nep-int New Economics Papers
on International Trade
Issue of 2010‒06‒26
eighteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. The DR-CAFTA and the extensive margin : a firm-level analysis By Molina, Ana Cristina; Bussolo, Maurizio; Iacovone, Leonardo
  2. The Role of Intermediaries in Facilitating Trade By Jaebin Ahn; Amit K. Khandelwal; Shang-Jin Wei
  3. Trade Policy and Firm Boundaries By Laura Alfaro; Paola Conconi; Harald Fadinger; Andrew F. Newman
  4. Do Developed and Developing Countries Compete Head to Head in High-tech? By Lawrence Edwards; Robert Z. Lawrence
  5. US Trade and Wages: The Misleading Implications of Conventional Trade Theory By Lawrence Edwards; Robert Z. Lawrence
  6. Demand Uncertainty: Exporting Delays and Exporting Failures By Daniel X. Nguyen
  8. Towards an explicit modeling of trade facilitation in CGE models: evidence from Egypt By Zaki, Chahir
  9. Exporting, Productivity and Government Interventions: Is There a Link? By Elena Besedina
  10. Offshoring and Corporate Headquarters: Evidence from Japanese firm-level data By TOMIURA Eiichi; ITO Banri; WAKASUGI Ryuhei
  11. Relationship between Trade, Investment and Environment: A Review of Issues By Chakraborty, Debashis; Mukherjee, Sacchidananda
  12. Policy-Induced Environmental Technology Transfer By Takeshi Iida; Kenji Takeuchi
  13. How Would an Appreciation of the Yuan Affect the People's Republic of China's Surplus in Processing Trade? By Thorbecke, Willem
  14. Productivity, the Terms of Trade, and the Real Exchange Rate: Balassa-Samuelson Hypothesis Revisited By Ehsan U. Choudhri; Lawrence L. Schembri
  15. TRADE OPENNESS AND CO2 EMISSIONS IN TUNISIA By Houssem Eddine Chebbi; Marcelo Olarreaga; Habib Zitouna
  17. Does Firm Boundary Matter? The effect of offshoring on productivity of Japanese firms By ITO Banri; TOMIURA Eiichi; WAKASUGI Ryuhei
  18. Rethinking the Redistribution Effects of Trade Liberalization in Egypt: A Microsimulation Analysis By Zaki, Chahir; Hendy, Rana

  1. By: Molina, Ana Cristina; Bussolo, Maurizio; Iacovone, Leonardo
    Abstract: This paper examines the export behavior of Dominican Republic exporters following the implementation of the Dominican Republic-Central America Free Trade Agreement in 2007. Using a firm-level dataset for 2002-2009, the authors investigate the effects of a tariff reduction on the extensive margin. The analysis distinguishes the impact on the entry of new firms, exports of new products, and entry into the Agreement's markets. The paper analyzes whether the agreement prevents incumbent exporters from exiting the market. The results suggest that tariff cuts have a positive although small effect on the extensive margin. A decline in tariffs also seems to reduce the probability of exit, but the effect is small. The evidence calls for complementary policies aiming at helping exporters maximize the benefits of the agreement.
    Keywords: Free Trade,Debt Markets,Markets and Market Access,Export Competitiveness,Trade Policy
    Date: 2010–06–01
  2. By: Jaebin Ahn; Amit K. Khandelwal; Shang-Jin Wei
    Abstract: They are providing 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. They also provide empirical confirmation for this prediction, and generate new facts regarding the activity of intermediaries.[Working Paper No. 255]
    Keywords: China, Intermediaries, Heterogeneous Firms, Middlemen, Trade Costs
    Date: 2010
  3. By: Laura Alfaro; Paola Conconi; Harald Fadinger; Andrew F. Newman
    Abstract: We study how trade policy affects firms’ ownership structures. We embed an incomplete contracts model of vertical integration choices into a standard perfectly-competitive international trade framework. Integration decisions are driven by a trade-off between the pecuniary benefits of coordinating production decisions and the managers’ private benefits of operating in preferred ways. The price of output is a crucial determinant of this choice, since it affects the size of the pecuniary benefits: higher prices lead to more integration. Because tariffs increase domestic product prices, this effect provides a novel theoretical channel through which trade policy can influence firm boundaries. We then examine the evidence, using a unique dataset to construct firm-level indexes of vertical integration for a large set of countries. In line with the predictions of our model, we obtain three main results. First, higher tariffs lead to higher levels of vertical integration. Second, differences in ownership structure across countries, measured by the difference in sectoral vertical integration indexes, are smaller in sectors with similar levels of protection. Finally, ownership structures are more alike among members of regional trade agreements.
