nep-int New Economics Papers
on International Trade
Issue of 2011‒03‒26
twenty papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. New Aspects of Intra-Industry trade: Evidence from EU-15 countries By Tadashi Ito; Toshihiro Okubo
  2. Are Capital Intensive Firms the Biggest Exporters? By Rikard FORSLID; OKUBO Toshihiro
  3. Factor Content of Intra-European Trade Flows By Götz Zeddies
  4. Institution-Driven Comparative Advantage, Complex Goods and Organizational Choice By Ferguson, Shon; Formai, Sara
  5. The sources and magnitudes of Switzerland’s gains from trade By Christian Hepenstrick
  6. Trade protection during the crisis: Does it deter foreign direct investment? By Holger Görg; Philipp Labonte
  7. Is the Border Effect an Artefact of Geographic Aggregation? By Carlos Llano-Verduras; Asier Minondo; Francisco Requena-Silvente
  8. Over the hedge : exchange rate volatility, commodity price correlations, and the structure of trade By Raddatz, Claudio
  9. Productivity distribution, firm heterogeneity, and agglomeration: Evidence from firm-level data By Toshihiro Okubo; Eiichi Tomiura
  10. The Legal Barriers to International Movement of Goods and their Impact on the Administration of Small Scale Organisations in the United Kingdom By Kingston, Kato Gogo; Kingston, Sacha Christina
  11. Does International Trade Really Lead to Business Cycle Synchronization?−A panel data approach By Michael Artis; Toshihiro Okubo
  12. Exchange rate uncertainty and optimal participation in international trade By Mundaca, Gabriela
  13. Sri Lanka's Trade Policies: Back to Protectionism By Garry Pursell; F.M. Ziaul Ahsan
  14. Labour Markets, Education and Duality of Returns By Mamoon, Dawood; Murshed, S. Mansoob
  15. Production under foreign ownership and domestic volatility: An empirical investigation at the sector level By Sandrine Levasseur
  16. Firm Dynamics and Productivity Growth in Indian Manufacturing: Evidence from Plant Level Panel Dataset By Aradhna Aggarwal; Takahiro Sato
  17. The contribution of international R&D to firm profitability By Peters, Bettina; Schmiele, Anja
  18. R&D, Innovation and Exporting By Richard Harris; John Moffat
  19. The Impact of Exogenous Asymmetry on Trade and Agglomeration in Core-Periphery Model By Sidorov, Alexander
  20. Are the Poverty Effects of Trade Policies Invisible? By Monika Verma; Thomas Hertel; Ernesto Valenzuela

  1. By: Tadashi Ito (Okinawa University); Toshihiro Okubo (Research Institute for Economics and Business Administration, Kobe University)
    Abstract: This paper argues about some missing aspects of intra-industry trade (IIT) and proposes some alternative measures to better capture the nature of IIT. We show the over-time evolution of the number of IIT products, and propose an index which captures the share of the number of IIT products over the number of all traded goods. We also show how arbitrary the conventional classification into Horizontal and Vertical IIT indices are, and then propose a new measure using the unit value difference of IIT products. To discuss these issues we use trade data at HS 8 digit product level of EU 15 countries for the period 1988 – 2007, mainly within EU countries as well as with Eastern European countries, and with China as major EU trading partners. Our findings include the Eastern European countries' rise up the quality ladder, and the substantially lower prices of China's exports to EU 15 countries vis-à-vis China's imports from them, whose gap is not narrowing even in very recent years.
