nep-int New Economics Papers
on International Trade
Issue of 2011‒09‒05
twenty-one papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Trade Models with Heterogeneous Firms: What About Importing? By Gibson, Mark; Graciano, Tim
  2. Exports, Imports and Firm Survival: First Evidence for Manufacturing Enterprises in Germany By Wagner, Joachim
  3. Gains and Losses from Potential Bilateral US-China Trade Retaliation By Yan Dong; John Whalley
  4. The WTO Government Procurement Agreement and Its Impacts on Trade By Hejing Chen; John Whalley
  5. The Determinants of trade credit: Evidence from Indian manufacturing firms By Rajendra R. Vaidya
  6. Trade Facilitation in Regional Trade Agreements: Recent Trends in Asia and the Pacific By Yann Duval
  7. Labour Market, International Trade, and Unemployment in a less Developed Country By Fernando Mesa
  8. Credit Contraction and International Trade: Evidence from Chilean Exporters By Ari Aisen; Roberto Álvarez; Andrés Sagner; Javier Turén
  9. The Trade Effects of Phasing Out Fossil-Fuel Consumption Subsidies By Jean-Marc Burniaux; Jean Chateau; Jehan Sauvage
  10. Does Trade Cause Capital to Flow? Evidence from Historical Rainfalls By Kalemli-Ozcan, Sebnem; Nikolsko-Rzhevskyy, Alex
  11. Immigrant Specificity and the Relationship between Trade and Immigration: Theory and Evidence By Harry P. Bowen; Jennifer Pedussel Wu
  12. Global Links: Exporting, Foreign Direct Investment, and Wages: Evidence from the Canadian Manufacturing Sector By Breau, Sébastien; Brown, W. Mark
  13. Trading and Enforcing Patent Rights By Alberto Galasso; Mark Schankerman; Carlos J. Serrano
  14. The Optimal Degree of Reciprocity in Tariff Reduction By Pao-Li Chang
  15. The Extensive Margin of International Trade: The Case of Mongolia By Chingunjav Amarsanaa; Yoshinori Kurokawa
  16. Trade Wars and Trade Talks with Data By Ralph Ossa
  17. Trade and Divergence in Education Systems By Pao-Li Chang; Fali Huang
  18. The dynamics and differentiation of Latin American metal exports By Benjamin Mandel
  19. Swedish Business R&D and its Export Dependence By Bergman, Karin; Ejermo, Olof
  20. Foreign Ownership and Firm Performance in German Services: First Evidence based on Official Statistics By John P. Weche Geluebcke
  21. Trade in Tasks By Rainer Lanz; Sébastien Miroudot; Hildegunn Kyvik Nordås

  1. By: Gibson, Mark; Graciano, Tim
    Abstract: Intermediate goods make up a large share of world trade. Yet trade models with heterogeneous firms focus almost exclusively on firms’ export decisions rather than their import decisions. We develop an analytically solvable model of a small open economy in which heterogeneous firms make endogenous import decisions. We view decisions about importing as decisions about technology adoption. In our model, firms weigh the benefit of operating a technology that uses imported intermediate goods against the fixed cost of developing trade relationships with foreign input suppliers. Similar to the selection effect in standard export-decision models, only the most efficient firms choose to import. In addition, the model features a technology upgrading effect, where importing improves a firm’s labor efficiency. The calibrated model quantifies the selection and technology upgrading effects, captures the large performance advantage associated with using imported intermediate goods, and generates large increases in trade from small decreases in tariffs.
    Keywords: hetrogenious firms; importing; Chile; fixed costs
    JEL: F1
    Date: 2011–07–01
  2. By: Wagner, Joachim (Leuphana University Lüneburg)
    Abstract: This paper documents the relationship between firm survival and three types of international trade activities - exports, imports and two-way trade. It uses unique new representative data for manufacturing enterprises from Germany, one of the leading actors on the world market for goods, that merge information from surveys performed by the Statistical Offices and administrative data collected by the Tax Authorities. It contributes to the literature by providing the first evidence on the role of imports and two-way trading for firm survival in a highly developed country. Descriptive statistics and regression analysis (with and without explicitly taking the rare events nature of firm exit into account) point to a strong positive link between firm survival on the one hand and imports and two-way trading on the other hand, while exporting alone does not play a role for exiting the market or not.
