nep-int New Economics Papers
on International Trade
Issue of 2010‒09‒25
twenty-one papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. The Economic Benefits of giving Aid in terms of Donors Exports By Martínez-Zarzoso, Inmaculada; Nowak-Lehmann D., Felicitas; Klasen, Stephan
  2. Firms and the global crisis: French exports in the turmoil By Jean-Charles Bricongne; Lionel Fontagné; Guillaume Gaulier; Daria Taglioni; Vincent Vicard
  3. The Role of the Everything But Arms Trade Preferences Regime in the EU Development Strategy By Gradeva, Katerina; Martínez-Zarzoso, Inmaculada
  4. Trade Logistics and Regional Integration in Latin America and the Caribbean By Pablo Guerrero; Krista Lucenti; Sebastián Galarza
  5. Trade with central and eastern Europe: is it really a threat to wages in the west? By Éva Katalin Polgár; Julia Wörz
  6. Foreign Aid and Recipients Exports By Nowak-Lehmann D., Felicitas; Martínez-Zarzoso, Inmaculada; Cardozo, Adriana; Klasen, Stephan
  7. The Canola Oil Industry and EU Trade Integration: A Gravity Model Approach By Röttgers, Dirk; Faße, Anja; Grote, Ulrike
  8. Analysing the Terms of Trade Effect for Pakistan By Nishat Fatima
  9. Identifying the Community Structure of the International-Trade Multi Network By Matteo Barigozzi; Giorgio Fagiolo; Giuseppe Mangioni
  10. How costly is rent-seeking to diversification: an empirical approach By Starosta de Waldemar, Felipe
  11. Agricultural Trade, Liberalization, Productivity Gain, and Poverty Alleviation: a General Equilibrium Analysis By Nadia Belhaj Hassine; Véronique Robichaud; Bernard Decaluwe
  12. Clustering the Winners: the French Policy of Competitiveness Clusters By Lionel Fontagne; Pamina Koenig; Florian Mayneris; Sandra Poncet
  13. Strategic Technology Investments in Open Economies By Anna Bohnstedt; Christian Schwarz
  14. Skill Acquisition, Incentive Contracts and Jobs: Labor Market Adjustment to Trade By Sly, Nicholas
  15. The Economic Partnership Agreements (EPAs) and the Southern African Customs Union (SACU) Region- The Case for South Africa By Sukati, Mphumuzi A
  16. FDI liberalization, firm heterogeneity and foreign ownership: German firm decisions in reforming India By Görg, Holger; Mühlen, Henning; Nunnenkamp, Peter
  17. Developing Economies and the Environment: The Role of Trade and Capital Flows By Partha Sen
  18. Why Trade Negotiations Still Matter to U.S. Agriculture By Josling, Tim
  19. Foreign Firms: Powerful or Persecuted? By Aisbett, Emma
  20. Mode of Entry and Expropriation By Dadasov, Ramin; Lorz, Oliver
  21. The exchange rate, diversification, and distribution in a modified Ricardian model with a continuum of goods By Arslan Razmi

  1. By: Martínez-Zarzoso, Inmaculada; Nowak-Lehmann D., Felicitas; Klasen, Stephan
    Abstract: This paper uses the gravity model of trade to investigate the link between bilateral and multilateral foreign aid and donors exports. There are three primary findings from this approach. First, in the long term, the average return, in terms of an increase in the donors level of goods exports, is approximately $ 2.15 US for every aid dollar spent on bilateral aid. Second, multilateral aid has a positive effect on export levels only in the short term, whereas in the long term, the effect is negative. Third, aid from other donors does not give rise to a displacement effect for a given donor-recipient trade relationship. This paper also makes comparisons among donors and finds that aid has a positive and significant effect on most donors export levels. --
    Keywords: exports,foreign aid,donors,panel data,sample selection,GLM
    JEL: F10 F35
    Date: 2010
  2. By: Jean-Charles Bricongne (Banque de France, 31 rue Croix des petits champs, 75001 Paris, France.); Lionel Fontagné (Paris School of Economics, University Paris 1.); Guillaume Gaulier (Banque de France, 31 rue Croix des petits champs, 75001 Paris, France.); Daria Taglioni (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Vincent Vicard (Banque de France, 31 rue Croix des petits champs, 75001 Paris, France.)
