nep-int New Economics Papers
on International Trade
Issue of 2010‒11‒06
sixteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Determinants and barriers to bilateral trade A study on developing economies By Subhani, Dr.Muhammad Imtiaz; Osman, Ms.Amber; Khokhar, Rabbia
  2. Technology Upgrading, Exporting and Heterogeneous Firms By Ferguson, Shon
  3. Which Portuguese Manufacturing Firms Learn by Exporting? By Armando Silva; Óscar Afonso; Ana Paula Africano
  4. International Production Networks in Machinery Industries: Structure and Its Evolution By Fukunari KIMURA; Ayako OBASHI
  5. How Would an Appreciation of the Yuan Affect the People’s Republic of China’s Surplus in Processing Trade? By Willem Thorbecke
  6. Regional Single Currency Effects on Bilateral Trade with the European Union By Joan Costa-i-Font
  7. The Distance Puzzle Revisited: A New Interpretation Based on Geographic Neutrality By Pérez García Francisco; Tortosa-Ausina Emili; Arribas Fernández Iván
  8. Machinery Trade in East Asia, and the Global Financial Crisis By Mitsuyo ANDO
  9. Exports and Firm Characteristics in German manufacturing industries By Joachim Wagner
  10. The impact of North-South and South-South trade agreements on bilateral trade. By Alberto Behar; Laia Cirera i Crivillé
  11. Trade liberalisation, skill-biased technical change and wages in developing countries: a model with heterogeneous firms By Mauro Caselli
  12. Global Production Networks in Electronics and Intra-Asian Trade By Byron Ganges; Ari Van Assche
  13. Methods for Ex Post Economic Evaluation of Free Trade Agreements By Cheong, David
  14. The Spatial Dimension in FDI Spillovers: Evidence at the Regional Level from Portugal By Nuno Crespo; Isabel Proença; Maria Paula Fontoura
  15. Export Subsidies in a Heterogeneous Firms Framework: Evidence from Colombia By Christian Helmers; Natalia Trofimenko
  16. Novel Indicators of the Trade and Welfare Effects of Agricultural Distortions in OECD Countries. By Kym Anderson; Johanna Croser

  1. By: Subhani, Dr.Muhammad Imtiaz; Osman, Ms.Amber; Khokhar, Rabbia
    Abstract: World trade has grown rapidly. Several factors are highlighted by literature as a driving force behind the growth of world trade. Reduction in barriers to trade is one of them. A comprehensive empirical investigation is carried to ascertain the trade reducing and increasing effect of barriers to trade which are also known determinants of trade. The modified gravity model developed in this study analyses the effect of GDP, distance,remittances, FDI, transportation cost, exchange rate, inflation, population, import and export on trade flows. The study revealed that the population, import and transportation cost, distance, Tariff imposed by trading partner, FDI and Population of trading country are the determinants and significantly affect exports of developing economies. The study also ascertain that transportation cost, distance, population of trading partner, FDI of both trading countries and remittances of trading partner are the determinants that have major impact on import of developing nations.
    Keywords: International Trade; Exports; Imports; Gravity Model; Trade barriers
    JEL: F13 F23 O24 B22 N7 A10 P33 R41 M21
    Date: 2010–10–09
  2. By: Ferguson, Shon (Dept. of Economics, Stockholm University)
    Abstract: Empirical evidence shows that R&D spending is highly correlated with firm productivity, highly concentrated among large firms, and responsive to trade liberalization. This paper develops a model of product upgrading with heterogeneous firms that captures these characteristics by allowing firms to choose their optimal level of fixed cost spending from a continuum. The endogenous component of fixed costs is assumed to represent R&D or product development that is spent once but reaps demand benefits over all the markets the firm serves. This mechanism encourages firms to export and capture economies of scale in fixed cost spending. The model makes two new predictions. The first prediction is that exporters upgrade while domestic firms cut costs when trade liberalizes. The second prediction is that the selection effect of trade liberalization is weaker in industries characterized by intense upgrading competition between firms.