    Keywords: exports, imports, firm survival
    JEL: F14
    Date: 2011–08
  3. By: Yan Dong; John Whalley
    Abstract: Two closely related numerical general equilibrium models of world trade are used to analyze the potential consequences of US-China bilateral retaliation on trade flows and welfare. One is a conventional Armington trade model with five regions, the US, China, EU, Japan and Rest of the World, and calibrated to a global 2009 micro consistent data set. The other is a modified version of this model with monetary non neutrals and including China’s trade surplus as an endogenous variable. Who may gain or loss from global trade conflicts spawned by adjustment pressures in the post crisis world is much debated. In a US-China trade conflict, Europe and Japan would seem gainers from preferential access to US and Chinese markets. The loss of markets would hurt the US, but moving closer to an optimal tariff could be the source of terms of trade gains. And the ease of substitution across trading partners practices would determine costs for China. Results from the conventional model suggest that retaliation between the two countries can be welfare improving for US as it substitutes expenditures into own goods and improve its terms of trade with non retaliatory regions, while China and non retaliatory regions maybe adversely affected. Results in the endogenous trade surplus model from the central case model specification ,however, suggest that both the US and the EU (the deficit regions) have welfare losses in most cases, while the surplus region, China, and the ROW have welfare gains. In both models, when the bilateral tariff rates are very high, gains accrue to the EU and Japan from trade diversion if the substitutions elasticities of imports are high. Costs will are borne by the US and China in lost exports, lowered terms of trade and adjustment costs at home.
    JEL: F00 F1
    Date: 2011–08
  4. By: Hejing Chen; John Whalley
    Abstract: This paper assesses the impacts of the WTO Government Procurement Agreement (GPA) on trade in both goods and services among members using a gravity model applied to a panel dataset covering 20 OECD countries over the period 1996-2008 for trade in goods and 1999-2008 for trade in services. The agreement dates from 1996 and covers 41 (mainly OECD) countries (/areas). China is now negotiating possible membership. Little has been written on the GPA which is a plurilateral agreement covering both goods and services. It mutually extends commitments only to signatories, but has commitments going beyond those in the earlier GATT procurement code. Government service markets are large, and trade in these also has spillover effects on trade in services and goods. Results suggest that GPA membership has a positive impact on trade in both goods and services between parties as well as on outward foreign affiliate service sales. The number of GPA parties has a small marginal negative effect on trade in goods. Service exports also increase slightly with more parties participating in the GPA. The growth of government procurement contracts above the threshold under the GPA also fosters service imports, exports and outward foreign affiliate sales.
    JEL: F0 F1 F13
    Date: 2011–08
  5. By: Rajendra R. Vaidya (Indira Gandhi Institute of Development Research)
    Abstract: Trade credit (accounts receivable and accounts payable) is both an important source and use of funds for manufacturing firms in India. This paper empirically investigates the determinants of trade credit in the Indian context. The empirical evidence presented suggests that strong evidence exists in support of an inventory management motive for the existence of trade credit. Highly profitable firms are found to both give and receive less trade credit. Firms with greater access to bank credit offer less trade credit to their customers. On the other hand, firms with higher bank loans receive more trade credit. Holdings of liquid assets have a positive influence on both accounts receivable and accounts payable.
    Keywords: Trade Credit
    JEL: G31 G32
    Date: 2011–07
  6. By: Yann Duval (United Nations Economic and Social Commission for Asia and the Pacific (ESCAP))
    Abstract: The coverage of trade facilitation is found to have become very extensive, with the details of provisions in some agreements matching that in the draft WTO agreement on trade facilitation. Trade facilitation provisions and principles are increasingly seen to apply not only to Customs procedures but more generally, as reflected in the number of recent agreements featuring separate Trade Facilitation and/or Transparency chapters (or equivalent). Other trade facilitation measures that seem to be increasingly common include those on Automation/Use of ICT, Risk Management, Advance Ruling and Single Window. The ASEAN Trade in Goods Agreement (ATIGA) and its detailed commitment to implement a Trade Facilitation Work Programme stands out as it provides a concrete and specific way forward to ensure that progress is made towards actual implementation of the many trade facilitation measures mentioned in it.
    Keywords: trade facilitation, regional trade agreements, RTA, bilateral, free trade agreements, FTA, free trade areas, customs, WTO, Asia, Pacific, paperless, single window, ICT
    JEL: F1 F13
    Date: 2011–03
  7. By: Fernando Mesa
    Abstract: This paper constructs a trade general equilibrium model for a less developed country with three sectors. One is the informal and un-tradable sector characterized by flexible wages, while the other two sectors are tradable, export and import sectors. The model imposes a binding minimum wage over the unskilled labour and efficient wage distortions on the skilled labour. Comparative statics is driven to analyze the effects on the labour market as consequence of opening the economy, raising the minimum wage and the introduction of an augmenting productivity in the export sector.
