nep-int New Economics Papers
on International Trade
Issue of 2011‒08‒09
sixteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Managerial versus production wages: Offshoring, country size and endowments By Benz, Sebastian; Kohler, Wilhelm
  2. Why Has the Border Effect in the Japanese Machinery Sectors Declined? The Role of Business Networks in East Asian Machinery Trade By Kyoji Fukao; Toshihiro Okubo
  3. Wage Effects of Trade Reform with Endogenous Worker Mobility By Pravin Krishna; Jennifer P. Poole; Mine Zeynep Senses
  4. Offshoring tasks, yet creating jobs? By Kohler, Wilhelm; Wrona, Jens
  5. Imports and the structure of retail markets By Raff, Horst; Schmitt, Nicolas
  6. Offshoring and company characteristics: some evidence from the analysis of Spanish firm data By Angels Pelegrín; Catalina Bolancé
  7. Production Networks in Asia: A Case Study from the Hard Disk Drive Industry By Hiratsuka, Daisuke
  8. An empirical model for the Turkish trade balance: new evidence from ARDL bounds testing analyses By Korap, Levent
  9. Exploring the factors driving automotive exports in OECD countries By Jochem, Patrick; Schleich, Joachim
  10. China and India as Suppliers of Affordable Medicines to Developing Countries By Tamara Hafner; David Popp
  11. World Wine Exports: What Determined the Success of the ‘New World’ Wine Producers? By Osiris Jorge Parcero; Emiliano Villanueva
  12. American trade policy towards Sub Saharan Africa –- a meta analysis of AGOA By Cooke, Edgar F A
  13. Attracting FDI in Business Services to Improve Manufacturing Performance and Competitiveness: Evidence from the Italian Provinces By Massimo Armenise; Giorgia Giovannetti; Gianluca Santoni
  14. The Optimal Dynamic Infant Industry Protection in Joining a Free Trade Agreement: A Numerical Analysis of the Vietnamese Motorcycle Industry By Tran Lam Anh Duong
  15. Trade and Inequality in India By Pravin Krishna; Guru Sethupathy
  16. Trade Policy Making in a Model of Legislative Bargaining By Levent Celik; Bilgehan Karabay; John McLaren

  1. By: Benz, Sebastian; Kohler, Wilhelm
    Abstract: We explore the role of trade in differentiated final goods as well ollshoring of tasks for inequality both within and between countries. We emphasize the distinction between managerial and production labor. Managerial labor is a fixed input while production labor is a variable input. Following Grossman & Rossi-Hansberg (2010b) we assume that production labor is composed of tradable tasks, with Marshallian economies of scale on the task level. We first identify the key determinants of income distribution in a world where trade is restricted to final goods. We then allow for trade in production tasks, driven by country size as well as relative endowment with managerial and production labor. If the two countries are of equal size and if their relative endowments are not too different, then the task trading equilibrium features equalization of production wages, although the pattern of task trade and managerial wages are indeterminate. For differences in relative endowments beyond a certain threshold level, the trading equilibrium is unique and features one-way trade in line with comparative advantage. Relying on numerical simulations we show that international inequality is affected in a non-monotonic way by the cost of task trade. Comparing orders of magnitude we conclude that offshoring between similar countries only has a small positive effect on the managerial wage premium, compared to offshoring between countries with a different relative endowment. --
    Keywords: Offshoring,Economies of Scale,Income Distribution,International Inequality
    JEL: F12 F16 F23
    Date: 2011
  2. By: Kyoji Fukao; Toshihiro Okubo
    Abstract: This paper analyzes the impact of firm networks on Japan's national border effect. We estimate gravity equations using data on Japan's international and interregional trade in four machinery industries (electrical, general, precision and transportation machinery). The machinery sector is the most important manufacturing sector for exports and outward foreign direct investment (FDI) in Japan. By taking into account international as well as interregional firm networks, we find that ownership relations usually enhance exports from parent firms to establishment. Consequently we can explain 15% (7%, 1% and 0.5%) of the decline in Japan's border effect from 1980 to 1995 in precision (transportation, general electrical) machinery sector by the increase of international networks.