    Keywords: International Trade; Upgrading; Trade Liberalization
    JEL: F10 F12 O30 O31
    Date: 2010–10–26
  3. By: Armando Silva (Escola Superior de Estudos Industriais e de Gestão do Instituto Politécnico do Porto); Óscar Afonso (Universidade do Porto, Faculdade de Economia); Ana Paula Africano (Universidade do Porto, Faculdade de Economia)
    Abstract: Using a longitudinal database (1996-2003) at the plant level, this paper aims to shed light on the causal nexus between international trade engagement and productivity in Portugal. We analyse in particular the learning-by-exporting hypotheses. In line with recent empirical literature, we apply mainly the Propensity Score Matching and a differences-in-differences estimator. In post-entry years we find a higher growth of labour productivity and total factor productivity for new exporting firms when compared to firms that, although having similar characteristics, have decided not to begin exporting in that year. Moreover, in an attempt to uncover the channels through which the learning effects are driven to new exporters, we applied the same methodology to some sub-samples. We found that learning effects are higher for new exporters that are also importers or start importing at the same time. Other important factors influencing that learning ability are found in firms that export to more developed markets, in those that achieve a certain threshold of export intensity and particularly for those firms that belong to sectors in which Portugal is at a comparative disadvantage
    Keywords: Exports, Imports, Self-Selection, Learning-by-exporting, Matching
    JEL: F14 D24
    Date: 2010–09
  4. By: Fukunari KIMURA (Faculty of Economics, Keio University, Japan , Economic Research Institute for ASEAN and East Asia (ERIA), Indonesia); Ayako OBASHI (Faculty of Economics, Keio University, Japan)
    Abstract: This paper intensively employs annual international trade statistics obtained from the UN Comtrade and examines to what degree East Asian countries have participated in global production networks in comparison with countries in other regions and whether East Asia’s intra-regional trade in machinery is different from extra-regional trade and transactions by other regions. It provides strong evidence of the formation of East Asian production networks, particularly in the form of expansion of exports and imports of parts & components, often ICT-related. It also traces the development of intra-regional markets of both parts & components and finished products since 2000.
    Date: 2010–09–01
  5. By: Willem Thorbecke (Asian Development Bank Institute)
    Abstract: Enormous trade surpluses are problematic for the People’s Republic of China (PRC) and the rest of the world. They primarily stem from processing trade. This paper investigates how exchange rate changes would affect the PRC’s imports for processing and processed exports. The results indicate that an appreciation throughout East Asian supply chain countries would reduce the PRC’s surplus in processing trade, while an appreciation of the yuan alone might not. Even for an appreciation throughout East Asia, however, the sum of the exchange rate elasticities is not large. Thus, to rebalance the PRC’s trade, exchange rate appreciations must be accompanied by other changes such as factor market liberalization and greater enforcement of environmental regulations.
    Keywords: trade surpluses, China, exchange rates, yuan appreciation, factor market liberalisation
    JEL: F32 F41
    Date: 2010
  6. By: Joan Costa-i-Font
    Abstract: This paper empirically examines the regional effects of sharing a single currency on bilateral trade with other European Union partners. It takes advantage of a gravity specification of bilateral trade between 17 Spanish regions and 13 European countries over the period 1997-2004, which in turn allows accounting for two distinct definitions of a single currency depending on its temporal set up. That is, the “exchange rate volatility effect” (from exchange rate fixing in 1999) is distinguished from the so-called “common currency effect” (resulting from the issuing of a new currency in 2002). Findings are suggestive of a regional concentration of currency union effects in a few regions, namely those relatively more open to trade. Such effects on regional trade within Europe are found to fade away over time. Trade enhancing effects are found to vary range from 45% to 16%. When the “exchange rate volatility effect” was significant, the pure currency union effect was found to be almost negligible.
    Keywords: gravity models, trade flows, regional heterogeneity, monetary union
    JEL: F4 F11 F33
    Date: 2010–10
    Abstract: One of the best-established empirical results in international economics is that bilateral trade decreases with distance, despite the reductions in the costs of trade brought about by globalization. This working paper proposes an explanation to this apparent contradiction (labeled as the distance puzzle). It hinges on the concept of geographic neutrality, which is used to construct international trade integration indicators for two different scenarios, namely, when distance matters and when it does not. The results indicate that the importance of distance varies greatly across countries, as revealed by disparate gaps between distance-corrected and distance-uncorrected trade integration indicators for different countries. Some factors rooted in the literature explain away the discrepancies, but their importance varies according to the trade integration indicator considered-trade openness or trade connection.
    Keywords: Geographic neutrality, globalization, gravity models, network analysis, remoteness.
