qiu; Wen Zhou
    Abstract: A model of heterogeneous firms with multiple products and two production factors (labor and capital) is used to study how trade liberalization affects firms' choices through both product and factor markets. Trade liberalization is shown to always redistribute capital toward more efficient firms and always to improve an industry's total factor productivity. However, it may reduce capital prices and cause labor productivity to drop. Low efficiency firms are affected mainly by changes in the factor market, while high efficiency firms are affected mainly by changes in the product market. In response to trade liberalization, low efficiency firms always reduce their product scope, but high efficiency firms may expand their scope. The model demonstrates the importance of the interplay between product and factor markets.
    Keywords: firm heterogeneity, trade liberalization, multiproduct, multifactor, firm structure, scale, scope, mergers and acquisitions
    JEL: F12 F13 F15 L11 L25
    Date: 2010–06
  6. By: Verardi, Vincenzo (Free University of Brussels); Wagner, Joachim (Leuphana University Lüneburg)
    Abstract: This paper makes three contributions. (1) It summarizes in tabular form a recent literature made of 36 micro-econometric studies for 16 different countries on the relationship between export destination and firm performance. (2) It reports estimates of the productivity premium of German firms exporting to the Euro-zone and beyond, controlling for unobserved time invariant firm specific effects, and tests for self-selection of more productive firms into exporting beyond the Euro-zone. (3) It corrects a serious flaw in hitherto published studies that ignore the potentially disastrous consequences of extreme observations, or outliers. The paper shows that estimates of the exporter productivity premium by destination are driven by a small share of outliers. Using a "clean" sample without outliers the estimated productivity premium of firms that export to the Euro-zone only is no longer much smaller that the premium of firms that export beyond the Euro-zone, too, and the premium itself over firms that serve the German market only is tiny. Furthermore, an ex-ante differential that is statistically significant and large only shows up for enterprises that exported to the Euro-zone already and start to export to countries outside the Euro-zone. These conclusions differ considerably from those based on non-robust standard regression analyses.
    Keywords: robust estimation, panel data, exporter productivity premium, export destinations
    JEL: F14 C23 C81 C87
    Date: 2010–05
  7. By: Haq, Zahoor; Meilke, Karl; Cranfield, John
    Abstract: When analyzing bilateral trade flow data, zero trade flows are quite common and problematic when a gravity equation is estimated with a log-linear functional form. This has caused many researchers to either ignore the zero trade flows or to replace zero with a small positive number. Both of these actions bias the resulting parameter estimates of the gravity equation. In this study we correct for this misspecification by using the Heckman selection model to estimate the bilateral trade flows for 46 agrifood products, for the period 1990 to 2000, for 52 countries. In our sample, selection bias rarely affects the signs of variables but often has a substantial effect on the magnitude, statistical significance and economic interpretation of the marginal effects. Hence, treating zero trade flows properly is important from both a statistical and an economics perspective.
    Keywords: Gravity model, selection bias, Agrifood Trade, Heckman Selection Model, marginal effects, Agricultural and Food Policy, Demand and Price Analysis, International Relations/Trade,
    Date: 2010–01
  8. By: Robert Z. Lawrence (Harvard University, John F. Kennedy School of Government); Lawrence Edward (University of Cape Town)
    Abstract: Conventional trade theory, which combines the Heckscher-Ohlin theory and the Stolper-Samuelson theorem, implies that expanded trade between developed and developing countries will increase wage equality in the former. This theory is widely applied. It serves as the basis for estimating the impact of trade on wages using two-sector simulation models and the net factor content of trade. It leads naturally to the presumption that the rapid growth and declining relative prices of US manufactured imports from developing countries since the 1990s have been a powerful source of increased US wage inequality. In this study we present evidence that suggests the presumption is not warranted. We highlight the sensitivity of conventional theory to the assumption of incomplete specialization and find evidence that is not consistent with it. Since 1987, although US domestic relative effective prices in industries with relatively high shares of manufactured goods imports from developing countries have declined, effective unskilled worker-weighted prices have actually risen relative to skilled worker-weighted prices. If anything, this suggests pressures for increased wage equality. Also in apparent contradiction to theory, the (six-digit North American Industry Classification System [NAICS]) US manufacturing industries with high shares of manufactured imports from developing countries are actually more skill intensive than the industries with high shares of imports from developed countries. Finally, applying a two-stage regression procedure, we find that developing-country import price changes have not mandated increased US wage inequality. While these results conflict with standard theory, they are easily explained if the United States and developing countries have specialized in products and tasks that are highly imperfect substitutes. If this is the case, the impact of increased trade with developing countries on US wage inequality is far more muted than standard theory suggests. Also methodologies such as the net factor content of trade using US production coefficients and simulation models assuming perfect substitution between imports and domestic products could be highly misleading.
