nep-int New Economics Papers
on International Trade
Issue of 2011‒02‒05
thirteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Vertical specialization, intermediate tariffs, and the pattern of trade: assessing the role of tariff liberalization to U.S. bilateral trade 1989-2001 By Shalah Mostashari
  2. FDI and Export Upgrading By Torfinn Harding; Beata Smarzynska Javorcik
  4. Processing Trade, Exchange Rates and China’s bilateral Trade Balances By Yuqing Xing
  5. Measuring Costs And Benefits Of Non-Tariff Measures In Agri-Food Trade By Beghin, John C.; Disdier, Anne-Celia; Marette, Stephan; van Tongeren, Frank
  6. The choice of transport technology in the presence of exports and FDI By José Pedro Ponte; Armando J. Garcia Pires
  7. Signaling and technological marketing tools for exporters By Ferro, Esteban
  8. Monopolistic Competition and North-South Trade By Reza Oladi; John Gilbert
  9. U.S. trade and inventory dynamics By George Alessandria; Joseph P. Kaboski; Virgiliu Midrigan
  10. Myopic or farsighted : bilateral trade agreements among three symmetric countries By Tsubota, Kenmei; Kawasaki, Yujiro
  11. Payment decoupling and the intra-European calf trade By Prehn, Sören; Brümmer, Bernhard; Thompson, Stanley R.
  12. Trade Barriers and the Price of Nontradables Relative to Tradables By Sposi, Michael J.
  13. The Relationship between Location-Bound Advantages and International Strategy: An Empirical Investigation By Lo, Fang-Yi; Mahoney, Joseph T.; Tan, Danchi

  1. By: Shalah Mostashari
    Abstract: How important are intermediate tariffs in determining trade patterns? Empirical work measuring the impact of tariff liberalization most commonly focuses on the effects of barriers imposed by importers, but exporter trade policy should also matter when exports are produced with imported intermediates. Guided by extensions of the Eaton and Kortum (2002) model, I study the impact of trade liberalizations on U.S. bilateral trade from 1989-2001. I estimate the impact on U.S. bilateral trade flows of both intermediate tariffs imposed by countries exporting to the United States and U.S. tariffs. My empirical estimates suggest that, especially for less developed countries, their own liberalizations have been quantitatively much more important in explaining changes in bilateral trade patterns, on average 4.2 times larger than the impact of US liberalizations. For the entire sample of countries, countries' own liberalizations have been 2.2 times more important.
    Keywords: Tariff ; Trade barriers
    Date: 2011
  2. By: Torfinn Harding; Beata Smarzynska Javorcik
    Abstract: The debate on trade and growth increasingly focuses on the composition of exports. Exports of more “sophisticated” products appear to be positively correlated with growth, and upgrading the quality of exports is high on the policy agenda of many countries. This study presents evidence suggesting that attracting inflows of FDI offers potential for raising the quality of exports in developing countries. Our empirical analysis relates unit values of exports measured at the 4-digit SITC level to data on sectors treated by investment promotion agencies as priority in their efforts to attract FDI. The sample covers 105 countries over the period 1984-2000. The findings are consistent with a positive effect of FDI on unit values of exports in developing countries. The evidence for high income economies is ambiguous. When we examine the link between FDI and the overlap between the export structure of developing and high income economies (“export sophistication”), we find no evidence of FDI increasing the similarity of export structure between the two groups.
    Keywords: Export quality, unit values, FDI, investment promotion, industrial policy
    JEL: F10 L52 F21 F23
    Date: 2011
  3. By: Christopher Edmonds (University of Hawaii at Manoa, CTAHR, Center on the Family); Yao Li (College of Management and Economics at University of Electronic Science and Technology of China)
    Abstract: This paper analyzes China’s trade relationships using a new trade intensity index, which incorporates gravity model estimation, to compare observed trade levels with levels would be expected to prevail given the economic, geographic, and cultural characteristics of the trading partners. The index is calculated to study China’s bilateral trade intensity, and uses Japan as a comparative case. Standard trade intensity index measures suggest China trades at a very intensive level with countries in East and Southeast Asia (ESA) and at a low level with countries in Europe (EU) and US-Canada (USC). The gravity model based index indicates that China’s level of trade with countries in the ESA region is consistent with levels that would be expected given the countries’ characteristics, while China’s level of trade with EU and USC are greater than one would expect given their characteristics. The new index also reveals insights regarding the evolution of China’s trade partners during the years 1988-2005. The paper’s results suggest the gravity model adjusted trade intensity index can provide a useful analytical tool for identifying strategic or other deviations in trade levels.