    Keywords: Intra-industry trade, Horizontal and Vertical Product Differentiation, Quality, unit price gap
    JEL: H32 P16
    Date: 2011–01
  2. By: Rikard FORSLID; OKUBO Toshihiro
    Abstract: This paper starts out from the observation that the export shares of firms (export to sales ratio) vary greatly among firms, and tend to be systematically related to the firms' capital labour ratios. This observation cannot be explained by e.g. the standard Melitz model, since it predicts that all exporting firms have identical export shares. In our model, we relate the difference in export shares to firm level differences in transport costs. Two factors influence a firm's transport cost in our model. First, firm scale can affect transportation costs. Second, we allow for an association between the capital intensity of a firm and its transportation costs. As in our data, we assume this relationship to be sector specific. Our model can generate the result that more productive and capital intensive firms have higher export shares due to scale economies in transportation, but the model can also generate the opposite pattern that more capital intensive firms have lower export shares due to a strong positive association between capital labour ratio and transportation costs. We use Japanese manufacturing firm level data to calibrate our model by matching firm level export shares to data sector by sector. Regressing the calibrated transportation costs on actual data then shows that the calibrated (calculated) numbers can explain about half of the variation in the data.
    Date: 2011–03
  3. By: Götz Zeddies
    Abstract: In recent decades, the international division of labor expanded rapidly in course of globalization. In this context, highly developed countries specialized on (human) capital intensively manufactured goods and increasingly sourced parts and components from lowwage countries. Since this should be beneficial for the high-skilled and harmful for the lower qualified workforce, especially the opening up of Eastern Europe and the international integration of newly industrializing Asian economies are considered as main reasons for increasing unemployment of the lower qualified in high-wage countries. The present paper addresses this issue for selected Western European countries by analyzing factor content of trade, which allows inferring on factor demand patterns resulting from international trade. This is not only done for countries’ total external trade, but also for bilateral trade flows, using input-output analyses. Thereby, differences in factor inputs and production technologies are considered, allowing for product differentiation. According to the results, factor content of bilateral trade flows between Western European high-wage countries does hardly differ. However, the results are different for East-West trade, since exports from Western to Eastern Europe are distinctly more human capital intensively manufactured than imports of Western European high-wage countries from Eastern Europe.
    Keywords: European integration, international trade, labor markets, input-output analysis
    JEL: C67 F11 F15 F16
    Date: 2011–03
  4. By: Ferguson, Shon (Dept. of Economics, Stockholm University); Formai, Sara (Stockholm School of Economics)
    Abstract: The theory of the rm suggests that firms can respond to poor contract enforcement by vertically integrating their production process. The purpose of this paper is to examine whether firms' integration opportunities affect the way institutions determine international trade patterns. We find that vertical integration lessens the impact of a country's ability to enforce contracts on the comparative advantage of complex goods. We also find that countries with good financial institutions export disproportionately more in sectors that produce complex goods and that have a high propensity for vertical integration. In doing so we use a new outcome-based measure of vertical integration propensity and we employ several empirical strategies: cross section, panel and event study analysis. Our results confirm the role of institutions as source of comparative advantage and suggest that this depends not only on the technological characteristics of the goods produced but also on the way firms are able to organize the production process.
    Keywords: International Trade; Comparative Advantage; Contract Enforcement; Financial Institutions; Vertical Integration
    JEL: D23 F10 F14 G20 G34 L22 L23
    Date: 2011–03–21
  5. By: Christian Hepenstrick
    Abstract: This paper adapts the modern workhorse model of quantitative trade theory (Eaton and Kortum, 2002) as a measurement tool to quantify the magnitudes of Switzerland’s gains from trade. I find that the importance of single trading partners for Switzerland’s welfare is surprisingly small. The reason are reallocation effects - if trade between Switzerland and some partner country is inhibited, other supplier countries step into the breach so that the losses are limited. However, if one considers groups of countries, for example the EU, the welfare effects become large. In terms of policy this implies that whereas bilateral trade agreements may be important for particular industries per se, their relevance lies primarily in ensuring that the Swiss trade costs remain constant relative to trade costs within large trading blocks.
