nep-int New Economics Papers
on International Trade
Issue of 2011‒01‒16
24 papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Cross-country heterogeneity and the trade-income relationship By Dierk Herzer
  2. International Trade, Offshoring and Heterogeneous Firms By Richard Baldwin; Toshihiro Okubo
  3. Dissecting the Effect of Credit Supply on Trade: Evidence from Matched Credit-Export Data By Paravisini, Daniel; Rappoport, Veronica; Schnabl, Philipp; Wolfenzon, Daniel
  4. The Extensive Margin of Exporting Products: A Firm-level Analysis By Costas Arkolakis; Marc-Andreas Muendler
  5. Uunderstanding the benefits of regional integration to trade : the application of a gravity model to the case of Central America By Gordillo, Darwin Marcelo; Stokenberga, Aiga; Schwartz, Jordan
  6. How Costly is Modern Maritime Piracy for the International Community? By Inmaculada Martínez-Zarzoso; Sami Bensassi
  7. Gravity Chains: Estimating Bilateral Trade Flows When Parts And Components Trade Is Important By Richard Baldwin; Daria Taglioni
  8. Revisiting the evidence on trade policy protections By Bruce A. Blonigen
  9. Trade Liberalization, Environmental Regulation and Self-Regulation of Multinational Firms By Fabrice DARRIGUES; Jean-Marc MONTAUD
  10. A two-dimensional analysis of the impact of outward FDI on performance at home: evidence from Japanese manufacturing firms By Obashi, Ayako; Hayakawa, Kazunobu; Matsuura, Toshiyuki; Motohashi, Kazuyuki
  11. Trade and the Global Recession By Jonathan Eaton; Samuel Kortum; Brent Neiman; John Romalis
  12. China’s effect on Latin America’s international trade By Claudio E. Montenegro; Mariana Pereira; Isidro Soloaga
  13. Do private inspection programs affect trade facilitation ? By Velea, Irina; Cadot, Olivier; Wilson, John S.
  14. The EU strategy of policy convergence with its neighbours in the area of trade By Patricia Garcia-Duran; Montserrat Millet
  15. "Political Economy of Trade Liberalization: The Case of Postwar Japan" (in Japanese) By Tetsuji Okazaki
  16. Investment promotion agencies: do they work? By Hayakawa, Kazunobu; Lee, Hyun-Hoon; Park, Donghyun
  17. Trade and Labor Market Outcomes By Elhanan Helpman; Oleg Itskhoki; Stephen Redding
  18. Trade barrier volatility and domestic price stabilization : evidence from agriculture By Anderson, Kym; Nelgen, Signe
  19. The Stability of Export-led Growth Hypothesis: Evidence from Asia's Four Little Dragons By Tang, Chor Foon; Lai, Yew Wah
  20. Services trade liberalization and regulatory reform : re-invigorating international cooperation By Hoekman, Bernard; Mattoo, Aaditya
  21. The Evolution and Changing Geographical Structure of World Agri-food Trade, 1950-2000. By Raúl Serranoa; Vicente Pinilla
  22. Economic Integration and Productive Specialization in the EU27: does FDI influence Countries' Specialization? By Natalia VECHIU; Farid MAKHLOUF
  23. The Wage Effects of Immigration and Emigration By Frédéric Docquier; Çaǧlar Özden; Giovanni Peri
  24. European Integration and Labour Migration By d'Artis Kancs; Julia Kielyte

  1. By: Dierk Herzer (Bergische Universität Wuppertal / Germany)
    Abstract: This paper makes the following contributions to the literature on the impact of trade on income. First, we use heterogeneous panel cointegration techniques that are robust to omitted variables and endogenous regressors to estimate the effect of trade on income for 75 developed and developing countries, both for the sample, as a whole, and for each individual country. Second, we use a general-to-specific variable-selection approach to identify important determinants of the effect of trade on income. Our main findings are: (i) A one-percent increase in the trade share of GDP results, on average, in a statistically significant increase in income per worker of about 0.18 percent. This result is in contrast to previous studies, which tend to produce either unreasonably large or statistically insignificant estimates of the impact of trade on income. (ii) There are large cross-country differences in the income effect of trade, in particular, between developed and developing countries. For developed countries the income effect of trade is positive, whereas trade has, on average, a negative impact on income in developing countries. (iii) The cross-country heterogeneity in the impact of trade on income can be explained mainly by cross-country differences in primary export dependence, labor market regulation, and property rights protection. The level of property rights protection is positively related, while the levels of primary export dependence and labor market regulation are negatively related to the income effect of trade.
