nep-int New Economics Papers
on International Trade
Issue of 2010‒08‒28
23 papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Non-homothetic preferences, parallel imports and the extensive margin of international trade By Reto Foellmi; Christian Hepenstrick; Josef Zweimüller
  2. Industrial Upgrading and Export Diversification: A Comparative Analysis of Economic Policies in Turkey and Malaysia By Bilge Erten
  3. Production Networks and Trade Patterns in East Asia: Regionalization or Globalization? By Athukorala, Prema-chandra
  4. Exports and Productivity: An Empirical Analysis of German and Austrian Firm-Level Performance By Thorsten Hansen
  5. Royale with Cheese: The Effect of Globalization on the Variety of Goods By Matthew T. Cole; Ronald B. Davies
  6. Is trade deficit sustainable in India? An inquiry By Tiwari, Aviral
  7. Asymmetric Effects of Financial Development on South-South and South-North Trade: Panel Data Evidence from Emerging Markets By Demir, Firat; Dahi, Omar S.
  8. The Costs and Benefits of Duty-Free, Quota-Free Market Access for Poor Countries: Who and What Matters By Antoine Bouët, David Laborde Debucquet,Elisa Dienesch, and Kimberly Elliott
  9. Repayment Enforcement and Informational Advantages: Empirical determinants of trade credit use By UCHIDA Hirofumi; UESUGI Iichiro; HOTEI Masaki
  10. The Exporter Productivity Premium along the Productivity Distribution: First Evidence from a Quantile Regression Approach for Fixed Effects Panel Data Models By Powell, David; Wagner, Joachim
  11. Trade Theorems with Search Unemployment By Yu Sheng; Xinpeng Xu
  12. Time Zones and Periodic Intra-Industry Trade By Kikuchi, Toru; Marjit, Sugata
  13. When Fair Trade increases unfairness: The case of quinoa from Bolivia By Aurélie Carimentrand; Jérôme Ballet
  14. How Bad is Globalization for Labour Standards in the North? By Alejando Donado; Klaus Wälde
  15. Innovation, productivity and export. Evidence from Italy By R. Antonietti; G. Cainelli
  16. Trade Openness and Growth: An Analysis of Transmission Mechanism in Pakistan By Siddiqui, Aamir Hussain; Iqbal, Javed
  17. "As You Sow So Shall You Reap: From Capabilities to Opportunities" By Jesus Felipe; Utsav Kumar; Arnelyn Abdon
  18. Distributional and Poverty Consequences of Globalization: A Dynamic Comparative Analysis for Developing Countries By Muhammad Tariq Majeed; Ronald MacDonald
  19. The changing pattern of international trade and capital flows of the GCC countries By Marga Peeters
  20. The emergence and spatial distribution of Chinese seaport cities By Funke, Michael; Yu, Hao
  21. "Why Has China Succeeded-And Why It Will Continue To Do So" By Jesus Felipe; Utsav Kumar; Norio Usui; Arnelyn Abdon
  22. Internationalised Production in a Small Open Economy By Aurelien Eyquen; Gunes Kamber
  23. Oil Exports and the Iranian Economy By Hadi Salehi Esfahani; Kamiar Mohaddes; M. Hashem Pesaran

  1. By: Reto Foellmi; Christian Hepenstrick; Josef Zweimüller
    Abstract: We study international trade in a model where consumers have non-homothetic preferences and where household income restricts the extensive margin of consumption. In equilibrium, monopolistic producers set high (low) prices in rich (poor) countries but a threat of parallel trade restricts the scope of price discrimination between countries. The threat of parallel trade allows differences in per capita incomes to have a strong impact on the extensive margin of trade, whereas differences in population sizes have a weaker effect. We also show that the welfare gains from trade liberalization are biased towards rich countries. We extend our model to more than two countries; to unequal incomes within countries; and to more general specifications of non-homothetic preferences. Our basic results are robust to these extensions.
