nep-int New Economics Papers
on International Trade
Issue of 2010‒10‒02
twenty-one papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. India in the Global and Regional Trade: Determinants of Aggregate and Bilateral Trade Flows and Firms’ Decision to Export By T.N. Srinivasan; Vani Archana
  2. Theories of Heterogeneous Firms and Trade By Stephen Redding
  3. State Export Behavior and Barriers By Andrew J. Cassey
  4. Export performance, competitiveness and commodity composition By Athanasoglou Panagiotis; Backinezos Constantina; Evagelia A. Georgiou
  5. Trade crisis ? What trade crisis ? By Kristian Behrens; Gregory Corcos; Giordano Mion
  6. State Trade Missions By Andrew J. Cassey
  7. Growth by Destination (Where you Export Matters): Trade with China and Growth in African Countries By Mina Baliamoune-Lutz
  8. Trade, FDI and income inequality. Empirical evidence from transition countries By C. Franco; E. Gerussi
  9. Trade and regional inequality By Andrés Rodríguez-Pose
  10. Trade with China and skill upgrading: Evidence from Belgian firm level data By Giordano Mion; Hylke Vandenbussche; Linke Zhu
  11. US Trade and Wages: The Misleading Implications of Conventional Trade Theory By Lawrence Edwards; Robert Lawrence
  12. On the Green Side of Trade Competitiveness? Environmental Policies and Innovation in the EU By Valeria Costantini; Massimiliano Mazzanti
  13. Third-Country Effects on the Formation of Free Trade Agreements By Maggie Xiaoyang Chen; Sumit Joshi
  14. Trade as an Engine of Creative Destruction: Mexican Experience with Chinese Competition By Leonardo Iacovone; Ferdinand Rauch; L. Alan Winters
  15. Do Trade and Investment Agreements Lead to More FDI? Accounting for Key Provisions Inside the Black Box By Axel Berger; Matthias Busse; Peter Nunnenkamp; Martin Roy
  16. A Method for Calculating Export Supply and Import Demand Elasticities By Stephen Tokarick
  17. Productivity Spreads, Market Power Spreads and Trade By Ralf Martin
  18. Which Foreigners Are Worth Wooing? A Meta-Analysis of Vertical Spillovers from FDI By Tomas Havranek; Zuzana Irsova
  19. Complex Networks and Symmetry II: Reciprocity and Evolution of World Trade By Franco Ruzzenenti; Diego Garlaschelli; Riccardo Basosi
  20. The Economic Foundations of Institutional Stagnation in Commodity-Exporting Countries By Francis Andrianarison; Victor A.B. Davies; Sylvain Dessy
  21. Horizontal and Vertical FDI: a comparative analysis of technological determinants By C. Franco

  1. By: T.N. Srinivasan; Vani Archana
    Abstract: This paper contributes to two strands of literature on empirical models of trade flows and trade policy. The first and the older strand is that of gravity models of bilateral trade flows going back to Hans Linneman (1966) and Tinbergen (1962) and its recent applications, particularly by Adams et al (2003) and De Rosa (2007) in analyzing the impact of Preferential Trade Agreements (PTAs). The focus is on applying the gravity model to analyze India’s trade flows (exports and imports) with its trading partners around the world and to examine the impact of various PTAs in which India or its trading partner or both are members. [Working Paper No. 232]
    Keywords: PTAs/RTAs, Non-discriminatory trade liberalisation, Gravity model, Intrabloc trade effect, Trade diversion, Trade creation, Firm heterogeneity, Probability of exporting, Export performance, Logit, Probit, Fixed effect, Random effect, Tobit model, firm-specific effect, sunk cost, Hazard model
    Date: 2010
  2. By: Stephen Redding
    Abstract: This paper reviews the recent theoretical literature on heterogeneous firms and trade, whichemphasizes firm selection into international markets and reallocations of resources acrossfirms. We discuss the empirical challenges that motivated this research and its relationship totraditional trade theories. We examine the implications of firm heterogeneity for comparativeadvantage, market size, aggregate trade, the welfare gains from trade, and the relationshipbetween trade and income distribution. While a number of studies examine the endogenousresponse of firm productivity to trade liberalization, modelling internal firm organization andthe origins of firm heterogeneity remain interesting areas of ongoing research.