    Keywords: Gains from trade, Switzerland, development accounting
    JEL: F10 F11 F14
    Date: 2011–02
  6. By: Holger Görg; Philipp Labonte
    Abstract: This paper looks empirically at the implications that protectionist measures implemented during the current crisis may have had for a country’s ability to attract foreign direct investment. The research utilizes data on such measures that is available from Global Trade Alert, combined with bilateral FDI data between OECD countries and a large number of partner countries for 2006 to 2009. This allows us to examine the short run effect that protectionist measures may have had on bilateral FDI flows. The verdict from this analysis is clear: a country that implements new protectionist measures may expect that this may result in lower foreign direct investment inflows into the economy. The point estimates from our preferred specifications suggest that, depending on the empirical model, the implementation of a trade protection measure is associated with about 40 to 80 percent lower FDI inflows. Trade protection does not appear to have any implications for the country’s FDI outflows, however. The negative effect on FDI inflows does not appear to be due to direct investment measures but rather to actions related to intellectual property rights protection and other more trade related measures
    Keywords: FDI, protection, financial crisis
    JEL: F23 F13
    Date: 2011–03
  7. By: Carlos Llano-Verduras (Universidad Autónoma de Madrid, Spain); Asier Minondo (Deusto Business School, Spain); Francisco Requena-Silvente (Universidad de Valencia, Spain)
    Abstract: The existence of a large border effect is considered as one of the main puzzles of international macroeconomics. We show that the border effect is, to a large extent, an artefact of geographic concentration. In order to do so we combine international flows with intranational flows data characterised by a high geographic grid. At this fine grid, intra-national flows are highly localised and dropping sharply with distance. The use of a small geographical unit of reference to measure intra-national bilateral trade flows allows to estimating correctly the negative impact of distance on shipments. When we use sector disaggregated export flows of 50 Spanish provinces in years 2000 and 2005 split into interprovincial and inter-national flows, we find that the border effect is reduced substantially and even becomes statistically not different from zero in some estimations.
    Keywords: border effect, distance, interregional trade, international trade, Spanish provinces
    JEL: F14 F15
    Date: 2011–03
  8. By: Raddatz, Claudio
    Abstract: A long empirical literature has examined the idea that, in the absence of hedging mechanisms, currency risk should have an adverse effect on the export volumes of risk averse exporters. But there are no clear conclusions from this literature, and the current consensus seems to be that there is at most a weak negative effect of exchange rate volatility on aggregate trade flows. However, most of this literature examines the impact of exchange rate volatility on aggregate trade flows, implicitly assuming a uniform impact of this volatility on exporters across sectors. This paper explots the fact that, if exchange rate volatility is detrimental for trade, firms exporting goods that offer a natural hedge against exchange rate fluctuations -- i.e. those whose international price is negatively correlated with the nominal exchange rate of the country where they operate -- should be relatively benefited in environments of high exchange rate volatility, and capture a larger share of the country's export basket. This hypothesis is tested using detailed data on the composition of trade of 132 countries at 4-digit SITC level. The results show that the commodities that offer natural hedge capture a larger share of a country's export basket when the exchange rate is volatile, but there is only weak evidence that the availability of financial derivatives to hedge currency risk reduces the importance of a sector's natural hedge.
    Keywords: Emerging Markets,Debt Markets,Currencies and Exchange Rates,Economic Theory&Research,Economic Stabilization
    Date: 2011–03–01
  9. By: Toshihiro Okubo (Research Institute for Economics and Business Administration, Kobe University); Eiichi Tomiura (Department of Economics, Yokohama National University)
    Abstract: This paper empirically examines how productivity distributions of firms vary across regions based on Japan's manufacturing census data. We find that firm productivity is distributed with wide dispersions, especially in core regions. Our firm-level estimates demonstrate that the productivity distribution of firms tends to be noticeably left-skewed, deviating from the normal distribution, especially in regions with weak market potential but also in agglomerated or urbanized regions. These findings suggest that agglomeration economies are likely to accommodate heterogeneous firms that co-exist in the same region.
    Keywords: agglomeration; productivity; gamma distribution; heterogeneity; firm-level data
    JEL: L11 R12
    Date: 2011–02
  10. By: Kingston, Kato Gogo; Kingston, Sacha Christina
    Abstract: The carriage of goods across international boundaries involves bulk and sometimes complex transportation and therefore requires planning and the deployment of resources and logistics. In most cases, the use of sea transportation is commonly preferred. The legal issues surrounding the carriage of goods have informed the development of trade laws and international commercial law including the law of contract. Carriage of Goods by Sea, land and air are comprehensive yet dynamic body of law which continues to develop through statute and case laws, both domestic and foreign. The objective of the paper is to discuss some of the fundamental legal hurdles which confront small scale firms engaging in export and import businesses in the United Kingdom; to discuss some of the problems of the current international trade laws; and, to address the possible implications of failing to comply with the legal requirements of international trade.
