nep-int New Economics Papers
on International Trade
Issue of 2011‒04‒09
twenty papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Trade Liberalization and FDI Strategy in Heterogeneous Firms: Evidence from Japanese firm-level data By HAYAKAWA Kazunobu; MATSUURA Toshiyuki
  2. Firm Size and the Choice of Export Mode By Jennifer Abel-Koch
  3. International trade and income distribution : reconsidering the evidence. By Bensidoun, Isabelle; Jean, Sébastien; Sztulman, Aude
  4. Globalizing Corporate Activities in East Asia and Domestic Operations: Further evidence from Japanese manufacturing firms By ONO Arito; UESUGI Iichiro; YASUDA Yukihiro
  5. Effects of CEOs' Characteristics on Internationalization of Small and Medium Enterprises in Japan By TODO Yasuyuki; SATO Hitoshi
  6. Model Simulations for Trade Policy Analysis: the impact of potential trade agreements on Austria By Joseph Francois; Olga Pindyuk
  7. Trade Policies, Investment Climate,and Exports By Seker, Murat
  8. The Exporter Productivity Premium along the Productivity Distribution: Evidence from Unconditional Quantile Regression with Firm Fixed Effects By David Powell; Joachim Wagner
  9. Google matrix of the world trade network By Leonardo Ermann; Dima L. Shepelyansky
  10. Temporary Workers, Permanent Workers, and International Trade: Evidence from Japanese firm-level data By MATSUURA Toshiyuki; SATO Hitoshi; WAKASUGI Ryuhei
  11. Simulating Heterogeneous Multinational Firms By Shawn ARITA; TANAKA Kiyoyasu
  12. Impacts of the Japan-Mexico EPA on Bilateral Trade By ANDO Mitsuyo; URATA Shujiro
  13. Factor Prices and International Trade: A Unifying Perspective By Ariel Burstein; Jonathan Vogel
  14. The Fair Trade movement:an economic perspective By Alexander Kadow
  15. Does the Structure of Multinational Enterprises' Activity Affect Technology Spillovers? By JINJI Naoto; ZHANG Xingyuan; HARUNA Shoji
  16. Temporary Jobs and Globalization: Evidence from Japan By MACHIKITA Tomohiro; SATO Hitoshi
  17. FDI from the South: the Role of Institutional Distance and Natural Resources By Mariya Aleksynska; Olena Havrylchyk
  18. The Selection of Migrants and Returnees: Evidence from Romania and Implications By J. William Ambrosini; Karin Mayr; Giovanni Peri; Dragos Radu
  19. ODI and Home Country's Industrial Upgrading: Mechanism and preliminary evidence By ZHAO Wei; JING Dong
  20. War signals: a theory of trade, trust and conflict By Dominic Rohner; Mathias Thoenig; Fabrizio Zilibotti

  1. By: HAYAKAWA Kazunobu; MATSUURA Toshiyuki
    Abstract: This paper attempts to clarify the reasons for the rapid growth of FDI in developing countries, particularly East Asian countries, compared with that of FDI to developed countries. To do this, we will examine the mechanics of HFDI and VFDI with shedding light on the role of trade costs. Our empirical analysis by estimation of a multinomial logit model of Japanese firms' FDI choices reveals that the reduction of tariff rates attracts even less productive VFDI firms. In contrast, their rise attracts even less productive HFDI firms. Since developing countries, particularly East Asian countries, have experienced a relatively rapid decrease in tariff rates, our results indicate that the increase of VFDI through tariff rate reduction has led to the recent relative surge of FDIs in developing countries.
    Date: 2011–03
  2. By: Jennifer Abel-Koch (Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany)
    Abstract: In international trade models, it is typically assumed that manufacturers ship their goods directly to their foreign customers. In reality, however, many manufacturers call in trade intermediaries to perform this task for them. Which manufacturers make use of this option? Theory suggests that it is mostly the small firms which are not profitable enough to cover the high fixed costs of building an own distribution network abroad. Large and eefficient firms, on the contrary, prefer to export their goods directly. The present paper brings this hypothesis to a test. Using survey data from the World Bank Enterprise Survey conducted in Turkey in 2008, it shows that there is indeed a negative correlation between firm size and the relative importance of intermediated exports. This result is highly robust to the inclusion of a variety of controls, different estimation methods, and different measures of firm size.
