nep-int New Economics Papers
on International Trade
Issue of 2011‒03‒19
nineteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Export Performance of China's Domestic Firms: the Role of Foreign Export Spillovers By Florian Mayneris; Sandra Poncet
  2. Export Performance and Credit Constraints in China By Joachim Jarreau; Sandra Poncet
  3. Wholesalers in International Trade By Matthieu Crozet; Guy Lalanne; Sandra Poncet
  4. Does WTO Matter for the Extensive and the Intensive Margins of Trade? By Dutt, Pushan; Mihov, Ilian; Van Zandt, Timothy
  5. Export Performance and Determinants in Ethiopia By Menji, Sisay
  6. Comparative Advantage and Within-Industry Firms Performance By Matthieu Crozet; Federico Trionfetti
  7. Trade and the Skill Premium Puzzle with Capital Market Imperfections By Bonfatti, Roberto; Ghatak, Maitreesh
  8. Strategic Investment and the Gains from Trade By Gerda Dewit; Dermot Leahy
  9. Trade Complementarity and Similarity Between India and Asean Countries in the context of the RTA By Sarath Chandran, B.P.
  10. The Impact of Foreign Direct Investment on Developing Countries’ Terms of Trade By Konstantin M. Wacker
  11. China's Foreign Trade in the Perspective of a More Balanced Economic Growth By Guillaume Gaulier; Francoise Lemoine; Deniz Unal
  12. Offshore outsourcing and non-production workers: Firm-level relationships disaggregated by skills and suppliers By Eiichi Tomiura; Banri Ito; Ryuhei Wakasugi
  13. Trade and investment in Latin America and Asia: Lessons from the past and potential perspectives from further integration By Berisha-Krasniqi, Valdete; Bouet, Antoine; Estrades, Carmen; Laborde, David
  14. Multinational Corporations, FDI and the East Asian Economic Integration By Tzu-Han Yang; Deng-Shing Huang
  15. Impacts of China’s growth on the Brazilian trade By Ferrari, Tatiana; Biage, Milton; Da Silva, Sergio
  16. Asia’s Strategic Participation in the Group of 20 for Global Economic Governance Reform: From the Perspective of International Trade By Bark, Taeho; Kang, Moonsung
  17. The impact of export tax incentives on export performance : evidence from the automotive sector in South Africa By Madani , Dorsati H.; Mas-Guix, Natalia
  18. Trade in Services and Human Development: A First Look at the Links By Shepherd, Ben; Pasadilla, Gloria
  19. India's FDI Inflows: Trends and Concepts By K, S Chalapati Rao; Dhar, Biswajit

  1. By: Florian Mayneris; Sandra Poncet
    Abstract: We investigate how the creation of new export linkages (extensive margin of trade) by domestic firms in China is influenced by their proximity to multinational exporters. Using panel data from Chinese customs for 1997-2007, we show that there is evidence that domestic firms’ capacity to start exporting new varieties to new markets positively relates to the export performance of neighboring foreign firms for that same product-country pair. We find that foreign export spillovers are limited to ordinary trade activities. No foreign export spillovers are found for processing trade. More, export spillovers are stronger for sophisticated products indicating that proximity to foreign exporters may help domestic exporters to upgrade their exports. However we observe that foreign export spillovers are weaker when the technology gap between foreign and domestic firms is large, suggesting that upgrading may not occur in locations and sectors where foreign firms have already a strong edge.
    Keywords: Export performance; spillovers
    JEL: F1
    Date: 2010–12
  2. By: Joachim Jarreau; Sandra Poncet
    Abstract: We investigate how the export performance of firms in China is influenced by credit constraints. Using panel data from Chinese customs for 1997-2007, we show that credit constraints restrict international trade flows and affect the sectoral composition of firms’ activity. We confirm that credit constraints provide an advantage to Foreign-owned firms and joint ventures over private domestic firms as their export performance is systematically greater in sectors with higher levels of financial vulnerability measured in a variety of ways. We however find that financial sector liberalization has partially reduced these distortions in exports over the period.
