nep-int New Economics Papers
on International Trade
Issue of 2010‒08‒14
fourteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Changes in Bilateral Trade Costs between European Union Member States & Major Trading Partners: An Empirical Analysis from 1989‐2006 By Beltramo, Theresa
  2. Income differences and prices of tradables By Ina Simonovska
  3. Adam Smith Meets an Index of Specialization in International Trade By Mitchell H. Kellman; Yochanan Shachmurove
  4. Report on the State of Available Data for the Study of International Trade and Foreign Direct Investment By Robert C. Feenstra; Robert E. Lipsey; Lee G. Branstetter; C. Fritz Foley; James Harrigan; J. Bradford Jensen; Lori Kletzer; Catherine Mann; Peter Schott; Greg C. Wright
  5. Trade Logistics and Regional Integration in Latin America and the Caribbean By Guerrero, Pablo; Lucenti, Krista; Galarza, Sebastián
  6. Environmental Regulation and Competitiveness: Evidence from Romania By Guglielmo Caporale; Christophe Rault; Robert Sova; Anamaria Sova
  7. Decomposing the Great Trade Collapse: Products, Prices, and Quantities in the 2008-2009 Crisis By Mona Haddad; Ann Harrison; Catherine Hausman
  8. Globalization, Product Differentiation and Wage Inequality By Paulo Bastos; Odd Rune Straume
  9. Trade Facilitation Measures under Free Trade Agreements: Are They Discriminatory against Non-Members? By Hamanaka, Shintaro; Tafgar, Aiken; Lazaro, Dorothea
  11. Which Foreigners Are Worth Wooing? A Meta-Analysis of Vertical Spillovers from FDI By Tomáš Havránek; Zuzana Iršová
  12. The Economic and Monetary Union’s Effect on (International) Trade: the Case of Slovenia Before Euro Adoption By Aleksander Aristovnik; Matevz Meze
  13. Does FDI spur innovation, productivity and knowledge sourcing by incumbent firms? Evidence from manufacturing industry in Estonia By Priit Vahter
  14. The Gravity Equation in International Economics and International Business Research: A Note By Michele Fratianni; Francesco Marchionne; Chang Hoon Oh

  1. By: Beltramo, Theresa
    Abstract: Today, more than 50 years after the Rome Treaty, the EU has made great strides in its’ economic integration and liberalization of movement of goods and people. International trade theory predicts deepening economic integration inside the European Union will increase regional trade and have large effects on agglomeration of industry patterns. In particular, the Core Periphery theory predicts the core of Western Europe and center of economic prosperity will spread economic growth to the periphery through increased integration. Thus, it is hoped that the EU Core, who benefit from their central location and a long history of integration in Western Europe, will increase growth to the periphery through deepening integration and a relative drop in trade costs. Critics cite the Spring 2010 debt crisis in Greece and subsequent shock to Euro zone stability as an indication that EU integration has not been successful. Given increased skepticism of the Euro zone, measuring changes in trade costs between 2001 Euro adopters and the main trading partners provides one quantitative measure to better understand the depth of EU integration in the recent period from 1989‐2006. Using the Novy (2008) model, which measures bilateral trade costs directly from trade flows, the measure includes all trade costs incurred in getting a good to its’ final user, other than the production cost of the good itself. Results show the drop in trade costs over the more recent period 1995‐2006 to be largest for trade between countries who adopt the Euro in 2001 (‐53%). The second largest drop in bilateral trade costs is between 2001 Euro adopters and the Central Eastern European Countries who joined the EU in 2004 (‐49%). The third largest drop in bilateral trade costs is between the 2001 Euro adopters group and the large non‐continental Europe trading partners (‐45%). Large differences in trade costs appear between countries within the 2001 Euro adopters who are considered members of the Core versus those in the Periphery. Over the 1995‐ 2006 period trade costs drop by 24% more for trade within the Core versus Trade between the Core and the Periphery. While the Core‐Periphery theory is slow to be realized in our empirical results of trade costs over the 1995‐2006 period; trade costs among EU members and Euro adopters are relatively large‐ 33‐53%‐ when compared to trade costs measured for the non‐continental European trading partners‐5%. This 7‐11 times larger drop in trade costs for trade intra‐EU and Euro adopter members‐ both original and accession‐ is an empirical testament to the EU’s success at integrating diverse economies within the union.