    Keywords: Trade; Income; Cross-country heterogeneity; Panel cointegration; General-to-specific approach
    JEL: F43 F14 C23 C52
    Date: 2011–01–07
  2. By: Richard Baldwin; Toshihiro Okubo
    Abstract: Recent trade models determine the equilibrium distribution of firm-level efficiency endogenously and show that freer trade shifts the distribution towards higher average productivity due to entry and exit of firms. These models ignore the possibility that freer trade also alters the firm-size distribution via international firm migration (offshoring); firms must, by assumption, produce in their ’birth nation.’ We show that when firms are allowed to switch locations, new productivity effects arise. Freer trade induces the most efficient small-nation firms to move to the large nation. The big country gets an ‘extra helping’ of the most efficient firms while the small nation’s firm-size distribution is truncated on both ends. This reinforces the big-nation productivity gain while reducing or even reversing the small-nation productivity gain. The small nation is nevertheless better off allowing firm migration.
    JEL: F1 F12 F2
    Date: 2011–01
  3. By: Paravisini, Daniel (Columbia GSB); Rappoport, Veronica (Columbia GSB); Schnabl, Philipp (NYU Stern); Wolfenzon, Daniel (Columbia GSB)
    Abstract: This paper presents evidence on the effect of credit supply shocks on exports. Capital flow reversals in Peru during the 2008 financial crisis induced a decline in the supply of credit by domestic banks with high share of foreign-currency denominated liabilities. We use this variation to estimate the elasticity of exports to bank credit. We use matched customs and firm-level bank credit data to control for non-credit related factors that may also affect the level of exports: we compare changes in exports of the same product and to the same destination by firms borrowing from different banks. Exports react strongly to changes in the supply of credit in the intensive margin, irrespectively of the firms' export volume. In the extensive margin, the negative credit supply shock increases the probability of exiting a product-destination export market, but does not significantly affect the number of firms entering an export market. The magnitude of the respective elasticities, as well as their heterogeneity across firm and export flow observable characteristics, are estimated.
    Date: 2010–12
  4. By: Costas Arkolakis; Marc-Andreas Muendler
    Abstract: We use a panel of Brazilian exporters, their products, and destination markets to document a set of regularities for multi-product exporters: (i) few top-selling products account for the bulk of a firm's exports in a market, (ii) the distribution of exporter scope (the number of products per firm in a market) is similar across markets, and (iii) within each market, exporter scope is positively associated with average sales per product. Our data also show that firms systematically export their highest-sales products across multiple destinations. To account for these regularities, we develop a model of firm-product heterogeneity with entry costs that depend on exporter scope. Estimating this model for the within-firm sales distribution we identify the nature and components of product entry costs. We find that firms face a strong decline in product sales with scope but also that market-specific entry costs drop fast. Counterfactual experiments with globally falling entry costs indicate that a large share of the simulated increase in trade is attributable to declines in the firm's entry cost for the first product.