    Keywords: Heterogenous markups, non-homothetic preferences, parallel imports, extensive margin of trade
    JEL: F10 F12 F19
    Date: 2010–07
  2. By: Bilge Erten
    Abstract: This paper considers the prospects of manufactured exports of Turkey and Malaysia given the rising standards of global competition. While Malaysia has the advantage of having an export-oriented MNC-led industry in high-technology manufactures, Turkey has a weaker, stagnant export structure when it comes to increasing its technology content. Its low-technology textile and food manufacturing industries face difficulties in competing against Asian producers which have access to much lower real wage levels. In more sophisticated parts of manufacturing, Turkish firms find it difficult to compete against high-technology European firms. The divergent trends in net barter and income terms of trade is a reflection of these structural differences. A periodical comparison of actual economic policies’ impact on industrial and trade outcomes is followed by an econometric analysis of trade liberalization on trade performance and balance of payments. Conclusions are drawn from the implications of these qualitative and quantitative assessments. [Working Paper No. 266]
    Keywords: Industrial Upgrading, Export Diversification, Turkey, Malasia
    Date: 2010
  3. By: Athukorala, Prema-chandra (Australian National University)
    Abstract: This paper examines the implications of global production sharing for economic integration in East Asia, with emphasis on the behavior of trade flows in the wake of the 2008 global economic crisis. While trade in parts and components and final assembly within production networks (“network trade”) has generally grown faster than total world trade in manufacturing, the degree of dependence of East Asia on this new form of international specialization is proportionately larger than elsewhere in the world. Network trade has certainly strengthened economic interdependence among countries in the region, with the People’s Republic of China (PRC) playing a pivotal role as the premier center of final assembly. However, contrary to the popular belief, this has not lessened the dependence of the export dynamism of these countries on the global economy. The rise of global production sharing has strengthened the case for a global, rather than regional, approach to trade and investment policymaking.
    Keywords: production sharing; trade patterns; East Asia; PRC
    JEL: F10 F14 O53
    Date: 2010–08–01
  4. By: Thorsten Hansen (University of Munich)
    Abstract: This paper studies the relationship between export activities and firm-level productivity. Unique matching of German and Austrian micro data from 1994 to 2003 suggests that exporters are more productive by around 40 percent compared with non-exporters. Moreover, beside other analysis techniques, instrumental variable estimations suggest that exporting causes a rise in firm-level productivity. That is, the annual average growth rate of an exporting firm's productivity is between about 1 and 1.5 percent higher than that of non-exporters. It allows the conclusion that, against other findings of existing studies, both directions hold: more productive firms self-select themselves into export markets and being active in foreign markets boosts firm-level productivity.
    JEL: D24 F13 F23 L22 L23 O47
    Date: 2010–04
  5. By: Matthew T. Cole; Ronald B. Davies (University College Dublin; Institute for International Integration Studies, Trinity College Dublin)
    Abstract: The key result of the so-called “New Trade Theory” is that countries gain from falling trade costs by an increase in the number of varieties available to consumers. Though the number of varieties in a given country rises, it is also true that global variety decreases from increased competition wherein imported varieties drive out some local varieties. This second result is a major issue for anti-trade activists who criticize the move towards free trade as promoting homogenization” or “Americanization” of varieties across countries. We present a model of endogenous entry with heterogeneous firms which models this concern in two ways: a portion of a consumer’s income is spent overseas (i.e. tourism) and an existence value (a common tool in environmental economics where simply knowing that a species exists provides utility). Since lowering trade costs induces additional varieties to export and drives out some non-exported varieties, these modifications result in welfare losses not accounted for in the existing literature. Nevertheless, it is only through the existence value that welfare can fall as a result of declining trade barriers. Thus, for these criticisms of globalization to dominate, it must be that this loss in the existence value outweighs the direct benefits from consumption.
    Keywords: firm heterogeneity; tourism
    JEL: F12 F14
    Date: 2010–07
  6. By: Tiwari, Aviral
    Abstract: This study examines the sustainability of trade deficit with allowance of structural breaks and seasonal adjustments as both variables have been subject to structural changes and affected by seasons. We find that, in all the cases, there is long run relationship between export and import. This implies that foreign trade deficit is sustainable in the Indian context.
    Keywords: export, import, unit root, structural breaks, seasonal adjustment, cointegration.
    JEL: C13 C12 F14 C22
    Date: 2010–08–16
  7. By: Demir, Firat; Dahi, Omar S.
    Abstract: Using bilateral trade data in total and technology-and-skill-intensive manufactured goods for 28 developing countries that account for 82% of all developing country manufactures exports between 1978 and 2005, this paper explores the effects of financial development on the pattern of specialization in South-South and South-North trade. The empirical results using dynamic panel regressions and comprehensive sensitivity tests suggest that financial development in the South has an economically and statistically significant positive effect on the share of total and technology-and-skill-intensive manufactures exports in GDP, and total exports in South-South trade. In contrast, no such significant or robust effect of financial development is found in South-North trade. Overall, the positive effect of financial development is found to be asymmetric favoring South-South significantly more than South-North trade. In addition, financial development is found to be increasing technology-and-skill-intensive manufactured goods exports significantly more than total manufactured or merchandise goods exports.
