nep-int New Economics Papers
on International Trade
Issue of 2010‒11‒13
eighteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Processing Trade, Firms Productivity, and Tariff Reductions: Evidence from Chinese Products By Miaojie Yu
  2. Export Differentiation in Transition Economies By Besedes, Tibor
  3. Does aid for trade enhance export performance? Investigating on the infrastructure channel By Mariana Vijil; Laurent Wagner
  4. Decomposing Terms of Trade Fluctuations in Ethiopia By Josef L. Loening; Masato Higashi
  5. The Trade–Growth Relationship in Israel Revisited: Evidence from Annual Data, 1960-2004 By Abo-Zaid, Salem
  6. Determinants of Short-Term Export Performance in Pakistan By Subhani, Dr.Muhammad Imtiaz; Osman, Ms.Amber; Habib, Sukaina
  7. Paying a Visit: The Dalai Lama Effect on International Trade By Andreas Fuchs; Nils-Hendrik Klann
  8. The Impact of Preferential Trade Agreements on the Margins of International Trade By Robert Stehrer; Johannes Pöschl; Neil Foster
  9. Trade in the Shadow of Power By Michelle R. Garfinkel; Stergios Skaperdas; Constantinos Syropoulos
  10. Competing internationally: On the importance of R&D for export activity By Czarnitzki, Dirk; Wastyn, Annelies
  11. Gains from Trade and Measured Total Factor Productivity By Ferreira, Pedro Cavalcanti; Trejos, Alberto
  12. Trade Liberalization and Institutional Quality: Evidence from Vietnam By Dang, D Anh
  13. Is the WTO Article XXIV Bad? By Monika Mrázová; David Vines; Ben Zissimos
  14. "The Impact of Geography and Natural Resource Abundance on Growth in Central Asia" By Jesus Felipe; Utsav Kumar
  15. Spatial Relocation with Heterogeneous Firms and Heterogeneous Sectors By Forslid, Rikard; Okubo, Toshihiro
  16. Does Appreciation of the RMB Decrease Imports to the U.S. from China? By Miaojie Yu
  17. Do Additional Bilateral Investment Treaties Boost Foreign Direct Investments? By Chang Hoon Oh; Michele Fratianni
  18. Trade Linkages in the OECD Trade System By Jérôme Brézillon; Stéphanie Guichard; Dave Turner

  1. By: Miaojie Yu (China Center for Economic Research)
    Abstract: This paper explores how processing trade, jointly with tariff reduction, can improve a firm's productivity. Tariff reductions generate productivity gain via competition, whereas processing export does so via spillovers. Using mostly disaggregated Chinese product-level trade data and firm-level production data from 2000--2006, after constructing firm-level tariffs based on product information and controlling for possible endogeneity, I found that a 10% tariff decrease generates a 12% increase in a firm's productivity gain. In addition, processing firms enjoy significant productivity gains via spillovers, with heterogeneity across firms divided according to ownership. These findings are robust to various econometric methods, disaggregated specifications, and measures.
    Keywords: Processing Trade, Productivity, Firmís Heterogeneity, Chinese Plants
    JEL: F1 L1 O1 O2
    Date: 2010
  2. By: Besedes, Tibor
    Abstract: I investigate changes in the structure of trade of seventeen transition economies between 1996 and 2006, focusing on differences across three types of products -- homogeneous goods, reference priced goods, and differentiated products. I examine shares of exports of each type of good, intensive and extensive margins, and the hazard of exporting. While there are cross-country differences in the distribution of export shares and in intensive and extensive margins, largest differences exist in the hazard of exporting. There are significant differences in the hazard both across countries and time.
    Keywords: export differentiation; product types; hazard of exporting; intensive margin; extensive margin
    JEL: F14
    Date: 2010–10–30
  3. By: Mariana Vijil; Laurent Wagner
    Abstract: Today, there are few empirical studies assessing the effectiveness of aid for trade on trade pe rformance. Furthermore, existing works do not test channels by which this impact is transiting. We address this question using an empirical analysis constructed in two steps. Following a model of export performance, we first test if institutions and infrastructure, our two potential channels of transmission, are indeed determinants of export performance. Secondly, we test the impact of aid for trade sectoral flows on the determinants that were highlighted in the first part. We show that the infrastructure channel appears to be highly significant in the first step whereas the institutional one turns out to have limited impact on developing countries’ exports. Furthermore, in our second step, aid for infrastructure seems, once instrumented, to have a strong and positive impact on the infrastructure level. Our results indicate that a 10% increase in aid to infrastructure commitments per capita leads to an average increase of the exports over GDP ratio for a developing country of 2.34%. It is also equivalent to a 2.71% reduction of the tariff and non-tariff barriers. This highlights the very high economic impact of aid for trade throughout the channel of infrastructures.
