nep-int New Economics Papers
on International Trade
Issue of 2011‒08‒02
eleven papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. International Supply Chains and the Volatility of Trade By Benjamin Bridgman
  2. Applying the gravity approach to sector trade: Who bears the trade costs? By Angela Cheptea; Alexandre Gohin; Marilyne Huchet Bourdon
  3. International Sourcing, Product Complexity and Intellectual Property Rights By A. Naghavi; J. Spies; F. Toubal
  4. From trade preferences to trade facilitation: Taking stock of the issues By Persson, Maria
  5. Currency Union and Investment Flows: Estimating the Euro Effect on FDI By Marián Dinga; Vilma Dingová
  6. FDI and regional economic integration in SAARC region: problems and prospects By Ansari, Nasim; Khan, Tamanna
  7. Does Tobin's q Matter for Firms' Choices of Globalization Mode? By JINJI Naoto; ZHANG Xingyuan; HARUNA Shoji
  8. A Comparison of Product Price Targeting and Other Monetary Anchor Options, for Commodity Exporters in Latin America By Frankel, Jeffrey A.
  9. The Effect of Exchange Rate Changes on Japanese Consumption Exports By Thorbecke, Willem; Kato, Atsuyuki
  10. A Many-Country Model of Industrialization By Breinlich, Holger; Cuñat, Alejandro
  11. Institutions, geography, trade, and income per capita: A spatial-simultaneous equation approach By Ngeleza, Guyslain

  1. By: Benjamin Bridgman (Bureau of Economic Analysis)
    Abstract: The world trade collapsed in the most recent recession. Some analysts have suggested the increasing offshoring of the supply chain, or vertical specialization (VS) trade, can explain the apparent increase in volatility of trade over the business cycle. This paper develops a model of VS trade to examine its impact on the volatility of trade. The model features increased trade volatility as VS trade increases when goods production is more volatile than services production. While the simulated model generates the observed increase in relative volatility of trade to GDP from 1967 to 2002, most of the increase is due to GDP’s shift to less volatile services production. VS trade only accounts for a third of the increase. Counterintuitively, VS trade can moderate trade volatility.
    JEL: E60
    Date: 2010–09
  2. By: Angela Cheptea; Alexandre Gohin; Marilyne Huchet Bourdon
    Abstract: Thanks to its empirical success, the gravity approach is widely used to explain trade patterns between countries. In this article we question the simple application of this approach to product/sector-level trade on two grounds. First, we demonstrate that the traditional Armington version of gravity must be altered to properly account for the fact that sector expenditures are not strictly equal to sector productions because some trade costs are incurred outside the sector of interest. Secondly, we test empirically the mis-measurement of the expenditures with both Armington (1969) and Helpman and Krugman (1985) approaches. We estimate trade flows and prices simultaneously with non linear techniques. Underestimated expenditure levels yield biased values of model parameters.
    Keywords: gravity, trade, econometric simulation
    JEL: F11 F12 C13 C15
    Date: 2011
  3. By: A. Naghavi; J. Spies; F. Toubal
    Abstract: In this paper, we propose the technological complexity of a product and the level of Intellectual Property Rights (IPRs) protection to be the co-determinants of the mode through which multinational firms purchase their goods. We study the choice between intra-firm trade and outsourcing given heterogeneity at the product- (complexity), firm- (productivity) and country- (IPRs) level. Our findings suggest that the above three dimensions of heterogeneity are crucial for complex goods, where firms face a trade-off between higher marginal costs in the case of trade with an affiliate and higher imitation risks in the case of sourcing from an independent supplier. We test these predictions by combining data from a French firm-level survey on the mode choice for each transaction with a newly developed complexity measure at the product-level. Our fractional logit estimations confirm the proposition that although firms are generally reluctant to source highly complex goods from outside the firm’s boundaries, they do so when a strong IPR regime in the host country guarantees the protection of their technology.