    Keywords: Heterogeneous firms, international trade, within-industry reallocation, selectioninto exporting
    JEL: F12 F16 L22
    Date: 2010–08
  3. By: Andrew J. Cassey (School of Economic Sciences, Washington State University)
    Abstract: The pattern of U.S. state exports to foreign destination--which states export which goods to which destinations|has not been studied in detail despite the high profile of exports in the public consciousness. Currently there is not a clear description of facts characterizing exports for all states, destinations, and manufacturing subsectors. I combine research methods from both firm- and country-level empirical international trade on a cross section of state export data to list seventeen stylized facts that any state trade theory should account for.
    Keywords: empirical international trade, exports, states, geography, gravity
    JEL: F12 R12 R38
    Date: 2010–08
  4. By: Athanasoglou Panagiotis (Bank of Greece); Backinezos Constantina (Bank of Greece); Evagelia A. Georgiou (Bank of Greece)
    Abstract: The study of export performance, especially for countries with serious external imbalances, is essential for economic decision-making. This study attempts to evaluate Greek export performance during the 1996-2006 period, using detailed panel data on bilateral trade by product. Factors explaining Greek export market shares are analysed with the method of Constant Market Shares. In addition, the dynamics of the specialization pattern of Greek exports and the effect of price competitiveness on export market shares are examined. The results show a considerable change in export structure, mainly the geographical structure, with a favourable effect on market shares. Although the pattern of comparative advantages and the technological intensity of Greek exports have improved, exports remain concentrated in low- and medium-technology sectors, while product variety and quality have declined. Finally, the results show heterogeneity among the panels. In the aggregate, export market shares are inelastic with respect to relative and absolute prices, which would call for focus on non-price factors to improve competitiveness in international markets. However, elasticities are greater than one for a considerable proportion of commodities.
    Keywords: export performance; market shares; New Trade Theory; comparative advantages; Markov matrix; price and non-price competitiveness.
    JEL: C22 F12 F14 O14
    Date: 2010–05
  5. By: Kristian Behrens (Université du Québec à Montréal, Département des Sciences Économiques, Canada Research Chair; CIRPÉE; CEPR); Gregory Corcos (Norwegian School of Economics and Business Administration, Department of Economics); Giordano Mion (National Bank of Belgium, Research Department; London School of Economics, Department of Geography and Environment)
    Abstract: We provide an analysis of the 2008-2009 trade collapse using microdata from a small open economy, Belgium. First, we find that changes in firm-country-product exports and imports occurred mostly at the intensive margin: the number of firms, the average number of destination and origin markets per firm, and the average number of products per market changed only very little. Second, econometric analysis reveals some composition effects in the intensive margin fall along firm, product and country characteristics. The most important factor explaining changes in exports is the destination country's growth rate of GDP. Had growth rates in 2008-2009 been the same as in 2007-2008, Belgian exports would have fallen by about 57% less than what we observe. Trade in consumer durables and capital goods fell more severely than trade in other product categories, which explains another 22% of the observed fall. Financial variables and involvement in global value chains have some explanatory power on the exports and imports fall respectively, but appear to have affected domestic operations in equal proportion. More generally, exports-to-turnover and imports-to-intermediates ratios at the firm level did neither systematically decrease nor reveal strong firm- or sector-specific patterns. Overall, our results point to a demand-side explanation: the fall in trade was mostly driven by the fall in economic activity. It is not a trade crisis - just a trade collapse.
    Keywords: trade crisis; trade collapse; margins of trade; firm-level analysis; Belgium
    JEL: F01 F10 F14
    Date: 2010–09
  6. By: Andrew J. Cassey (School of Economic Sciences, Washington State University)
    Abstract: From 1997-2006, U.S. state governors led more than ve hundred trade missions to foreign countries. Trade missions are potentially a form of public investment in export promotion. I create a theory of public investment by introducing government to a Melitz (2003)-Chaney (2008) trade model. Controlling for state and country characteristics, the model predicts a positive relationship between missions and exports by destination. I create a data set on trade missions and match it with state export data, both with destination information. I estimate this relationship in the data, and reject the hypothesis that missions are to random destinations.
