nep-int New Economics Papers
on International Trade
Issue of 2011‒06‒11
fourteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Economic performance and international trade engagement: the case of Portuguese manufacturing firms By Armando Silva; Oscar Afonso; Ana Paula Africano
  2. Changing Patterns of Trade in Processed Agricultural Products By Pete Liapis
  3. International Trade Without CES: Estimating Translog Gravity By Dennis Novy
  4. Uncertainty and the export decisions of Dutch firms By Harold Creusen; Arjan Lejour
  5. Import Competition from and Outsourcing to China: A Curse or Blessing for Firms? By Giordano Mion; Linke Zhu
  6. The "S" Curve Relationship between Export Diversity and Economic Size of Countries By Lunchao Hu; Kailan Tian; Xin Wang; Jiang Zhang
  7. Trade and Labor Market Outcomes By Elhanan Helpman; Oleg Itskhoki; Stephen Redding
  8. The role of NAFTA and returns to scale in export duration By Tibor, Besedes
  9. Revitalizing the Export-Import Bank By Gary Clyde Hufbauer; Meera Fickling; Woan Foong Wong
  10. The Elephant in the "Green Room": China and the Doha Round By Aaditya Mattoo; Francis Ng; Arvind Subramanian
  11. Asia Rising: Emerging East Asian Economies as Foreign Investors By Hal Hill; Juthathip Jongwanich
  12. The Spatial Organization of Multinational Firms By Fabrice Defever
  13. China's Outward Direct Investment in Africa By Yin-Wong Cheung; Jakob de Haan; XingWang Qian; Shu Yu
  14. Spatial clustering and nonlinearities in the location of multinational firms By Roberto Basile; Luigi Benfratello; Davide Castellani

  1. By: Armando Silva (Instituto Politécnico do Porto - ESEIG); Oscar Afonso (Faculdade de Economia, Universidade do Porto, CEFUP and OBEGEF); Ana Paula Africano (Faculdade de Economia, Universidade do Porto and CEFUP)
    Abstract: By combining economic and financial data for Portuguese manufacturing firms with data on their exports and imports, we uncover some aspects of the relationship between international trade engagement and firms’ performance. In line with recent theoretical and empirical developments in the international trade literature: (i) we testify that Portuguese international trade is highly concentrated, especially on the import side, and both in inter- and intra-sector terms; (ii) we corroborate previous studies and theses according to which two-way traders outperform only importers, only exporters and above all domestic firms; (iii) we find that the greater the diversification of markets and goods (especially with regard to imports), the better the performance achieved by internationalised firms; (iv) we notice that the higher the intensity of international trade of firms (especially imports), the better the performance of firms; (v) we also present evidence that destination markets, for exports, and, origin markets, for imports, are also important in explaining firm performance.
    Keywords: International trade, Firm performance, Diversification
    JEL: C23 F14 F23
    Date: 2011–05
  2. By: Pete Liapis
    Abstract: Trade in processed products, such as chocolates, steaks or wines, is dominated by high income OECD countries, although it is slowing down between these countries while growing very fast between emerging economies. Low income countries, however, account for a small share of such trade. Countries with a revealed comparative advantage in the processed agricultural markets are mostly high income countries and capture the majority of the trade, while many low income countries have a comparative advantage for other agricultural products. This study describes the patterns of trade, examines which countries have a comparative advantage and how this may have changed over time, analyses the level of productivity of countries’ export basket and its contribution to income, and determines whether trade has increased at the extensive or intensive margins. This study uses the gravity framework to gain a better understanding of the underlying factors for the international trade of products.
    Keywords: tariffs, trade facilitation, agricultural trade, comparative advantage, processed agricultural products, PRODY, EXPY, extensive margin, gravity framework
    Date: 2011–05–31
  3. By: Dennis Novy
    Abstract: This paper derives a micro-founded gravity equation in general equilibrium based on a translog demand system that allows for endogenous markups and substitution patterns across goods. In contrast to standard CES-based gravity equations, trade is more sensitive to trade costs if the exporting country only provides a small share of the destination country's imports. As a result, trade costs have a heterogeneous impact across country pairs, with some trade flows predicted to be zero. I test the translog gravity equation and find strong empirical support in its favor.