    Keywords: Wages, Trade Theory
    JEL: F11 F16 J30
    Date: 2010–06
  9. By: Weerahewa, Jeevika; Meilke, Karl
    Keywords: Sri Lanka, trade, policy, Agricultural and Food Policy, International Development, International Relations/Trade,
    Date: 2009–11
  10. By: Grant, Jason H.; Boys, Kathryn A.
    Keywords: WTO, membership, trade, Agricultural and Food Policy, International Development, International Relations/Trade, Political Economy,
    Date: 2010–05
  11. By: Chang Hoon Oh (Faculty of Business, Brock University); Michele Fratianni (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: This paper finds that the stock of bilateral investment treaties (BIT) is subject to diminishing returns measured in terms of foreign direct investment flows. Diminishing returns are more pronounced among country-pairs that have not signed bilateral investment treaties but have their own BIT network than among country-pairs with their own bilateral investment treaties. For a given country’s BIT network, a multinational enterprise finds more value in investing where a bilateral treaty is in place. This may suggest either stronger property-rights protection or greater latitude to use the host country as an export platform. Our subsidiary finding is that an index of a country’s BIT network diversity appears to be a plausible explanation of the limiting force underlying the diminishing returns of the stock of BITs in a world where there is a mix between horizontally and vertically integrated multinational enterprises.
    Keywords: bilateral investment treaty; foreign direct investment; gravity equation; network diversity
    JEL: F21 F53
    Date: 2010–06
  12. By: Bakhshi, Samira; Kerr, William
    Abstract: It is now common for producers (economic protectionism), consumers and social advocates (humanitarian motives) to urge for the inclusion of labour standards in international trade agreements. In spite of this, there has been little empirical work to determine whether low labour standards lead to trade distortions. This paper provides some empirical evidence pertaining to this question. Consumer groups, social advocates and traditional vested interests such as labour unions have attempted to have labour standards included in WTO disciplines. In the absence of success at the WTO, the relationship between labour standards and international trade has, however, been evolving in the areas of private standards and preferential trade agreements. Given the role that preferential trade agreements sometimes take in establishing future directions in multilateral trade agreements and the increasing dissatisfaction with the WTOâs treatment of consumer issues in general, in the future labour standards may well work their way into multilateral trade agreements. The empirical results show that low labour standards lead to trade distortions. These effects appear to be small. Further research in this area is suggested.
    Keywords: consumers, food processing, labour standards, preferential trade agreements, trade distortion, Agricultural and Food Policy, Consumer/Household Economics, International Development, International Relations/Trade,
    Date: 2009–11
  13. By: Imai, Susumu; Katayama, Hajime; Krishna, Kala
    Abstract: This paper proposes a new test of the Protection for Sale (PFS) model by Grossman and Helpman (1994). Unlike existing methods in the literature, our approach does not require any data on political organization. We use quantile and quantile IV regressions to do so using the data from Gawande and Bandyopadhyay (2000). Surprisingly, the results do not provide any evidence favoring the PFS model. We also explain why previous work may have inadvertently found support for it.
    Keywords: Protection for Sale, Lobbying, Political Economy, Quantile Regression
    JEL: F13 F14
    Date: 2010–05
  14. By: Megha Mukim; Peter Nunnenkamp
    Abstract: This paper analyzes the determinants of the location choices made by foreign investors at the district level in India to gauge the relative importance of economic geography factors, local business conditions, and the presence of previous foreign investors. We employ a discrete-choice model and Poisson regressions to control for the potential violation of the assumption of Independence of Irrelevant Alternatives. Our sample includes about 19,500 foreign investment projects approved in 447 districts from 1991-2005. We find that foreign investors strongly prefer locations where other foreign investors are. They are also attracted to industrially diverse locations and those with better infrastructure. We conclude that the concentration of FDI in a few locations could fuel regional divergence in post-reform India
    Keywords: FDI, economic geography, location choice, infrastructure
    JEL: F23 R12
    Date: 2010–06

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