nep-int New Economics Papers
on International Trade
Issue of 2011‒04‒30
nineteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Trade, technology adoption and wage inequalities: theory and evidence By Maria Bas
  2. Dissecting the Effect of Credit Supply on Trade: Evidence from Matched Credit-Export Data By Daniel Paravisini; Veronica Rappoport; Philipp Schnabl; Daniel Wolfenzon
  3. Specialization in the Presence of Trade and Financial Integration: Explorations of the Integration-Specialization Nexus By Bos Jaap W.B.; Economidou Claire; Zhang Lu
  4. Rigidities in Employment Protection and Exporting By Seker, Murat
  5. Gravity and extended gravity: estimating a structural model of export entry By Morales, Eduardo; Sheu, Gloria; Zahler, Andrés
  6. Standard, Reputation and Trade: Evidence from U.S horticultural imports refusals By Marie-Agnès Jouanjean; ;
  7. Which Foreigners are Worth Wooing? A Meta-Analysis of Vertical Spillovers from FDI By Tomas Havranek; Zuzana Irsova
  8. Statistical mechanics of the international trade network By Agata Fronczak; Piotr Fronczak
  9. New exports from emerging markets: do followers benefit from pioneers ? By Wagner, Rodrigo; Zahler, Andrés
  10. Exchange Rate Regimes, Trade, and the Wage Comovements By Yoshinori Kurokawa; Jiaren Pang; Yao Tang
  11. Electricity Trade Patterns in a Network: Evidence from the Ontario Market By Talat S. Genc; Pierre-Olivier Pineau; Ege Yazgan
  12. Trade Costs and the Agglomeration of Production By Cafiso, Gianluca
  13. Machines and machinists: Capital-Skill Complementarity from an International Trade Perspective By Mikl¢s Koren; M rton Csillag
  14. Heterogeneous Human Capital, Trade and Growth By Cheng-Te Lee; Deng-Shing Huang
  15. Robust FDI Determinants: Bayesian Model Averaging In The Presence Of Selection Bias By Theo S Eicher; Lindy Helfman; Alex Lenkoski
  16. Foreign Manufacturing Multinationals and the Transformation of the Chinese Economy: New Measurements, New Perspectives By Theodore H. Moran
  17. Chinese sectoral industrial policy shaping international trade and investment patterns - Evidence from the iron and steel industry By in der Heiden, Peter Thomas
  18. Trade liberalization and inter-provincial dumping in a spatial equilibrium model: the case of the Canadian dairy industry By Abbassi, Abdessalem; Larue, Bruno
  19. Stability of the World Trade Web over Time - An Extinction Analysis By N. Foti; S. Pauls; Daniel N. Rockmore

  1. By: Maria Bas (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: This paper develops a trade model with heterogeneous firms introducing a fixed technology cost and different types of skilled labor. The main contribution is to explain the effects of trade integration on the extensive margin of technology adoption and its impact on wage inequalities. The originality of this paper is to combine skilled-biased technological change with international trade theory based on heterogeneous firms in a general equilibrium model. Moreover, it provides empirical evidence supporting the main assumption and predictions of the model using plant level panel data of Chilean's manufacturing sector for the period 1990-1999. The theoretical framework offers a possible explanation of the puzzle concerning the increase in the skill premium in developing countries. The H-O-S model predicts a reduction of inequalities after trade reforms in developing countries, while there is widespread empirical evidence of an increase in the skill premium in these countries. In our model the key mechanism is related to the effects of trade policy on the number of new firms upgrading technology and on the skill intensity. Trade liberalization increases export revenues raising the probability that the most productive exporters will upgrade technology. These firms will increase their relative demand of skilled labor, thereby enhancing the inequalities.
    Keywords: firm heterogeneity ; trade reforms ; technology adoption ; skill premium ; plant panel data
    Date: 2011–04–18
  2. By: Daniel Paravisini; Veronica Rappoport; Philipp Schnabl; Daniel Wolfenzon
    Abstract: We estimate the elasticity of exports to credit using matched customs and firm-level bank credit data from Peru. To account for non-credit determinants of exports, we compare changes in exports of the same product and to the same destination by firms borrowing from banks differentially affected by capital flow reversals during the 2008 financial crisis. A 10% decline in credit reduces by 2.3% the intensive margin of exports, by 3.6% the number of firms that continue supplying a product-destination, but has no effect on the entry margin. Overall, credit shortages explain 15% of the Peruvian exports decline during the crisis.