    JEL: F12 F23 O34
    Date: 2011–07
  4. By: Persson, Maria
    Abstract: The objective of the paper is to explore and give an overview of two central policy alternatives to improve the integration between the European Union and developing countries by removing barriers to trade: trade preferences and trade facilitation. After reviewing the relevant literatures and discussing the issues which constitute problems or opportunities for practitioners and researchers in both areas, the paper concludes that while at least some trade preferences actually have been less of a failure than their reputation suggests, trade facilitation is a far more promising policy option for the future. --
    Keywords: Trade preferences,Trade Facilitation,European Union,Developing Countries
    JEL: F10 F13 F15
    Date: 2011
  5. By: Marián Dinga (CERGE-EI); Vilma Dingová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This paper studies the effect of the euro introduction on international FDI flows. Using country-pair data on 35 OECD economies during 1997-2008 and adopting the propensity score matching as identification strategy, we investigate the impact of the euro on capital reallocation. In general, the euro exhibits no significant impact on FDI. However, the effect becomes significant on the subset of EU countries, increasing FDI flows by 14.3 to 42.5 percent. Furthermore, we find that the EU membership fosters FDI flows much more than the euro, increasing FDI flows by 55 to 166 percent. Among other FDI determinants, high gross domestic product, low distance between countries and low unit labor costs in target country have a positive effect on FDI. On the contrary, long-term exchange rate volatility deters FDI flows.
    Keywords: monetary union, foreign direct investment, common currency area, euro
    JEL: E42 F15 F21
    Date: 2011–07
  6. By: Ansari, Nasim; Khan, Tamanna
    Abstract: Regional integration has the potential to promote economic development in member countries irrespective of size and the level of growth. This potential can be exploited only through deeper cooperation. However, there are a number of challenges which restrict this region to tap its potential. As most of SAARC countries are underdeveloped economic integration is much needed for the development of this region. The process of economic integration in South Asia gathered momentum with the implementation of the South Asian Preferential Trade Agreement (SAPTA) in 1995 under the broad framework of the South Asian Association for Regional Cooperation (SAARC). SAPTA has, however, comes to be viewed as an interim platform in the move towards economic integration in South Asia. It is argued that regional integration has the potential to promote FDI flows and economic development of the region. This will pave the way for the most efficient use of the region’s resources through additional economies of scale, value addition, employment and diffusion of technology. Though the regional integration has yet not boosted the SAARC share in world trade, but it has attracted more FDI inflows and its share has been rise in Asia and the world respectively. In 2008 the SAARC share of FDI inflows in Asia was 7.92 percent and 2.89 percent in world. The concept of regionalism and regionalisation is new for the economies of South Asia and there are several factors combine a negative case for a viable free trade agreement in the short-term. The objective of this paper is to analyze the role of regional integration in south Asia in the promotion of region’s trade and attracting FDI. It argues that there is need for deeper integration within the region.
    Keywords: FDI; Regional Economic Integration; SAARC; Trade
    JEL: F15
    Date: 2011–04–09
  7. By: JINJI Naoto; ZHANG Xingyuan; HARUNA Shoji
    Abstract: In this paper, we investigate empirically how firms' choices of globalization mode differ according to their productivity and Tobin's q using firm-level data of Japanese firms. Our findings support predictions by Helpman, Melitz, and Yeaple (2004) and by Chen, Horstmann, and Markusen (2008). That is, we find that firms with higher productivity tend to choose more foreign direct investment (FDI) and less exporting. We also find that firms with higher Tobin's q tend to choose more FDI and less foreign outsourcing of production. The difference in productivity is relatively less important for the choice between FDI and foreign outsourcing, and the difference in Tobin's q is relatively less important for the choice between exporting and FDI. Because the indexes of globalization activities have a strong negatively skewed distribution, our results indicate that quantile regression would be appropriate to analyze the relationship between firm characteristics and choice of globalization mode.