    Abstract: Global trade contracted quickly and severely during the global crisis. This paper, using a unique dataset of French firms, matching together export data with firm-level credit constraints, shows that most of the 2008-2009 trade collapse is accounted by the unprecedented demand shock and by product characteristics. While all firms have been evenly affected by the crisis, large firms did so mainly through the intensive margin and by reducing the portfolio of products offered in each destination served. Smaller exporters instead have been forced to reduce the range of destinations served or to stop exporting altogether. Credit constraints, on their part, emerged as an aggravating factor for firms active in sectors of high financial dependence. Nonetheless, as the share of credit constrained firms is small and their number did not increase much during the crisis, the overall impact of credit constraints on trade remains limited. JEL Classification: F02, F10, G01.
    Keywords: financial crisis, credit constraints, international trade, firms’ heterogeneity, intensive and extensive margins.
    Date: 2010–09
  3. By: Gradeva, Katerina; Martínez-Zarzoso, Inmaculada
    Abstract: This study examines the effect of the Everything But Arms (EBA) trade preferences regime on exports from African, Caribbean and Pacific (ACP) Least Developed Countries (LDCs) to the European Union (EU). With this aim, an augmented gravity model is estimated for exports from the 79 ACP countries to the EU-15 for the time period 1995 to 2005 using panel data techniques. The model estimates are used to quantify the effect of the EBA preferences on the ACP LDCs export performance and to compare it with the impact of official development assistance. In addition to their separate effects, the combined impact of EBA and aid flows is estimated. The main results show a negative effect of the EBA regime on exports. Otherwise, the combined effect of the EBA and aid on exports is positive, supporting an EU development strategy that includes both sorts of assistance, aid and trade preferences. --
    Keywords: development aid,trade preferences,Everything But Arms,panel data
    JEL: O24 C23 F13 F35
    Date: 2010
  4. By: Pablo Guerrero; Krista Lucenti; Sebastián Galarza (Asian Development Bank Institute)
    Abstract: 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. 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: logistics, trade facilitation, freight, Latin America, Caribbean
    JEL: F15
    Date: 2010
  5. By: Éva Katalin Polgár (European Central Bank, EU Neighbouring Regions Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Julia Wörz (Oesterreichische Nationalbank, Foreign Research Division, Otto WW agner Platz 3, 1011 Vienna, Austria.)
    Abstract: This paper analyses the relationship between openness to trade and wages at the industry level (15 manufacturing industries) in 25 EU countries over the period from 1995 to 2005. By applying a cross-country and industry-specific approach, it is possible to control for unobserved heterogeneity at both country and industry levels. We also differentiate between intra and inter-industry trade as well as between trade from western and eastern Europe and we try to assess the relative importance of foreign wages versus domestic productivity developments in an open environment. We find that trade is not an important driver of wages, since the wage response to trade is small. Moreover, in line with the Stolper-Samuelson reasoning, imports from the west generally benefit wages in central and eastern Europe, while imports from the east rather tend to harm wages in the west. The overall wage response is still negative in some sectors, particularly in more resource-based industries. Nevertheless, increased trade reinforces the productivity-wage link and weakens the co-movement of wages particularly in the west, while at the industry level there is little evidence of such a wagedisciplining effect of trade. JEL Classification: F14, F15, F16, J31.
    Keywords: openness, wages, bilateral trade, European integration, wage discipline, industry level.