    Date: 2011–08–23
  8. By: Ari Aisen; Roberto Álvarez; Andrés Sagner; Javier Turén
    Abstract: An important consequence of the recent financial crisis was the collapse of global trade. Using data of Chilean exporting firms, this paper studies the effect of financial constraints on export growth in the aftermath of the crisis. Our results show that both overall financing and export credit were significant determinants of export contraction in the Chilean case. However, the effect is highly heterogeneous. The evidence shows that larger exporters, belonging to industries more dependent on overall credit, have suffered disproportionately more. This has important policy implications, as public policy aiming at stimulating trade credit may not be as effective if overarching credit conditions remain subdued.
    Date: 2011–08
  9. By: Jean-Marc Burniaux; Jean Chateau; Jehan Sauvage
    Abstract: Quoting a joint analysis undertaken by the OECD and the IEA, G-20 leaders committed in September 2009 to “rationalize and phase out over the medium term inefficient fossil-fuel subsidies that encourage wasteful consumption.” This report draws on previous OECD work to assess the impact on international trade of phasing out fossil-fuel consumption subsidies provided mainly by developing and emerging economies. The analysis employed the OECD’s ENV-Linkages General-Equilibrium model and used the IEA’s estimates of consumer subsidies, which measure the gap existing between the domestic prices of fossil fuels and an international reference benchmark. It shows that a co-ordinated multilateral removal of fossil-fuel consumption subsidies over the 2013-2020 period would increase global trade volumes by a very small amount (0.1%) by 2020. While seemingly negligible, this increase hides the large disparities that are observed across countries (or regions) and products. Under the central scenario, which assumes a multilateral subsidy removal over the 2013-2020 period, trade in natural gas would be most affected, with a 6% decrease by 2020. A reduction in the volume of both imports and exports from oil-exporting countries would be partly compensated by an expansion of trade flows (both imports and exports) involving OECD countries. This reallocation of trade flows would be most prevalent in products of energy-intensive industries. Looking beyond 2020, the contribution of oil-exporting countries to total world trade volumes would continue to be lower in 2050 than under the reference scenario.
    Keywords: climate change, trade and environment, greenhouse gas emissions, general equilibrium models, fossil-fuel subsidies
    JEL: F17 F18 H23 O41 Q43 Q56
    Date: 2011–08–26
  10. By: Kalemli-Ozcan, Sebnem; Nikolsko-Rzhevskyy, Alex
    Abstract: Estimating the effect of trade on capital flows is difficult given the inherent identification problem. We use fluctuations in rainfall to capture the exogenous variation in trade between Germany, France, the U.K., and the Ottoman Empire during 1859-1913. The provisionistic policy of the Ottoman Empire--only surplus production was exported--constitutes the basis of our identification strategy. We find that one standard deviation in rainfalls from the mean leads to a 3.5 percent increase in Ottoman exports, which in turn causes a 10 percent increase in capital inflows from the three source countries. Our findings support trade theories predicting complementarity between trade and capital flows.
    Keywords: capital flows; default; empire; exports; FDI; rainfalls
    JEL: F10 F30 F40 N10 N20 N70
    Date: 2011–08
  11. By: Harry P. Bowen (McColl School of Business, Queens University of Charlotte); Jennifer Pedussel Wu (Berlin School of Economics)
    Abstract: Studies routinely document that the nature of immigrant employment is largely specific: it often concentrates in non-traded goods sectors and many immigrants often have low inter-sectoral mobility. We consider these observed characteristics of immigrant employment for the question of how immigration affects a nation’s pattern of production and trade. We model an economy producing three goods; one is non-traded. Domestic labor and capital are domestically mobile but internationally immobile. Any new wave of immigration is assumed to comprise some workers who become specific to the non-traded goods sector. The model indicates that the output and trade effects of immigration depend importantly on the sectoral pattern of employment by existing and new immigrants. Empirical investigation of the model’s prediction for the relationship between immigration and trade flows in a panel dataset of OECD countries supports the prediction that trade and immigration are complements. The implications of the model and empirical findings for immigration policy are then discussed.