    Keywords: South-South and South-North Trade; Financial Development; Industrial Development
    JEL: F15 O16 F14 O50 G10
    Date: 2009–11
  8. By: Antoine Bouët, David Laborde Debucquet,Elisa Dienesch, and Kimberly Elliott
    Abstract: This paper examines the potential benefits and costs of providing duty-free, quota-free market access to the least developed countries (LDCs), and the effects of extending eligibility to other small and poor countries. Using the MIRAGE computable general equilibrium model, it assesses the impact of scenarios involving different levels of coverage for products, recipient countries, and preference-giving countries on participating countries, as well as competing developing countries that are excluded. The main goal of this paper is to highlight the role that rich and emerging countries could play in helping poor countries to improve their trade performance and to assess the distribution of costs and benefits for developing countries and whether the potential costs for domestic producers are in line with political feasibility in preference-giving countries.
    Keywords: CGE modeling, trade policy, duty-free market access, technical barriers to trade,preference erosion
    JEL: D58 F13 F17
    Date: 2010–03
  9. By: UCHIDA Hirofumi; UESUGI Iichiro; HOTEI Masaki
    Abstract: Using unique data we test various trade credit theories and find the following. First, the length of a buyer-seller relationship has a positive impact on the use of trade credit, especially for longer-term credit. In contrast, short-term trade credit is extended based on buyersf hard information. Second, trade credit is more frequently used for transactions in differentiated goods, and the relative bargaining power between the buyer and the seller also matters for the use/non-use of trade credit. Third, we find that the reduction of transaction costs is an important determinant of the use of trade credit. We interpret these findings in light of various theories of trade credit.
    Date: 2010–08
  10. By: Powell, David (RAND); Wagner, Joachim (Leuphana University Lüneburg)
    Abstract: An emerging literature on international activities of heterogeneous firms documents that exporting firms are more productive than firms that only sell on the national market. This positive exporter productivity premium shows up in a large number of empirical studies after controlling for observed and unobserved firm characteristics in regression models including firm fixed effects. These studies test for a difference in productivity between exporters and non-exporters at the conditional mean of the productivity distribution. However, if firms are heterogeneous, it is possible that the size of the premium varies over the productivity distribution. In this paper we apply a newly developed estimator for fixed-effects quantile regression models to estimate the exporter productivity premium at quantiles of the productivity distribution for manufacturing enterprises in Germany, one of the leading actors in the world market for goods. We show that the premium decreases over the quantiles – a dimension of firm heterogeneity that cannot be detected through mean regression.
    Keywords: exporter productivity premium, quantile regression, fixed effects
    JEL: F14 C21 C23
    Date: 2010–08
  11. By: Yu Sheng; Xinpeng Xu
    Abstract: We revisit the Heckscher-Ohlin-Samuelson model in the presence of labor market frictions à la Mortensen-Pissarides. Relaxing the assumption of the oneworker-one-firm matching rule, we show that the Stolper-Samuelson theorem and the Rybczynski theorem may not hold in specific circumstances. We also demonstrate that the Factor Price Equalization theorem is only valid for capital and unemployed labor across countries, but not for employed labor. In equilibrium, trade patterns are determined by countries’ factor endowments and relative factor intensities in sectors (independent of factor intensities in production). Finally, our results suggest an additional explanation for the “missing trade” phenomenon.
    JEL: F16 J64
    Date: 2010–08
  12. By: Kikuchi, Toru; Marjit, Sugata
    Abstract: An important source of trade with time zone differences is related to the “coincidence in time” aspect of service transactions. Trade across different time zones is gainful when fulfilling nighttime demand in one time zone by utilizing daytime supply in another time zone. This note emphasizes that, due to communications revolutions, new versions of periodic intra-industry trade based on the differences in time zones emerge.
    Keywords: Communications Nteworks; Time Zone Differences; Periodic Intra-Industry Trade
    JEL: F12
    Date: 2010–07
  13. By: Aurélie Carimentrand; Jérôme Ballet (Fonds pour la Recherche en Ethique Economique)
    Abstract: Fair Trade movement tackles the question of global justice. It is experiencing growing success. Fair Trade therefore sorts the beneficiaries, usually by means of certification. Numerous impact studies have assessed the beneficial effects of Fair Trade on the intended beneficiaries. Several studies have nevertheless called into question both the impact of certification and Fair trade. Following these studies this paper shows that Fair Trade in quinoa (Chenopodium quinoa Willd.) is actually increasing inequalities between Bolivian producers.