    Date: 2010–09
  6. By: Nowak-Lehmann D., Felicitas; Martínez-Zarzoso, Inmaculada; Cardozo, Adriana; Klasen, Stephan
    Abstract: This paper uses the gravity model of trade to investigate the link between foreign aid and exports in recipient countries and tests for the transmission channels between aid and exports/economic development in developing countries. Most of the theoretical work emphasizes the negative impact of aid on recipient countries exports primarily due to exchange rate appreciation, disregarding the positive impact of aid linked to the income effect. The empirical findings, in contrast, indicate that the net impact of aid on recipient countries exports is positive and that the average return for recipients exports is about 1.50 US$ for every aid dollar spent. The paper also estimates the effect of different types of aid (bilateral aid [from one donor to one specific recipient, and bilateral aid from all the other donors to one specific recipient], as well as multilateral aid flowing to a specific recipient) and finds that at least two types of aid have a positive and significant effect on recipients exports, thus ruling out a major crowding out effect. It is further found that aid is hardly export-enhancing in Africa. --
    Keywords: International Tade,Foreign Aid,Recipient Exports,Real Exchange Rate
    JEL: F10 F35
    Date: 2010
  7. By: Röttgers, Dirk; Faße, Anja; Grote, Ulrike
    Abstract: Recently biodiesel has become more prominent in countries of the European Union (EU). The rapidly increasing domestic production and consumption of biodiesel is accompanied by increasing trade flows. It is questionable if these trade flows are caused mainly by EU regulations concerning trade or concerning the bioenergy sector. A sector-specific analysis taking industry patterns into consideration is necessary to evaluate the impact of these two policy areas on trade flows. A common way to analyze trade flows is the so-called gravity model, which is employed here. Because of zero-inflated trade data, the model is expanded using the Heckman approach and augmented by spatial weights and Anderson & Van Wincoop's controls for multilateral resistance. The obtained results suggest that while the mandatory biofuel blending quota has a positive impact, investment subsidies cannot be shown to have any effect and trade integration might even have a trade inhibiting effect among EU members. The surprising latter result can be explained by an exhausted domestic European market for raw and intermediate materials for biodiesel and proves stable even when controlling for sector specific variables. --
    Keywords: canola,biofuel,gravity model,trade integration
    JEL: Q17
    Date: 2010
  8. By: Nishat Fatima (Pakistan Institute of Development Economics)
    Abstract: The study investigates the impact of changes in terms of trade in Pakistan on its income and consumption potentials, by employing two measures of terms of trade, namely, barter terms of trade and income terms of trade. The study examines Pakistan’s terms of trade behaviour using time series data from 1990- 2008, and works out the losses the country had to bear owing to deterioration in its terms of trade. Paper finds that worsening of terms of trade has a negative impact on economic growth of Pakistan, as it ultimately reduces gross domestic product.
    Keywords: Terms of Trade; Commodity Terms of Trade; Income Terms of Trade; GDP; Pakistan
    JEL: E21 F10 F13
    Date: 2010
  9. By: Matteo Barigozzi; Giorgio Fagiolo; Giuseppe Mangioni
    Abstract: We study the community structure of the multi-network of commodity-specific trade relations among world countries over the 1992-2003 period. We compare structures across commodities and time by means of the normalized mutual information index (NMI). We also compare them with exogenous community structures induced by geographical distances and regional trade agreements. We find that commodity-specific community structures are very heterogeneous and much more fragmented than that characterizing the aggregate ITN. This shows that the aggregate properties of the ITN may result (and be very different) from the aggregation of very diverse commodity-specific layers of the multi network. We also show that commodity-specific community structures, especially those related to the chemical sector, are becoming more and more similar to the aggregate one. Finally, our findings suggest that geographical distance is much more correlated with the observed community structure than RTAs. This result strengthens previous findings from the empirical literature on trade.
    Keywords: Networks; Community structure; International-trade multi-network; Normalized mutual information
    JEL: F10 D85
    Date: 2010–09–15
  10. By: Starosta de Waldemar, Felipe
    Abstract: The empirical U-shaped pattern between product diversification and economic development has been widely examined, but here we analyze the determinants of diversification. We find that a high level of rent-seeking activities has a large impact on the diversification of nations: in countries where rent-seeking is a widespread practice, the number of products being exported will be smaller and its value more concentrated in certain goods. Our analysis embraces a large sample of more than 130 countries between 1995 and 2007, using a highly disaggregated export database comprising 5000 products adopting both diversification indices or the number of new products as measures of diversification. To establish this relationship we use a Generalized Method of Moments estimation, controlling for endogeneity originated from reverse causality, and we also use a negative binomial regression to estimate the impact of rent-seeking on new export products. These empirical predictions contribute to the idea that resources allocated to harm diversification are an important binding constraint for developing countries. --
    Keywords: Product diversification,international trade,economic development
    JEL: O11 F1 O31
    Date: 2010
  11. By: Nadia Belhaj Hassine; Véronique Robichaud; Bernard Decaluwe
    Abstract: Computable General Equilibrium (CGE) models have gained continuously in popularity as an empirical tool for assessing the impact of trade liberalization on agricultural growth, poverty, and income distribution. However, conventional models ignore the channels linking technical change in agriculture, trade openness, and poverty. This study seeks to incorporate econometric evidence of these linkages into a CGE model to estimate the impact of alternative trade liberalization scenarios on poverty and equity. The analysis uses the Latent Class Stochastic Frontier Model (LCSFM) and the metafrontier function to investigate the influence of trade openness on agricultural technological change. The estimated productivity effects induced from higher levels of trade are combined with a general equilibrium analysis of trade liberalization to evaluate the income and price changes. These effects are then used to infer the impact on poverty and inequality following the top-down approach. The model is applied to Tunisian data using the social accounting matrix of 2001 and the 2000 household expenditures surveys. Poverty is found to decline under agricultural and full trade liberalization and this decline is much more pronounced when the productivity effects are included.