    Keywords: Gravity model, Border effect, Firm networks, Fragmentation
    JEL: F14 F17 F21 L14
    Date: 2011–08
  3. By: Pravin Krishna; Jennifer P. Poole; Mine Zeynep Senses
    Abstract: In this paper, we use a linked employer–employee database from Brazil to examine the impact of trade reform on the wages of workers employed at heterogeneous firms. Our analysis of data at the firm level confirms earlier findings of a differential positive effect of trade liberalization on average wages at exporting firms relative to non-exporting firms. However, the analysis of average firm-level wages is incomplete along several dimensions. First, it cannot fully account for the impact of a change in trade barriers on workforce composition, especially in terms of unobservable (time-invariant) worker characteristics (innate ability) and any additional productivity that results from employment in a specific firm (match-specific ability). Furthermore, the firm-level analysis is undertaken under the assumption that the assignment of workers to firms is random. This ignores the sorting of workers into firms and leads to a bias in estimates of the differential impact of trade on average wages at exporting firms relative to non-exporting firms. Using detailed information on worker and firm characteristics to control for compositional effects and firm-worker match-specific effects to account for the endogenous mobility of workers, we find an insignificant differential effect of trade openness on wages at exporting firms relative to domestic firms. Consistent with the models of Helpman, Itskhoki, and Redding (2010) and Davidson, Matusz, and Schevchenko (2008), we also find that the workforce composition post-liberalization improves systematically in exporting firms in terms of innate worker ability and in terms of the quality of the worker-firm matches. These findings underscore the importance of search frictions and labor market matching mechanisms in determining the effects of trade policy changes on wages.
    JEL: F16
    Date: 2011–07
  4. By: Kohler, Wilhelm; Wrona, Jens
    Abstract: The policy debate views offshoring as job destruction. Theoretical models of offshoring mostly assume full employment. We develop a model of task trade that allows for equilibrium unemployment. In this model, there are two margins of adjustment. At the extensive margin, moving tasks offshore destroys jobs. At the intensive margin, due to higher productivity of labor in domestic tasks it creates jobs. Exploring these conditions in detail, we identify the potential of non-monotonic adjustment: Early stages of offshoring always lead to higher unemployment, while later stages may entail net job creation. We highlight this potential through numerical simulations. --
    Keywords: Offshoring,Trade in Tasks,Unemployment,Non-monotonicity
    JEL: F16 F11
    Date: 2011
  5. By: Raff, Horst; Schmitt, Nicolas
    Abstract: We construct a model of trade with heterogeneous retailers to examine the effects of trade liberalization on retail market structure, imports and social welfare. We are especially interested in investigating the transmission of lower import prices into consumer prices and the effects of retail market regulation. The paper shows that changes in import prices may have large effects on consumer prices and import volumes when changes in retail market structure are taken into account, and that restrictions on retailing, as they occur in several countries, may significantly alter this transmission mechanism by reducing imports and raising consumer prices. --
    Keywords: International trade,retailing,firm heterogeneity
    JEL: F12 L11
    Date: 2011
  6. By: Angels Pelegrín (Universitat de Barcelona & IEB); Catalina Bolancé (University of Barcelona & RFA-IREA)
    Abstract: This article investigates firm characteristics associated with the probability of relocating activities in a foreign country. Using manufacturing firms’ micro data for the 1999-2005 period, we find evidence that cost-cutting objectives are the main determinants for offshoring production. The analysis reveals that firms that are larger and have higher productivity, more research and development activity and greater human capital intensity are more likely to relocate activity abroad. Thus, ‘the best’ firms self-select to offshoring activities. We note the special prominence of foreign firms among those that engage in offshoring. Our results show that self-selection of ‘the best’ firms are much more significant in foreign firms.