    Keywords: Export performance; credit constraints; financial liberalization; FDI
    JEL: F10 F14 F23 F36 G32
    Date: 2010–12
  3. By: Matthieu Crozet; Guy Lalanne; Sandra Poncet
    Abstract: Recent empirical research in international trade has revealed overwhelming evidence that, in all countries, a remarkably small proportion of firms report exports in Customs statistics. A large share of these are wholesalers. This suggests that the number of firms active in foreign markets might be much greater than that suggested by a simple count of the firms directly reporting their exports. This paper thus sheds light on the role of wholesalers in international trade. Our model, which allows for quality differentiation, uses very general assumptions to show that intermediated exporters may contribute significantly to the extension of countries’ export opportunities. The model predicts a twofold role in international trade. First, wholesalers help less-efficient firms to supply foreign markets, thus increasing the number of exported varieties at the aggregate level. Second, they alleviate the difficulty of reaching less-accessible markets. We use French firm-level export data to provide empirical support for these two predictions.
    Keywords: Wholesalers; international trade; intermediated exports; heterogenous firms; quality
    JEL: F1
    Date: 2010–12
  4. By: Dutt, Pushan; Mihov, Ilian; Van Zandt, Timothy
    Abstract: We use 6-digit bilateral trade data to document the effect of WTO/GATT membership on the extensive and intensive product margins of trade. We construct gravity equations for the two product margins where the specifications of these gravity equations are motivated by the model of Eaton and Kortum (2002). The data show that the puzzle of no significant impact of WTO membership on trade documented by Rose (2004) manifests itself differently at the product margins of trade. We show that the impact of the WTO is almost exclusively on the extensive product margin of trade, i.e. trade in goods that were not previously traded. In our preferred specification, WTO membership increases the extensive margin of exports by 31%. At the same time, WTO membership has a negligible or even a negative impact on the intensive margin (the volume of already-traded goods). Incidentally, we also document that standard gravity variables provide good explanatory power for bilateral trade on both margins.
    Keywords: extensive margin of trade; Gravity; intensive margin of trade; WTO
    JEL: F02 F13 F15
    Date: 2011–03
  5. By: Menji, Sisay
    Abstract: Abstract In this study analysis of factors affecting export supply of Ethiopia, during the period 1981 – 2004, have been made using co integration analysis. Data trend reveals that Ethiopian export performance was highly volatile during the period, on average merchandise exports have been growing at 7% per annum, while manufacturing exports were growing at 4% per annum. The trend also reveals that Ethiopia’s export sector is mainly dominated by few primary commodities, where manufacturing exports account for less than 15% of merchandise exports on average. The two models estimated depict that merchandise export volumes are significantly influenced by gross capital formation (proxy for production capacity) and share of trade in GDP (proxy for trade liberalization) while other variables; terms of trade, real effective exchange rate, foreign income, and foreign direct investment were found to be insignificant. Manufacturing exports equation reveals an interesting result, manufacturing exports supply was found to be negatively & significantly affected by foreign income. Similar to merchandise export results, manufacturing exports were also found to be positively affected by gross capital formation. Terms of trade, real effective exchange rate, share of trade in GDP, and foreign direct investment were found to be insignificant. The study concludes with recommendations to increase share of manufactured exports and diversify export base of the country.
    Keywords: Export Growth; Merchandise Exports; Manufacturing Exports; Error-Correction (Co-Integration) Method
    JEL: F41
    Date: 2010–05
  6. By: Matthieu Crozet; Federico Trionfetti
    Abstract: Guided by empirical evidence we consider firms heterogeneity in terms of factor intensity. We show that Heckscher-Ohlin comparative advantage and firm-level relative factor-intensity interact to jointly explain the observed differences in relative sales. Firms whose relative factor-intensity matches up with the comparative advantage of the country have lower relative marginal costs and larger relative sales than firms who do not. Our empirical analysis, conducted using data for a large panel of European firms, supports these predictions. Our findings also provide an original firm-level verification of the Heckscher-Ohlin model based on the effect of comparative advantage on firms relative sales.
    Keywords: Factor intensity; firms heterogeneity; test of trade theories
    JEL: F1
    Date: 2011–01
  7. By: Bonfatti, Roberto; Ghatak, Maitreesh
    Abstract: An interesting puzzle is that trade liberalization in the 1980s and 1990s has been associated with a sharp increase in the skill premium in both developed and developing countries. This is in contrast with neoclassical theory, according to which trade should increase the relative return of the relatively abundant factor. We develop a simple model of trade with capital market imperfections, and show that trade can increase the skill premium in both the North and the South, and both in the short run as well as in the long run. We show that trade with a skill-intensive economy has two effects: it reduces the skilled wage, and thus discourages non talented agents out of the skilled labor force; and it reduces the cost of subsistence, thus allowing the talented offspring of unskilled workers to go to school. This compositional effect has a positive effect on the observed skill premium, possibly strong enough to counterweight the decrease in the skilled wage.