    Keywords: Export performance, trade facilitation, aid for trade, infrastructure, institution
    JEL: O19 O11 F10 F17 O10
    Date: 2010
  4. By: Josef L. Loening (World Bank, Washington); Masato Higashi (Columbia University)
    Abstract: This paper proposes a technique to decompose short-run fluctuations in the terms of trade. Using Ethiopia as an example, we decompose the commodity terms of trade into various components to measure the impact of price and volume shifts as well as export diversification. We use monthly data from the past decade, including periods during the global food and financial crises. Our findings suggest that diversification out of traditional coffee exports to other export commodities successfully mitigated a terms of trade shock. Continued export diversification will be beneficial.
    Keywords: Terms of Trade, Food Price Crisis, Financial Crisis, Ethiopia
    JEL: F14 O11 O55
    Date: 2010–10–08
  5. By: Abo-Zaid, Salem
    Abstract: The topic of trade effects on economic growth has been usually controversial. Former empirical evidence linking trade to growth in Israel has been mixed and inconclusive either. This study reexamines the role of trade in Israel by testing for cointegration and causality from both exports and imports to output and total factor productivity over the period 1960-2004. The results suggest that both output and TFP are positively long-run correlated with exports and imports. The Granger causality tests indicate positive effects of exports on both output and TFP, where imports influence output only. In addition, physical capital has also been found to be Granger-caused by imports. This may suggest that the impact of imports on output is through the accumulation of physical capital and/or improvement in TFP over time.
    Keywords: Trade-growth relationships; Cointegration; Causality ; Israeli economy
    JEL: O47 C22 F43
    Date: 2010–10–31
  6. By: Subhani, Dr.Muhammad Imtiaz; Osman, Ms.Amber; Habib, Sukaina
    Abstract: This research investigates the interdependency between independent (Increase of pricing strategy adaptation, Increase of export intensity, Firm's commitment to exporting, Export market development, Export market competition, Past Pricing Strategy Adaptation, Past Export Performance Satisfaction, Past Export Intensity, Export market distance) and dependent variables (i.e. Expected Short-Term Export Performance improvement) of export performance. The framework is tested via a survey through questionnaire from industrial exporters of textile in Pakistan. Findings revealed that the past export performance satisfaction is positively correlated with Past export performance satisfaction and it is the only important indicator that is associated significantly to short-term export performance improvement in textile sector of Pakistan.
    Keywords: International Trade; short-term export performance; Past export performance satisfaction; textile sector of Pakistan.
    JEL: P33 F1 N7
    Date: 2010–11–01
  7. By: Andreas Fuchs; Nils-Hendrik Klann
    Abstract: The Chinese government frequently threatens that meetings between its trading partners’ officials and the Dalai Lama will be met with animosity and ultimately harm trade ties with China. We run a gravity model of exports to China from 159 partner countries between 1991 and 2008 to test to which extent bilateral tensions affect trade with autocratic China. In order to account for the potential endogeneity of meetings with the Dalai Lama, the number of Tibet Support Groups and the travel pattern of the Tibetan leader are used as instruments. Our empirical results support the idea that countries officially receiving the Dalai Lama at the highest political level are punished through a reduction of their exports to China. However, this ‘Dalai Lama Effect’ is only observed for the Hu Jintao era and not for earlier periods. Furthermore, we find that this effect is mainly driven by reduced exports of machinery and transport equipment and that it disappears two years after a meeting took place.
    Keywords: International Trade, International Political Economy, Diplomatic Relations, Exports to China, Tibet, Dalai Lama
    JEL: F13 F51 F59
    Date: 2010–10–19
  8. By: Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Johannes Pöschl (The Vienna Institute for International Economic Studies, wiiw); Neil Foster (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: European Comparison Project data (years 1999-2008) are used for an estimation of cross-country systems (AIDS) of consumer demand functions defined over durable and non-durable tradable goods and non-tradable services. General exchange equilibrium models of inter-EU trade generate equalized relative prices of tradable goods. But domestic relative prices of services become more dispersed and can move the PPP/ER ratios away from unity. PPP/ER discrepancies may be sustained even when there are no impediments to free trade.