    Keywords: international trade, exports, states, missions, investment
    JEL: F12 F13 H76 L60 O24 R10
    Date: 2010–08
  7. By: Mina Baliamoune-Lutz
    Abstract: I perform Arellano-Bond GMM estimations using panel data over the period 1995-2008 and explore the growth effects of Africa’s trade with China, distinguishing between the effect of imports and the effect of exports, and controlling for the role of export concentration. Four important results are obtained from the empirical analysis. First, there is no empirical evidence that exports to China enhance growth unconditionally. Second, the results suggest that export concentration enhances the growth effects of exporting to China, implying that countries which export one major commodity to China benefit more (in terms of growth) than do countries that have more diversified exports. Third, contrary to the widely held view that increasing imports from China would have a negative effect, the empirical results show that the share of China in a country’s total imports has a robust positive effect on growth. Finally, the evidence suggests that there is an in verted-U relationship between exports to developed countries and growth in Africa. Overall, the results seem to provide support for the hypothesis of growth by destination (i.e., that where a country exports matters for the exporting country’s growth and development) in the sense that exports to more developed (OECD) countries has (at least up to a threshold) a positive impact on growth but no such effect is unambiguously (unconditionally) shown in the case of exports to China. I draw on these findings to outline some policy implications.
    JEL: F1 F41 O2 O4
    Date: 2010–09
  8. By: C. Franco; E. Gerussi
    Date: 2010–09
  9. By: Andrés Rodríguez-Pose (IMDEA Ciencias Sociales)
    Abstract: This paper examines the relationship between openness and within-country regional inequality across 28 countries over the period 1975-2005, paying special attention to whether increases in global trade affect the developed and developing world differently. Using a combination of static and dynamic panel data analysis, it is found that while increases in trade per se do not lead to greater territorial polarisation, in combination with certain country-specific conditions, trade has a positive and significant association with regional inequality. In particular, states with higher interregional differences in sectoral endowments, a lower share of government expenditure, and a combination of high internal transaction costs with a higher degree of coincidence between the regional income distribution and regional foreign market access positions have experienced the greatest rise in territorial inequality when exposed to greater trade flows. This means that changes in trade regimes have had a more polarising effect in low and middle income countries, whose structural features tend to potentiate the trade effect and whose levels of internal spatial inequality are, on average, significantly higher than in high income countries.
    Keywords: trade; regional inequalit; low and medium income countries
    JEL: F11 O18 R12 R58
    Date: 2010–06–25
  10. By: Giordano Mion (National Bank of Belgium, Research Department; London School of Economics, Department of Geography and Environment); Hylke Vandenbussche (Université Catholique de Louvain; LICOS); Linke Zhu (Catholic University of Leuven; LICOS)
    Abstract: We use Belgian firm-level data over the period 1996-2007 to analyze the impact of imports from China and other low-wage countries on firm growth, exit, and skill upgrading in manufacturing. For this purpose we use both industry-level and firm-level imports by country of origin and distinguish between firm-level outsourcing of final versus intermediate goods. Results indicate that, both industry-level import competition and firm-level outsourcing to China reduce firm employment growth and induce skill upgrading. In contrast, industry-level imports have no effect on Belgian firm survival, while firm-level outsourcing of finished goods to China even increased firm's probability of survival. In terms of skill upgrading, the effect of Chinese imports is large. Industry import competition from China accounts for 42% (20%) of the within firm increase in the share of skilled workers (non-production workers) in Belgian manufacturing over the period of our analysis, but these effects, as well as the employment reducing effect, remain mainly in low-tech industries. Firm-level outsourcing to China further accounts for a small but significant increase in the share of nonproduction workers. This change in employment structure is in line with predictions of offshoring models and Schott's (2008) 'moving up the quality ladder' story. All these results are robust to IV estimation
    Keywords: import competition, outsourcing, China, skill upgrading
    JEL: F11 F14 F16
    Date: 2010–09
  11. By: Lawrence Edwards; Robert 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 equality in the former. This theory is widely applied. It serves as the basis for estimating the impact of trade on wages using two-sector simulation models and the net factor content of trade. It leads naturally to the presumption that the rapid growth and declining relative prices of US manufactured imports from developing countries since the 1990s have been a powerful source of increased US wage inequality. In this study we present evidence that suggests the presumption is not warranted. We highlight the sensitivity of conventional theory to the assumption of incomplete specialization and find evidence that is not consistent with it. Since 1987, although US domestic relative effective prices in industries with relatively high shares of manufactured goods imports from developing countries have declined, effective unskilled-worker weighted prices have actually risen relative to skilled- worker-weighted prices. If anything this suggests pressures for increased wage equality. Also in apparent contradiction to theory, the (six-digit 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 equality. While these results conflict with standard theory, they are easily explained if the US and developing countries have specialized in products and tasks that are 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.