    JEL: F12 F14 L11
    Date: 2010–12
  5. By: Gordillo, Darwin Marcelo; Stokenberga, Aiga; Schwartz, Jordan
    Abstract: The paper identifies the impact of physical barriers to trade within Central America through the use of an augmented and partially constrained Gravity Model of Trade. Adjusting the Euclidian distance factor for Central America by real average transport times, the model quantifies the impact of poor connectivity and border frictions on the region's internal trade as well as its trade with external partners, such as the United States and Europe. In addition, the authors benchmark Central America's trade coefficients against those of a physically integrated region by running a parallel Gravity Model for the 15 core countries of the European Union. This allows for the estimation of potential intra-regional and external trade levels if Central America were to reduce border frictions and time of travel between countries and thus benefit from both the adjacency of each country's neighbors and the gravitational pull of the region's economies. The analysis is conducted for all of Central America's trade and is also disaggregated for three groups of products -- processed fruits and vegetables; steel and steel products; and grains -- by both volume and value. This differentiation tests the consistency of the results while providing insight into the differentiation in trading patterns and potential for these containerized, break-bulk, and bulk products. The results of the model include a potential doubling in intraregional exports if Central America could achieve the adjacency and time-distance factors of a truly integrated region. In addition, the region's combined exports to the European Union and the United States are projected to increase by more than a third compared with the current level, assuming European Union-level adjacency performance. Even more external trade benefits would accrue by reducing the economic penalty imposed by overland transport and border crossing inefficiencies.
    Keywords: Economic Theory&Research,Transport Economics Policy&Planning,Free Trade,Food&Beverage Industry,Trade Policy
    Date: 2010–12–01
  6. By: Inmaculada Martínez-Zarzoso (University of Goettingen / Germany); Sami Bensassi (Universitat Jaume I, Castellón / Spain)
    Abstract: This paper focuses on the impact of maritime piracy on international trade. Piracy increases the cost of international maritime transport through an increase in insecurity regarding goods deliveries. Bilateral trade flows between the main European and Asian countries over the 1999 to 2008 period are used to estimate an augmented gravity model that includes various measures of piracy acts. We found robust evidence indicating that maritime piracy reduces the volume of trade; the effect of ten additional vessels hijacked being associated to an 11% decrease in exports. Using these results, the international cost of piracy in terms of trade destruction is estimated to be 28 billion dollars. Finally, we compare the cost of low intensity conflict like Somalia, to the cost of a full scale conflict (Afghanistan) and to the cost of an autarkic state (North Korea) for the international community in the year 2008.The results indicate that the cost of war more than doubles the cost of low intensity conflict.
    Keywords: Piracy, International trade, Gravity equation, cost of conflict, security
    JEL: F10 F51
    Date: 2011–01–07
  7. By: Richard Baldwin; Daria Taglioni
    Abstract: Trade is measured on a gross sales basis while GDP is measured on a net sales basis, i.e. value added. The rapid internationalisation of production in the last two decades has meant that gross trade flows are increasingly unrepresentative of the value added flows. This fact has important implications for the estimation of the gravity equation. We present empirical evidence that the standard gravity equation model performs poorly by some measures when it is applied to bilateral flows where parts and components trade is important. It also provides a simple theoretical foundation for a modified gravity equation that is suited to explaining trade where international supply chains are important. Future drafts shall explore ways the model can be implemented empirically.
    JEL: F1 F15
    Date: 2011–01
  8. By: Bruce A. Blonigen (University of Oregon Economics Department)
    Abstract: Past literature has found evidence that labor market attributes affect individuals’ trade policy preferences in a manner consistent with theories of international trade. This paper shows that, with the exception of education, these relationships between labor market attributes and trade policy preferences are not robust in US survey data. This suggests that either our proxies of labor market attributes are poor or our theories for what drives trade policy preferences need to be revisited.
    Keywords: trade protection, skill, political economy
    JEL: F13 D73
    Date: 2010–11–15
  9. By: Fabrice DARRIGUES; Jean-Marc MONTAUD
    Abstract: Trade Liberalization, Environmental Regulation and Self-Regulation of Multinational Firms
    Date: 2010–11
  10. By: Obashi, Ayako; Hayakawa, Kazunobu; Matsuura, Toshiyuki; Motohashi, Kazuyuki
    Abstract: This paper empirically investigates two areas of changes in firm behavior and performance at home before and after investing abroad. The first change is dependent upon the type of foreign direct investment (FDI): horizontal FDI or vertical FDI. The second change is dependent upon the firm’s domestic activities: production activities or non-production activities. From a theoretical standpoint, the impact of outward FDIs differs not only by type, but according to the firm’s activities. By exploiting two types of firm-level data that enable us to distinguish between production and non-production activities, our paper provides a detailed picture of the intra-firm changes in behavior and performance that occur as a result of production globalization.
