nep-int New Economics Papers
on International Trade
Issue of 2011‒01‒03
twenty papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Firm heterogeneity, international cooperations and export participation By Castellacci, Fulvio
  2. Business groups, foreign direct investment, and capital goods trade: The import behavior of Japanese affiliates By Belderbos, Rene; Wakasugi, Ryuhei; Zou, Jianglei
  3. Trade and Industrial Policies with Heterogeneous Firms: The Role of Country Asymmetries By Pflüger, Michael P.; Russek, Stephan
  4. How the iPhone Widens the United States Trade Deficit with the People’s Republic of China By Yuqing Xing; Neal Detert
  5. Export versus FDI in services By Ila Patnaik; Ajay Shah; Rudrani Bhattacharya
  6. Intra-industry Trade in an Enlarged Europe: Trend of Intra-industry Trade in the European Union and its Determinants By Yoo-Duk Kang
  7. Industry Level Evidence On Partisan Trade Policy: Tariff vs. Antidumping By Veysel Avsar
  8. Does China's Trade Expansion Help African Development? - A South-South Trade Model Approach By Yong HE
  9. Labor Market Effects of Trade and FDI: Recent Advances and Research Gaps By Pflüger, Michael P.; Blien, Uwe; Möller, Joachim; Moritz, Michael
  10. Bigger, Stronger, Farther… Relative performances of French exporting firms By Crozet, M.; Méjean, I.; Zignago, S.
  11. Coordination cost and the distance puzzle By Noblet, Sandrine; Belgodere, Antoine
  12. On the Development Strategy of Countries of Intermediate size - An Analysis of Heterogenous Fims in a Multiregion Framework By Forslid, Rikard; Okubo, Toshihiro
  13. A Note on Terms of Trade Shocks and the Wage Gap By Nicolas E Magud; David O Coble Fernandez
  14. EU-Asia Free Trade Areas? Economic and Policy Considerations By Michael G. Plummer
  15. The CIBS Trade Specialization: Opportunity or Threat? By L. Montalbano; S. Nenci
  16. The role of home and host country characteristics in FDI: firm-level evidence from Japan, Korea and Taiwan By Hayakawa, Kazunobu; Lee, Hyun-Hoon; Park, Donghyun
  17. A Gravity Approach to Modelling International Trade in South-Eastern Europe and the Commonwealth of Independent States: The Role of Geography, Policy and Institutions By Oxana Babecka Kucharcukova; Jan Babecky; Martin Raiser
  18. Recent Trends in Export Restrictions By Jeonghoi Kim
  19. Democracy and Trade Policy: the Role of Interest Groups By Kyounghee Lee
  20. Transfer pricing rules, OECD guidelines, and market distortions By Kristian Behrens; Susana Peralta; Pierre M. Picard

  1. By: Castellacci, Fulvio
    Abstract: The paper investigates the relationship between firms’ international cooperation strategies and export decision. It proposes an extension of the recent class of models of firm heterogeneity and trade according to which prospective exporters must engage in a cooperation agreement with a foreign partner in order to favour their market access and distribution activities overseas. The paper analyses the empirical relevance of this model by means of a new survey dataset providing information on the internationalization activities of 814 Norwegian firms in the service sectors for the period 2004-2006. The econometric results point out that international cooperation, both on existing and on innovative products, is indeed an important factor to foster the firms’ decision to enter the export market.
    Keywords: Export; firm heterogeneity; international cooperations; innovation; survey data
    JEL: L0 O1 F0
    Date: 2010
  2. By: Belderbos, Rene (UNU-MERIT, Maastricht University, and Katholieke Universiteit Leuven); Wakasugi, Ryuhei (University of Kyoto); Zou, Jianglei (ABN AMRO Bank)
    Abstract: We examine the impact of buyer-supplier relationships within business group on capital goods trade in the context of foreign direct investment by buyer firms and capital goods producers. A simple model in which cost-reducing relationship specific investments are underlying business group ties suggests that 1) foreign affiliates of business group firms have a greater propensity to import capital goods from the home country, increasing Japanese exports 2) if the establishment of overseas affiliates by business groups firms attracts FDI by their capital goods suppliers, the 'trade creating' impact of business group ties may disappear or even be reversed. Empirical analysis of capital goods imports by 1790 manufacturing affiliates operated abroad by Japanese multinational firms in 1996 provides broad support for these predictions and demonstrates a sizeable impact of buyer-supplier ties in business groups on trade. Affiliates of member firms of horizontal and vertical business groups with supplier ties exhibit a greater propensity to import from Japan, but this impact is mitigated or transformed into a smaller import propensity if the groups' capital goods producers have substantial manufacturing investments abroad.