    Keywords: FairTrade, Inequalities, Quinoa, Bolivia
    JEL: Q17
    Date: 2010
  14. By: Alejando Donado (Department of Economics, University of Würzburg, Germany); Klaus Wälde (Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, Germany)
    Abstract: We analyse a world consisting of ?the North?and ?the South?where labour stan- dards in the North are set by trade unions. Standards set by unions tend to increase output and welfare. There are no unions in the South and work stan- dards are suboptimal. Trade between these two countries can imply a reduction in work standards in the North. Moreover, when trade unions are established in the South, the North, including northern unions, tend to lose. Quantitatively, these e¤ects are small and overcompensated by gains in the South. The existing empirical literature tends to support our ?ndings.
    Keywords: occupational health and safety, trade unions, international trade, welfare
    JEL: J51 J81 F16 F21
    Date: 2010–08–19
  15. By: R. Antonietti; G. Cainelli
    Date: 2010–08
  16. By: Siddiqui, Aamir Hussain; Iqbal, Javed
    Abstract: This paper investigates the linkages between trade policy openness and economic growth for Pakistan for the period 1973 to 2008. The paper tests the hypothesis that trade policy does not affect economic growth directly rather it affects through some growth determining economic variables, which then effect economic growth. For this purpose a simultaneous system of equations is estimated through the Three Stage Least Squares. The results suggest a positive impact of trade policy openness on Black Market Premium, Domestic Investment and Foreign Direct Investment (FDI) and negative impact on Macro Policy Index. However, Black Market Premium and FDI show negative and Domestic Investment shows positive impact on economic growth.
    Keywords: Openness; Growth; Transmission Mechanism; Pakistan
    JEL: F10 C30
    Date: 2010–08–18
  17. By: Jesus Felipe; Utsav Kumar; Arnelyn Abdon
    Abstract: We develop an Index of Opportunities for 130 countries based on their capabilities to undergo structural transformation. The Index of Opportunities has four dimensions, all of them characteristic of a country’s export basket: (1) sophistication; (2) diversification; (3) standardness; and (4) possibilities for exporting with comparative advantage over other products. The rationale underlying the index is that, in the long run, a country’s income is determined by the variety and sophistication of the products it makes and exports, which reflect its accumulated capabilities. We find that countries like China, India, Poland, Thailand, Mexico, and Brazil have accumulated a significant number of capabilities that will allow them to do well in the long run. These countries have diversified and increased the level of sophistication of their export structures. At the other extreme, countries like Papua New Guinea, Malawi, Benin, Mauritania, and Haiti score very poorly in the Index of Opportunities because their export structures are neither diversified nor sophisticated, and they have accumulated very few and unsophisticated capabilities. These countries are in urgent need of implementing policies that lead to the accumulation of capabilities.
    Keywords: Capabilities; Index of Opportunities; Diversification; Open Forest; Product Space; Sophistication; Standardness
    JEL: O10 O57
    Date: 2010–08
  18. By: Muhammad Tariq Majeed; Ronald MacDonald
    Abstract: This study examines the impact of globalization on cross-country inequality and poverty using a panel data set for 65 developing counties, over the period 1970-2008. With separate modelling for poverty and inequality, explicit control for financial intermediation, and comparative analysis for developing countries, the study attempts to provide a deeper understanding of cross country variations in income inequality and poverty. The major findings of the study are five fold. First, a non-monotonic relationship between income distribution and the level of economic development holds in all samples of countries. Second, both openness to trade and FDI do not have a favourable effect on income distribution in developing countries. Third, high financial liberalization exerts a negative and significant influence on income distribution in developing countries. Fourth, inflation seems to distort income distribution in all sets of countries. Finally, the government emerges as a major player in impacting income distribution in developing countries.
    Keywords: Globalization; Poverty; Inequality; FDI; Developing Countries.