    Keywords: FDI, Multinational enterprises, Propensity score matching, International business enterprises, Manufacturing industries, Foreign investments, Industrial management
    JEL: F21 F23
    Date: 2010–12
  11. By: Jonathan Eaton; Samuel Kortum; Brent Neiman; John Romalis
    Abstract: Global trade fell 30 percent relative to GDP during the Great Recession of 2008-2009. Did this collapse result from factors impeding international transactions or did it simply reflect the greater severity of the recession in highly traded sectors? We answer this question with detailed international data, interpreted within a general-equilibrium trade model. Counterfactual simulations of the model show that a shift in spending away from manufactures, particularly durables, accounts for more than 80 percent of the drop in trade/GDP. Increased trade impediments reduced trade in some countries, but globally the impact of these changes largely cancels out.
    JEL: E3 F1 F4
    Date: 2011–01
  12. By: Claudio E. Montenegro (World Bank); Mariana Pereira (El Colegio de México); Isidro Soloaga (El Colegio de México)
    Abstract: This article presents, through gravity models and a correct definition of what is understood by lost opportunities, an analysis of aggregate trade flows aimed at identifying China’s effects on Latin America’s trade. The results obtained indicate that it is not possible to talk about lost opportunities for Latin America in the Chinese market, since all the groups included in the region present demand elasticities from China that are not lower versus the rest of the regions or country groups.
    Keywords: bilateral trade, gravity model, Poisson regression, China, Latin America
    JEL: F10 F12 F15
    Date: 2010–12
  13. By: Velea, Irina; Cadot, Olivier; Wilson, John S.
    Abstract: Private inspection of international shipments has been used over the last half-century for a variety of purposes. These include prevention of capital flight and improvement of import duty collection, among others. The existing literature has failed to find much impact of these inspection programs on collected tariff revenue or corruption at the border. This paper explores the"facilitation"effect of private inspection programs on trade. The results indicate that private inspection has a positive and significant trade-facilitation effect. These programs raise import volumes for countries using them by approximately 2 to 10 percent. The findings here also suggest that the benefit of private inspection of imports may be associated with reforms and best practices applied by private inspection firms. Private firms'inspection of cargo may promote faster clearance times and process reliability, rather than improved tax collection.
    Keywords: E-Business,Transport Economics Policy&Planning,Trade Law,Free Trade,Economic Theory&Research
    Date: 2010–12–01
  14. By: Patricia Garcia-Duran; Montserrat Millet (Universitat de Barcelona)
    Abstract: The objective of this paper is to ascertain whether the EU is seeking policy convergence with its neighbours in the area of trade by means of EU regulations. For each trade- related topic, we carried out a content analysis of the available official documents to identify the model of relations that has been established between the EU and four neighbouring countries (Morocco, Algeria, Ukraine and Georgia). The findings indicate that Europeanization is the EU strategy in most cases. However, adaptation to European regulations is only a long-term aim. When international regulations exist in a specific area, the EU usually demands the internationalization of a countrys regulations as a first step. When there are no international regulations, the convergence process is established on the basis of bilaterally developed norms. EU strategy also varies depending on the country. Its relations with Algeria are the most particular. We conclude that the EU is promoting policy convergence with its neighbours in the area of trade mainly on the basis of international and bilaterally-developed regulations.
    Keywords: normative power, eu neighbourhood policy, europeanization, eu trade relations
    JEL: F13 F50 F02
    Date: 2011
  15. By: Tetsuji Okazaki (Faculty of Economics, University of Tokyo)
    Abstract: This paper investigates the sequence of trade liberalization in postwar Japan and its determinants. As the Japanese government utilized the foreign exchange allocation system as a tool for the industrial policy, especially for protecting domestic industries, in the 1950s, trade liberalization was considered to give a serious impact on those industries, and designing the sequence of trade liberalization was an important policy issue. We indentified the timing of liberalization of each commodity using original official documents, and examined what factors affected on the timing. It was found that in designing the sequence of trade liberalization, the government took into account of competitiveness of domestic industries and survivability of small and medium-sized firms.