    Keywords: International Trade; Core-Periphery; and Economic Geography.
    JEL: F13 F47 D58 F43 F15 F42 F11 F10 F02 F17
    Date: 2010–07
  2. By: Ina Simonovska
    Abstract: This paper presents novel evidence of price discrimination, using prices of identical goods in 28 countries. I explain the observed phenomenon via non-homothetic preferences, in a model of trade with product differentiation and firm productivity heterogeneity. The model brings theory and data closer along a key dimension: it generates positively related prices of tradables and income, while preserving exporter behavior and trade flows of existing frameworks. It further captures observations that richer countries buy more per product and consume more diverse bundles. Quantitatively, the model suggests that variable markups account for 80 percent of the positive price-income relationship across 123 countries.
    Keywords: Price discrimination ; Pricing ; International trade - Econometric models ; Income
    Date: 2010
  3. By: Mitchell H. Kellman (Department of Economics, The City College of New York, and the Graduate Center of the City University of New York); Yochanan Shachmurove (Department of Economics, The City College of New York, and the Graduate Center of the City University of New York)
    Abstract: Development economists agree that increasing export diversification is a concomitant to economic development. An accepted explanation for Africa’s export stagnation is its dependence on monoculture, and on small number of commodities. Recently a large body of literature focuses on the relationship between economic growth and export specialization. However, there does not exist one generally acceptable measure or index for the concept of “Specialization in International Trade”. This paper suggest one such measure for specialization and its theoretical and conceptual framework are developed and applied to Singapore, South Korea, Malaysia, Mexico, Tunisia and Morocco, during the years of their take offs.
    Keywords: Trade Specialization Indices; Development Theory; Developing Country Export Compositions; International Trade Theory; Trade in Manufactures; Trade and Transformation.
    JEL: O1 O14 F1 F14
    Date: 2010–08–06
  4. By: Robert C. Feenstra; Robert E. Lipsey; Lee G. Branstetter; C. Fritz Foley; James Harrigan; J. Bradford Jensen; Lori Kletzer; Catherine Mann; Peter Schott; Greg C. Wright
    Abstract: This report, prepared for the Committee on Economic Statistics of the American Economic Association, examines the state of available data for the study of international trade and foreign direct investment. Data on values of imports and exports of goods are of high quality and coverage, but price data suffer from insufficient detail. It would be desirable to have more data measuring value-added in trade as well as prices of comparable domestic and imported inputs. Value data for imports and exports of services are too aggregated and valuations are questionable, while price data for service exports and imports are almost non-existent. Foreign direct investment data are of high quality but quality has suffered from budget cuts. Data on trade in intellectual property are fragmentary. The intangibility of the trade makes measurement difficult, but budget cuts have added to the difficulties. Modest funding increases would result in data more useful for research and policy analysis.
    JEL: F00
    Date: 2010–08
  5. By: Guerrero, Pablo (Asian Development Bank Institute); Lucenti, Krista (Asian Development Bank Institute); Galarza, Sebastián (Asian Development Bank Institute)
    Abstract: <p>During the past few decades, the landscape of the world economy has changed. New trade patterns reflect the globalization of the supply chain and intra-industry trade, and increasing flows between neighboring countries and trading blocs with similar factor endowments. Similarly, the approach to production, trade, and transportation has evolved incorporating freight logistics as an important value-added service in global production. This integrated approach have become essential, and as such, both the trade agenda and freight logistics are beginning to converge providing an unparalleled opportunity for countries to deepen their integration with neighboring countries and their national performance in transport related services. Consequently, developing countries are finding themselves hard-pressed to adjust their policy agendas to take into account costs not covered in past rounds of trade negotiations. <p>This paper focuses on the importance of freight logistics in trade facilitation measures, examines the transport and logistics cost in international trade, addresses logistics performance in Latin America and the Caribbean and regional initiatives to advance the integration process and finally, exchanges views on the potential for trade logistics to impact the regional agenda and to deepen integration.