    Keywords: Translog, gravity, trade costs, distance, trade cost elasticity
    JEL: F11 F12 F15
    Date: 2010–12
  4. By: Harold Creusen; Arjan Lejour
    Abstract: This paper analyses the export market entry decisions of Dutch firms and their subsequent growth or market exit. Exporters, particularly when entering new markets, have to learn about market conditions and to search for new trade relations under uncertainty. In that sense the paper also investigates the role of economic diplomacy and knowledge spillovers from colleague-exporters. We combine detailed international trade data by firm and destination between 2002 and 2008 with firm data and export market haracteristics in order to disentangle the firm and country determinants of successful and less successful export behaviour. First, we find that about 5% of all Dutch exporters have just started in their first market and a similar share of exporters ceases all exports. Still, the starting exporters increase their exports very fast. In each market their export growth in their third year as exporter is about twice as high as for established exporters. Many starters also increase their exports by expanding their number of destinations, but they will retreat swiftly if they are not successful. For all exporters we find that more productive and larger firms are more inclined to enter (additional) export markets, and that larger firms are less likely to leave a market. Market characteristics are important as well. Distance and import tariffs reduce the probability to enter the market and increase the probability to exit. Not only distance to the home country matters, but also the distance to export markets already accessed. Firms seem to follow a stepping stone approach for reaching markets further away (physically and culturally). They first enter more nearby markets before moving to more distant markets. Finally, we find that the presence of support offices abroad and trade missions in destination countries, particularly middle income countries, stimulate the entry of new exporters and the growth of export volume. Knowledge spillovers from exporters with the same destinations have also positive effects on market entry.
    Keywords: strategic export decisions, sequential export market entry and exit, export growth, economic
    JEL: F10 F13
    Date: 2011–05
  5. By: Giordano Mion; Linke Zhu
    Abstract: We use Belgian manufacturing firm-level data over the period 1996- 2007 to analyze the impact of imports from different origins on firm growth, exit, and skill upgrading. For this purpose we use both industry-level and firm-level imports by country of origin and distinguish between firm-level outsourcing of final versus intermediate goods. Results indicate that China is different from both other low-wage and OECD countries. Industry-level import competition and firm-level outsourcing to China reduce firm employment growth and induce skill upgrading. In contrast, industry-level imports have no effect on Belgian firm survival, while firm-level outsourcing of finished goods to China even increased firm's probability of survival. In terms of skill upgrading, the effect of Chinese imports is large. Import competition from China accounts for 42% (20%) of the within firm increase in the share of skilled workers (non-production workers) in Belgian manufacturing over the peri od of our analysis, but these effects, as well as the employment reducing effect, remain mainly in low-tech industries. Firm-level outsourcing to China further accounts for a small but significant increase in the share of non-production workers. This change in employment structure is in line with predictions of recent model of trade-induced technological change and offshoring.
    Keywords: import competition, outsourcing, China, skill upgrading, technological change
    JEL: F14 F16 L25
    Date: 2010–12
  6. By: Lunchao Hu; Kailan Tian; Xin Wang; Jiang Zhang
    Abstract: The highly detailed international trade data among all countries in the world during 1971-2000 shows that the kinds of export goods and the logarithmic GDP (gross domestic production) of a country has an S-shaped relationship. This indicates all countries can be divided into three stages accordingly. First, the poor countries always export very few kinds of products as we expect. Second, once the economic size (GDP) of a country is beyond a threshold, its export diversity may increase dramatically. However, this is not the case for rich countries because a ceiling on the export diversity is observed when their GDPs are higher than another threshold. This pattern is very stable for different years although the concrete parameters of the fitting sigmoid functions may change with time. In addition, we also discussed other relationships such as import diversity with respect to logarithmic GDP, diversity of exporters with respect to the number of export goods etc., all of these relationships show S-shaped or power law patterns. Although this paper does not explain the origin of the S-shaped curve, it may provide a basic empirical fact and insights for economic diversity.