    JEL: F10 F30 F40 G15 G21 G32
    Date: 2011–04
  3. By: Bos Jaap W.B.; Economidou Claire; Zhang Lu (METEOR)
    Abstract: In this paper we investigate the economic integration - industrial specialization nexus and unravel the relationship between trade and financial openness and industrial specialization. For a panel of 31 countries over the period 1970 to 2005, we find that trade integration relates negatively to specialization, while financial integration relates positively tospecialization. Furthermore, the relationship between trade (financial) integration and specialization is further deepened by the level of financial (trade) integration. Lastly, trade integration has a stronger connection to industrial specialization in countries with a high degree of intra-industry trade, whereas financial integration has a stronger connectionto specialization in countries with a relatively underdeveloped financial system. Our findings are robust to various measures and alternative model specifications.
    Keywords: financial economics and financial management ;
    Date: 2011
  4. By: Seker, Murat
    Abstract: There have been significant improvements in traditional trade policies in the past few decades. However, these improvements can only be fully effective when they are complemented with a favorable investment climate. This study focuses on a particular aspect of investment climate, namely labor regulations, and shows how these regulations can be discouraging from exporting. Using firm level data from 26 countries in Eastern Europe and Central Asia region, the paper empirically shows that firms that cannot create new jobs due to stringent labor regulations are less likely to export. Firms that plan to export expand their sizes before they start to export. However the rigidities in labor markets make this adjustment process costly. Higher costs of employment decrease operating profits and lead to a higher productivity threshold level required for entering export markets. As a result, a smaller fraction of firms can afford to export.
    Keywords: Exporting; firm heterogeneity; labor regulations; developing countries; Eastern Europe and Central Asia region
    JEL: F16 F12 F14 J23
    Date: 2010–04
  5. By: Morales, Eduardo; Sheu, Gloria; Zahler, Andrés
    Abstract: Exporters continuously enter and exit individual foreign markets. Although a given firm's status as an exporter tends to be persistent, the set of destination countries that a firm serves changes frequently. In this paper we empirically examine the determinants of a firm's choice of destination countries and show that their export paths follow systematic patterns. We develop a model of export dynamics where firms decide in each period the countries to which they sell. Our model allows prots from each possible destination country to depend on: (a) how similar it is to the firm's home country (gravity), and (b) how similar it is to other destinations to which the firm has previously exported (extended gravity). Given the enormous number of possible export paths from which firms may choose, conventional estimation approaches based on discrete choice models are unfeasible. Instead, we use a moment inequalities approach. Our inequalities come from applying an analogue of Euler's perturbation method to a discrete choice setting. We show that standard gravity forces have a much larger influence on sunk costs than on fixed costs of exporting and that extended gravity effects can be substantial.
    Keywords: gravity; extended gravity; export dynamics; moment inequalities
    JEL: C51 L65 F12
    Date: 2011–01
  6. By: Marie-Agnès Jouanjean; ;
    Abstract: This paper investigates the impact of food safety standards promulgated by governments or imposed by byers from the private sector on the capacity of developing countries to access developed countries' markets for high value agricultural and food products. I offer an analysis that disentangles productivity-sorting from quality-sorting in fresh fruits and vegetables exports. My theoretical model and empirical analysis confirms the importance of taking into consideration importers' preference for quality as well as exporters' capacity to produce quality products when analyzing average export unit prices of fresh fruits and vegetables. Thanks to a new database on U.S import refusals, my empirical analysis shows that a shock to reputation seems to have a downgrading effect, reducing the capacity of countries to export quality products.