    Keywords: : Multinational firms, imports, capital goods, FDI, business groups
    JEL: F23 F14 D21
    Date: 2010
  3. By: Pflüger, Michael P. (University of Passau); Russek, Stephan (University of Passau)
    Abstract: This paper explores the role of country asymmetries for trade and industrial policies with heterogeneous firms. Our analysis delivers a number of novel results. First, trade policies, infrastructure policies and industrial policies which improve the business conditions in one country have negative productivity and welfare effects on the trading partner. Second, symmetric trade liberalization is immiserizing for a trading partner whose business conditions are inferior. Third, there are gains from trade even for a country whose monopolistically competitive sector with heterogeneous firms is wiped out by the switch from autarky to trade.
    Keywords: firm heterogeneity, welfare, trade policies, industrial policies, business conditions
    JEL: F12 F13 F15 L25
    Date: 2010–12
  4. By: Yuqing Xing; Neal Detert (Asian Development Bank Institute)
    Abstract: In this paper, we use the iPhone as a case to show that even high-tech products invented by United States (US) companies will not increase US exports, but on the contrary exacerbate the US trade deficit. The iPhone contributed US$1.9 billion to the US trade deficit with the People’s Republic of China (PRC). Unprecedented globalization, well organized global production networks, repaid development of cross-country production fragmentation, and low transportation costs all contributed to rational firms such as Apple making business decisions that contributed directly to the US trade deficit reduction. Global production networks and highly specialized production processes apparently reverse trade patterns: developing countries such as the PRC export high-tech goods—like the iPhone—while industrialized countries such as the US import the high-tech goods they themselves invented. In addition, conventional trade statistics greatly inflate bilateral trade deficits between a country used as export-platform by multinational firms and its destination countries.
    Keywords: Sino-American trade deficit, transportation, specialized production processes
    JEL: F1
    Date: 2010
  5. By: Ila Patnaik; Ajay Shah; Rudrani Bhattacharya
    Abstract: In the literature on exports and investment, most productive firms are seen to invest abroad. In the Helpman et al. (2004) model, costs of transportation play a critical role in the decision about whether to serve foreign customers by exporting, or by producing abroad. We consider the case of tradable services, where the marginal cost of transport is near zero. We argue that in the purchase of services, buyers face uncertainty about product quality, especially when production is located far away. Firm optimisation then leads less productive firms to self-select themselves for FDI. We test this prediction with data from the Indian software industry and find support for it.
    Keywords: Economic models , Exports , Foreign investment , India , Productivity , Services sector , Software ,
    Date: 2010–12–13
  6. By: Yoo-Duk Kang (Korea Institute for International Economic Policy)
    Abstract: In this paper I examine the evolution of intra-industry trade (IIT) in intra-European trade in the period of accession of the Central and Eastern European countries (CEEC). In order to identify changes in IIT in intra-European trade, I calculate the Grubel and Lloyd index for the static dimension and Brülhart A index for the dynamic dimension. Based on Grubel and Lloyd index, I conduct gravity-type empirical tests to verify determinants of IIT at the intra-European level. I find that CEECs experienced considerable increase in IIT, particularly during transitional periods before their accession. However, the level of IIT between CEECs is still considerably low. Given that a trade-investment nexus exists to explain IIT in intra-European trade, IIT in CEECs can increase further, as they receive more FDI from their neighbors.