    Keywords: Heterogeneous firms, intermediated trade
    JEL: F12 F14
    Date: 2011–03–29
  3. By: Bensidoun, Isabelle; Jean, Sébastien; Sztulman, Aude
    Abstract: This paper reconsiders the evidence concerning the influence of international trade on income distribution. Our analysis is based on a theoretical model which does not make any restrictive assumption about how trade specialization is linked to factor endowments. In this framework, the influence of international trade changes on income distribution is captured by a specific definition of the factor content of net export changes. Our main empirical finding is that the factor content of net export changes, expressed relatively to the country's factor endowment, does have a significant impact on income distribution, but the sign and magnitude of this impact is conditional on country’s income level or on the share of non-educated in the population.
    Keywords: International trade; Income distribution; globalization; growth; International integration;
    JEL: F11 F16 D30
    Date: 2011
  4. By: ONO Arito; UESUGI Iichiro; YASUDA Yukihiro
    Abstract: This paper empirically investigates the pattern of globalizing corporate activities of Japanese manufacturing firms and their domestic operations and international trade, using the firm level data in 1998-2006. More specifically, we compare changes in domestic operations and international trade of firms expanding operations in East Asia with those of firms not expanding operations in two periods, 1998-2002 and 2002-2006. For the analysis in the latter period, we also incorporate the information on the globalizing behavior in the former period. In addition, we conduct analyses to compare changes of firms becoming MNE with those of firms remaining domestic and also to compare MNEs expanding operations with those of MNEs not expanding operations. Although the globalization of corporate activities in less developed countries is often regarded as reducing operations and employment at home, our analysis finds that Japanese manufacturing firms expanding operations in East Asia are more likely to increase domestic employment and the number of domestic affiliates and establishments. Such a tendency is more vividly observed in the latter period, when the international division of labor in the region is more active. Furthermore, manufacturing firms with expanding operations in East Asia tend to intensify export/import activities with the region, suggesting the existence of complementary operations. At the individual firm level, the fragmentation of production by Japanese manufacturing firms seems to generate additional jobs and operations at home by effectively utilizing the mechanics of production process-wise division of labor in East Asia.
    Date: 2011–03
  5. By: TODO Yasuyuki; SATO Hitoshi
    Abstract: Recent heterogeneous-firm models of international trade suggest that productivity determines whether firms engage in export and foreign direct investment. However in practice, m Abstract any productive firms are not internationalized, whereas many unproductive firms are. This situation suggests that factors other than productivity influence internationalization. This study examines a set of potential factors -personal characteristics of the chief executive officer (CEO)- using a unique panel dataset for Japanese small and medium enterprises (SMEs). We find that SMEs are more likely to be internationalized when the CEO is more risk-tolerant, forward-looking, and internationally experienced. These factors show significant statistical relationships with SMEs' decisions to internationalize, perhaps suggesting why productive firms might not internationalize. In addition, we find that productivity has no significant relationship with the decision of exiting international markets probably because initial costs of internationalization become sunk, whereas SMEs with internationally experienced CEOs show strongly less likelihood of exit. These empirical results are consistent with theoretical predictions of our model that incorporates the uncertainty of foreign markets into the trade theory with firm heterogeneity.
    Date: 2011–03
  6. By: Joseph Francois; Olga Pindyuk
    Abstract: In this paper, we examine possible medium-term changes in EU trade policy, including the negotiation and implementation of Free Trade Agreements (FTAs) with regional entities like ASEAN and the NAFTA countries. We also examine the possible conclusion of the Doha Round of multilateral trade negotiations. Such changes in policy at the regional and global level imply changes in trade policy and industrial structure that affect Austria as part of the network of European industry. To accomplish this, we work with a computable general equilibrium model (CGE) of the Austrian economy and its major global trading partners. This model is benchmarked to 2020 macroeconomic projections. The modeling scenarios are based on a mix of tariff reductions for goods and non-tariff barriers (NTB) reductions for services. The services liberalization scenario is based on protection with an “actionability” assumption. The results include estimated changes in GDP, welfare, as well as in the value added contained in Austrian exports. The focus on value added provides important insight to the overall impact on the Austrian economy. In all policy cases examined, the striking messages is the importance of high technology services (ICT and other business services) to the total growth in Austrian exports, on a value added basis. This reflects both the high value added content of trade in this sector, and the apparent comparative advantage of Austria in this sector in the 2020 baseline.