    Keywords: SPS, agricultural trade, quality sorting, reputation
    JEL: F13 O13 Q17
    Date: 2011
  7. By: Tomas Havranek; Zuzana Irsova
    Abstract: The principal argument for subsidizing foreign investment, especially in developing and transition economies, is the assumed spillover of technology to local firms. Yet researchers report mixed results on spillovers. To examine the phenomenon in a systematic way, we collected 3,626 estimates from 57 empirical studies on between-sector spillovers and reviewed the literature quantitatively. Our results indicate that model misspecifications reduce the reported estimates, but that journals select relatively large estimates for publication. The underlying spillover to suppliers is positive and economically significant, whereas the spillover to buyers is insignificant. Greater spillovers are generated by investors that come from distant countries and that have only slight technological advantages over local firms. In addition, greater spillovers are received by countries that have underdeveloped financial systems and that are open to international trade.
    Keywords: Foreign direct investment; Productivity; Spillovers; Meta-analysis; Publication selection bias
    JEL: C42 F23
    Date: 2010–06–01
  8. By: Agata Fronczak; Piotr Fronczak
    Abstract: Analyzing real data on international trade covering the time interval 1950-2000, we show that in each year over the analyzed period the network is a typical representative of the ensemble of maximally random weighted networks, whose directed connections (bilateral trade volumes) are only characterized by the product of the trading countries' GDPs. It means that time evolution of this network may be considered as a continuous sequence of equilibrium states, i.e. quasi-static process. This, in turn, allows one to apply the linear response theory to make (and also verify) simple predictions about the network. In particular, we show that bilateral trade fulfills fluctuation-response theorem, which states that the average relative change in import (export) between two countries is a sum of relative changes in their GDPs. Yearly changes in trade volumes prove that the theorem is valid. Supported by the well-known qualitative findings about economic crises, we argue that the theorem provides valuable quantitative insights into the mechanisms underlying the emergence of worldwide crises.
    Date: 2011–04
  9. By: Wagner, Rodrigo; Zahler, Andrés
    Abstract: Since Arrow (1962), spillovers from pioneer to follower in non-excludable innovations are central to our understanding of endogenous economic growth. Nonetheless, evidence of these spillovers in less-developed economies has been elusive. Our paper contributes by showing novel facts consistent with externalities in new export products. To avoid biases towards ex-post successes, we use data on the universe of customs transactions from Chile (1990- 2006). We find that, first, follower firms are more likely to enter a product if the pioneer firm survives exporting. More importantly, we also find that pioneers enter and remain smaller than followers, which is indicative that the first exporter may not be the firm that benets the most from the discovery. This fact is inconsistent with the currently standard view in international trade, in which the largest firm would be the first willing to pay a homogeneous sunk cost of exporting. In contrast, our facts are consistent with the view that smaller pioneer exporters are data producers, whose spillovers benet larger followers. We offer a simple model to formalize this intuition, based on the idea that large exporters have more choices on how to allocate their managerial capacity. This real option makes large exporters wait, as to assign their marginal manager on the best possible project. In contrast, smaller and more focused firms prefer to be pioneers.
    Keywords: economic growth; innovation; externalities; first-mover-advantage
    JEL: F14 L26 O40
    Date: 2011–01
  10. By: Yoshinori Kurokawa; Jiaren Pang; Yao Tang
    Abstract: The introduction of exchange rate regimes into the standard Ricardian model of trade implies stronger positive wage comovements between trading countries which fix their bilateral exchange rates. Regression results based on data from OECD countries between 1973 to 2010 suggest that countries in the European Monetary Union experienced stronger positive wage comovements with their main trade partners. In comparison, the positive wage comovements between countries engaged in non-currency-union pegs were weaker.
    Date: 2011–04
  11. By: Talat S. Genc (Department of Economics,University of Guelph); Pierre-Olivier Pineau (Management Sciences, HEC-Montreal); Ege Yazgan (Department of Economics, Istanbul Bilgi University)
    Abstract: We investigate whether trade has any effect on the price formation process in a specific electricity market, and identify interconnected markets that have higher impacts on prices in that market. In particular, we study Ontario wholesale electricity market and its trade with 12 interconnected markets including New York, Michigan, and Minnesota markets. We find that imports are unambiguously related to prices, while exports are not. Furthermore, imports have a positive and significant relationship with prices. We argue that the results are associated with auction design, production constraints, and technological differences. Out of the 12 studied interties, only three have a significant impact on price, two of which are the largest ones.
    Keywords: electricity trade; simultaneous trade; transmission network; electricity prices; nonlinear Granger causality; Ontario, New York, Michigan, Manitoba, Quebec wholesale electricity markets.