    JEL: D23 F13 F23
    Date: 2010–06
  4. By: Lawrence Edwards; Robert Z. Lawrence
    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.
    JEL: F1 F11 J3
    Date: 2010–06
  5. By: Lawrence Edwards; Robert Z. Lawrence
    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 inequality in the developed countries. 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.
    JEL: F11 F16 J3 J31
    Date: 2010–06
  6. By: Daniel X. Nguyen (Department of Economics, University of Copenhagen)
    Abstract: This paper presents a model of trade that explains why firms wait to export and why many exporters fail. Firms face uncertain demands that are only realized after the firm enters the destination. The model retools the timing of uncertainty resolution found in productivity heterogeneity models. This retooling addresses several shortcomings. First, the imperfect correlation of demands reconciles the sales variation observed in and across destinations. Second, since demands for the firm's output are correlated across destinations, a firm can use previously realized demands to forecast unknown demands in untested destinations. The option to forecast demands causes firms to delay exporting in order to gather more information about foreign demand. Third, since uncertainty is resolved after entry, many firms enter a destination and then exit after learning that they cannot profit. This prediction reconciles the high rate of exit seen in the first years of exporting. Finally, when faced with multiple countries in which to export, some firms will choose to sequentially export in order to slowly learn more about its chances for success in untested markets.
    Keywords: firm heterogeneity; exporting; trade failures; trade delay
    JEL: F12
    Date: 2010–05
  7. By: Jeffrey B. Nugent (University of Southern California); Abla M. Abdel-Latif (Economics Department, The American University in Cairo)
    Abstract: The main objectives of this study are: (1) to quantify the amounts of both trade creation and trade diversion in each of the countries involved, (2) to explain why the effects especially in Jordan have been much larger than one might have expected and seemingly larger than those in Egypt even though Egypt may have had a stronger comparative advantage in such exports than Jordan, and (3) to identify and explain those effects other than on trade, such as in attracting FDI, developing local entrepreneurship, encouraging female labor force participation, developing linkages to firms outside the QIZ and on broader trade and industrial policies. We shall also try to identify policy and other changes that might have allowed these effects to be more positive and stronger than they actually were. Because of the longer experience with the Jordanian QIZs, somewhat more emphasis is placed on the Jordanian data and more detailed statistical analysis were possible. But the Egyptian case is also illustrative, especially for looking at the differential benefits on firms of different size, diversity and sophistication of product lines and benefits accruing to Egypt from attracting Turkish investments.
    Date: 2010–04
  8. By: Zaki, Chahir
    Abstract: This paper develops a dynamic computable general equilibrium (CGE) model incorporating trade facilitation aspects. This paper’s contributions are twofold: theoretical and empirical. First, this paper attempts to model trade facilitation explicitly in a dynamic CGE model applied. On the empirical side, I estimate, not assume, the tariff equivalent of red tape and related procedures at sectoral level. I use the ad valorem tariff equivalents of time to import and to export that have been estimated in a companion paper and I take into account the cost of such a process. To do so, I modify the Exter model that is calibrated on the Egyptian social accounting matrix of 2000/2001. My main findings show that, when trade facilitation is modeled precisely, i.e. by taking into account its cost as well as the tariff equivalents of its aspects, the impact of such a process is reduced. Meanwhile, its impact remains higher than trade liberalization. Moreover, some sectors witness a significant expansion more than others, especially processed food, garments and high value added products.