    Keywords: Openness, Agriculture, Productivity, Poverty, CGE modeling
    JEL: C24 C33 D24 F43 I32 Q17
    Date: 2010
  12. By: Lionel Fontagne; Pamina Koenig; Florian Mayneris; Sandra Poncet
    Abstract: In 2005 the French government launched a policy of competitiveness clusters, giving subsidies for innovative projects managed locally and collectively by firms, research centers and universities. This paper proposes an ex-ante analysis of the outcome of the selection process that took place before the implementation of the subsidies program, in order to assess whether the policy ended up in choosing winners or losers. We first ask how the clusters have been selected, and then focus on the selection of firms within the clusters, using export and productivity as a measure of performance. Our main conclusion is that public authorities have chosen the winners during the two-step selection procedure. Export premium, beyond what individual characteristics would predict, is however most visible within the category of clusters having no international ambition, where heterogeneity among firms is the largest.
    Keywords: Competitiveness; clusters; international trade; firm selection
    JEL: F1 F14
    Date: 2010–09
  13. By: Anna Bohnstedt; Christian Schwarz
    Abstract: We study a general equilibrium model of international trade with heterogeneous fi rms, where countries can strategically invest in technology. The countries’ motive is to improve fi rms’ productivity, leading to a competitive advantage in international trade. We are interested in how trade liberalization aff ects this governmental incentive to invest in technology. In the closed economy countries invest if consumers have a suffi ciently high preference for varieties. In the open economy we analyze the Nash-equilibrium policy and the cooperative policy. If there are no cross-country investment spillovers, countries strategically compete in their investment levels and increase their investments with higher trade openness. From a social perspective we have an overinvestment problem. If there are cross-country investment spillovers, we diff erentiate between weak and strong spillovers. In both cases the cooperative solution predicts a positive relationship between investments and trade openness. If there are weak (strong) spillovers, we fi nd a positive (hump-shaped) relationship between technology investments and trade openness in the Nash-equilibrium. From a social perspective we obtain an over (under)-investment problem if spillovers are weak (strong).
    Keywords: Heterogeneous fi rms; technology investments; monopolistic competition; strategic trade policy
    JEL: F12 F13
    Date: 2010–08
  14. By: Sly, Nicholas
    Abstract: This paper examines how global integration influences worker behavior regarding skill acquisition, as well as firm behavior regarding incentive contracts and occupational diversity. The approach integrates several key components of international trade and the wage distribution in developed countries: namely heterogeneous firms, trade in similar goods, and performance payments to workers that endogenously obtain different skill levels. Greater trading opportunities reduce aggregate prices, causing workers to experience a greater marginal utility derived from income, as well as the skills that aid them in fulfilling performance contracts. Firms respond to skill accumulation among the labor force by adjusting the provision of incentive contracts, and the types of jobs they offer. Labor market adjustment to trade liberalization is characterized by a more steep, but less extensive, provision of incentive contracts among the labor force; higher overall wage inequality exhibiting a U-shaped differential; and job polarization across skill-groups.
    Keywords: Job Polarization; Performance Pay; Trade Adjustment
    JEL: F16 J8 J24
    Date: 2010–08–17
  15. By: Sukati, Mphumuzi A
    Abstract: EPAs between the EU and ACP countries can be viewed as being anti mercantilist and there has been a lot of speculations about their outcome. The aim of the study is to determine the effects of the Economic Partnership Agreements (EPAs) between the European Union (EU) and the Southern African Customs Union (SACU) members using Global Trade Analysis Project (GTAP) version 7. Two scenarios are analysed: first when the other SACU member states sign the EPAs with the EU excluding South Africa and secondly when the entire SACU member states including South Africa sign a full EPA with the EU. Results show that South Africa does stand to lose when the other member states sign. However, signing of the EPA of the SACU as a bloc, including South Africa result in welfare gain in the region. Significantly, there is an increased export of livestock and processed foods to the EU from SACU region meaning that the region stands to gain in promoting these industries after an EPA. Besides these two sectors, most of the other sectors tend to lose out. It should be noted that full benefits of trade liberalisation agreements depend on speed of industry reform and therefore can only be realised in the long run.