    Keywords: trade agreements, ASEAN, NAFTA, Doha Round, Austria, CGE
    JEL: F15 F17 C68
    Date: 2011–04
  7. By: Seker, Murat
    Abstract: There is a large body of research that explores international trade as a source of the dispersion in income levels and growth performances across countries. The trade liberalization policies undertaken between 1950 and 2006 led to an almost 30 fold growth in the volume of international trade. However this increase has not been homogeneous across countries. This study investigates a possible reason that prevents convergence of countries in export performance. It shows that regulatory quality, customs efficiency, quality of infrastructure, and access to finance among other factors increase export performance. Furthermore, it shows that countries that are relatively more constrained in accessing to foreign markets benefit more from improvements in investment climate than the countries with easier foreign market access. Hence attaining a favorable investment climate for private sector development should be an important policy objective for relatively closed economies to achieve convergence in export volumes with countries that have more liberal trade policies.
    Keywords: Export performance; trade policy; investment climate; institutions; trade facilitation
    JEL: O1 F15 F4 F14
    Date: 2011–02
  8. By: David Powell; Joachim Wagner
    Abstract: One of the stylized facts from the literature on international activities of heterogeneous firms is the existence of a positive exporter productivity premium - on average, exporting firms are more productive than firms that sell on the national market only. In this paper, the authors look at the productivity distribution of both exporting and non-exporting firms in German manufacturing industries. They recognize that it is potentially important to condition on firm fixed effects for estimation of this exporter premium. They apply a new unconditional quantile estimation technique for panel data to condition on firm fixed effects while estimating the exporter premium throughout the entire productivity distribution. They find that the premium is positive for all productivity levels, but highest at the lowest quantiles. These results support theoretical models which suggest that there is a division in productivity between exporters and non-exporters. Mean regression is incapable of detecting this dimension of firm heterogeneity.
    Keywords: exporter productivity premium, quantile regression, fixed effects, unconditional quantile treatment effects
    JEL: F14 C21 C23
    Date: 2011–02
  9. By: Leonardo Ermann; Dima L. Shepelyansky
    Abstract: Using the United Nations Commodity Trade Statistics Database [] we construct the Google matrix of the world trade network and analyze its properties for various trade commodities for all countries and all available years from 1962 to 2009. The trade flows on this network are classified with the help of PageRank and CheiRank algorithms developed for the World Wide Web and other large scale directed networks. For the world trade this ranking treats all countries on equal democratic grounds independent of country richness. Still this method puts at the top a group of industrially developed countries for trade in {\it all commodities}. Our study establishes the existence of two solid state like domains of rich and poor countries which remain stable in time, while the majority of countries are shown to be in a gas like phase with strong rank fluctuations. A simple random matrix model provides a good description of statistical distribution of countries in two-dimensional rank plane. The comparison with usual ranking by export and import highlights new features and possibilities of our approach.
    Date: 2011–03
  10. By: MATSUURA Toshiyuki; SATO Hitoshi; WAKASUGI Ryuhei
    Abstract: The number of temporary workers in Japan's labor market has increased rapidly since the 1990s. This trend is particularly remarkable in the manufacturing sector, which now relies on sales to foreign markets. This paper formalizes the idea that global competition may encourage manufactures to shift from permanent to temporary workers, proposing a model of multi-product firms motivated to reduce revenue fluctuations. Firms prefer lower sales volatility because of labor adjustment costs. In such a framework, trade liberalization encourages firms to reduce the number of products, which raises the demand for temporary workers because they entail no firing costs. The model is also empirically tested using micro-data from Japanese manufacturing plants. The model's predictions are moderately supported.
    Date: 2011–03
  11. By: Shawn ARITA; TANAKA Kiyoyasu
    Abstract: This paper develops a micro-simulation framework for multinational entry and sales activities across countries. The model is based on Eaton, Kortum, and Kramarz's (2010) quantitative trade model adapted towards multinational production. Using micro data on Japanese manufacturing firms, we illustrate the empirical regularities of multinational entry and sales activity and estimate the model's structural parameters with simulated method of moments. We demonstrate that our adapted model is able to replicate important dimensions of the in-sample moments conditioned in our estimation strategy and does a reasonable job in external model validation tests. We can replicate activity under an economic period with a far different level of FDI barriers than was conditioned upon in our estimation sample. Overall, we demonstrate the richness of the simulation framework as a quantitative tool for FDI policy analysis.