    Date: 2011–01
  16. By: Hayakawa, Kazunobu; Lee, Hyun-Hoon; Park, Donghyun
    Abstract: In this paper, we examine the role of investment promotion agencies (IPAs) in promoting outward FDI from Japan and Korea. Looking at two home countries enables us to control for both country-pair time-invariant characteristics and host country time-varying characteristics. Our empirical results suggest that home-country IPAs tend to be more effective in promoting outward FDI in politically risky host countries. However, this finding depends on whether the home-country firm is listed or unlisted. More specifically, we find that the positive effect of home country IPAs on outward FDI in politically risky countries is limited to unlisted home- country firms, which are widely assumed to be less competitive and productive.
    Keywords: FDI, Multinational firm, Firm heterogeneity, Investment promotion, Firm behavior, Foreign investments, International business enterprises, Administrative organization
    JEL: F21 F23
    Date: 2010–12
  17. By: Elhanan Helpman; Oleg Itskhoki; Stephen Redding
    Abstract: This paper reviews a new framework for analyzing the interrelationship between inequality, unemployment, labor market frictions, and foreign trade. This framework emphasizes firm heterogeneity and search and matching frictions in labor markets. It implies that the opening of trade may raise inequality and unemployment, but always raises welfare. Unilateral reductions in labor market frictions increase a country's welfare, can raise or reduce its unemployment rate, yet always hurt the country's trade partner. Unemployment benefits can alleviate the distortions in a country's labor market in some cases but not in others, but they can never implement the constrained Pareto optimal allocation. We characterize the set of optimal policies, which require interventions in product and labor markets.
    JEL: F12 F16 J64
    Date: 2011–01
  18. By: Anderson, Kym; Nelgen, Signe
    Abstract: National barriers to trade are often varied to insulate domestic markets from international price variability, especially following a sudden spike. This paper explores the extent of that behavior by governments in the case of agricultural products, particularly food staples whose prices have spiked three times over the past four decades. It does so using new annual estimates since 1955 of agricultural price distortions in 75 countries, updated to 2008. Responses by food importers to upward price spikes are shown to be as substantial as those by food exporters, thereby weakening the domestic price-stabilizing effect of intervention by exporters. They also add to the transfer of welfare to food-surplus from food-deficit countries -- the opposite of what is usually thought of when considering inter-sector trade retaliation. Phasing down World Trade Organization-bound import tariffs toward their applied rates would help reduce the legal opportunities for food-deficit countries to raise their import restrictions when international prices slump. To date there is no parallel discipline in the World Trade Organization that limits increases in export restrictions when prices spike upward, however. Bringing such discipline through new World Trade Organization rules could help alleviate the extent to which government responses to exogenous price spikes exacerbate those spikes.
    Keywords: Markets and Market Access,Emerging Markets,Food&Beverage Industry,Economic Theory&Research,Climate Change Economics
    Date: 2010–12–01
  19. By: Tang, Chor Foon; Lai, Yew Wah
    Abstract: The objective of this study is to re-investigate the export-led growth hypothesis for Asia’s Four Little Dragons using cointegration and rolling causality analyses. Employing both bivariate (exports and GDP) and trivariate (exports, GDP and exchange rate) models, the study finds that exports and GDP are cointegrated for all the four economies, implying that there is a long run relationship between the variables. However, the MWALD causality test results differ between the bivariate and trivariate models. The export-led growth hypothesis is valid only for the case of Hong Kong and Singapore in the bivariate model but valid for all four economies in the trivariate model. Furthermore, the rolling regression-based MWALD test shows that export-led growth in each of the four economies is not stable over their respective period of analysis.