    JEL: F21 F41 J24
    Date: 2010–06
  19. By: Marga Peeters
    Abstract: Summary for non-specialistsThanks to policies that are geared towards opening up borders, the GCC countries have imparted a significant stimulus to the world economy, to a much greater extent than other oil exporting countries in similar conditions. The development of the gross capital flows in view of the recent global crisis and their composition are the main focus of this study. Aspects of globalization, trade and financial integration, such as the dependence on oil, regional integration, foreign direct investment and cross-border assets and loans are addressed.
    Keywords: Saudi Arabia United Arab Emirates Bahrain Kuwait Oman Qatar Angola Algeria Ecuador Iran Iraq Libya Nigeria Venezuela European Union
    JEL: F15 F21 F34 F4
    Date: 2010–06
  20. By: Funke, Michael (BOFIT); Yu, Hao (BOFIT)
    Abstract: Seaports have historically played a key role in facilitating trade and growth. This paper is the first attempt in the literature to analyse the formation of Chinese seaport cities and the dynamics that drives it. First, we aim to identify theoretically the emergence of urbanized seaports with the help of a formal economic geography model. Second, employing an empirically plausible parameterisation of the model, we calibrate the evolutionary process and spatial distribution of seaports along the Chinese coastline.
    Keywords: seaports; cities; economic growth; China
    JEL: R11 R12 R41
    Date: 2010–07–21
  21. By: Jesus Felipe; Utsav Kumar; Norio Usui; Arnelyn Abdon
    Abstract: The key factor underlying China’s fast development during the last 50 years is its ability to master and accumulate new and more complex capabilities, reflected in the increase in diversification and sophistication of its export basket. This accumulation was policy induced and not the result of the market, and began before 1979. Despite its many policy mistakes, if China had not proceeded this way, in all likelihood it would be a much poorer country today. During the last 50 years, China has acquired revealed comparative advantage in the export of both labor-intensive products (following its factor abundance) and sophisticated products, although the latter does not indicate that there was leapfrogging. Analysis of China’s current export opportunity set indicates that it is exceptionally well positioned (especially taking into account its income per capita) to continue learning and gaining revealed comparative advantage in the export of more sophisticated products. Given adequate policies, carefully thought-out and implemented reforms, and skillful management of constraints and risks, China has the potential to continue thriving. This does not mean, however, that high growth will continue indefinitely.
    Keywords: China; Capabilities; Diversification; Export-led Growth; Leapfrogging; Open Forest; Product Space; Sophistication
    JEL: O20 O25 O53
    Date: 2010–08
  22. By: Aurelien Eyquen; Gunes Kamber (Reserve Bank of New Zealand)
    Abstract: We show that internationalised production, modelled as trade in intermediate goods, brings the dynamics of a small open economy closer to that observed in the data. We build a stylized new-Keynesian small open economy model and we show that when production is internationalised, movements of international relative prices affect the economy through an additional channel, denoted as the “cost channel”. Both qualitatively and quantitatively, this channel (i) increases the share of output variance explained by foreign shocks, consistent with empirical evidence, (ii) implies that the exchange rate pass-through is closer to estimated values, and (iii) increases the international correlation of output relative to that of consumption.
    JEL: E30 F41
    Date: 2010–04
  23. By: Hadi Salehi Esfahani (Department of Economics, University of Illinois); Kamiar Mohaddes; M. Hashem Pesaran
    Abstract: This paper develops a long run growth model for a major oil exporting economy and derives conditions under which oil revenues are likely to have a lasting impact. This approach contrasts with the standard literature on the "Dutch disease" and the "resource curse", which primarily focus on short run implications of a temporary resource discovery. Under certain regularity conditions and assuming a Cobb Douglas production function, it is shown that (log) oil exports enter the long run output equation with a coefficient equal to the share of capital. The long run theory is tested using a new quarterly data set on the Iranian economy over the period 1979Q1-2006Q4. Building an error correction specification in real output, real money balances, inflation, real exchange rate, oil exports, and foreign real output, the paper finds clear evidence for two long run relations: an output equation as predicted by the theory and a standard real money demand equation with inflation acting as a proxy for the (missing) market interest rate. Real output in the long run is shaped by oil exports through their impact on capital accumulation, and the foreign output as the main channel of technological transfer. The results also show a significant negative long run association between inflation and real GDP, which is suggestive of economic inefficiencies. Once the effects of oil exports are taken into account, the estimates support output growth convergence between Iran and the rest of the world. We also .find that the Iranian economy adjusts quite quickly to the shocks in foreign output and oil exports, which could be partly due to the relatively underdeveloped nature of Iran’s .financial markets.
    Date: 2010–07

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