    Keywords: CGE; Trade facilitation; Egypt
    JEL: F11 F14 D58
    Date: 2010–04–10
  9. By: Elena Besedina (Kyiv School of Economics, Kyiv Economic Institute)
    Abstract: Recent theoretical models postulate that only the most productive firms become exporters due to the existence of costs of exporting. Empirical evidence does suggest that exporters are on average more productive than their domestic counterparts. However, contrary to the theory the productivity distribution for exporters and non-exporters overlaps. Motivated by this empirical finding, I extend an existing model of heterogeneous firms by adding endogenous trade policy based on a political economy argument. Using Ukrainian data I identify firms that receive explicit government support in the form of preferential tax policy, subsidies and other exclusive benefits. I find that explicit political support is positively associated with firms’ size, voter turnout and state ownership but not efficiency.
    Keywords: TFP, Exporting, Subsidy, Electoral Competition
    JEL: D24 D72 P26
    Date: 2010–06
  10. By: TOMIURA Eiichi; ITO Banri; WAKASUGI Ryuhei
    Abstract: Offshoring requires firms to have strong corporate headquarters for monitoring and contracting with suppliers. This paper exploits the unique Japanese firm-level data, which categorizes the type of offshore supplier as: own FDI subsidiaries, subsidiaries owned by other Japanese firms, and foreign suppliers. This paper finds that firms outsourcing to foreign or Japanese suppliers tend to allocate significantly more workers to corporate headquarters, compared with firms involved in intra-firm offshoring. The ownership rather than nationality of suppliers is the significant determinant for the size of corporate headquarters in offshoring firms. This finding is robust even after firm-specific effects are controlled for.
    Date: 2010–06
  11. By: Chakraborty, Debashis; Mukherjee, Sacchidananda
    Abstract: The inter-linkage between economic openness and environmental repercussions is a widely researched area. The current study contributes in the existing pool of research by conducting a cross-country empirical analysis for the year 2008 by exploring the interrelationship between openness indicators (trade and investment) and environmental performance of a country. For this purpose, the analysis separately considers export orientation, import orientation, FDI inwardness and FDI outwardness of the countries in different variations of the proposed empirical model. The regression results do not provide strong support to the Pollution Haven Hypothesis (PHH). The findings also confirm a relationship between socio-economic and socio-political factors in a country and its environmental performance.
    Keywords: Trade and Environment; International Investment
    JEL: F18 F21
    Date: 2010–06–16
  12. By: Takeshi Iida (Graduate School of Economics, Kobe University); Kenji Takeuchi (Graduate School of Economics, Kobe University)
    Abstract: We investigate how environmental and trade policies affect the transfer of environmental technology in a two-country model with global pollution. By comparing free trade and tariff policy without commitment, the following results are obtained. First, the existence of an environmental policy in a local country induces technology transfer from a foreign country. Second, there is a possibility that free trade is preferable to a tariff policy for both countries even though free trade lowers the environmental tax rate. Third, the quantity of the local firmfs product decreases for higher environmental damage. On the other hand, import of environmentally efficient goods from the foreign country increases.
    Keywords: Environmental technology transfer; Free trade; Tariff protection
    JEL: D43 F13 L13 Q56
    Date: 2010–06
  13. By: Thorbecke, Willem (Asian Development Bank Institute)
    Abstract: Enormous trade surpluses are problematic for the People's Republic of China (PRC) and the rest of the world. They primarily stem from processing trade. This paper investigates how exchange rate changes would affect the PRC's imports for processing and processed exports. The results indicate that an appreciation throughout East Asian supply chain countries would reduce the PRC's surplus in processing trade, while an appreciation of the yuan alone might not. Even for an appreciation throughout East Asia, however, the sum of the exchange rate elasticities is not large. Thus, to rebalance the PRC's trade, exchange rate appreciations must be accompanied by other changes such as factor market liberalization and greater enforcement of environmental regulations.
    Keywords: global imbalances; exchange rate elasticities; yuan affect prc surplus; surplus processing trade
    JEL: F32 F41
    Date: 2010–06–18
  14. By: Ehsan U. Choudhri (Department of Economics, Carleton University); Lawrence L. Schembri (International Department, Bank of Canada)
    Abstract: The paper examines how the Balassa-Samuelson hypothesis is affected by a modern variation of the standard model that allows product differentiation (within the traded and nontraded goods sectors) with the number of firms determined exogenously or endogenously. The hypothesis is found to be fragile in the modified framework. Small variations in the elasticity of substitution between home and foreign traded goods (within the range of estimates suggested in the literature), for example, can make the effect of a traded-goods productivity improvement on the real exchange rate negative or positive, as well as small or large. This result provides a potential explanation of the mixed empirical results that have been obtained on the relationship between productivity and the real exchange rate.