    Keywords: International trade, Trade laws, Organisational management
    JEL: D0 F0 E2 A1
    Date: 2010–09–09
  11. By: Michael Artis (Swansea University); Toshihiro Okubo (Research Institute for Economics and Business Administration, Kobe University)
    Abstract: This paper re-estimates the correlation between trade and business cycle synchronization. Different from other previous studies, we employ long-run GDP and trade data and use the GDP cross-correlation index a la Cerqueira and Martins (2009) rather than over-time cross-correlations. We find a positive impact of trade on business cycle synchronization particularly in the current wave of globalization, although the inter-war period sees negative impacts. The current economic integration and currency unions also positively affect business cycle synchronization.
    Keywords: business cycle synchronization, trade, panel approach
    JEL: E32 F15 F43
    Date: 2011–01
  12. By: Mundaca, Gabriela
    Abstract: Instead of just focusing on the effect of exchange rate levels (undervalued or overvalued exchange rates) on trade, this paper provides an analysis of the effects of exchange rate volatility levels on international trade. Intuitively, an increase in exchange rate volatility leads to uncertainty for agents participating in international trade, and such uncertainty might have a negative impact on international trade flows and participation, thereby reducing the advantages of world-wide specialization. This is especially crucial for countries where exchange rate derivatives markets are not yet well developed and the costs of hedging exchange rate risk are very high. The model here considers optimal decisions about participation in international trade under uncertainty about the exchange rate. The main conclusion is that a high level of exchange rate volatility can deter entrepreneurs from becoming exporters, even though exporting can be highly profitable. For those already participating in international trade, it is opposite: they may, optimally, choose not to leave the market even though staying in this market is highly unprofitable in the short run.
    Keywords: Trade Law,Debt Markets,Emerging Markets,Currencies and Exchange Rates,Markets and Market Access
    Date: 2011–03–01
  13. By: Garry Pursell; F.M. Ziaul Ahsan
    Abstract: In 1977 Sri Lanka was the first of the South Asian countries to decisively move away from the protectionist import-substitution trade policies that for many years had damaged their economic efficiency and hobbled their economic growth. Albeit with back-tracking episodes, Sri Lanka's liberalising trade policy reforms-especially reductions in the average level of import tariffs- were broadened and extended during the following 23 years. Together with other economic reforms this supported the rapid growth of manufactured exports, and made it possible for the economy to grow at moderate to high rates despite continuing political turmoil and civil war. Protectionist pressures began to build in 2001, however, and starting in November 2004, the relatively open trade policies of the past were explicitly and systematically reversed. By 2009, mainly through the proliferation of a variety of para-tariffs, Sri Lanka's tariff policies were just as protective as they had been more than 20 years earlier. The principal purpose of this paper is to describe, quantify and analyse these developments. The paper concludes by pointing out the serious potential damage of the protectionist trade policies to Sri Lanka's future economic growth, and the resulting subversion of its preferential trade agreements, especially the agreements with India (ILFTA), Pakistan (PSFTA) and with the South Asian countries as a group (SAFTA). It also comments on the resulting breaches of Sri Lanka's WTO commitments (especially in agriculture), and the more general issues that the unfettered use of para-tariffs by Sri Lanka and Bangladesh raise for the world multilateral trading system.