    Date: 2011–07
  8. By: Frankel, Jeffrey A. (Harvard University)
    Abstract: Seven possible nominal variables are considered as candidates to be the anchor or target for monetary policy. The context is countries in Latin America and the Caribbean (LAC), which tend to be price takers on world markets, to produce commodity exports subject to volatile terms of trade, and to experience procyclical international finance. Three anchor candidates are exchange rate pegs: to the dollar, euro and SDR. One candidate is orthodox Inflation Targeting. Three candidates represent proposals for a new sort of inflation targeting that differs from the usual focus on the CPI, in that prices of export commodities are given substantial weight and prices of imports are not: PEP (Peg the Export Price), PEPI (Peg an Export Price Index), and PPT (Product Price Targeting). The selling point of these production-based price indices is that each could serve as a nominal anchor while yet accommodating terms of trade shocks, in comparison to a CPI target. CPI-targeters such as Brazil, Chile, and Peru are observed to respond to increases in world prices of imported oil with monetary policy that is sufficiently tight to appreciate their currencies, an undesirable property, which is the opposite of accommodating the terms of trade. As hypothesized, a product price target generally does a better job of stabilizing the real domestic prices of tradable goods than does a CPI target. Bottom line: A Product Price Targeter would appreciate in response to an increase in world prices of its commodity exports, not in response to an increase in world prices of its imports. CPI targeting gets this backwards.
    JEL: E50 F40
    Date: 2011–07
  9. By: Thorbecke, Willem (Asian Development Bank Institute); Kato, Atsuyuki (Asian Development Bank Institute)
    Abstract: This paper investigates how exchange rates affect Japanese exports. This is difficult because many of Japan’s exports are used to produce goods for re-export. An appreciation in the importing country that decreases exports can decrease its imported inputs from Japan. To correct for this bias the authors examine consumption exports. Using a panel dataset of Japan’s consumption exports to 17 countries over the 1988–2009 period, they found that a 10% appreciation of the yen would reduce Japan’s consumption goods exports by 9%. These results indicate that the large swings in the value of the yen over the last decade have caused large swings in the volume of Japanese exports.
    Keywords: exchange rate elasticities; japanese consumption exports
    JEL: F30 F32
    Date: 2011–07–26
  10. By: Breinlich, Holger; Cuñat, Alejandro
    Abstract: We draw attention to the role of economic geography in explaining important cross-sectional facts which are difficult to account for in existing models of industrialization. By construction, closed-economy models that stress the role of local demand in generating sufficient expenditure on manufacturing goods are not suited to explain the strong and negative correlation between distance to the world's main markets and levels of manufacturing activity in the developing world. Secondly, open-economy models that emphasize the importance of comparative advantage are at odds with a positive correlation between the ratio of agricultural to manufacturing productivity and shares of manufacturing in GDP. This paper provides a potential explanation for these puzzles by nesting the above theories in a multi-location model with trade costs. Using a number of simple analytical examples and a full-scale multi-country calibration, we show that the model can replicate the above stylized facts.
    Keywords: Economic Geography; Industrialization; International Trade
    JEL: F11 F12 F14 O14
    Date: 2011–07
  11. By: Ngeleza, Guyslain
    Abstract: This paper tests a series of prominent hypotheses regarding how institutions, geography, and trade interact to influence income per capita using a novel spatial econometric approach to control for both spillovers among neighboring countries and spatially correlated omitted variables. Simultaneous equations are used to identify alternative channels through which country characteristics might affect income through trade and institutions, and then to test the robustness of those effects. Evidence indicated that both institutions and trade influence growth. Geographical factors such as whether a country is landlocked and its distance to the equator influence income, but only through trade. Data covering 95 countries across the world from 1960 through 2002 was used to construct a pooled dataset of 5-year averages (9 in all) centered on 1960, 1965, and so on through 2000. Both limited and full information estimators, partly based on a generalized moments (GM) estimator for spatial autoregressive coefficients, were used. These allow for spatial error correlation, correlation across equations, and the presence of spatially lagged dependent variables.
    Keywords: economic growth, Geography, Institutions, simultaneous equations, spatial econometrics, trade,
    Date: 2011

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