    Date: 2011–05
  7. By: Elhanan Helpman; Oleg Itskhoki; Stephen Redding
    Abstract: This paper reviews a new framework for analyzing the interrelationship between inequality, unemployment, labor market frictions, and foreign trade. This framework emphasizes firm heterogeneity and search and matching frictions in labor markets. It implies that the opening of trade may raise inequality and unemployment, but always raises welfare. Unilateral reductions in labor market frictions increase a country's welfare, can raise or reduce its unemployment rate, yet always hurt the country's trade partner. Unemployment benefits can alleviate the distortions in a country's labor market in some cases but not in others, but they can never implement the constrained Pareto optimal allocation. We characterize the set of optimal policies, which require interventions in product and labor markets.
    Keywords: Inequality, unemployment, trade, labour market policy
    JEL: F12 F16 J64
    Date: 2010–12
  8. By: Tibor, Besedes
    Abstract: While exports within NAFTA face a lower hazard, its onset has increased the hazard of exporting between the members, though intra-NAFTA exports still enjoy a lower hazard. There are differences in the timing of the effect of NAFTA across the three members. Unlike the effect on Canadian exports, the effect on Mexican and U.S. exports is persistent. Exports of increasing-returns-to-scale manufacturing products faced the highest hazard across all three members. The effect of NAFTA on the hazard of exporting each of the three returns to scale type of products is exporter specific with no uniform patterns.
    Keywords: hazard; export survival; returns to scale; NAFTA
    JEL: F10 F14
    Date: 2011–05–31
  9. By: Gary Clyde Hufbauer (Peterson Institute for International Economics); Meera Fickling (Peterson Institute for International Economics); Woan Foong Wong (Peterson Institute for International Economics)
    Abstract: Trade finance will play a crucial role in President Barack Obama's goal of doubling US exports by 2015. Almost 90 percent of exports depend on trade finance in some form—direct credit, credit insurance, or loan guarantees. Even though official export credit agencies (ECAs), including the US Export-Import Bank (Ex-Im Bank), play a small part in the whole scheme of export finance, they occupy a crucial niche. They are "lenders of last resort," taking risks shunned by the private market. Ex-Im Bank is up for reauthorization in 2011, so this is a good time to review its prospects and mandate. As new authorization legislation is drafted, the authors recommend that Congress address seven policy issues: (1) enlarge the Ex-Im Bank's funding level to the point where it can finance 5 percent of US exports of goods and services; (2) draw private banks to play a more active role in financing exports of small and medium-sized enterprises; (3) cut the local content requirement from the bank's current level of 85 percent to a maximum of 50 percent; (4) authorize the Ex-Im Bank to support both service components of merchandise exports and stand-alone services exports in a manner similar to the approach of other ECAs; (5) repeal the cargo preference requirement; (6) move the determination of "adverse economic impact" to the US International Trade Commission and limit the review to countries that are subject to antidumping duties, countervailing duties, and safeguard orders; and (7) use concerted pressure to bring China into the OECD Arrangement on Officially Supported Export Credits.
    Date: 2011–06
  10. By: Aaditya Mattoo (World Bank); Francis Ng (World Bank); Arvind Subramanian (Peterson Institute for International Economics)
    Abstract: China's global economic dominance has changed the dynamic of the Doha Round of multilateral trade negotiations, which has been languishing for nearly 10 years. Whereas earlier lack of enthusiasm from the private sector debilitated Doha, today fear of competition from a dominant China inhibits progress. Progress now hinges critically on greater market opening not in services or agriculture but in manufacturing, where China is a large supplier to all the major markets, and its presence has grown significantly over the course of the Doha Round negotiations. China looms especially large in the markets of major trading partners in sectors where protection is greatest. China's share in these sectors in Japan is over 70 percent, in Korea over 60 percent, in Brazil about 55 percent, in the United States, Canada, and the European Union about 50 percent each. Liberalization under the Doha agenda, especially in the politically charged, high-tariff sectors, is increasingly about other countries opening their markets to Chinese exports. China has achieved trade dominance to a large extent through its successful growth strategy, but the problem is the strong political perception that China's export success has been achieved, and continues to be sustained, in part by an undervalued exchange rate. It seems unlikely and politically unrealistic to expect China's trading partners to open further their markets to China when China is perceived as de facto (via the undervalued exchange rate) imposing an import tariff and export subsidy not just in selected manufacturing sectors but across the board. Unless Chinese currency policy changes significantly, and unless there can be credible checks on the use of such policies in the future, concern will remain in many countries, both industrial and emerging-market, about the increased competition from China that liberalization under Doha might unleash. Instead of blaming one another for the current impasse, countries need to confront Chinese trade dominance to revive Doha or look beyond it.