    Keywords: immigration, international factor mobility, specific factor, trade, non-traded goods
    Date: 2011
  12. By: Breau, Sébastien; Brown, W. Mark
    Abstract: Do exporters and foreign-controlled establishments pay their workers higher wages than non-exporters and domestic-controlled establishments? This paper draws on an employer-employee dataset to explore the existence of exporter and foreign-controlled wage premiums in the Canadian manufacturing sector. Trade and foreign direct investment (FDI) are central to the process of globalization. Over the last 50 years, advocates of greater trade and FDI liberalization have been guided by the notion that removing barriers to both stimulates economic growth. An extensive body of work using newly available micro-data files has emerged comparing the productivity levels of exporters against those of non-exporters, and of foreign-controlled firms against those of domestic firms.
    Keywords: Business performance and ownership, Manufacturing, Business ownership
    Date: 2011–08–26
  13. By: Alberto Galasso; Mark Schankerman; Carlos J. Serrano
    Abstract: We study how the market for innovation affects enforcement of patent rights. Conventional wisdom associates the gains from trade with comparative advantage in manufacturing or marketing. We show that these gains imply that patent transactions should increase litigation risk. We identify a new source of gains from trade, comparative advantage in patent enforcement, and show that transactions driven by this motive should reduce litigation. Using data on trade and litigation of individually-owned patents in the U.S., we exploit variation in capital gains tax rates as an instrument to identify the causal effect of trade on litigation. We find that taxes strongly effect patent transactions, and that reallocation of patent rights reduces litigation risk, on average. The impact of trade on litigation is heterogeneous, however. Patents with larger potential gains from trade are more likely to change ownership, suggesting that the market for innovation is efficient. We also show that the impact of trade on litigation depends on characteristics of the transactions.
    JEL: H24 K41 O32 O34
    Date: 2011–08
  14. By: Pao-Li Chang (School of Economics, Singapore Management University)
    Abstract: This article clari…es the roles played by trade policy, in contrast with iceberg transport cost, in the popular setting of Melitz (2003), and characterizes the optimal reciprocal trade policy in such a setting. I show that import tariffs and iceberg transport cost are not equivalent in the strength of their trade- restricting effects and their welfare implications. With all the conflicting effectsof import tariffs on welfare considered, the optimal degree of reciprocity in multilateral tariff reduction turns out to be free trade.
    Keywords: Firm Heterogeneity,Reciprocal Trade Policy
    JEL: F12 F13
    Date: 2010–12
  15. By: Chingunjav Amarsanaa; Yoshinori Kurokawa
    Abstract: Using the Kehoe and Ruhl (2009) methodology, we investigate whether the variety of traded goods, the extensive margin of trade, has actually changed in a transition economy, such as Mongolia, as predicted by recent theoretical models. We find large increases in the extensive margin of Mongolia's  trade  with major trade partners such as Japan from 1997 to 2002, when Mongolia was undergoing significant structural reforms. We also find large increases in the extensive margin for the Mongolia-China and Mongolia-EU pairs after trade liberalizations  due  to  China's  accession  to  the  World Trade Organization (WTO) (2001) and Mongolia's   eligibility for the EU Generalized Systems of Preferences (GSP+) scheme (2005). We, however, find no increases in the extensive margin for the Mongolia-Russia pair during the period 2002 to 2007, when there was no major change in the trade regime of these two countries. The results support Kehoe  and  Ruhl's  hypothesis that the extensive margin growth is driven by trade liberalization or structural change but not by the usual turbulence of business cycles. For each episode, we also check if the extensive margin growth in Mongolia, which is measured by the Kehoe and Ruhl methodology, is actually a consequence of the increases in the trade volumes of previously zero or little traded goods and what areas of goods contributed to this extensive margin growth.
    Date: 2011–08
  16. By: Ralph Ossa
    Abstract: What are the optimal tariffs of the US? What tariffs would prevail in a worldwide trade war? What are the gains from international trade policy cooperation? And what gains can be expected from future reciprocal trade negotiations? I address these and other questions using a unified framework which nests traditional, new trade, and political economy motives for protection. I find that US optimal tariffs average 66 percent, world trade war tariffs average 63 percent, the welfare gains from international trade policy cooperation average 4.4 percent, and there is almost no scope for future reciprocal trade negotiations. Optimal tariffs are tariffs which maximize a political economy augmented measure of real income.
    JEL: F11 F12 F13
    Date: 2011–08
  17. By: Pao-Li Chang (School of Economics, Singapore Management University); Fali Huang (School of Economics, Singapore Management University)
    Abstract: This paper presents a theory on the endogenous choice of a country's education policy and the two-way causal relationship between trade and education systems. The setting of a country's education system determines its talent distribution and comparative advantage in trade; the possibility of trade by raising the returns to the sector of comparative advantage in turn induces countries to further differentiate their education systems and reinforces the initial pattern of comparative advantage. Speci…cally, the Nash equilibrium choice of education systems by two countries interacting strategically are necessarily more divergent than their autarky choices,although the difference is still less than what is socially optimal for the world. We provide some preliminary empirical evidence on the relationship between education, talent distribution, and trade.
