nep-int New Economics Papers
on International Trade
Issue of 2011‒09‒16
23 papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Reaping the Benefits of Deeper Euro-Med Integration Through Trade Facilitation By Bourdet, Yves; Persson, Maria
  2. Estimating the gravity equation with the actual number of exporting firms By Asier Minondo; Francisco Requena-Silvente
  3. Exploring the Long-Term Evolution of Trade Survival By Hess , Wolfgang; Persson, Maria
  4. The Impact of Trade Costs on Exports: An Empirical Modelling By Imran Ullah Khan; Kaliappa Kalirajan
  5. Russia's trade flows and WTO By Sergey Kolesnikov; Olga Podkorytova
  6. Deep trade policy options for Armenia: The importance of trade facilitation, services and standards liberalization By Jensen, Jesper; Tarr, David G.
  7. Trade Compatibility Between India And Asean Countries By Sarath Chandran, B.P.
  8. Regional versus Multilateral Trade Liberalization, Environmental Taxation and Welfare By Soham Baksi
  9. Information costs, networks and intermediation in international trade By Dimitra Petropoulou
  10. Fixed export costs and multi-product firms By Roger Smeets; Harold Creusen
  11. Trade Policy and Firm Boundaries By Laura Alfaro; Paola Conconi; Harald Fadinger; Andrew Newman
  12. Export basket and the effects of exchange rates on exports–why Switzerland is special By Raphael Auer; Philip Saure
  13. South-South Trade: An Asian Perspective By Prema-chandra Athukorala
  14. Globalization and Imperfect Labor Market Sorting By Davidson, Carl; Heyman, Fredrik; Matusz, Steven; Sjöholm, Fredrik; Zhu, Susan Chun
  15. New Imported Inputs, New Domestic Products By Italo Colantone; Rosario Crinò
  16. Epidemic trade By Börner, Lars; Severgnini, Battista
  17. Firm location and the determinants of exporting in developing countries By Farole, Thomas; Winkler, Deborah
  18. Antidumping as a Development Issue By Robert M. Feinberg
  19. Australia-Thailand Trade: Has the FTA Made a Difference? By Prema-chandra Athukorala; Archanun Kohpaiboon
  20. Trade Integration and Business Tax Differentials: Theory and Evidence from OECD Countries By Nelly Exbrayat; Benny Geys
  21. Protectionism and Increasing Returns with Comparative-Cost Disadvantage By Roy J. Ruffin; Wilfred J. Ethier
  22. Terms of Trade and Growth of Resource Economies: A Tale of Two Countries By Augustin Kwasi Fosu
  23. Policymakers' Horizon and Trade Reforms By Conconi, Paola; Facchini, Giovanni; Zanardi, Maurizio

  1. By: Bourdet, Yves (Lund University); Persson, Maria (Research Institute of Industrial Economics (IFN))
    Abstract: The current political turmoil in the Arab world has contributed to renewed interest in the Barcelona Process. This paper explores whether deeper integration in the form of trade facilitation – i.e. improved and simplified trade procedures – could be an important part of a reform agenda. Adopting a Southern perspective by focusing on exports from non-EU Mediterranean countries to the EU, we test whether the efficiency of trade procedures affects (i) bilateral volumes of exports, and (ii) the number of products exported. Our findings suggest that trade facilitation could lead to substantially increased export volumes and export diversification.
    Keywords: Barcelona Process; Mediterranean Union; European Union; Deeper Integration; Trade Facilitation; Export volumes; Export Diversification
    JEL: F15 O19 O24
    Date: 2011–08–23
  2. By: Asier Minondo (Deusto Business School); Francisco Requena-Silvente (Universidad de Valencia)
    Abstract: To estimate correctly the effect of variable trade costs on firms' exports, the gravity equation should control for the number of firms that participate in foreign markets. Due to the absence of these data, previous studies control for this omitted variable using econometric strategies that may also lead to inconsistent estimations. To overcome this problem the present paper estimates a gravity equation using a new database compiled by the OECD and Eurostat that reports the number of exporting firms by reporter and partner country. We show that no controlling for the extensive margin of trade introduces very serious biases in the estimated trade cost coefficients. Moreover, these biases are much larger than predicted by previous studies.