    Keywords: latin america caribbean trade; regional integration; infrastructure trade facilitation
    JEL: F15
    Date: 2010–08–02
  6. By: Guglielmo Caporale; Christophe Rault; Robert Sova; Anamaria Sova
    Abstract: According to the pollution haven hypotheses differences in environmental regulation affect trade flows and plant location. Specifically, environmental stringency should decrease exports and increase imports of “dirty” goods. This paper estimates a gravity model to establish whether the implementation of more stringent regulations in Romania has indeed affected its competitiveness and decreased exports towards its European trading partners. Our findings do not provide empirical support to the pollution haven hypothesis, i.e. environmental stringency is not found to affect significantly total trade, or its components (pollution intensive trade and pollution intensive trade related to non-resource-based trade).
    Keywords: environmental stringency, competiveness, gravity model
    JEL: F14 Q28
    Date: 2010–06–01
  7. By: Mona Haddad; Ann Harrison; Catherine Hausman
    Abstract: We identify a new set of stylized facts on the 2008-2009 trade collapse that we hope can be used to shed light on the importance of demand and supply-side factors in explaining the fall in trade. In particular, we decompose the fall in international trade into product entry and exit, price changes, and quantity changes for imports by Brazil, the European Union, Indonesia, and the United States. When we aggregate across all products, most of the countries analyzed experienced a decline in new products, a rise in product exit, and falls in quantity for product lines that continued to be traded. The evidence suggests that the intensive rather than extensive margin mattered the most, consistent with studies of other countries and previous recessionary periods. On average, quantities declined and prices fell. However, these average effects mask enormous differences across different products. Price declines were driven primarily by commodities. Within manufacturing, while most quantity changes were negative, in most cases price changes moved in the opposite direction. Consequently, within manufacturing, there is some evidence consistent with the hypothesis that supply side frictions played a role. For the United States, price increases were most significant in sectors which are typically credit constrained.
    JEL: F1
    Date: 2010–08
  8. By: Paulo Bastos; Odd Rune Straume
    Abstract: This paper develops a two-country, general equilibrium model of oligopoly in which the degree of horizontal product differentiation is endogenously determined by rms’ strategic investments in product innovation. Consumers seek variety and product innovation is more skill intensive than production. Stronger import competition increases innovation incentives, and thereby the relative demand for skill. An intraindustry trade expansion following trade liberalization can therefore increase wage inequality between skilled and unskilled workers. In addition, since product differentiation is resource consuming, freer trade entails a potential trade-off between production and variety. The import competition effect highlighted by the model, which plays a key role in determining the general equilibrium, is consistent with panel data on Chilean manufacturing plants.
    Keywords: Trade liberalization, Product differentiation, Innovation,Wage inequality, General oligopolistic equilibrium
    JEL: F15 F16 L13 O31
    Date: 2010–08
  9. By: Hamanaka, Shintaro (Asian Development Bank); Tafgar, Aiken (Asian Development Bank); Lazaro, Dorothea (Asian Development Bank)
    Abstract: Are trade facilitation measures under free trade agreements (FTAs) discriminatory? This important question has yet to be sufficiently explored by the existing literature on trade facilitation. Despite the multilateral scope and non-discriminatory objectives of trade facilitation measures, some trade facilitation measures under FTAs can be discriminatory, similar to those in preferential tariff elimination. Based on a review of FTAs in Asia and the Pacific, this study provides detailed empirical analysis on whether or not trade facilitation provisions in FTAs are exclusive to contracting FTA partners and how the measures can be discriminatory against non-members.
    Keywords: Trade facilitation; free trade agreements (FTAs); discriminatory measures; national treatment (NT); most-favored-nation (MFN)
    JEL: F13 F15 F42 F53 F59
    Date: 2010–07–01
  10. By: Balazs Egert; Rafal Kierzenkowski
    Abstract: France has seen a marked deterioration in its export performance in the last 10 years or so. Previous empirical research pointed out that weak export performance was due to i) vigorous domestic demand; ii) lower mark-ups due to head-to-head competition with Germany; iii) low non-price competitiveness of French export goods; iv) offshoring of entire production processes (especially in the automobile sector); and v) difficulties of French manufacturing firms to reach critical size for exporting. This paper adds an additional explanation to this list. We argue that resource reallocation from the exporting to the construction sector triggered by fast rising property prices hindered France to meet world export demand vis-à-vis its products. Our econometric analysis shows that the resource reallocation argument helps explain French export performance between the early 2000s and 2007, unexplained by traditional models. This result is confirmed for a set of OECD countries that experienced a marked decline in their export performance and sustained realestate boom after 2000.