    Keywords: Offshoring determinants, best firms, firm characteristics, foreign firms
    JEL: F21 F23
    Date: 2011
  7. By: Hiratsuka, Daisuke (Asian Development Bank Institute)
    Abstract: Production networks have been extensively developed in East Asia. Previous studies on production networks used international trade data or input–output tables, but such aggregate data cannot explain how the networks actually operate. With the aim of understanding the features and characteristics of East Asian production networks, this paper examines the procurement system of a hard disk drive assembler operating in Thailand. This micro-level case study found that this particular production network consists mostly of arm’s-length suppliers, who are independent and on an equal footing with the assembler.
    Keywords: east asian production networks; hard disk drive industry
    JEL: F14 F15 F23
    Date: 2011–07–28
  8. By: Korap, Levent
    Abstract: In this paper, the determinants of the Turkish trade balance are tried to be analyzed in an empirical modelling approach. For this purpose, the contemporaneous ARDL-based bounds testing has been used to examine the existence of a long run co-integration relationship between the variables of our interest. The estimation results indicate that real exchange rate depreciations improves the trade balance in a strong and significant way, that domestic real income affects the trade balance negatively, and that trade balance is strongly improved due to an increase in foreign real income. No significant effect of crude oil prices can be observed on trade balance. The error correction modeling gives results in line with the long run findings of the co-integration analysis.
    Keywords: Trade Balance; ARDL Bounds Testing Approach; Turkish Economy;
    JEL: C32 F10 F41
    Date: 2011
  9. By: Jochem, Patrick; Schleich, Joachim
    Abstract: Based on data for eight OECD countries this paper empirically explores the factors driving exports in the automotive sector between 1991 and 2008. The factors considered explicitly account for possible lead market effects which have recently been identified in the literature as relevant factors in studying the export potentials of certain technologies. Econometric results suggest that exports in the automotive sector are positively related to the general strength of a country in terms of exports, to higher GDP per capita and to a lower labour cost share in the automotive sector. However, domestic market size and R&D in the automotive sector appear to have no effect on exports. Hence, the results provide only limited rationale for policy intervention. --
    Keywords: Lead markets,export potentials,automotive industry
    Date: 2011
  10. By: Tamara Hafner; David Popp
    Abstract: As countries reform their patent laws to be in compliance with the Trade Related Intellectual Property Rights Agreement, an important question is how increased patent protection will affect drug prices in low-income countries. Using pharmaceutical trade data from 1996 to 2005, we examine the role of China and India as suppliers of medicines to other middle- and low-income countries and evaluate the competitive effect of medicine imports from these countries on the price of medicines from high- income countries. We find that imports of antibiotics and unspecified medicaments from India and China significantly depress the average price of these commodities imported from high-income trading partners, suggesting that India and China are not only important sources of inexpensive medicines but also have an indirect effect by lowering prices through competition. As India is the leading supplier of medicines in Sub-Saharan Africa, this region will likely be affected most adversely.
    JEL: I10 O10 O34
    Date: 2011–07
  11. By: Osiris Jorge Parcero; Emiliano Villanueva
    Abstract: This paper looks at the evolution of the world wine industry in the period 1961-2005. A particular stylized fact is the appearance of non-traditional producing and exporting countries of wine from the beginning of the nineties. We show that the success of these new producing and exporting countries can be explained by the importance of the demand from non-producing countries with little or no tradition of wine consumption, relative to the world demand. This stylized fact is consistent with a testable implication of the switching cost literature and to the best of our knowledge this is the first time that this implication is tested.
    Keywords: exports, wine, industry dynamics, switching costs, new entrant.
    JEL: Q13 Q17 N50
    Date: 2011–07
  12. By: Cooke, Edgar F A
    Abstract: Twelve econometric studies investigating the impact of agoa presented in this paper have reported 174 different estimates. In testing for publication bias and whether there is a genuine empirical impact of agoa we resort to a meta-analysis. The meta-analysis provides us with a formal means of testing for publication bias and an empirical effect. The result shows significant publication bias in the selected studies. However, in a few cases the test for a genuine effect is passed successfully. The results of the meta-analysis indicates that agoa increased the trade of beneficiaries by 13.2%.