    Date: 2011–03
  12. By: ANDO Mitsuyo; URATA Shujiro
    Abstract: This paper examines the impacts of the Japan-Mexico EPA on bilateral trade by using two different types of information, trade statistics and the EPA utilization rate. Using trade data, we found that Japan's exports of built-up cars, auto parts, base metals, electrical machinery, precision machinery, and ballpoint pens to Mexico increased sharply. We also found that Japan's imports of live animals and products, leather, and footwear with leather from Mexico increased significantly. These are some of the products that are protected by the respective governments. Using the results of a questionnaire survey of Japanese firms on their utilization of the Japan-Mexico EPA, the overall utilization rate was found to be rather low. However, the utilization rate for Japanese exports to Mexico was found to be high for iron and steel and transport machinery, which are the products most protected by the Mexican government. These findings indicate that the EPA has contributed to the opening up of Japan's and Mexico's protected markets. The questionnaire survey identified two problem areas for the EPA: one is the difficulty in getting information on the use of the EPA, and the other is the high cost of obtaining the certificate of origin for utilizing the EPA. These findings indicate the need for the government to provide information on the use of EPAs and to simplify the application procedures for obtaining the certificate of origin.
    Date: 2011–03
  13. By: Ariel Burstein; Jonathan Vogel
    Abstract: How do trade liberalizations affect relative factor prices and to what extent do they cause factors to reallocate across sectors? We first present a general framework that nests a wide range of models that have been used to study the link between globalization and factor prices. Under some restrictions, changes in the "factor content of trade" are sufficient statistics for the impact of trade on relative factor prices. We then study the determination of the factor content of trade in a specific version of our general framework featuring imperfect competition, increasing returns to scale, and heterogeneous producers. We show how heterogeneous firms' decisions shape the factor content of trade, and, therefore, the impact of trade liberalization on relative factor prices and between-sector factor allocation.
    JEL: F1
    Date: 2011–03
  14. By: Alexander Kadow
    Abstract: Fair Trade (FT) products such as coffee and textiles are becoming increasingly popular with altruistic consumers all over the world. This paper seeks to understand the economic effects of this grassroots movement which directly links ethically-minded consumers in industrialised countries with marginalised producers in developing economies. We extend the Ricardian trade model and introduce a FT sector in developing South that offers a fair wage – the FT premium. There are indeed positive welfare effects from FT but those come at the expense of rising inequalities within South which are in turn a rational by-product of FT. The degree of inequalities depends on the specifics of the cooperative structures in the FT sector. Given the rigidities and inequalities FT introduces and rests upon, this form of alternative trade appears to be only sustainable as niche movement.
    Keywords: Fair Trade, comparative advantage, wage premium, inequalities, ethical consumerism, cooperative
    JEL: F11 O11 Q13
    Date: 2011–02
  15. By: JINJI Naoto; ZHANG Xingyuan; HARUNA Shoji
    Abstract: We examine how the structure of multinational enterprises' (MNEs') activity affects technology spillovers between MNEs and their host economies by using firm-level data of Japanese MNEs and patent citations data. We construct new measures of foreign direct investment (FDI) by exploiting information on sales and purchases of foreign affiliates of MNEs. Pure horizontal (vertical) FDI is defined as FDI with a high share of transactions (i.e., both purchases of inputs and sales of outputs) in the local market (with the home country). Partially horizontal and vertical FDI are also defined. We then estimate the effects of these types of FDI on technology spillovers captured by patent citations. Our findings reveal that when developed economies host Japanese MNEs, pure vertical FDI has significantly positive effects on technology spillovers in both directions. When developing economies host Japanese MNEs, by contrast, no form of FDI significantly facilitates technology spillovers in either direction.
    Date: 2011–03
  16. By: MACHIKITA Tomohiro; SATO Hitoshi
    Abstract: Since the 1990s, there has been a rapid increase in the proportion of temporary workers in the Japanese workforce. This paper empirically explores a linkage between the shift from permanent to temporary workers in the Japanese manufacturing sector and economic globalization, using various industry level data. We find that FDI and/or outsourcing tend to encourage the replacement of permanent workers with temporary workers in home production. In addition, we find that industries with higher exports are the most aggressive in replacing permanent workers with temporary workers. However, some other measures of global market competition such as world share of value added are not always statistically significant. Our estimation suggests that the impact of these globalization channels is sizable relative to the impact of the Worker Dispatching Act in 2004.