    Keywords: Intra-industry trade, foreign direct investment, EU enlargement, European integration
    JEL: F14 F15
    Date: 2010
  7. By: Veysel Avsar (Department of Economics, Florida International University)
    Abstract: This paper empirically examines the influence of political partisanship on antidumping protection, which has become the most frequently used ontingent trade remedy in the last 20 years. Supporting earlier studies of ideology-based trade policy, we first show that the prediction of the partisan model also holds at the industry level. Employing recently available data on industry protection and production, our results confirm that the tariff level for an industry is increasing in the labor intensity of that industry when there is a left-wing (pro-labor) government in power. In addition, following the substitution argument of tariff and antidumping initiations, we show that an increase in the leftist orientation of the government makes labor intensive industries, which already grant higher protection via tariff, less likely to file an antidumping petition. The evidence on the governments¡¯ decision to impose antidumping duty also demonstrates that the increase in the leftist orientation of the governments is associated with an increase in the likelihood of an affirmative antidumping outcome for the petitions of labor intensive industries. Although antidumping is an administrative protection which includes a set of necessary procedures and rules to follow, our findings clearly points out the political bias in AD actions in the form of partisan preferences.
    Keywords: Antidumping, Political Ideology, Trade Liberalization
    JEL: F13 F14
    Date: 2010–12
  8. By: Yong HE (Centre d'Etudes et de Recherches sur le Développement International)
    Abstract: With the aim to explain the explosive growth of trade between China and Africa, especially the impacts of China's exportation on African countries, a simple South-South trade model is constructed to formulate the idea that for a technologically backward country to improve its production capability, when there exists nontrivial substitution effects, it is better to import from a South country which has superior technology, than from a North country with enormous technological advance. Then the Comtrade panel data are used to assess the impacts of imports from China (in comparison with those from the USA and France) on Sub-Saharan African manufactured exports (as proxies of their production performances). The results confirm the inference drawn from the model.
    Keywords: South-South trade, impact of Chinese exportation on Africa, technology spillover effects, intermediate goods, substitution effects.
    JEL: C23 F14 O33
    Date: 2010
  9. By: Pflüger, Michael P. (University of Passau); Blien, Uwe (IAB, Nürnberg); Möller, Joachim (IAB, Nürnberg); Moritz, Michael (IAB, Nürnberg)
    Abstract: This paper pursues three aims. First, we provide a review of current theoretical advances which pertain to the relationship between trade, FDI and labor markets. We do so under the following (not mutually exclusive) headings: (1) slicing-up the value added chain and the turn to a task-based approach, (2) firm heterogeneity and labor markets, (3) complex offshoring (integration) and sourcing strategies and (4) location of firms and labor markets. Second, we overview existing empirical work covering the labor market effects of trade and FDI. Finally, we identify and summarize the existing research gaps and thereby we highlight promising avenues for future research.
    Keywords: offshoring, outsourcing, FDI, trade, labor markets, agglomeration
    JEL: F16 F23 R12 J60
    Date: 2010–12
  10. By: Crozet, M.; Méjean, I.; Zignago, S.
    Abstract: This article examines the performances of French exporting firms. Using a highly detailed database, we confirm that exporting firms are much bigger, more productive and more profitable than domestic ones. This difference is particularly strong for firms exporting to non-EU markets, and for small businesses. For large businesses, the discrepancy between exporters and domestic firms is fairly small, and non-significant in some industries and for firms that only export to EU destinations. Our results suggest that export-enhancing public policies should target small businesses and firms attempting to export to remote countries.
    Keywords: Exporting firms, Productivity, Competitiveness.
    JEL: F1
    Date: 2010
  11. By: Noblet, Sandrine; Belgodere, Antoine
    Abstract: Since 1960, transport costs have been falling, but international exchange did not become less sensitive to distance. We propose the following explanation for this puzzle: in a Dixit-Stiglitz framework, a decrease in transport cost favors trade, which may increase the international specialization (i.e. the number of varieties of intermediate goods used in production). An increased international specialization increases the need for coordination, and makes relatively more important for downstream firms to be close to their suppliers. As a result, trade increases with all partners, but more quickly for neighbors than for distant countries.
    Keywords: Transport cost ; coordination cost ; international trade ; distance puzzle
    JEL: D23 F12
    Date: 2010–12
  12. By: Forslid, Rikard (Dept. of Economics, Stockholm University); Okubo, Toshihiro (Kobe University)
    Abstract: This paper compares two policies: trade cost reduction and firm relocation cost reduction using a three-country version of a heterogeneous-firms economic geography model, where the three countries have different market (population) size. We show how the effects of the two policies differ, in particular, for the country of intermediate size. Unless the intermediate country is very small, it will gain industry when relocation costs are reduced, but lose industry when trade costs are reduced. The smallest country loses industry in both cases, but only experiences lower welfare in the case of lower relocation costs. Thus, the ranking of the policies from the point of view of the two small and intermediate countries tends to be the opposite.