    Keywords: preferential trade agreements, intensive and extensive margin, matching, difference-in-difference
    JEL: F10 F15
    Date: 2010–09
  9. By: Michelle R. Garfinkel (Department of Economics, University of California-Irvine); Stergios Skaperdas (Department of Economics, University of California-Irvine); Constantinos Syropoulos (Department of Economics and International Business, Drexel University)
    Abstract: In this chapter, we examine how some of the main results in international trade theory fare when we abandon the traditional assumption of third-party enforcement of property rights. Without such enforcement, countries arm and exercise power to secure resources used in production or to secure the output from that production. Because arming is endogenous and takes scarce resources to produce, the production of final goods is also endogenous. Consequently, prices in either domestic or international markets reflect not only preferences, endowments or technologies of production as predicted by traditional models, but also arming and the power that comes from that. As we show in the context of a Ricardian model, those countries that produce the most socially valued goods tend to arm less, giving them a "comparative disadvantage" in power. Accordingly, the level of welfare obtained by these countries could be lower than that obtained in a competitive economy with perfect security. In the context of a Heckscher-Ohlin model, we find that free trade need not be preferred to autarky, as the costs of conflict or self-enforcement swamp the familiar gains from trade for a certain range of world prices. Finally, trade in the shadow of power can distort comparative advantage.
    Keywords: Trade openness; Property rights; Interstate disputes; Conflict
    JEL: D30 D70 D72 D74 F2 F10
    Date: 2010–11
  10. By: Czarnitzki, Dirk; Wastyn, Annelies
    Abstract: Export is an important factor to improve growth and welfare especially for industrialized small, open economies such as Belgium. Policy may be interested in key variables that can influence export. This paper finds evidence for the importance of R&D for export activities using Belgian firm-level data. To control for reverse causality, R&D-subsidy variables are used to instrument R&D. The results show that R&D policies may indirectly help to increase the export performance of the economy. Due to the exceptionally high openness of Belgium, two subsamples of firms are considered, domestic firms and multinational firms. We observe positive effects of R&D on export for both domestic and MNEs. Once we instrument R&D because of its potential endogeneity, however, it turns out that the effect of R&D on exports is larger for domestic firms than for multinational companies. --
    Keywords: Export,R&D,Multinational enterprises,Innovation Policy
    JEL: F23 O33 O38
    Date: 2010
  11. By: Ferreira, Pedro Cavalcanti; Trejos, Alberto
    Abstract: We develop and calibrate a model where di¤erences in factor en-dowments lead countries to trade di¤erent goods, so that the existenceof international trade changes the sectorial composition of output fromone country to another. Gains from trade re ect in total factor produc-tivity. We perform a development decomposition, to assess the impactof trade and barriers to trade on measured TFP. In our sample, themedian size of that e¤ect is about 6.5% of output, with a median of17% and a maximum of 89%. Also, the model predicts that changes inthe terms of trade cause a change of productivity, and that e¤ect hasan average elasticity of 0.71.
    Date: 2010–11–05
  12. By: Dang, D Anh
    Abstract: Recent cross-country research shows that there is a causal relationship between trade liberalization and quality of institutions. The literature on cross-country studies has been criticized because differences in legal systems and other institutions across countries are difficult to control for. An in-depth case study of a particular country’s experience can provide a useful complement to cross-country regressions. Using the unique dataset from provincial competitiveness survey and a natural experiment from joining the World Trade Organization, I find that variations in economic institutions across provinces in Vietnam can be explained by trade liberalization. To overcome endogeneity problems, I use minimum distance from each province to main economic centres as an instrument for trade liberalization. The instrumental variable approach shows that the direction of influence is from greater openness to better institutions. The results hold after controlling for various additional covariates. It is also robust to various alternative measures of institutions. I also find that trade liberalisation has greater short term impacts on institutional quality in the Northern provinces.
    Keywords: Trade liberalization; institutions; Vietnam
    JEL: O43 F1
    Date: 2010–04–14
  13. By: Monika Mrázová; David Vines; Ben Zissimos
    Abstract: This paper shows that the WTO's Article XXIV increases the likelihood of free trade, but may worsen world welfare when free trade is not reached and customs unions (CUs) form. We consider a model of many countries. Article XXIV prevents a CU from raising its common external tariff, which makes CU formation less attractive and explains why free trade is more likely. In an equilibrium where two CUs do form, one is necessarily larger than the other. We show that Article XXIV has a 'composition effect' on CU formation, whereby CUs are (endogenously) more symmetric in size so more goods are subject to tariff distortions as they move between CUs; thus Article XXIV may be 'bad' for world welfare.
    Keywords: Coalition formation game, customs union, protection, trade block, trade liberalization
    JEL: F02 F13 F15
    Date: 2010–11
  14. By: Jesus Felipe; Utsav Kumar
    Abstract: This paper examines the growth experience of the Central Asian economies after the breakup of the Soviet Union. In particular, it evaluates the impact of being landlocked and resource rich. The main conclusions are: (1) Over the period 1994–2006, the landlocked resource-scarce developing countries of Central Asia grew at a slower pace than other landlocked resource-scarce developing countries; on the other hand, resource-rich developing countries in Central Asia grew at the same pace as other resource-rich developing economies. (2) Having “good” neighbors pays off in the form of growth spillovers; this calls for greater regional cooperation and enhanced regional integration through regional transport infrastructure, improved trade facilitation, and enhanced and coordinated economic policies. And (3) countries with a higher share of manufacturing exports in GDP grow faster, and the more sophisticated a country’s export basket, the higher its future growth; Central Asian countries should, therefore, take a more aggressive stance in supporting export diversification and upgrading.