    Date: 2011–03
  17. By: Mariya Aleksynska; Olena Havrylchyk
    Abstract: This study explores location choices for investors stemming from emerging economies (often referred to as the South), with a particular emphasis on institutions and natural resources. Relying on a novel dataset of bilateral FDI flows between 1996 and 2007, we demonstrate that FDI from the South has a more regional aspect than investment stemming from the North. Institutional distance has an asymmetric effect on FDI depending on whether investors choose countries with better or worse institutions. In the latter case, a large institutional distance between source and destination countries discourages FDI inflows, but the growing attractiveness of the primary sector outweighs this deterring effect for emerging investors. We also attest to the complementary relationship between capital flows from the North and South in developing recipient countries, which we attribute to different FDI patterns of these investors.
    Keywords: Foreign direct investment; South-South; developing countries; institutions; crowding-in; natural resources
    JEL: F21 F23
    Date: 2011–03
  18. By: J. William Ambrosini; Karin Mayr; Giovanni Peri; Dragos Radu
    Abstract: This paper uses census and survey data to identify the wage earning ability and the selectivity of recent Romanian migrants and returnees. We construct measures of selection across skill groups and estimate the average and the skills-specific premium for migration and return for three typical destinations of Romanian migrants after 1990. We find evidence for a sorting of migrants consistent with skill compensation in destination countries. The premium to return migration increases with migrants' skills and drives the positive selection of returnees. Based on the rationality of these migration decisions, a model of education, migration and return predicts positive long-run effects of increased migration for average skills and wages in Romania.
    JEL: F22 J61 O15
    Date: 2011–03
  19. By: ZHAO Wei; JING Dong
    Abstract: Both the outward direct investment (ODI) from emerging market economies and industrial upgrading are new topics in economic research. Most research on these two topics has been done separately so far. China's emergence as a major ODI nation and urgent requirement for domestic industrial upgrading are increasingly bringing these together. With the hypothesis of the causal connection between the ODI and industrial upgrading, this paper tries to clarify the channel and mechanism that ODI spreads in terms of its effect on home countries' industries and to identify related evidence with a way of bringing knowledge in three research fields together: a) the historical experience of the ODI Pioneering countries; b) clues found from existing research and cases at sector level; c) evidence from China. Research shows that there are clear upgrading effects of the ODI in US and Japan's history when they emerged as ODI nations although they took different patterns. The pattern taken by the US was featured with efficiency priority, while that of Japan does so with structural adjustment priority. The mechanism and channels through which the ODI imposes effects on home industries' upgrading in China are more extensive than that of pioneer industrial countries. Besides, the empirical work done with the typical regions and typical industrial sectors gives clear support on the upgrading effects hypothesis in China.
    Date: 2011–03
  20. By: Dominic Rohner; Mathias Thoenig; Fabrizio Zilibotti
    Abstract: We construct a dynamic theory of civil conflict hinging on inter-ethnic trust and trade. The model economy is inhabitated by two ethnic groups. Inter-ethnic trade requires imperfectly observed bilateral investments and one group has to form beliefs on the average propensity to trade of the other group. Since conflict disrupts trade, the onset of a conflict signals that the aggressor has a low propensity to trade. Agents observe the history of conflicts and update their beliefs over time, transmitting them to the next generation. The theory bears a set of testable predictions. First, war is a stochastic process whose frequency depends on the state of endogenous beliefs. Second, the probability of future conflicts increases after each conflict episode. Third, "accidental" conflicts that do not reflect economic fundamentals can lead to a permanent breakdown of trust, plunging a society into a vicious cycle of recurrent conflicts (a war trap). The incidence of conflict can be reduced by policies abating cultural barriers, fostering inter-ethnic trade and human capital, and shifting beliefs. Coercive peace policies such as peacekeeping forces or externally imposed regime changes have instead no persistent effects.
    Keywords: Beliefs, civil war, conict, cultural transmission, ethnic fractionalization, human capital investments, learning, matching, peacekeeping, stochastic war, strategic complementarity, trade
    JEL: D74 D83 O15 Q34
    Date: 2011–03

This nep-int issue is ©2011 by Alessia A. Amighini. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.