    Keywords: credit market frictions; Latin America; skill premium; trade liberalization
    JEL: F16 O15 O16
    Date: 2011–03
  8. By: Gerda Dewit (Department of Economics Finance and Accounting, National University of Ireland, Maynooth); Dermot Leahy (Department of Economics Finance and Accounting, National University of Ireland, Maynooth)
    Abstract: This paper examines how trade liberalisation affects innovation, profits and welfare when firms are engaging in strategic R&D investment. We show that there are multiple equilibria including an autarky equilibrium for a range of high but non-prohibitive trade costs. At lower trade costs, only the trading equilibrium survives. Welfare is U-shaped in the trade costs, so a small fall in trade costs can be welfare reducing. However we find a threshold level of the effectiveness of investment above which trade is always welfare superior to autarky
    Keywords: Reciprocal Markets, Strategic R&D Investment, Trade Costs, Trade Liberalisation, Effectiveness of R&D.
    JEL: F12 F13 F15 L13
    Date: 2011
  9. By: Sarath Chandran, B.P.
    Abstract: The post WTO world trading system is witnessing proliferation of large number of Regional Trade Agreements (RTAs). Regionalism versus Multilateralism debate is not resolved decisively as there are divergent views on the methodology of trade liberalization. The slow pace of multilateral negotiations and lack of consensus among members on major trade issues is undermining the role of WTO and hastening the regionalism process. India after its initial reluctance, exploring the path of regionalism to improve trade performance and to acquire leadership role on regional issues. Realising the importance of East Asia in the emerging global economic order, India signed a FTA with ASEAN which will come in to force from 1st January 2010. For any Regional Trade Agreement (RTA) to be successful, it is imperative on partner countries to have favourable trade structure between them. In this context, the paper looked in to the trade structure of India and ASEAN countries to identify complementary sectors and product groups for enhanced trade cooperation. Trade indices such as Trade Intensity Index (TII) and Revealed Comparative Index (RCA) are constructed for 16 product group to get trade complementarity and Similarity. From the analysis it is revealed that there are complementary sectors and products available between India and ASEAN for greater cooperation. While India got comparative advantage in Food grains, Minerals, Chemicals, Jems and Jewellery and manufactured products, ASEAN countries are in an advantageous position in Electrical goods, electronic products, vegetable oils, rubber products and agricultural products.
    Keywords: Regional Trade Agreement; Revealed Comparative Advantage; Trade Intensity Index; ASEAN; India
    JEL: F15 F10 F14
    Date: 2010–08–07
  10. By: Konstantin M. Wacker
    Abstract: This paper first shows that important economic arguments in favor of the Prebisch- Singer hypothesis of falling terms of trade of developing countries have implicitly relied on the role of multinational corporations and foreign direct investment. As of yet, the relationship between the latter and terms of trade has not been empirically investigated. In order to start closing this gap in research, data on 111 developing countries between 1980 and 2008 is analyzed using panel data methods. The empirical results suggest that there is no reason to believe multinationals’ activities were responsible for a possible decrease of the developing countries’ net barter terms of trade. On the contrary, foreign direct investment seems to play a positive role for developing countries’ terms of trade. The paper also investigates other possible variables structurally influencing terms of trade and thus provides fruitful directions for future research.
    Keywords: terms of trade, FDI, multinationals, Prebisch Singer hypothesis
    Date: 2011
  11. By: Guillaume Gaulier; Francoise Lemoine; Deniz Unal
    Abstract: The global crisis is forcing China’s economy to become less dependent on foreign markets. Manufacturing industry has to adjust to changes in international demand. Foreign affiliates’ processed exports are vulnerable to the slow-down of Western demand, while Chinese exporting firms are better placed to switch to dynamic emerging markets. China’s ordinary imports have risen fast. Asia has enlarged its share in the domestic market, Europe has kept a strong position while North-America has lost ground. China has become the engine of the regional economic growth. Foreign-capital firms have played an increasing part in China’s imports and industrial production. China’s policy towards FDI is at least as important as its exchange rate policy to determine foreign partners’ access to its domestic market.