    Keywords: Agglomeration; firm heterogeneity; multi-country model; trade liberalisation; relocation costs
    JEL: F12 F15 F21 R12
    Date: 2010–12–20
  13. By: Nicolas E Magud; David O Coble Fernandez
    Abstract: Using Chilean data, we document that for resource-rich small open economies the effects of terms of trade shocks on the wage gap (between skilled and unskilled workers) depend on factor intensities in the non-tradable sector, following the model in Galiani, Heymann, and Magud (2010). For a skilled-intensive non-tradable sector we show that improvements in the terms of trade benefit skilled workers. We also show that this relation holds at the industry level: the wage gap widens in skilled-intensive sectors while it shrinks in unskilled-intensive ones, the more so as terms of trade volatility decreases.
    Keywords: Chile , Developing countries , Economic models , Labor markets , Skilled labor , Terms of trade , Wages ,
    Date: 2010–12–06
  14. By: Michael G. Plummer (Asian Development Bank Institute)
    Abstract: In this paper, we analyzed key aspects of the changing economic relationship between the European Union (EU) and Asia, and explored the potential economic ramifications of deeper EU-Asian economic cooperation. We also investigated the possible costs to the EU of remaining “disengaged” from the Asian integration process and the likely impact of multi-nested EU-Asian trade agreements. Our empirical review of CGE models revealed trivial effects of several possible EU-Asian accords (e.g., EU-India, EU-ASEAN, EU-Republic of Korea). In part, this is a result of relatively small trade shares, open markets, and restrictions in the models, particularly in that they excluded behind-the-border effects. We also presented two CGE models that estimated the potential negative effects of Asian/Asia-Pacific regional accords on the EU, and likewise found small effects. Nevertheless, using a highly-disaggregated (partial equilibrium) approach, we argued that high-quality FTAs in Asia could be quite detrimental to the EU, particularly in key sectors. The push toward a Free Trade Area of the Asia Pacific could be particularly worrisome to the EU. We therefore concluded that it makes sense for the EU to be more aggressive in pursuing prospective trade agreements with Asia.
    Keywords: EU-Asian economic cooperation, multi-nested trade agreements, CGE, free trade area
    JEL: F13 F15
    Date: 2010
  15. By: L. Montalbano; S. Nenci
    Date: 2010–12
  16. By: Hayakawa, Kazunobu; Lee, Hyun-Hoon; Park, Donghyun
    Abstract: There is a large and growing empirical literature that investigates the determinants of outward foreign direct investment (FDI). This literature examines primarily the effect of host country characteristics on FDI even though home country characteristics also influence the decision of firms to invest abroad. In this paper, we examine the role of both host and home country characteristics in FDI. To do so, we constructed a firm-level database of outward FDI from Japan, Korea, and Taiwan. Our empirical analysis yields two main findings. First, host countries with better environment for FDI, in terms of larger market size, smaller fixed entry costs, and lower wages, attract more foreign investors. Second, firms from home countries with higher wages are more likely to invest abroad. An interesting and significant policy implication of our empirical evidence is that policymakers seeking to promote FDI inflows should prioritize countries with higher wages.
    Keywords: FDI, Multinational firm, Firm heterogeneity, Foreign investments, International business enterprises, Industrial management, Productivity
    JEL: D24 F21 F23
    Date: 2010–12
  17. By: Oxana Babecka Kucharcukova; Jan Babecky; Martin Raiser
    Abstract: Since the beginning of market reforms in 1989, the countries of South-Eastern Europe (SEE) and the Commonwealth of Independent States (CIS) have been trading significantly less with the world economy than those Central and Eastern European (CEE) countries which later joined the EU. To explain why this is the case, a number of hypotheses have been proposed in the literature. The key novelty of our study consists in a simultaneous assessment of the contribution to trade of geographical, policy and institutional factors during the EU pre-accession period (1997–2004). An augmented gravity model is proposed and estimated for a reference group of 82 countries, employing the Poisson and Tobit estimation techniques. We find that low quality of economic institutions in the SEE and CIS countries accounted for a considerable proportion of their below-potential international trade. We perform policy simulations using institutional data up to 2008 to identify channels for increasing the international trade of the SEE and CIS countries.