    Keywords: Education System, Talent Distribution, Comparative Advantage, Trade Pattern
    JEL: F16 I20 J24
    Date: 2010–12
  18. By: Benjamin Mandel
    Abstract: This paper investigates the propensity of exporters in certain primary commodity sectors to innovate and then attempts to measure the associated gains. The high degree of differentiation in metal products is giving rise to the potential for vertical upgrading for a substantial portion of Latin American export sales. Estimation of a demand system for U.S. imports shows that relatively high-priced new varieties tend to gain market share, which suggests a correspondingly large increase in the relative quality of those varieties. Breaking down the types of metal products by order of their value-added in production reveals a pattern of specialization away from low-value ores and toward high-value intermediate and finished products. Upgrading varieties and shifting specialization to downstream outputs account for the vast majority of Latin America’s increasing market share in metals over the past thirty years.
    Keywords: Exports ; Mineral industries ; Primary commodities
    Date: 2011
  19. By: Bergman, Karin (CIRCLE, Lund University); Ejermo, Olof (CIRCLE, Lund University)
    Abstract: Sweden has seen a rise in business R&D intensities and dependence on exports to make its economy grow since the early 1990s. This paper examines the role of foreign sales for stimulating R&D as compared to a domestic sales effect. In line with the literature, we find in cross-sections from 1991 to 2001 that R&D rises proportionally to sales. But among manufacturing firms foreign sales is distinctly more strongly associated with an increase in R&D than domestic sales. For service firms domestic sales are as important as foreign. The results are consistent with the hypotheses that manufacturing firms more easily separate production from R&D, that they economize on transport costs and are subject to learning-by-export effects. In general, the results highlight the dependence and the role of openness for stimulating R&D in a small economy, especially among manufacturing firms.
    Keywords: R&D; size; exports; Sweden
    JEL: O32
    Date: 2011–08–23
  20. By: John P. Weche Geluebcke (Institute of Economics, Leuphana University Lueneburg, Germany)
    Abstract: This study provides first comprehensive analyses of foreign-controlled enterprises in the German service sector based on new micro data from official statistics. Various performance measures were examined by comparing unconditional and conditional means and quantile regression techniques were applied. Results reveal persistently superior performance for foreign-controlled affiliates when compared to German-owned affiliates. In contrast, the relationship for profitability is exactly the opposite. Labor productivity becomes insignificant when the comparison group consists of domestically-owned affiliates with a high degree of internationalization. A breakdown by country of origin shows that European affiliates pay lower wages and export less compared to other foreign affiliates and that there is no productivity advantage in favor of US firms like in manufacturing.
    Keywords: foreign ownership, firm performance, inward FDI, service sector, multinational enterprise
    JEL: F15 F21 F23
    Date: 2011–08
  21. By: Rainer Lanz; Sébastien Miroudot; Hildegunn Kyvik Nordås
    Abstract: Specialisation or division of labour is an important source of economic growth, but the degree of division of labour is constrained by the extent of the market. Trade in tasks represents the latest turn in a virtuous cycle of deepening specialisation, expansion of the market and productivity growth. It has attracted a lot of attention in the policy debate not for its contribution to international division of labour and productivity growth, but for its possible detrimental impact on labour markets, particularly in high income countries. This paper analyses the task content of goods and services and sheds light on structural changes that take place following trade liberalisation. The task content of goods and services is estimated by combining information from the O*Net database on the importance of a set of 41 tasks for a large number of occupations and information on employment by occupation and industry. The study shows that tasks that can be digitised and offshored are often complementary to tasks that cannot. Therefore, the assessment of the offshorability of a job requires that one take into account all tasks being performed. The paper finds that import penetration in services has a small, but positive effect on the share of tasks related to getting and processing information being performed in the local economy. In other words, offshoring complements rather than replaces local information processing. As distortions in the market for intermediate inputs, including offshored tasks, have a larger negative impact the more diversified and complex the economy, possible adverse effects of offshoring on the labour market should be dealt with through social and labour market policy measures, not trade restrictions. In addition, if trade restrictions are imposed, they should be levied on imported value added, not on the total import value.
    Keywords: employment, cluster analysis, trade in tasks
    JEL: F16
    Date: 2011–08–10

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