    Keywords: gravity equation, exporting firms, distance, trade costs
    JEL: F14 F15
    Date: 2011–09
  3. By: Hess , Wolfgang (Lund University); Persson, Maria (Research Institute of Industrial Economics (IFN))
    Abstract: Aiming to explore how the survival of trade flows has evolved over time, we analyze a rich data set of detailed imports to individual EU15 countries from 140 non-EU exporters, covering the period 1962–2006. We find that short duration is a persistent characteristic of trade throughout the extended time period that we study: in general only 40 percent of trade flows survive the first year of service, and this share has not changed much since the 1960s. However, this observed constancy is the result of two underlying trends that work in opposite directions. On the one hand, positive trends in several of the observed explanatory variables – which in turn influence the hazard of trade flows dying in a negative direction – imply that the hazard tends to decrease over calendar time. On the other hand, there is also a positive trend in the hazard due to calendar year-specific unobserved factors. Holding all observed determinants constant, the probability of a trade flow dying in its first year increases from 34% at the beginning of the period to 90% at the end.
    Keywords: Duration of Trade; Survival; Entry and Exit; European Union; Discrete-Time Hazard Models
    JEL: C41 F10 F14
    Date: 2011–08–23
  4. By: Imran Ullah Khan; Kaliappa Kalirajan
    Abstract: Studies, which have discussed some of the important issues concerning the measurement of trade costs, have conceded that the literature is still in the early stages of understanding and measuring what the real costs are. It is in this context, decomposing trade costs into 'natural' costs, 'behind the border' costs, 'explicit beyond the border' costs, and 'implicit beyond the border' costs, this paper suggests a method to measure the impacts of these components on changes in exports between countries in the absence of complete information on all the components of trade costs in home and partner countries. Empirical measurement has been demonstrated using 1999 and 2004 trade data from Pakistan. The results show that Pakistan's export growth between 1999 and 2004 came mainly from the reduction in both 'explicit and implicit beyond the border' trade costs in partner countries.
    Keywords: trade costs, export growth decomposition, behind the border costs, beyond the border costs, Pakistan
    JEL: B41 C13 C82 F13 F19
    Date: 2011
  5. By: Sergey Kolesnikov (Department of Economics, European University at St. Petersburg); Olga Podkorytova
    Abstract: In our paper, we use the gravity model of the international trade to estimate the effect of the future WTO ascension for Russia based on the current WTO effect for Russia's WTO trade partners. Starting from Rose's specification, we constructed several progressively exact models. Nevertheless, none of these specifications shows any evidence that the WTO significantly and positively influences the trade between its members among Russia's trade partners. This result holds even as we exclude the oil and the gas trade and the FTA influence. Therefore, in terms of increasing the overall trade the value of ascension seems to be lower than FTAs, the impact of which is evident in the model.
    Keywords: Russia, gravity model, trade flows, non-oil trade
    JEL: C21
    Date: 2011–06–21
  6. By: Jensen, Jesper; Tarr, David G.
    Abstract: In this paper the authors develop an innovative 21 sector computable general equilibrium model of Armenia to assess the impact on Armenia of a Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU, as well as further regional or multilateral trade policy commitments. The authors find that a DCFTA with the EU will likely result in substantial gains to Armenia, but they show that the gains derive from the deep aspects of the agreement. In order of importance, the sources of the gains are: (i) trade facilitation and reduction in border costs; (ii) services liberalization; and (iii) standards harmonization. A shallow agreement with the EU that focuses only on preferential tariff liberalization in goods will likely lead to small losses to Armenia primarily due to a loss of productivity from lost varieties of technologies from the Rest of the World region in manufactured products. Additional gains can be expected in the long run from an improvement in the investment climate. The authors estimate only small gains from a services agreement with the CIS countries, but significant gains from expanding services liberalization multilaterally. --
    Keywords: Trade facilitation,services liberalization,standards harmonization,preferential liberalization,multinationals,monopolistic competition,foreign direct investment,endogenous productivity effects