    Date: 2011–05
  11. By: Hal Hill; Juthathip Jongwanich
    Abstract: This paper documents and analyzes the rise of emerging East Asian economies as major international investors. Foreign direct investment (FDI) from these economies is rising faster than their economic growth, trade, and inward FDI, and the region is by far the most important investor from the developing world. We develop an analytical interpretation of the behaviour and competitive strategies of major developing East Asian outward investors. We conclude that the drivers of this outward FDI are generally consistent with the international investment literature. But in addition particular factors are at work, including the desire for natural resource security, and exceptionally high domestic savings rates. The major challenge for the rest of the world is to accommodate these FDI flows, as part of the global reorientation of economic activity towards East Asia.
    Keywords: East Asia, outward foreign investment, emerging economies
    JEL: F21 F23 O33 O53
    Date: 2011
  12. By: Fabrice Defever
    Abstract: Using six years of firm-level data covering 224 regions of the enlarged European Union, we evaluate the importance to a firm of locating its activities (production, headquarters, R&D, logistics and sales) close together. We find that, after controlling for regional characteristics, being closely located to a previous investment positively affects firm location choice. However, the impact of distance is dependent on the type of investment (production or service). While within-firm co-location is important for both service and production activities, only production plants are likely to be located close to prior production investments. In this latter case, national borders have a surprisingly positive effect, increasing the probability of choosing a nearby location, but on the other side of the border.
    Keywords: Functional fragmentation, vertical linkages, location choice
    JEL: F23 L22 R3
    Date: 2010–12
  13. By: Yin-Wong Cheung (University of California, Santa Cruz and Hong Kong Institute for Monetary Research); Jakob de Haan (De Nederlandsche Bank); XingWang Qian (SUNY, Buffalo State College); Shu Yu (University of Groningen)
    Abstract: We examine the empirical determinants of China's outward direct investment (ODI) in Africa using an officially approved ODI dataset and a relatively new OECD-IMF format ODI dataset. China's ODI is found responding to the canonical economic determinants that include the market seeking motive, the risk factor, and the resources seeking motive. It is also affected by the intensity of trade ties and the presence of China¡¦s contracted projects. A host country's natural resources have an impact on China's decision on how much to invest in the country rather than on whether to invest in the country or not. China's drive for Africa's natural resources is mainly a recent phenomenon and, probably, became prominent after the "Going Global" policy adopted in 2002.
    Keywords: Market Seeking, Resources Seeking, Risk, Trade Relationship, Contracted Projects, Going Global Policy, Energy Procurement
    JEL: F21 F36 O53
    Date: 2011–04
  14. By: Roberto Basile; Luigi Benfratello; Davide Castellani
    Abstract: We propose a semiparametric geoadditive negative binomial model of industrial location which allows to simultaneously address some important methodological issues, such as spatial clustering and nonlinearities, which have been only partly addressed in previous studies. We apply this model to analyze location determinants of inward greenfield investments occurred over the 2003-2007 period in 249 European regions. The inclusion of a geoadditive component (a smooth spatial trend surface) allows to control for omitted variables which induce spatial clustering, and suggests that such unobserved factors may be related to regional policies towards foreign investors Allowing for nonlinearities reveals, in line with theoretical predictions, that the positive effect of agglomeration economies fades as the density of economic activities reaches some limit value.
    Keywords: industrial location, negative binomial models, geoadditive models, european union.
    JEL: C14 C21 F14 F23
    Date: 2011–05–02

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