    Keywords: Gravity model, Trade Intensity Index, Bilateral Trade, China
    JEL: F14 F13 C43
    Date: 2010–12–12
  4. By: Yuqing Xing (National Graduate Institute for Policy Studies)
    Abstract: This paper analyzed the role of processing trade in China’s bilateral trade balances and the impact of the yuan’s appreciation on processing trade. The analysis is based on a panel data covering China’s 51 major trading partners from 1993-2008. The empirical analysis shows that: (1) processing trade accounted for 100% of China’s overall trade surplus and could explain most of China’s bilateral trade balances; (2) China’s processing trade shows a significant regional bias. While China has maintained a surplus with all G-7 countries in processing trade, it has run a significant deficit with most of East Asian economies; (3) East Asian economies are major sources and account for 77% of China’s processing imports. The econometric analysis reveals that processing imports from East Asian is eleven times of that from other regions; (4) the response of processing imports to the yuan’s appreciation differs with that of normal trade. Specifically, a 10% real appreciation of the yuan will reduce rather than increase China’s processing imports by 3.9%. Given that processing exports will decrease 9.6% for the same appreciation and China’s trade surplus is mainly generated from processing trade, a moderate appreciation of the yuan would have a very limited impact on China’s trade balance.
    Keywords: Processing Trade, Exchange Rates, China
    Date: 2011–01
  5. By: Beghin, John C.; Disdier, Anne-Celia; Marette, Stephan; van Tongeren, Frank
    Abstract: This paper provides a systematic welfare-based approach to analyze the impact of non-tariff measures (NTMs) on trade and welfare in presence of market imperfections. We focus on standard-like measures such as technical barriers and sanitary and phytosanitary regulations. The approach overcomes the shortcomings of the mainstream approach based on the analysis of forgone trade caused by trade costs. The latter ignores market imperfections: welfare increases when NTMs are removed and trade expands. We explain how to account for external effects and market failures in trade-focused welfare analysis, leading to a more balanced overall assessment of measures despite a potential reduction of trade flows. We show that the relationship between trade, welfare, and NTMs is complex. The optimum NTM is often not zero. An application to shrimp trade illustrates the feasibility of the proposed approach. The illustration shows that the reinforcement of a food safety standard can be socially preferable to the status-quo situation, both domestically and internationally
    Keywords: externality; trade; Welfare; Non-tariff measures; NTM
    JEL: D61 D62 F13 Q17
    Date: 2011–01–24
  6. By: José Pedro Ponte (Instituto Superior de Economia e Gestão, Technical University of Lisbon, Rua Miguel Lupi 20, 1249-078 Lisboa, Portugal); Armando J. Garcia Pires (Institute for Research in Economics and Business Administration (SNF), Breiviksveien 40, 5045 Bergen, Norway)
    Abstract: In a set-up with intermediate production, we analyze how a shipper's choice of transport technology, traditional versus modern, interacts with the mode of foreign expansion by an service firm, export versus foreign direct investment (FDI).
    Keywords: Transport Technology, Foreign Direct Investment, Trade, Service Sector, Firm Location
    JEL: F23 L12 R30 R40
    Date: 2010–12
  7. By: Ferro, Esteban
    Abstract: Besides superior productivity, what other firm characteristics are associated with export success? This empirical study identifies the effects of signaling tools (foreign technical license, International Standards Organization certification, and review of financial statements) and Internet tools (email and website) on export frequency and intensity of firms in developing countries. Using data from the World Bank’s Enterprise Survey, the author finds that productivity, size, foreign ownership, International Standards Organization certification, and the use of Internet tools have positive effects on the probability of exporting and on the intensive margin of trade. International Standards Organization certified firms are 22 percent more likely to be exporters, whereas firms that use their own website to communicate with clients and suppliers increase the likelihood they export by 11 percent. Among exporting firms, those that are International Standards Organization certified sell 41 percent more abroad than firms that are not certified. Firms that use email sell 31 percent more in foreign markets than exporting firms that do not.
    Keywords: Economic Theory&Research,E-Business,Microfinance,Labor Policies,Markets and Market Access
    Date: 2011–01–01
  8. By: Reza Oladi; John Gilbert (Department of Economics and Finance, Utah State University)
    Abstract: We examine the consequences of opening to international trade for a developing economy with open urban unemployment and rural-urban migration, where the urban sector is monopolistically competitive. We show that there exists a threshold level of urbanization prior to which increases in product variety will be reflected in increased urban unemployment, that opening to intra-industry trade with a high-wage economy (i.e., North-South trade) will reduce the rate of urban unemployment by a greater amount than intra-industry trade with a similar economy, and that trade intervention in the South may lower welfare by reducing varieties produced in the North.