    JEL: C5 F14 L94 Q4
    Date: 2011
  12. By: Cafiso, Gianluca (University of Catania)
    Abstract: The object of this paper is to study the evolution of trade costs and of the agglomeration of production, as well as their relation. The Home Market Effect prescribes increasing agglomeration when trade costs decrease because it is supposed to strengthen. We study the joint variation of trade costs and agglomeration in all the sectors that we consider, and specifically in those which support the home market effect hypothesis. We employ an original approach based on the combination of different bootstrap distributions. Our analysis yields insights into the evolution of trade costs and agglomeration in Europe in the last decade.
    Keywords: Trade Costs; Agglomeration of Production; Home Market Effect; Bootstrap
    JEL: F10 F12 F15
    Date: 2010–12–22
  13. By: Mikl¢s Koren (Institute of Economics - Hungarian Academy of Sciences, Department of Economics of Central European University); M rton Csillag (TIER - University of Maastricht)
    Abstract: We estimate the effect of imported machines on the wages of machine operators utilizing Hungarian linked employer-employee data. We infer exposure to imported machines from detailed trade statistics of the firm and the occupation description of the worker. We find that workers exposed to imported machines earn about 8 percent higher wages than other machine operators at the same firm. When we proxy for unobserved worker characteristics, we find a significant 3 percent wage premium, suggesting that the relationship is causal. The return to schooling is also higher on imported machines. We build a simple matching model consistent with these findings. Our findings suggest that machine imports can be an important channel through which skill-biased technical change reaches less developed and emerging economies.
    Keywords: imported machinery, capital-skill complementarity, wages
    JEL: F16
    Date: 2011–04
  14. By: Cheng-Te Lee (Department of International Trade, Chinese Culture University, Taiwan); Deng-Shing Huang (Institute of Economics, Academia Sinica, Taipei, Taiwan)
    Abstract: Distribution differences in human capital matter for a country’s growth and trade. While the existing literature considers only the diversity difference in talent distribution, we argue that the kurtosis difference is also an important factor. In a two-sector equilibrium growth model, where the production function is supermodular for the consumption-good sector and submodular for the R&D sector, we prove that the diversity effect and kurtosis effect are opposite to each other. A country endowed with more diverse but leptokurtic talent distribution may have lower growth rate and import submodular goods, opposite to the conventional result from considering only the diversity difference.
    Keywords: diversity, kurtosis, growth, trade
    JEL: F11 O41
    Date: 2011–04
  15. By: Theo S Eicher; Lindy Helfman; Alex Lenkoski
    Abstract: The literature on Foreign Direct Investment (FDI) determinants is remarkably diverse in terms of competing theories and empirical results. We utilize Bayesian Model Averaging (BMA) to resolve the model uncertainty that surrounds the validity of the competing FDI theories. Since the structure of existing FDI data is known to induce selection bias, we extend BMA theory to HeckitBMA to address model uncertainty in the presence of selection bias. We then show that more than half of the previously suggested FDI determinants are no longer robust and highlight theories that receive support from the data. In addition, our selection approach allows us to highlight that the determinants of margins of FDI (intensive and extensive) differ profoundly in the data, while FDI theories do not usually model this aspect explicitly.
    Date: 2011–04
  16. By: Theodore H. Moran (Georgetown University)
    Abstract: What is the relationship between foreign manufacturing multinational corporations (MNCs) and the expansion of indigenous technological and managerial technological capabilities among Chinese firms? China has been remarkably successful in designing industrial policies, joint venture requirements, and technology transfer pressures to use FDI to create indigenous national champions in a handful of prominent sectors: high speed rail transport, information technology, auto assembly, and an emerging civil aviation sector. But what is striking in the aggregate data is how relatively thin the layer of horizontal and vertical spillovers from foreign manufacturing multinationals to indigenous Chinese firms has proven to be. Despite the large size of manufacturing FDI inflows, the impact of multinational corporate investment in China has been largely confined to building plants that incorporate capital, technology, and managerial expertise controlled by the foreigner. As the skill-intensity of exports increases, the percentage of the value of the final product that derives from imported components rises sharply. China has remained a low value-added assembler of more sophisticated inputs imported from abroad--a “workbench” economy. Where do the gains from FDI in China end up? While manufacturing MNCs may build plants in China, the largest impact from deployment of worldwide earnings is to bolster production, employment, R&D, and local purchases in their home markets. For the United States the most recent data show that US-headquartered MNCs have 70 percent of their operations, make 89 percent of their purchases, spend 87 percent of their R&D dollars, and locate more than half of their workforce within the US economy--this is where most of the earnings from FDI in China are delivered.