    JEL: F12 F13 F14 F15 F17 C68 L16
    Date: 2011
  7. By: Sarath Chandran, B.P.
    Abstract: The post WTO world trading system is witnessing proliferation of large number of Regional Trade Agreements (RTAs). The slow pace of multilateral negotiations and lack of consensus among members on major trade issues is undermining the role of WTO and hastening the regionalism process. Realising the importance of East Asia in the emerging global economic order, India signed a FTA with ASEAN which will come in to force from 1st January 2010. For any Regional Trade Agreement (RTA) to be successful, it is imperative on partner countries to have favourable trade structure between them. In this context, the paper looked in to the trade structure of India and ASEAN countries to identify complementary sectors and product groups for enhanced trade cooperation. Trade indices such as Trade Intensity Index (TII) and Revealed Comparative Index (RCA) are constructed at product group, HS-2 and HS-4 levels to get trade complementarity and Similarity. From the analysis it is revealed that there are complementary sectors and products available between India and ASEAN for greater cooperation.
    Keywords: Regional Trade Agreement; Revealed Comparative Advantage; India; ASEAN
    JEL: F15 F10 F14
    Date: 2010–12–07
  8. By: Soham Baksi
    Abstract: We consider strategic trade among identical countries and compare the impacts of multilateral versus regional tariff reduction on equilibrium pollution tax and social welfare. While both forms of trade liberalization increase production and consumption in the tariff-reducing countries, regional trade liberalization also reduces production in a non-participating country and may decrease its consumption. When pollution is local, regional and multilateral trade liberalization have similar impacts in the tariff-reducing countries. In contrast, when pollution is perfectly transboundary, regional (multilateral) trade liberalization (i) weakens (may strengthen) environmental protection in the tariff-reducing countries, and (ii) in the neighbourhood of free trade, may increase (decreases) welfare of the tariff-reducing countries.
    JEL: Q58 F18 H23
    Date: 2011–07
  9. By: Dimitra Petropoulou
    Abstract: This paper is motivated by the observation that intermediaries play an important role in international trade. The matching role of intermediaries is examined in a pairwise matching model with two-sided information asymmetry, where intermediaries develop contacts. Intermediation expands the set of matching technologies available to traders, while convexity in network-building costs with respect to network size gives rise to both direct and indirect trade in equilibrium. The trade pattern depends on the relative responsiveness of the direct and indirect matching technologies to information costs, which for some parameter values generates a non-monotonic relationship between information frictions and trade.
    Keywords: International trade ; Intermediation (Finance) ; Mathematical models
    Date: 2011
  10. By: Roger Smeets; Harold Creusen
    Abstract: <p>This paper has two aims. First, we uncover some salient components of fixed export costs, which play a crucial role in recent heterogeneous firms models of international trade. Second, we investigate whether the importance of these fixed export costs varies with the size of a firm’s export product portfolio. </p><p>We find that a destination country’s institutional quality, such as the quality of regulation or the extent of corruption, form important impediments to a firm’s export decision, lowering the export probability to up to 10%-points. Moreover, relative to single-product firms, multi-product firms experience additional export probability decreases of around 2%-points.</p>
    JEL: F12
    Date: 2011–08
  11. By: Laura Alfaro; Paola Conconi; Harald Fadinger; Andrew Newman
    Abstract: This paper provides evidence that market conditions matter for organization design by studying how trade policy affects vertical integration. We embed an incomplete-contract model of firm boundaries into an international trade framework. Integration decisions are driven by a tradeoff between managers’ pecuniary benefits of coordinating production and their private benefits of operating in preferred ways. Integration generates more output than non-integration, but imposes a cost on managers by forcing them to accommodate to common procedures. A key implication is that higher product prices result in more integration. Since trade policy affects prices, it influences organizational decisions: higher tariffs lead to more integration; moreover, ownership structures are more alike across countries with similar levels of protection. To assess the evidence, we construct firm-level indices of vertical integration for a large set of countries from a unique dataset. Our empirical analysis, which exploits both cross-section and time-series variation in import tariffs, provides strong support for the predictions of the model.