    Keywords: Trade and monopolistic competition, Urban unemployment, North-South trade
    JEL: F12 F13 F16 O18
    Date: 2011–01–20
  9. By: George Alessandria; Joseph P. Kaboski; Virgiliu Midrigan
    Abstract: The authors examine the source of the large fall and rebound in U.S. trade in the recent recession. While trade fell and rebounded more than expenditures or production of traded goods, they find that relative to the magnitude of the downturn, these trade fluctuations were in line with those in previous business cycle fluctuations. The authors argue that the high volatility of trade is attributed to more severe inventory management considerations of firms involved in international trade. They present empirical evidence for autos as well as at the aggregate level that the adjustment of inventory holdings helps explain these fluctuations in trade.
    Keywords: Trade ; Financial crises ; Inventories
    Date: 2011
  10. By: Tsubota, Kenmei; Kawasaki, Yujiro
    Abstract: We examine network formation via bilateral trade agreement (BTA) among three symmetric countries. Each government decides whether to form a link or not via a BTA depending on the differential of ex-post and ex-ante sum of real wages in the country. We model the governmental decision in two forms, myopic and farsighted and analyze the effects on the BTA network formation. Firstl, we find that both myopic and farsighted games never induce the formation of star networks nor empty networks. Second, the networks resulting from myopic game coincides with those resulting from farsighted games.
    Keywords: International trade, International agreements, Trade policy, Endogenous network formation, Bilateral trade agreement, Myopic and farsighted behavior
    JEL: F14 F15
    Date: 2011–01
  11. By: Prehn, Sören; Brümmer, Bernhard; Thompson, Stanley R.
    Abstract: The 2003 reforms of the Common Agricultural policy of the European Union introduced decoupled income transfers as the most prominent policy instrument. However, member states were given substantial discretion over the degree and timing of the reform implementation. As a result, different implementation schemes coexist within the EU, keeping certain parts of the income support coupled to current production levels. This coexistence leads to distortions of production incentives, factor misallocations, and artificial trade flows. Here, we examine these effects in the beef sector where full decoupling was not obligatory for all member states. Based on a cost minimization framework, we derive a sector-specific trade model with heterogeneous firms and quality differences. The model is used to examine the effects of different implementation schemes on intra-European calf trade. Empirical results confirm that the expected distortions to trade flows occured, violating the fundamental CAP principle of Market Unity. --
    Keywords: 2003 CAP Reform,Partial Decoupling,Intra-European Calf Trade,Gravity Model,Heterogeneous Firms Trade Model
    JEL: F13 F14 Q17
    Date: 2010
  12. By: Sposi, Michael J.
    Abstract: This paper addresses the question of why the price of nontradables relative to tradables is positively correlated with income per worker. I construct a two-sector model in which agents differ with respect to managerial ability. Agents sort themselves by choosing to become a worker, a manager in nontradables, or a manager in tradables. A fixed cost of exporting places the most productive managers in the tradable sector, and the magnitude of the fixed cost determines the extent of this margin. Fixed costs together with trade costs determine the amount of competition across sectors which in turn determines prices across sectors. The calibrated model explains more than 60% of the cross-country differences in the relative price of nontradables, due to the presence of larger fixed costs in poor countries combined with nontrivial import costs.
    Keywords: relative prices; PPP; tradables; nontradables; competition
    JEL: F16 F10 F12
    Date: 2010–12–01
  13. By: Lo, Fang-Yi (Feng Chia University); Mahoney, Joseph T. (University of Illinois); Tan, Danchi (National Chengchi University)
    Abstract: This paper examines the impact of location-bound advantage on the internationalization strategy of multinational enterprises (MNEs). The extant research literature suggests that an advantage's location boundedness may be driven by: the nature of the firm advantage; organizational embeddedness, and environmental embeddedness. We posit that these different drivers of location boundedness exert different impacts on internationalization strategies. Our empirical results reveal that organizational embeddedness lowers the breadth of internationalization of MNEs, and increases the tendency of these firms to employ a global strategy. We also find that MNEs whose advantages are tacit and complex have a lower depth of internationalization and are more likely to expand into culturally similar countries. Finally, our results show that MNEs whose advantages are highly embedded in the home environment tend to adopt a multi-domestic strategy and decentralized organizational structures.
    Date: 2010

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