    Keywords: Gravity model of trade, Poisson estimator, Tobit estimator, transition economies.
    JEL: F13 F15 P33
    Date: 2010–11
  18. By: Jeonghoi Kim
    Abstract: Prices for commodities such as minerals and metals have increased significantly over the past few years. At the same time, there has also been an increase in restrictions on the export of raw materials which has led policy makers and business people to address free trade of raw materials. This paper provides information on the present situation regarding the use of export restrictions and international disciplines on these measures. Export restrictions are maintained to achieve diverse policy objectives, including environmental protection or conservation of natural resources, promotion of downstream processing industries, controlling inflationary pressures, and for fiscal receipts reasons. Export restrictions take various forms such as export duties, quantitative restrictions, and licensing requirements. The number of countries applying export duties over the period 2003-2009 was higher than in previous years and that such duties were introduced primarily by developing and least developed countries. Under the current WTO rules, unlike quantitative export restrictions which are in principle prohibited, there is no substantive discipline on export duties, although there have been efforts to revise this at the multilateral and bilateral levels. The WTO accession process imposes several disciplines. Export restrictions have also been discussed during the DDA negotiations in both NAMA (Non-Agricultural Market Access) and agriculture negotiations. Several regional trade agreements (RTAs) went beyond the WTO by including prohibition of export duties. Export restrictions, by creating a differential between the price available to domestic processors and the price charged to foreign processors, provide domestic processing industries with an advantage. Although several governments apply export restrictions to achieve diverse policy objectives, not all rely on such restrictions. Alternative policy options with different trade impacts are used. In view of the significant impacts of export restrictions on global supply chains, transparency on the use and implementation of such measures should be substantially improved.
    Keywords: transparency, accession, Doha Development Agenda, quantitative restrictions, regional trade agreements, Export restrictions, Raw materials, Export duties, Export licensing, food security, social objectives, conservation of natural resources, tariff escalation, terms-of-trade, fiscal receipts, trade policy review, Non-agricultural market access, subsidy, WTO disciplines
    Date: 2010–07–19
  19. By: Kyounghee Lee (Korea Institute for International Economic Policy)
    Abstract: As democracy develops and matures, the number of interest groups attempting to voice their interests with respect to trade policies tends to increase, and sometimes governments collide with them in the process of enacting restraints. This paper aims to investigate empirically the role of interest groups in Korea's trade policy, utilizing the Grossman and Helpman (1994). Contrary to prevailing wisdom, the results of our empirical investigation suggest that a greater level of participation by diverse interest groups actually promotes trade liberalization, as different groups offset each other's demands in the act of obtaining government protection. The findings imply that "openness and pluralism" with respect to interest groups is necessary if better strategies for trade liberalization are to be developed.
    Keywords: trade policy, interest groups, democracy, political economy, Korea
    JEL: F13 F59
    Date: 2010
  20. By: Kristian Behrens (Université du Québec à Montréal (UQAM), Canada; CORE, Université catholique de Louvain, Belgium; CIRPÉE, Canada; and CEPR, London); Susana Peralta (Universidade Nova de Lisboa, Portugal; CORE, Université catholique de Louvain, Belgium, and CEPR); Pierre M. Picard (CREA, Université du Luxembourg, Luxembourg; and CORE, Université catholique de Louvain, Belgium)
    Abstract: We study the impact of transfer pricing rules on sales prices, firms' organizational structure, and consumers' utility within a two-country monopolistic competition model featuring source-based profit taxes that differ across countries. Firms can either become multinationals, i.e., they serve the foreign market through a fully controlled a¢ liate; or they can become exporters, i.e., they serve the foreign market by contracting with an independent distributor. Compared to the benchmark cases, where tax authorities are either unable to audit firms or where they are able to audit them perfectly, the use of the OECD's Comparable Uncontrolled Price (CUP) or Cost-Plus (CP) rule distorts firms' output and pricing decisions. The reason is that the comparable arm's length transactions between exporters and distributors, which serve as benchmarks, are not efficient. We show that implementing the CUP or CP rules is detrimental to consumers in the low tax country, yet benefits consumers in the high tax country.
    Keywords: transfer pricing; OECD guidelines; multinationals and exporters; organizational choice; arm's length principle
    JEL: F12 H25 H26 H87 L14
    Date: 2010

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