    Keywords: Import substitution, Tariff, Protectionism, Trade Agreements, GATT WTO, Determinants of Development, Sri Lanka
    JEL: F13 F14 F15 O11 O19
    Date: 2011
  14. By: Mamoon, Dawood; Murshed, S. Mansoob
    Abstract: The aim of this paper is to examine the impact of increased trade on wage inequality in developing countries, and whether a higher human capital stock moderates this effect. We look at the skilled-unskilled wage differential. When better educated societies open up their economies, increased trade is likely to induce less inequality on impact because the supply of skills better matches demand. But greater international exposure also brings about technological diffusion, further raising skilled labour demand. This may raise wage inequality, in contrast to the initial egalitarian level effect of human capital. We attempt to measure these two opposing forces. We also employ a broad set of indicators to measure trade liberalization policies as well as general openness, which is an outcome, and not a policy variable. We further examine what type of education most reduces inequality. Our findings suggest that countries with a higher level of initial human capital do well on the inequality front, but human capital which accrues through the trade liberalization channel has inegalitarian effects. Our results also have implications for the speed at which trade policies are liberalized, the implication being that better educated nations should liberalize faster.
    Keywords: Integration; Trade Liberalization; Wage Inequality
    JEL: F16 F15 O24 C21
    Date: 2011–03
  15. By: Sandrine Levasseur (Observatoire Français des Conjonctures Économiques and SKEMA Business School)
    Abstract: The main goal of this paper is to assess empirically to which extent the volatility of production is due to activities of firms under foreign ownership. Following Bergin et al. (2009) and Levasseur (2010), we postulate that multinational firms can use their contractors and their sites of production located abroad to “export” some of their domestic fluctuations, thus exacerbating further the business cycles of the hosting economy. Using a sample of twelve manufacturing sectors in eight EU countries and a data panel estimation, we find that the higher the share of firms under foreign ownership in a given sector of a country, the higher the volatility of production in that sector of that country, thus confirming the aforementioned assumption. Moreover, our estimates show how important to deal with sector-specific volatility, a result we attribute to idiosyncratic shocks arising at the sector level from both demand and supply sides. Our findings are robust to various ways of extracting cycles and to different time spans for measuring volatility.
    Keywords: Offshoring, European integration, sector analysis, business cycles volatility, data panel estimation.
    JEL: F21 F23 F4 L60 C30
    Date: 2011–03
  16. By: Aradhna Aggarwal (Research Institute for Economics and Business Administration, Kobe University and the Department of Business Economics, University of Delhi, New Delhi 110021 INDIA); Takahiro Sato (Research Institute for Economics and Business Administration, Kobe University)
    Abstract: This paper examines the effects of firms‟ dynamics on industry level productivity growth in India during the period 2000-01 to 2005-06 using plant level panel data of 22 manufacturing industries. The empirical analysis is based on decomposition techniques of aggregate productivity growth. The analysis is confined to large sector plants. Results suggest that the contribution of entry of new plants to aggregate productivity growth is positive in most industries. While newly established plants have rather small entry effect, small plants that grow and enter the large size class have substantial effects on industry level productivity growth. In low tech matured industries entry effects are supported by the productivity growth of the continuing firms. In medium tech industries entry effects are modest; productivity growth of the continuing firms is supported by reallocation effects. In high tech industries all the three effects seem to reinforce productivity growth.