    Keywords: China; growth model; FDI; ordinary trade; domestic market
    JEL: F2 F1 F15 F23
    Date: 2011–03
  12. By: Eiichi Tomiura (Department of Economics, Yokohama National University, and Research Institute of Economy, Trade and Industry (RIETI)); Banri Ito (Senshu University and RIETI); Ryuhei Wakasugi (Institute of Economic Research, Kyoto University and RIETI)
    Abstract: Previous studies have established that offshoring firms employ more non-production workers. By using micro-data on Japanese firms, this paper disaggregates non-production workers. The share of skilled non-production workers tends to be high in offshoring firms but that of unskilled non-production workers is not. The share of non-production workers for the management of overseas activities tends to be high in FDI firms and in firms outsourcing to foreign suppliers, but not in Japanese firms outsourcing to offshore suppliers owned by other Japanese firms. These findings suggest that offshoring has different impacts on employment depending on suppliers and the worker's skill.
    Keywords: offshoring; outsourcing; non-production workers; skill; firm-level data
    JEL: D23 F23 L24
    Date: 2011–03
  13. By: Berisha-Krasniqi, Valdete; Bouet, Antoine; Estrades, Carmen; Laborde, David
    Keywords: CGE Modeling, FTA, trade liberalization,
    Date: 2011
  14. By: Tzu-Han Yang (National Taipei University); Deng-Shing Huang (Institute of Economics, Academia Sinica, Taipei, Taiwan)
    Abstract: The phenomenon of fast-growing business activities of multinational corporations around the world has generated much interest in understanding its implications for the development of world economy as well as the relationship among national economies. By analyzing the world top 2000 firms published by the Forbes (the Forbes Global 2000), this article first investigates the contents and structural evolution of these giant multinational firms, and their relationship with national FDI. Then we adopt the method of clustering analysis to investigate the FDI and trade networks within and among regions through which the development of regional economic integration are revealed.
    Keywords: trade bloc, FDI bloc, flying geese paradigm, regional economic integration
    JEL: F15 F21 F23
    Date: 2011–03
  15. By: Ferrari, Tatiana; Biage, Milton; Da Silva, Sergio
    Abstract: We evaluate whether the presence of China in world trade is ultimately beneficial or whether it is a threat to Brazil. Using a gravitational model and a panel data method, we find that the Chinese exports to countries other than Brazil are not hurting the Brazilian exports, although the exports of Brazilian manufactured goods have been displaced by commodities as a result of its commerce with China.
    Keywords: Brazil; China; trade; gravitational model
    JEL: F14 F43
    Date: 2011
  16. By: Bark, Taeho (Seoul National University); Kang, Moonsung (Korea University)
    Abstract: After considering the background to the G20 summit meetings after the recent global economic and financial crisis, this paper aims to identify the trade agenda that represents Asia’s concerns for the global and regional trading system. Asia, in particular East Asia, has played an important role in evolving the global production and trade networks. The regional production network in East Asia became the major transmission mechanism of the crisis, resulting in a trade collapse, but Asia experienced a relatively quick rebound, demonstrating that its network was not derailed. Asian economies have also shifted their policy focus from multilateralism to regionalism, even though there are several challenges such as underuse and a shallowness of their regional trade agreements. This paper recommends that the Seoul Summit seek tangible results on resolving the stalemate of the Doha Development Agenda to strengthen the credibility of G20, integrate individual free trade agreements into broader regional trade agreements, and link the development agenda to trade.