    Keywords: OECD; France; Competitiveness; exports; export performance; construction; house prices; resource allocation
    JEL: F10 F14 O14 O52
    Date: 2010–05–01
  11. By: Tomáš Havránek (Czech National Bank; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Zuzana Iršová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: The principal argument for subsidizing foreign investment is the assumed spillover of technology to local firms. Yet researchers report mixed results on spillovers. To examine the phenomenon in a systematic way, we collected 3,626 estimates from 57 empirical studies on between-sector spillovers and reviewed the literature quantitatively. Our results indicate that model misspecifications reduce the reported estimates, but that journals select rela¬tively large estimates for publication. The underlying spillover to suppliers is positive and economically significant, whereas the spillover to buyers is insignificant. Greater spillovers are generated by investors that come from distant countries and that have only slight tech¬nological advantages over local firms. In addition, greater spillovers are received by countries that have underdeveloped financial systems and that are open to international trade.
    Keywords: Foreign direct investment; Productivity; Spillovers; Meta-analysis; Publication selection bias
    JEL: F23
    Date: 2010–08
  12. By: Aleksander Aristovnik; Matevz Meze
    Abstract: The main objective of the following article is to present the key findings of the existent research in the field of the influence the introduction of the euro had on the trade of the member states of the Economic and Monetary Union (EMU). The intention of this article is also to inspire further research (especially concerning the effect of the euro on the Slovene foreign trade). Recent empirical researches show that the trade among the members of the EMU has grown on average by 10–15 % due to the use of a common currency and there was also an increase in trade with the non-member states. The trade benefits of the entry of new countries into the EMU will thus not be the same as the benefits of the initial formation of the EMU in the nineties. This claim has been tested on the example of Slovenia. A regression analysis of time series shows that there has been a positive effect on Slovenia’s exports into and a negative effect on its imports from the eurozone precisely at the time of the creation of the EMU in 1999.
    Keywords: euro, foreign trade, Economic and monetary union (EMU), Slovenia, time series
    JEL: F13 F17 F30
    Date: 2010–04–01
  13. By: Priit Vahter
    Abstract: Does FDI affect productivity growth, innovation, and knowledge sourcing activities of domestic firms? This study employs detailed firm-level panel-data from Estonia’s manufacturing sector to investigate different channels through which FDI can affect domestic firms. I use instrumental variables approach to identify the effects. I find no evidence of an effect of FDI entry on local incumbents’ TFP and labour productivityg rowth in the short term. The effect on productivity does not depend on the local firms’ distance to the productivity frontier. However, there are positive spillovers on process innovation. The results show significant positive correlation between the entry of FDI in a sector and the more direct measures of spillovers in subsequent periods. This is consistent with the view that FDI inflow to a sector intensifies knowledge flows to domestic firms.
    Keywords: foreign direct investment, productivity, innovation, learning
    JEL: F21 F23 O31 O33
    Date: 2010–04–01
  14. By: Michele Fratianni (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Francesco Marchionne (Universita Politecnica delle Marche); Chang Hoon Oh (Faculty of Business, Brock University)
    Abstract: This note discusses methodological issues and practical concerns for international economists and international business scholars who apply the gravity equation in their research. The most important message of the note is that this equation should correct for multilateral resistance factors. We propose a relatively low-cost specification and estimation to implement such correction, which is robust in the presence of various endogeneity effects and non-stationary variables. In the presence of zero-values in the dataset, however, the multilateral specification is best estimated with a Poisson maximum likelihood.
    Keywords: gravity equation, international trade, foreign direct investment, methodology
    JEL: C1 F1 F2
    Date: 2010–08

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.