    Date: 2009–12
  8. By: Mitsuyo ANDO (Faculty of Business and Commerce, Keio University, Japan)
    Abstract: The global financial crisis since Q3 2008 has influenced the world economy, including that of East Asia. This paper focuses on international production/distribution networks, mainly observed in the machinery sectors in East Asia, and attempts to examine patterns of machinery trade movements during the crisis to explore how and to what extent it has affected trade. More specifically, the paper analyzes these trade patterns, with distinctions between machinery intermediate goods and machinery final products, among trading partners (regions), between intra-regional trade and inter-regional trade, and among machinery sectors, so as to investigate whether there were any differences in reactions to the crisis. Moreover, in order to consider possible seasonality in trade, the paper also attempts to apply the X-12 model and discusses features of trade patterns based not only on actual trade values but also on estimated trade values with seasonal adjustment. Our results demonstrate that effects of the global financial crisis on international production/distribution networks in East Asia do indeed exist but, at the same time, that East Asia’s trade has rapidly recovered through the regional production/distribution networks. In particular, East Asia itself is the major contributor to such a rapid recovery, not only for machinery parts and components trade but also for the machinery final goods trade. This suggests that the existence of dense production/distribution networks in East Asia helps industries to avoid becoming destabilized. It also suggests that East Asia is increasingly gaining importance not only as the production site but also as the consumption site for final products that are produced in the production/distribution networks in the region, implying that [further] activation and expansion of intra-regional demand are essential.
    Date: 2010–10–01
  9. By: Joachim Wagner (Institute of Economics, Leuphana University of Lüneburg, Germany)
    Abstract: Reliable information on the characteristics of exporting and non-exporting firms is important to guide theorists and policy makers in an evidence based way. This holds true especially for Germany, a leading actor on the world markets for goods and services. This paper makes three contributions towards this aim: (1) It provides a synopsis and a critical assessment of 51 empirical studies on exports and firm characteristics that use data for German establishments or enterprises, arguing that this literature is not suited to extract the stylized facts needed. (2) It uses recently released rich high quality data for a large representative panel of enterprises from German manufacturing industries to investigate the links between firm characteristics and export activities, demonstrating the decisive role of human capital intensity for exporting. (3) It links these findings to the recent literature from the new new trade theory on international activities of heterogeneous firms that emphasises the role of productivity for exporting. It shows that productivity is important for exporting as is hypothesized in the formal theoretical models, but that contrary to the assumption made in these models productivity is not (only) the result from a random draw from the productivity distribution – it is strongly positively related to human capital intensity.
    Keywords: Exports, firm characteristics, Germany
    JEL: F14
    Date: 2010–10
  10. By: Alberto Behar; Laia Cirera i Crivillé
    Abstract: Free trade agreements (FTAs) lead to a rise in bilateral trade even if the signatories include developing countries. Furthermore, the percentage increase in bilateral trade is higher for South-South agreements than for North-South agreements. the results are robust across a number of gravity model specifications in which we contrl for the endogenity of FTAs (with bilateral fixed effects) and also take account of multilateral resistance in both estimation (with country-fixed effects) and compartive statics (analytically). Our analystical model shows that multilateral resitance dampens the imapct of FTAs on trade by less in South-South agreements than in North-South agreements, which accentuates the difference implied by our gravity model coefficients, and that this difference gets larger as the number of signatories rises. For example, allowing for lags and multilateral resistance, a four-country North-South agreement rasies bilateral trade by 53% while the analogous South-South impact is 107%
    Date: 2010
  11. By: Mauro Caselli
    Abstract: This paper analyses the effects of trade liberalisation and technical change on real and relative wages. It builds a model with monopolistic competition, heterogeneous firms and two countries, North and South, and solves it numerically. Skill-biased technical change, caused by decreases in the price of imported equipment as a result of reduced trade costs or falls in its world price, tends to increase the relative wages of skilled workers. This increase in the skill premium can occur even in skill-scarce developing countries, as has often been observed in reality, even though Stolper-Samuelson effects pull the other way. What drives the rise in skilled wages when imported equipment becomes cheaper is the rise in demand for skilled workers in the most productive firms in each sector. Whether or not real unskilled wages increase absolutely after trade liberalisation appears to depend on whether trade costs are ad valorem or per-unit.
    Keywords: trade liberalisation, skill-biased technical change, wage inequality, real wages, equipment-skill complementarity.