    Keywords: global governance and Group of Twenty (G20); international and regional trade; global and regional production networks; global and regional trade systems
    JEL: F13 F15
    Date: 2011–02–01
  17. By: Madani , Dorsati H.; Mas-Guix, Natalia
    Abstract: The original goal of the Motor Industry Development Program was to help the automotive industry in South Africa adjust to trade liberalization and become internationally competitive. In simple terms, it consists of an import/export complementation arrangement, whereby the local value-added of components or built-up vehicles exported earns credits that can be used to rebate import duties on components and vehicles. This study provides a first attempt at a quantitative analysis of the Motor Industry Development Program using the difference-in-difference methodology, in order to assess to what extent the program was effective in improving South Africa's automotive export performance during 1996-2006. The authors take a two-tier approach. First, they perform a comparative study using different manufacturing sectors within South Africa; second, they apply this methodology to analyze South Africa and a number of comparator countries that are automotive producers and exporters. The analysis finds that the impact of the program on automotive exports in South Africa is positive and significant. In particular, (i) the largest response to the program in terms of improved manufacturing exports occurs with a delay after the adoption of the law, suggesting that exports need time to fully react to the incentives; and (ii) in turn, the effectiveness of the tax incentives fades in time, reaffirming the common belief that tax incentives may affect some business decisions particularly in the short run, but they are not a primary consideration for investors in the long run.
    Keywords: Economic Theory&Research,Transport Economics Policy&Planning,Free Trade,Debt Markets,Tax Law
    Date: 2011–03–01
  18. By: Shepherd, Ben (Asian Development Bank Institute); Pasadilla, Gloria (Asian Development Bank Institute)
    Abstract: Some services directly produce outputs that are important for human development, such as basic human services. Many other services are important inputs into the production and distribution of goods that are necessary for human development purposes. A more efficient services sector should mean that such goods and services can be made available to poor people more cost effectively and more broadly. In line with this reasoning, we find in the data that less restrictive services trade policies are associated with better human development outcomes across a range of sectors. Appropriate services trade liberalization can therefore promote human development directly through improved outcomes, in addition to indirectly effects through the income channel.
    Keywords: trade in services; services sector regulation; human development; poverty reduction
    JEL: F13 O15 O24
    Date: 2011–03–10
  19. By: K, S Chalapati Rao; Dhar, Biswajit
    Abstract: India’s inward investment regime went through a series of changes since economic reforms were ushered in two decades back. The expectation of the policy makers was that an “investor friendly” regime will help India establish itself as a preferred destination of foreign investors. These expectations remained largely unfulfilled despite the consistent attempts by the policy makers to increase the attractiveness of India by further changes in policies that included opening up of individual sectors, raising the hitherto existing caps on foreign holding and improving investment procedures. But after 2005‐06, official statistics started reporting steep increases in FDI inflows. This paper is an attempt to explain this divergence from the earlier trend. At the outset, the paper dwells on the ambiguities surrounding the definition and the non‐adherence of international norms in measuring the FDI inflows. The study finds that portfolio investors and round-tripping investments have been important contributors to India’s reported FDI inflows thus blurring the distinction between direct and portfolio investors on one hand and foreign and domestic investors on the other. These investors were also the ones which have exploited the tax haven route most. These observations acquire added significance in the context of the substantial fall in the inflows seen during 2010‐11. In most countries, particularly those that have faced chronic current account deficits, obtaining stable long term FDI flows was preferred over volatile portfolio investments. This distinction between long term FDI and the volatile portfolio investments has now been removed in the accepted official definition of FDI. From an analytical point of view, the blurring of the lines between long term FDI and the volatile portfolio investments has meant that the essential characteristics of FDI, especially the positive spill‐overs that the long term FDI was seen to result in, are being overlooked. FDI that is dominated by financial investments, though a little more stable than the portfolio investments through the stock market, cannot deliver the perceived advantages of FDI. The net result is that while much of the FDI cannot enhance India’s ability to earn foreign exchange through exports of goods and services and thus cover the current account gap on its own strength, large inflows of portfolio capital causes currency appreciation and erodes the competitiveness of domestic players. The falling share of manufacturing and even of IT and ITES means that there is less likelihood of FDI directly contributing to export earnings. India seems to have been caught in a trap wherein large inflows are regularly required in order to finance the current account deficit. To keep FDI flowing in, the investment regime has to be liberalised further and M&As are allowed freely. Even at the global level, the developmental impact of FDI is being given lesser importance notwithstanding the repeated assertions to the contrary in some fora. International data on FDI and its impact has never been unambiguous. If FDI has to deliver, it has to be defined precisely and chosen with care instead of treating it as generic capital flow. India should strengthen its information base that will allow a proper assessment of the impact that FDI can make on its development aspirations.
    Keywords: FDI; portfolio capital; foreign direct investment; round-tripping; India; benchmark definition; tax havens; private equity; manufacturing
    JEL: P33 P45 F21 G24
    Date: 2011–02–24

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