    Keywords: firm organization; vertical integration; incomplete contracts; trade policy
    Date: 2011–09
  12. By: Raphael Auer; Philip Saure
    Abstract: Why has Swiss export performance been so strong during the past quarters despite the strong appreciation of the CHF? In this paper, we use historical data on exchange rates and trade at the sectoral level to document that a contributing factor behind the limited impact of the exchange rate is the unique composition of Swiss exports. In particular, we document that the Swiss export basket is heavily concentrated in price-insensitive goods such as machinery or pharmaceuticals, where prices and thus the exchange rate have relatively little importance for demand. This makes the aggregate volume of Swiss exports less responsive to exchange rate changes than exports of other OECD nations.
    Keywords: International trade ; International economic relations
    Date: 2011
  13. By: Prema-chandra Athukorala
    JEL: F21 F23 O33 O53
    Date: 2011
  14. By: Davidson, Carl (Michigan State University); Heyman, Fredrik (The Research Institute of Industrial Economics); Matusz, Steven (Michigan State University); Sjöholm, Fredrik (Department of Economics, Lund University); Zhu, Susan Chun (Michigan State University)
    Abstract: This paper focuses on the ability of the labor market to correctly match heterogeneous workers to jobs within a given industry and the role that globalization plays in that process. Using matched worker-firm data from Sweden, we find strong evidence that openness improves the matching between workers and firms in industries with greater comparative advantage. This suggests that there may be significant gains from globalization that have not been identified in the past – globalization may improve the efficiency of the matching process in the labor market. These results remain unchanged after adding controls for technical change at the industry level or measures of domestic anti-competitive regulations and product market competition. Our results are also robust to alternative measures of the degree of matching, openness, or the trade status of an industry
    Keywords: Matching; Globalization; Firms; Workers; Multinational Enterprises; International Trade
    JEL: F14 F16 J20
    Date: 2011–07–15
  15. By: Italo Colantone (Erasmus University Rotterdam and ERIM); Rosario Crinò (University of Brescia, Centro Studi Luca d’Agliano and IAE-CSIC)
    Abstract: We study the effects of new imported inputs on the entry of new domestic products and their characteristics. To this purpose, we construct a novel, comprehensive and extremely detailed dataset, which contains product-level information on foreign trade and domestic production for 25 EU countries over 1995-2007. Using these data, we identify new domestic goods and new imported inputs, controlling for all changes in commodity classifications over time. We then show that new imported inputs substantially boost the introduction of new domestic products. We also show that this effect is directly proportional to the quality of new imported inputs and inversely related to their price (conditional on quality). Finally, we document that new products are characterized by higher prices and higher quality relative to existing goods, and that such premia are larger the greater is the use of new imported inputs in production.
    Keywords: New Intermediate Inputs; Product Innovation; Input and Output Prices; Input
    JEL: F1
    Date: 2011–09–06
  16. By: Börner, Lars; Severgnini, Battista
    Abstract: This paper studies the spread of the Black Death as a proxy for the ow of medieval trade between 1346 and 1351. The Black Death struck most areas of Europe and the wider Mediterranean. Based on a modified version of the gravity model, we estimate the speed (in kilometers per day) of transmission of the disease between the transmitting and the receiving cities. We find that the speed depends on distance, political borders, and on the political importance of a city. Furthermore, variables related to the means of transportation like rivers and the sea, religious seasons such as Lent and Advent, and geographical position are of substantial significance. These results are the first to enable us to identify and quantify key variables of medieval trade ows based on an empirical trade model. These results shed new light on many qualitative debates on the importance and causes of medieval trade. --
    Keywords: Trade,Middle Ages,Black Death,Gravity model,Poisson regression
    JEL: F10 F15 N13
    Date: 2011
  17. By: Farole, Thomas; Winkler, Deborah
    Abstract: Using a cross-section of more than 40,000 manufacturing and services firms in 79 developing countries from the World Bank's Enterprise Surveys Database, this paper assesses how firm location determines the likelihood and extent of exporting in developing countries. Descriptive statistics confirm higher export participation (but not intensity) for firms in core versus non-core regions, despite the finding that firms in the core assess many aspects of the investment climate more negatively. Results from a probit model show that, in addition to firm-specific characteristics, both regional investment climate and agglomeration factors have a significant impact on export participation. Specifically, customs clearance and electricity quality matter for export participation for manufacturing firms. Although localization economies and export spillovers are associated with increased exporting, the opposite is found for urbanization economies for both manufacturing and services firms. The analysis finds that firm-level determinants of exporting matter more for firms located in non-core regions, while regional determinants and agglomeration economies play a larger role in core regions. The findings point to the presence of congestion costs in the core, and suggest that policy interventions to target export participation are likely to have a greater impact if they are focused on core regions over non-core regions, where firm-specific factors predominate. Moreover, the importance of export spillovers and localization economies highlights the potential value of efforts to remove barriers to natural agglomeration both in core and non-core regions, for example through investments in infrastructure, the provision of social services, and regional integration arrangements.