    Keywords: Trade preference regimes; African Growth and Opportunity Act (AGOA); Publication bias; Meta-Regression Analysis; Funnel plot; Study effect
    JEL: C10 F13 F10
    Date: 2011–07–30
  13. By: Massimo Armenise (Fondazione Manlio Masi); Giorgia Giovannetti (Università degli Studi di Firenze, Dipartimento di Scienze Economiche); Gianluca Santoni
    Abstract: Foreign Direct Investment (FDI) increase the productivity of domestic firms through spillovers and incentives to innovate. Hence, the capacity of local firms to absorb new technological knowledge emerges as a crucial factor for a country to benefit from FDI. This process might take time, especially if firms are small and medium as those prevailing in Italy. Between 2001 and 2007 the number of foreign firms in Italy has decreased, showing a particularly negative dynamic. However, in the same period, FDI in business services increased. The number of foreign firms investing in professional business services in Italy passed from 1277 in 2001 to 1700 in 2007, with a concurrent increase in the average dimension of firms. The aim of this paper is to test the effect of FDI in Business Services on the efficiency (Total Factor Productivity and Labor Productivity). Hence, the paper tests whether firms located in provinces better equipped to attract FDI in business services have received a premium in terms of productivity, profitability and other dimensions. Preliminary results show that while it is important to attract FDIs to improve the performance of domestic firms, the capacity of a province to keep the foreign direct inflows has an even more relevant effect. This relationship becomes even more evident for the traditional "Made in Italy" firms.
    JEL: C23 D24 F23
    Date: 2011
  14. By: Tran Lam Anh Duong
    Abstract: This paper investigates the optimal dynamic paths of trade protection imposed on infant industries during the process of joining a free trade agreement. The framework is based on the dynamic learning-by-doing model developed in Melitz (2005), where industries are experiencing dynamic externalities. In this framework, restricted-time protection is introduced as a realistic approach to correspond to the conditions of actual agreements. According to the computational analysis, in some feasible cases of optimal tariff paths may not follow a downward trend, as conventional wisdom would suggest. The results of the numerical simulation applied to the Vietnamese motorcycle industry support these findings.
    Keywords: dynamic externality, infant industry protection, numerical analysis, Vietnam
    JEL: F13 F17 L62
    Date: 2011–05
  15. By: Pravin Krishna; Guru Sethupathy
    Abstract: To study the effects of the dramatic economic reforms undertaken in India in the early 1990s on inequality, this paper examines Theil inequality as well as other inequality measures constructed using Indian household expenditure survey data from 1988-2005. Overall inequality shows some variation over the period, falling between 1988 and 1994, rising between 1994 and 2000, but falling again by 2005. The evolution of inequality in the post reform period is thus non-monotonic. A similar inequality trend is seen within most Indian states over this time period. Finally, the change in inequality across households within states is found to be uncorrelated with the change in state-level measures of tariff and non-tariff protection.
    JEL: F1 F14 F16
    Date: 2011–07
  16. By: Levent Celik; Bilgehan Karabay; John McLaren
    Abstract: In democracies, trade policy is the result of interactions among many agents with different agendas. In accordance with this observation, we construct a dynamic model of legislative trade policy-making in the realm of distributive politics. An economy consists of different sectors, each of which is concentrated in one or more electoral districts. Each district is represented by a legislator in the Congress. Legislative process is modeled as a multilateral sequential bargaining game a la Baron and Ferejohn (1989). Some surprising results emerge: bargaining can be welfare-worsening for all participants; legislators may vote for bills that make their constituents worse off; identical industries will receive very different levels of tariff. The results pose a challenge to empirical work, since equilibrium trade policy is a function not only of economic fundamentals but also of political variables at the time of congressional negotiations – some of them random realizations of mixed bargaining strategies.
    JEL: C72 C78 D72 F13
    Date: 2011–07

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