    Keywords: Economic Partnership Agreements; South African Customs Union; Welfare gains; European Union; GTAP
    JEL: A13 A23 A31 B00 A11
    Date: 2010–09–01
  16. By: Görg, Holger; Mühlen, Henning; Nunnenkamp, Peter
    Abstract: The paper investigates the role of firm-level productivity and industry-level R&D for MNEs' choice of undertaking FDI, and the share of ownership in foreign affiliates. Two firm-specific datasets on German MNEs with varying equity stakes in Indian affiliates are used to account for the two-step decision process. The paper also analyses how German firm decisions were affected by the liberalisation of FDI regulations in India. Results show remarkable differences between the selection and the ownership share equation, and also between the pre-reform and post-reform periods. The evidence clearly reveals the tradeoffs involved in selective FDI approvals and foreign ownership restrictions. --
    Keywords: multinational enterprises,firm characteristics,selective FDI approval,German FDI,ownership share,Heckman model
    JEL: F23 L25
    Date: 2010
  17. By: Partha Sen
    Abstract: This paper reviews (critically and selectively) the literature on the link between economic development, the environment and international trade (and capital flows). In particular, how stricter environmental regulation in the North affects trade and capital movements between the North and the South. It also discusses how trade and capital flows in turn, affect environmental policy. [Working Paper No. 172]
    Keywords: literature, economic development, international trade, capital movements, environmental policy
    Date: 2010
  18. By: Josling, Tim
    Keywords: International Relations/Trade, Q17, Q18, Q54,
    Date: 2009–10
  19. By: Aisbett, Emma
    Abstract: International economists often refer to multinational enterprises and foreign firms interchangeably, yet one of the enduring divisions in the globalization debate is whether international law should be strengthened to protect foreign firms from predatory host governments, or rather strengthened to protect host governments from powerful multi- national firms. We contribute to this debate conceptually by distinguishing between foreign firms and multinational firms. We then use firm level data on government-firm relations from eighty countries to contribute empirical evidence on the debate. We find that multinational firms (both foreign and local) are indeed relatively influential over government, and find no evidence that foreign firms (multinational or otherwise) suffer significant disadvantages in terms of self-reported influence. --
    Keywords: Multinational Firms,Foreign Firms,Political Economy,Government
    Date: 2010
  20. By: Dadasov, Ramin; Lorz, Oliver
    Abstract: We develop a politico-economic model to analyze the relationship between mode of entry into a new market and institutional quality of the host country. A foreign investor can either purchase a domestic firm, what we consider as FDI, or form a joint venture, in which the control right over the firm rests with the domestic entrepreneur. In an autocratic regime, the ruling elite uses its political power to implement expropriatory policies. In an integrated firm the risk of expropriation targets the foreign investor whereas in a joint venture the domestic agent bears this risk. We determine the equilibrium level of the probability of expropriation and show that the ruling elite, by choosing it, discriminates in favor of the foreign investor. This has implications for the form of invested capital, and thus for the organizational structure of active firms in the host country. --
    Keywords: Foreign direct investments,joint ventures,property rights,expropriation
    JEL: F21 L22 P48
    Date: 2010
  21. By: Arslan Razmi (University of Massachusetts Amherst)
    Abstract: Several recent empirical and theoretical studies have revived interest in the relationship between the level of the exchange rate and economic development. This paper develops a dynamic model based on the Ri- cardian framework with a continuum of goods to consider the issue from a somewhat di¤erent perspective. In the short run, a devaluation can boost profits in spite of real wage rigidity. Moreover, the resulting di- versification can offset the negative consequences for the trade balance of higher employment and profitability at Home. Over the longer run, and in the presence of learning-by-accumulation, the initial boost to pro?ts and investment induced by a devaluation could enable a country to gain a permanent foothold in new sectors at a higher real wage. While di- rectly suppressing the real wage could also lead to diversification, what makes nominal devaluations a particularly useful tool is that these make it possible to expand domestic profits while limiting internal distributional conflict and the ensuing negative e¤ects on development. JEL Categories:
    Date: 2010–09

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