    Keywords: Foreign Direct Investment, International Investment, China, Multinational Corporations, Exports
    JEL: F10 F21 F23 F52 L32 L52 L60 L62 L63 L64 O10 O14 O25 O30 O53
    Date: 2011–04
  17. By: in der Heiden, Peter Thomas
    Abstract: In the three decades since China's economic opening to the world, the country's integration into the global economy has progressed by leaps and bounds. Especially after joining the WTO in 2001, international trade and investment flows have been on a steep upward trajectory. This process was not only driven by market forces but heavily influenced by government intervention in commodity and financial markets. While government authorities are strongly determined to promote closer economic integration with the rest of the world, they seek to supervise and control the process in order to carve out maximum benefits for domestic enterprises and the economy as a whole. Balancing market forces and industrial policy strategy, political decision makers have worked out an elaborate framework of measures to create an environment conducive to the development of several sectors deemed backbone or pillar industries. As one of them, the steel industry is subjected to numerous measures steering its development both in the home market and at the global market interface. By examining these mechanisms, this article aims to illustrate that sectoral industrial policy in China does not push for expanding exports and investments across the board but carefully and discretionarily promotes global integration in some areas while delaying it in others. --
    Keywords: Economic integration,industrial policy,trade policy,trade restrictions,foreign direct investment,steel industry
    Date: 2011
  18. By: Abbassi, Abdessalem; Larue, Bruno
    Abstract: The paper introduces imperfect competition in a spatial equilibrium model of provincial dairy markets to analyze the welfare impacts of trade liberalization. Our model accounts for output restrictions at the farm level and the potential presence of market power at the processing level. Our model builds on the reciprocal dumping model of Brander and Krugman (1983) because processing firms from different provinces compete with one another in several provinces. Simulations reveal that welfare in the Canadian dairy sector could increase by as much as $1 billion per year if aggressive tariff cuts were made while moderate liberalization plans would yield annual gains of $234.5 million. Even large producing provinces like Quebec and Ontario gain from trade liberalization. In comparison, a perfect competition model yields more modest welfare gains in the range of $15.6 million and $34.5 million. Finally, we show that the switch in the sign of the transport cost-welfare relation identified by Brander and Krugman (1983) occurs at transport costs that are too high to be policy-relevant.
    Keywords: Supply management, Canadian dairy sector, imperfect competition, bilateral dumping
    JEL: F1 L1
    Date: 2011
  19. By: N. Foti; S. Pauls; Daniel N. Rockmore
    Abstract: The World Trade Web (WTW) is a weighted network whose nodes correspond to countries with edge weights reflecting the value of imports and/or exports between countries. In this paper we introduce to this macroeconomic system the notion of extinction analysis, a technique often used in the analysis of ecosystems, for the purposes of investigating the robustness of this network. In particular, we subject the WTW to a principled set of in silico "knockout experiments", akin to those carried out in the investigation of food webs, but suitably adapted to this macroeconomic network. Broadly, our experiments show that over time the WTW moves to a "robust yet fragile" configuration where is it robust under random attacks but fragile under targeted attack. This change in stability is highly correlated with the connectance of the network. Moreover, there is evidence of sharp change in the structure of the network in the 1960s and 1970s, where the most measures of robustness rapidly increase before resuming a declining trend. We interpret these results in the context in the post-World War II move towards globalization. Globalization coincides with the sharp increase in robustness but also with a rise in those measures (e.g., connectance and trade imbalances) which correlate with decreases in robustness. The peak of robustness is reached after the onset of globalization policy but before the negative impacts are substantial. In this way we anticipate that knockout experiments like these can play an important role in the evaluation of the stability of economic systems.
    Date: 2011–04

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