    Keywords: Asia’s Four Little Dragons; Export-led growth; Rolling MWALD test
    JEL: O11 C22 F43
    Date: 2011
  20. By: Hoekman, Bernard; Mattoo, Aaditya
    Abstract: Trade and investment in services are inhibited by a range of policy restrictions, but the best offers so far in the Doha negotiations are on average twice as restrictive as actual policy. They will generate no additional market opening. Regulatory concerns help explain the limited progress. This paper develops two proposals to enhance the prospects for both liberalization of services trade and regulatory reform. The first is for governments to create mechanisms ("services knowledge platforms") to bring together regulators, trade officials, and stakeholders to discuss services regulatory reform. Such mechanisms could identify reform priorities and opportunities for utilization of"aid for trade"resources, thereby putting in place the preconditions for future market opening. The second proposal is for a new approach to negotiations in the World Trade Organization, with a critical mass of countries that account for the bulk of services production agreeing to lock-in applied levels of protection and pre-committing to reform of policies affecting foreign direct investment and international movement for individual service providers -- two areas where current policy is most restrictive and potential benefits from liberalization are greatest. If these proposals cannot be fully implemented in the Doha time frame, then any Doha agreement could at least lay the basis for a forward-looking program of international cooperation along the proposed lines.
    Keywords: Trade and Services,Public Sector Corruption&Anticorruption Measures,Emerging Markets,Economic Theory&Research,ICT Policy and Strategies
    Date: 2011–01–01
  21. By: Raúl Serranoa (Department of Business Administration, Universidad de Zaragoza, Spain.); Vicente Pinilla (Department of Applied Economics and Economic History, Universidad de Zaragoza, Spain.)
    Date: 2010
  22. By: Natalia VECHIU; Farid MAKHLOUF
    Abstract: Economic Integration and Productive Specialization in the EU27: does FDI influence Countries' Specialization?
    Date: 2010–11
  23. By: Frédéric Docquier; Çaǧlar Özden; Giovanni Peri
    Abstract: In this paper, we simulate the long-run effects of migrant flows on wages of high-skilled and low-skilled non-migrants in a set of countries using an aggregate model of national economies. New in this literature we calculate the wage effect of emigration as well as immigration. We focus on Europe and compare the outcomes for large Western European countries with those of other key destination countries both in the OECD and outside the OECD. Our analysis builds on an improved database of bilateral stocks and net migration flows of immigrants and emigrants by education level for the years 1990 through 2000. We find that all European countries experienced a decrease in their average wages and a worsening of their wage inequality because of emigration. Whereas, contrary to the popular belief, immigration had nearly equal but opposite effects: positive on average wages and reducing wage inequality of non-movers. These patterns hold true using a range of parameters for our simulations, accounting for the estimates of undocumented immigrants, and correcting for the quality of schooling and/or labor-market downgrading of skills. In terms of wage outcomes, it follows that prevalent public fears in European countries are misplaced; immigration has had a positive average wage effect on native workers. Some concerns should be focused on the wage effect of emigration, instead.
    JEL: F22 J31 J61
    Date: 2010–12
  24. By: d'Artis Kancs; Julia Kielyte
    Abstract: The present paper studies how European integration might affect the migration of workers in the enlarged EU. Unlike the reduced-form migration models, we base our empirical analysis on the theory of economic geography à la Krugman (1991), which provides an alternative modelling of migration pull and push factors. Parameters of the theoretical model are estimated econometrically using historical migration data. Our empirical findings suggest that European integration would trigger selective migration between the countries in the enlarged EU. In the Baltics, Lithuania would gain about 7.25% of the total work force. In the Visegrád Four, the share of the mobile labour force would increase the most in Hungary, 8.35%, compared to the pre-integration state. Our predictions for the East-West migration are moderate and lower than those of reduced-form models: between 5.44% (from the Baltics) and 3.61% (from the Visegrád Four) would emigrate to the EU North. Because migrants not only follow market potential, but also shape the region’s market potential, the long-run agglomeration forces are sufficiently weak to make a swift emergence of a core-periphery pattern in the enlarged EU very unlikely.
    Keywords: New economic geography; Market potential; Labour migration; Economic integration.
    JEL: F12 L11 R12 R23
    Date: 2010–07–27

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