    JEL: O14 O33 O53
    Date: 2011–02
  17. By: Peters, Bettina; Schmiele, Anja
    Abstract: The internationalisation of corporate R&D opens up the chances to participate in international knowledge sharing. This increasingly motivates firms to accelerate the pace and extent of their international R&D activities in order to enhance innovativeness and consequently competitiveness and profitability. Such business ventures, however, might be associated with huge organizational costs as well as risks of outgoing knowledge spillovers. In this paper we empirically address the question whether international R&D activities boost profitability. We employ a large data set of about 1300 firms from the German Community Innovation Survey (CIS). The empirical results demonstrate that R&D location matters for profitability. Firms with both domestic and foreign R&D activities make significantly higher profits than all other firms, including those that carry out solely domestic R&D. We furthermore ascertain that the degree of R&D internationalisation affects profitability. Our findings suggest that medium decentralised firms which innovate in two or three foreign countries outperform firms with centralized or highly decentralized international R&D strategies. Notwithstanding, decentralized firms achieve a higher firm performance than firms that solely conduct R&D activities in their home country. --
    Keywords: R&D,Innovation,Internationalisation,Firm performance,Profit
    JEL: O32 F23
    Date: 2011
  18. By: Richard Harris; John Moffat
    Abstract: This study considers the determinants of whether a firm exports, undertakes R&D and/or innovates, and, in particular, the contemporaneous links between these variables using three waves of the UK Community Innovation Survey (CIS). Where appropriate, an instrumental variables procedure is employed to overcome problems of endogeneity. The results show that in both manufacturing and services, being involved in exporting increased the probability that an establishment was engaged in spending on R&D. Spending on R&D in manufacturing had a much larger impact on the probability of exporting which implies that spending on R&D was not simply to boost the probability of producing new goods and services, but also to improve the establishment's knowledge assets which would in turn help it break down barriers to international markets. In non-manufacturing, spending on R&D increased the probability of innovating but had no significant impact on whether the establishment exported; rather, innovating increased the probability of exporting. Exporting had no direct impact on whether innovation occurred in either sector. Given the key role of R&D, innovation and exporting in determining productivity, it is important that government understands these complex interactions between R&D, innovation and exporting and takes advantage of them when devising and implementing productivity-enhancing policies at the micro-level.
    Keywords: R&D, innovation, exporting, endogeneity
    JEL: C35 O32 R11
    Date: 2011–03
  19. By: Sidorov, Alexander
    Abstract: The paper studies the Krugman's CP model in the weakly explored case of asymmetric regions in two settings: international trade and agglomeration processes. First setting implies that the industrial labor is immobile, while second one consider mobile industrial labor and long-run equilibria. Analytical study of both settings requires application of advanced mathematical analysis, e.g. implicit function theory. For international trade we find how equilibrium prices, production, consumption, wages and welfare for all population groups respond to shifts in all exogenous parameters: characteristics of utility function, transportation costs and degree of asymmetry in initial labor endowment. As for agglomeration process, it was found that the asymmetry in the population distribution simplifies pattern of agglomeration, making the direction of migration more definite, so the well-known ambiguity of final destination may disappear under sufficiently large extent of asymmetry. From political point of view, it means that under some conditions, openness of international trade may be harmful to immobile population of the smaller country.
    Keywords: Agglomeration; international trade; migration dynamics
    JEL: F12 R12 D51 C62 R23
    Date: 2011
  20. By: Monika Verma (Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University); Thomas Hertel (Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University); Ernesto Valenzuela (Centre for International Economic Studies, School of Economics, University of Adelaide)
    Abstract: Beginning with the WTO's Doha Development Agenda and establishment of the Millennium Development Goal of reducing poverty by 50 percent by 2015, poverty impacts of trade reforms have become central to the global development agenda. This has been particularly true of agricultural trade reforms due to the importance of grains in the diets of the poor, presence of relatively higher protection in agriculture, as well as heavy concentration of global poverty in rural areas where agriculture is the main source of income. Yet some in this debate have argued that, given the extreme volatility in agricultural commodity markets, the additional price and therefore poverty impacts due to trade liberalization might well be barely discernible. This paper formally tests this invisibility hypothesis using the method of stochastic simulation in a trade-poverty modeling framework. The hypothesis test is based on the comparison of two samples of price and poverty distributions. The first originates solely from the inherent variability in global staple grains markets, while the second combines the effects of inherent market variability with those of trade reform in these same markets. Results, at both national and stratum levels, indicate that the short-run poverty impacts of full trade liberalization in staple grains trade worldwide are not distinguishable in the majority of cases, suggesting that the poverty impacts of more modest (and realistic) agricultural trade liberalization are indeed likely to be statistically invisible. This does not mean that such reforms are economically unimportant. Rather it is a direct consequence of the high degree of volatility in agricultural commodity markets.
    Keywords: Trade policy reform, agricultural trade, computable general equilibrium, developing countries, poverty headcount, volatility, stochastic simulation, non-parametric hypothesis testing.
    JEL: C12 C68 F17 I32 Q17 R20
    Date: 2011–03

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