    JEL: F12 O33
    Date: 2010
  12. By: Byron Ganges (University of Hawaii at Manoa); Ari Van Assche (HEC MontreÌal and LICOS, Department of International Business)
    Abstract: The growth of East Asia’s intra-regional trade is driven largely by increased component trade within global electronics production networks. Data on both electronics trade and production elucidate a pattern of specialization in which upper- and middle-income countries produce sophisticated components and lower-income countries assemble lower- value-added final goods. There is evidence of increasing sophistication within the electronics sector by the Newly Industrialized Economies and to a lesser extent by ASEAN countries. Despite the marked increase in intra-regional trade, developing East Asian countries remain heavily dependent on developed-country markets. When Western export demand rapidly contracted during the 2008-2009 economic crisis, these specialization patterns led the rapid diffusion of the business cycle shock throughout the East Asian region.
    Keywords: Global production networks; electronics; Asian trade; business cycle transmission; global economic crisis
    JEL: F14 F23 F40 L63
    Date: 2010–03
  13. By: Cheong, David (Johns Hopkins University‘s School of Advanced International Studies (SAIS) Bologna Center)
    Abstract: Evaluating the economic impact of an FTA is an important part of the monitoring and surveying process that should follow the establishment of an FTA. This paper presents methods for evaluating the trade and welfare effects of an FTA. These methods show how to (i) compute indicators for the utilization and value of preferences, (ii) qualitatively assess trade creation and diversion, (iii) quantitatively analyze the FTA‘s trade effects with trade indicators and the gravity model, and (iv) make inferences about economic welfare. This paper specifies the formulas, computational techniques, and data used for each evaluation method, and describes how to interpret the output from each method with examples taken from countries such as Viet Nam, Indonesia, and Cambodia. The strengths and limitations of each method are also discussed.
    Keywords: regionalization; evaluation methods; preferential tariffs; trade indicators; gravity model; free trade agreements; Asia
    JEL: F13 F15
    Date: 2010–10–01
  14. By: Nuno Crespo; Isabel Proença; Maria Paula Fontoura
    Abstract: There are theoretical reasons to expect that benefits to domestic firms from foreign direct investment would be confined to the area where the multinational firm is located and that the benefits depend on the development level of the host region. However, there is a scarcity of empirical studies on FDI’s indirect effects at the regional level, particularly with regard to inter-industry spillovers. This paper is an empirical contribution to this literature with data for Portugal. Both intra-industry and inter-industry FDI spillovers are considered. The concept of region adopted comprises the county in which the domestic firm is located, together with all of the directly neighbouring counties. Equations are estimated using the System GMM, with robust estimation of covariance matrices. Data confirms the relevance of both the geographical proximity and the development level of the region to this phenomenon. Furthermore, FDI spillovers are more evident at the inter-industry level. These results raise important implications for economic policy.
    Keywords: Portugal, FDI intra-industry spillovers, FDI inter-industry spillovers, counties, regional development level, geographical proximity.
    JEL: F21 F23
    Date: 2010–10
  15. By: Christian Helmers; Natalia Trofimenko
    Abstract: We evaluate the impact of firm-specific export subsidies on exports in Colombia. Using a twostage selection correction procedure, we obtain firm-specific predicted subsidy amounts that can be explained by the characteristics that determine the firms’ eligibility for government support and its amount. Drawing on the accounts of the discretionary allocation of subsidies in developing countries, we regard the discrepancy between the predicted and the observed subsidy amounts as a proxy for a firm’s ties to government officials. Controlling for observable and unobservable firm characteristics and persistence in exports, we find that although, in general, subsidies exhibit a positive impact on export volumes, this impact is diminishing in subsidy size and in the degree of a firm’s connectedness.
    Keywords: Export promotion; export subsidies
    JEL: F10 F13 L20 H20
    Date: 2010
  16. By: Kym Anderson (School of Economics, University of Adelaide); Johanna Croser (School of Economics, University of Adelaide)
    Abstract: Agricultural markets in OECD countries have long been highly distorted by government policies. Traditional weighted average aggregates of the price distortions they involve, such as producer and consumer support estimates (PSEs and CSEs), can be poor indicators of the trade restrictiveness and economic welfare losses associated with them, especially if a countryÂ’s support estimates vary a lot across the product range. Supplementing those measures with estimates of trade and welfare effects of price supports requires the use of a sectoral or economy wide model and price elasticity data. This paper shows that, in the absence of such a model, and a willingness to make simple assumptions about elasticities, it is possible to generate more satisfactory indicators than PSEs and CSEs using no more than the price and quantity data used to generate them. These new indexes provide an attractive supplement to the current policy monitoring regime developed by the OECD Secretariat.
    Keywords: Distorted incentives, agricultural price and trade policies, trade restrictiveness index
    JEL: F13 F14 Q17 Q18
    Date: 2010–03

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