    Date: 2010
  12. By: Valeria Costantini (University of Roma Tre); Massimiliano Mazzanti (University of Ferrara, and CERIS-CNR)
    Abstract: This paper aims to explore how the competitiveness of the EU economy, here captured by export dynamics over the medium run (1996-2007), has been affected by environmental regulation both on the public and private sector side. The strong and weak versions of the Porter hypothesis are tested by specifying the export dynamics of five aggregated manufacturing sectors classified by their technological or environmental content using a dynamic panel data estimator applied to a theoretically-based gravity model. When testing the strong version on export performances of manufacturing sectors, the overall effect of environmental policies does not conflict with export competitiveness. When testing the weak version using export flows of environmental goods, environmental policies, as well as innovation activities, all foster competitive advantages of green exports. Public policies and private innovation patterns trigger higher efficiency in the production process, thus turning the perception of environmental protection actions as a production cost into a net benefit. These results constitute useful advice for policy makers involved in the new wave of environmental tax reforms and green recovery packages currently debated at European Union level.
    Keywords: Environmental Policies, Porter Hypothesis, Technological Innovation, Export Performances, Gravity Model, European Union
    JEL: F14 O14 Q43 Q56
    Date: 2010–07
  13. By: Maggie Xiaoyang Chen (Department of Economics/Institute for International Economic Policy, George Washington University); Sumit Joshi (Department of Economics, George Washington University)
    Abstract: The recent proliferation of free trade agreements (FTAs) has resulted in an in- creasingly complex network of preferential trading relationships. The economics literature has generally examined the formation of FTAs as a function of the par- ticipating countries' economic characteristics alone. In this paper, we show both theoretically and empirically that the decision to enter into an FTA is also crucially dependent on the participating countries' existing FTA relationships with third countries. Accounting for the interdependence of FTAs helps to explain a significant fraction of FTA formations that would not otherwise be predicted by countries' economic characteristics.
    Keywords: free trade agreements, third-country e§ect, loss sharing, concession erosion
    JEL: F15
    Date: 2010–04
  14. By: Leonardo Iacovone; Ferdinand Rauch; L. Alan Winters
    Abstract: This paper exploits the surge in Chinese exports from 1994 to 2004 as a natural experiment toevaluate the effects of a unilateral low wage trade and competition shock to producers in Mexico. Wefind that this shock causes selection at both firm and product levels as its impact is highlyheterogeneous both on the intensive and extensive margins. Sales of smaller plants and more marginalproducts are compressed and are more likely to cease, while larger plants and products exhibit anopposite response. Similar results hold both for the domestic market and for competition facingMexican exporters in a third market (i.e. the United States).
    Keywords: China, Mexico, multi-product-firm, trade shock
    JEL: F14 L11
    Date: 2010–09
  15. By: Axel Berger; Matthias Busse; Peter Nunnenkamp; Martin Roy
    Abstract: The previous literature provides a highly ambiguous picture on the impact of trade and investment agreements on FDI. Most empirical studies ignore the actual content of BITs and RTAs, treating them as "black boxes", despite the diversity of investment provisions constituting the essence of these agreements. We overcome this serious limitation by analyzing the impact of modalities on the admission of FDI and dispute settlement mechanisms in both RTAs and BITs on bilateral FDI flows between 1978 and 2004. We find that FDI reacts positively to RTAs only if they offer liberal admission rules. Dispute settlement provisions play a minor role. While RTAs without strong investment provisions may even discourage FDI, the reactions to BITs are less discriminate with foreign investors responding favourably to the mere existence of BITs
    Keywords: foreign direct investment, bilateral investment treaties, regional trade agreements, admission rules, investor-state dispute settlement
    JEL: F21 F23 K33
    Date: 2010–09
  16. By: Stephen Tokarick
    Abstract: Trade elasticities are often needed in applied country work for various purposes and this paper describes a method for estimating import demand and export supply elasticities withoutusing econometrics. The paper reports empirical estimates of these elasticities for a large number of low, middle, and upper income countries. One task for which trade elasticities are needed is in developing exchange rate assessments and this paper shows how the estimated elasticities can be used for this purpose.