    Keywords: Real exchange rate; Balassa-Samuelson model; Productivity; Terms of trade
    JEL: F41 F31
    Date: 2010–05
  15. By: Houssem Eddine Chebbi (Faculty of Economic Sciences and Management of Nabeul (FSEGN), Tunisia); Marcelo Olarreaga; Habib Zitouna
    Abstract: The literature on trade often focuses on its impact on economic growth. However, more recently attention has been paid to the impact of openness on other important aspects of individual welfare, such as the environment. Because openness affects economic activity it will also affect pollution levels. But changes in economic activity also imply changes in the levels of income per capita which may lead to changes in the demand for environmental standards. Moreover, trade will affect pollution levels directly through its impact on the composition of the production bundle, as resources get reallocated across more, or less polluting sectors. All this suggests that the impact of trade openness on pollution is likely to depend on initial conditions and therefore cross-country results are likely to hide significant heterogeneity which may lead to the wrong policy conclusions. The objective of this paper is to assess the impact of Tunisia’s trade reforms over the last four decades on its CO2 emissions by taking into account not only the direct effect of trade on emissions, but also its indirect effect through growth. Using cointegration techniques we disentangle the long and short-run relationship between trade openness, income per capita and CO2 emissions in Tunisia, and explore the extent of Granger causality among these variables. Results suggest that the direct effect of trade openness on CO2 emissions is positive both in the short and the long run, but the indirect effect is negative at least in the long run.
    Date: 2010–04
  16. By: Mohamed Ali Marouani (Université Paris1-Panthéon-Sorbonne); Laura Munro
    Abstract: This paper aims to assess barriers to service provision in the financial, telecom, and transport sectors of selected MENA countries, including both trade and domestic restrictions. The analysis is focused on computation of aggregate and modal trade restrictiveness indexes (TRIs) by sector, drawing on information gathered from detailed questionnaires and country reports prepared by local consultants. The conclusions highlight that significant regulatory reforms have taken place in the service sectors of Egypt, Jordan, Lebanon and Morocco over the last decade, but that a broad range of restrictions still remain. The most significant change in these service sectors has been the lifting or softening of the constraints imposed on foreign equity participation. Reforms, however, have had varying degrees of impact on market structure depending on the country and the sector.
    Date: 2009–07
  17. By: ITO Banri; TOMIURA Eiichi; WAKASUGI Ryuhei
    Abstract: Recently, great interest has been aroused in the examination of the impact of offshore sourcing, which has increased rapidly across the world and expanded to cover a variety of tasks. Theoretical studies have shown that offshore sourcing contributes to higher productivity. This paper aims to provide evidence of the effect of offshore sourcing on productivity, on the basis of original survey data of offshore sourcing of Japanese firms. The estimation results show that offshore in-sourcing within multinationals has a positive impact on productivity but there is a time-lag in the appearance of the impact. On the other hand, it is found that offshore outsourcing through armfs-length contracting out did not appear to affect productivity despite the expectation that the reallocation of resources to more advanced production processes contributes to productivity.
    Date: 2010–06
  18. By: Zaki, Chahir; Hendy, Rana
    Abstract: This paper aims at evaluating the liberalization policies effects on inequality in Egypt with respect to gender, region and qualification level. No previous studies in Egypt, to our best knowledge, have used the Microsimulation analysis which is a good tool that allows such an evaluation and determines the redistribution aspects of macro policies. The latter consists of linking macroeconomic changes to the micro level of the economy i.e. the individual level. A Computable General Equilibrium model (CGE) is first estimated for a maximum tariff rate of 10%. And, wages and employment changes resulted from the CGE are replicated, in a second stage, into our micro data. Results show that liberalization policies have important impacts on inequalities among the Egyptian population in general. Inequality has decreased among males and females as well as among different regions of the Egyptian society but has increased among high-skilled and low-skilled workers. Results of the present research have important policy implications that have to be considered.
    Keywords: Trade liberalization; Egypt; CGE
    JEL: F16 J01 D58 J16
    Date: 2009–12

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