    Keywords: Central Asia; EXPY; Landlocked; Manufacturing Exports; Primary Exports; Resource-rich
    JEL: O13 O14 O52 O57 Q33 Q34
    Date: 2010–10
  15. By: Forslid, Rikard (Dept. of Economics, Stockholm University); Okubo, Toshihiro (Kobe University)
    Abstract: The present paper focuses on sorting as a mechanism behind the well-established fact that there is a central region productivity premium. Using a model of heterogeneous firms that can move between regions, Baldwin and Okubo (2006) show how more productive firms sort themselves to the large core region. We extend this model by introducing different capital intensities among firms and sectors. In accordance with empirical evidence, more productive firms are assumed to be more capital intensive. As a result, our model can produce sorting to the large regions from both ends of the productivity distribution. Firms with high capital intensity and high productivity as well as firms with very low productivity and low capital intensity tend to relocate to the core. We use region and sector productivity distributions from Japanese micro data to test the predictions of the model. Several sectors show patterns consistent with two-sided sorting, and roughly an equal number of sectors seem to primarily be driven by sorting and selection. We also find supportive evidence for our model prediction that two-sided sorting occurs in sectors with a high capital intensity.
    Keywords: Agglomeration; firm heterogeneity; productivity; spatial sorting
    JEL: F12 F15 F21 R12
    Date: 2010–11–04
  16. By: Miaojie Yu (China Center for Economic Research)
    Abstract: In 2005, China abated its fixed exchange rate against the U.S. dollar and began to appreciate the Renminbi (RMB). In this paper, I explore the effect of the appreciation of the RMB on imports to the U.S. from China by augmenting the gravity model with the exchange rate. Using an industrial panel data set during the period 2002 to 2008 and controlling for the endogeneity of the bilateral exchange rate, this extensive empirical analysis suggests that the appreciation of the RMB against the U.S. dollar significantly reduced imports to the U.S. from China. This finding is robust to a variety of econometric methods and to coverage in different periods.
    Keywords: Exchange Rate, Pass-through, Bilateral Trade, Gravity Model
    JEL: F1 F2
    Date: 2010
  17. By: Chang Hoon Oh (Brock University - Ontario (Canada), Faculty of Business); Michele Fratianni (Indiana University, Kelly School of Business, Bloomington US, Univ. Plitecnica Marche - Dept of Economics, MoFiR)
    Abstract: This paper finds that the stock of bilateral investment treaties (BIT) is subject to diminishing returns measured in terms of foreign direct investment flows. Diminishing returns are more pronounced among country-pairs that have not signed bilateral investment treaties but have their own BIT network than among country-pairs with their own bilateral investment treaties. For a given country's BIT network, a multinational enterprise finds more value in investing where a bilateral treaty is in place. This may suggest either stronger property-rights protection or greater latitude to use the host country as an export platform. Our subsidiary finding is that an index of a country's BIT network diversity appears to be a plausible explanation of the limiting force underlying the diminishing returns of the stock of BITs in a world where there is a mix between horizontally and vertically integrated multinational enterprises.
    Keywords: bilateral investment treaty, foreign direct investment, gravity equation, network diversity
    JEL: F21 F53
    Date: 2010–10
  18. By: Jérôme Brézillon; Stéphanie Guichard; Dave Turner
    Abstract: This paper describes the sources and methods used to construct the trade matrices of the OECD trade system. It also provides an overview of the trade relationships between countries, especially individual OECD countries and the main non-OECD economies, as well as their evolution between 2000 and 2005. It finally serves more broadly as a “ready reckoner” guide to the sensitivity to shocks that are transmitted through trade.<P>Les relations commerciales dans le système de commerce de l’OCDE<BR>Ce document décrit les sources et méthodes utilisées pour la construction des matrices de commerce du système de commerce international de l’OCDE. Il donne une vue d’ensemble des relations commerciales entre pays, et notamment entre les pays membres de l'OCDE et les principales économies non-OCDE, ainsi que leur évolution entre 2000 et 2005. Ce document sert aussi plus généralement comme guide "prêt-à-l'emploi" de la sensibilité aux chocs transmis par le commerce.
    Keywords: trade, trade matrices, bilateral trade flows, commerce bilatéral, Echanges commerciaux, matrices des échanges
    JEL: F10 F40
    Date: 2010–10–27

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