    Keywords: Balance of trade , Demand elasticity , Exchange rate assessments , Exports , Price elasticity , Real effective exchange rates , Supply elasticity ,
    Date: 2010–07–30
  17. By: Ralf Martin
    Abstract: Much of recent Trade theory focuses on heterogeneity of firms and the differential impacttrade policy might have on firms with different levels of productivity. A common problem isthat most firm level dataset do not contain information on output prices of firms which makesit difficult to distinguish between productivity differences and differences in market powerbetween firms. This paper develops a new econometric framework that allows estimatingboth firm specific productivity and market power in a semi-parametric way based on acontrol function approach. The framework is applied to Chilean firm level data from the early1980, shortly after the country underwent wide ranging trade reforms. The finding is that inall sectors of the economy market power declined and productivity increased. In sectors withhigher import penetration productivity particularly at the bottom end of the distributionincreased faster. At the same time market power declined particularly so at the top end of themarket power distribution. We also show, that ignoring the effect on market power leads toan underestimation of the positive effects of increased import penetration on productivity.
    Keywords: Trade policy, productivity measurement, imperfect competition, productivitydispersion, productivity spread
    JEL: C81 D24 L11 L25
    Date: 2010–09
  18. By: Tomas Havranek; Zuzana Irsova
    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 relatively large estimates for publication. The underlying spillover to suppliers is positive and economically significant, whereas the spillover to buyers is insignificant. Greater spillovers are received by countries that have underdeveloped financial systems and that are open to international trade. Greater spillovers are generated by investors that come from distant countries and that have only slight technological advantages over local firms.
    Keywords: Foreign direct investment, meta-analysis, productivity, publication selection bias, spillovers.
    JEL: F23
    Date: 2010–09
  19. By: Franco Ruzzenenti; Diego Garlaschelli; Riccardo Basosi
    Abstract: We exploit the symmetry concepts developed in the companion review of this article to introduce a stochastic version of link reversal symmetry, which leads to an improved understanding of the reciprocity of directed networks. We apply our formalism to the international trade network and show that a strong embedding in economic space determines particular symmetries of the network, while the observed evolution of reciprocity is consistent with a symmetry breaking taking place in production space. Our results show that networks can be strongly affected by symmetry-breaking phenomena occurring in embedding spaces, and that stochastic network symmetries can successfully suggest, or rule out, possible underlying mechanisms.
    Date: 2010–09
  20. By: Francis Andrianarison; Victor A.B. Davies; Sylvain Dessy
    Abstract: Many poor countries are plagued with growth-impeding institutions. We develop a three-sector general equilibrium model linking economic stagnation in these countries to poor export terms of trade. We examine the extent to which changes in the terms of trade affect private agents’ incentive to coalesce to oppose the adoption of growth-promoting institutions. We show that under certain conditions, below a threshold terms of trade level, private agents gain from coalescing to oppose the adoption of growth-promoting institutions. Above this threshold, gains from coalescing disappear, fostering institutional change.
    Keywords: Terms of trade, primary commodities, institutions, general equilibrium
    JEL: F11 L12 O33
    Date: 2010
  21. By: C. Franco
    Abstract: The study analyzes the role played by technological determinants, using the approach of National System of Innovation (NSI), in enhancing or hampering Foreign Direct Investments (FDI) with different motivations, namely horizontal and vertical FDI. The empirical analysis is carried out using data relative to the final destination of sales of US foreign subsidiaries in 42 host countries grouped according to income criteria. A three step empirical strategy is employed: first, we estimate a benchmark model finding that technological determinants exert a greater influence in high income countries especially for vertical FDI. Secondly, applying a dynamic panel data approach we take into account that agglomeration economies may play a role as well as other FDI determinants. Finally, we are able to further disentangle the destination of sales according to whether they are directed towards other foreign affiliates or to unaffiliated persons recognizing that they are affected by different determinants.
    JEL: F20 F23 O30
    Date: 2010–09

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