    Keywords: Regional Economic Development,Microfinance,E-Business,Banks&Banking Reform,Private Participation in Infrastructure
    Date: 2011–08–01
  18. By: Robert M. Feinberg
    Abstract: Almost 90 years ago Viner (1923) identified dumping as a "problem" in international trade; more recently Prusa (2005) and Zanardi (2006) have found the overuse of antidumping to be the "problem" in international trade. Others have observed the pervasive use of antidumping since the end of the Uruguay Round and the resulting framework of trade liberalization, as well as the trend of increasing cases filed by and against developing countries. What has not been well documented is how dramatically the patterns of antidumping usage have changed, to the point that while obviously impacting trade flows, the impact is now of most concern to the developing world. This paper attempts to stimulate discussion about antidumping policy among development economists, who have largely ignored the topic; evaluating trade policy by developing economies without considering antidumping is incomplete and ignores the extent to which it may be substitutable for other methods of trade protection. Antidumping has become truly a "problem" of development. Despite some debate on the role of international openness in determining economic performance, there is little research on how the use of particular trade policy mechanisms affects either trade openness or economic performance. In what follows we examine the role of developing countries in antidumping, with particular focus on which countries employ this instrument of protection, and which countries are heavily targeted; we also note those countries which are targeted but do not respond in kind.
    Keywords: Antitrust Enforcement, Central and Eastern Europe, Competition Policy JEL classification:
    Date: 2011–07
  19. By: Prema-chandra Athukorala; Archanun Kohpaiboon
    Abstract: This paper examines the impact of the Australia-Thailand free trade agreement (TAFTA) on bilateral trade between the two countries, paying attention to the implications of rules of origins (RoO) and the utilization of tariff preferences. It is found that trade has expanded faster following TAFTA came into effect, but the impact has heavily concentrated in a few product lines in Australian imports from Thailand, reflecting the influence of commodity specific, supply-side factors which have a bearing on the rate of preference utilization. The findings, inter alia, suggest that the use of officially announced preference rates in trade flow modeling is likely to exaggerate trade flow effects of FTAs.
    Keywords: free trade agreement, rules of origin, production fragmentation, Thailand, Australia
    JEL: F13 F14 F15 F53
    Date: 2011
  20. By: Nelly Exbrayat (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Benny Geys (BI Norwegian School of Management - BI Norwegian School of Management)
    Abstract: Building on recent contributions to the New Economic Geography literature, this paper analyses the relation between asymmetric market size, trade integration and business income tax differentials across countries. First, relying on a foot-loose capital model of tax competition, we illustrate that trade integration (or decreasing trade costs) reduces the importance of relative market size for differences in the extent of corporate taxation between countries. Then, using a dataset of 26 OECD countries over the period 1982-2004, we provide supportive evidence of these theoretical predictions: i.e., market size differences are strongly positively correlated with corporate income tax differences across countries but, crucially, trade integration weakens this link. These findings are obtained controlling for the potential endogeneity of trade integration and are robust to various alternative specifications and robustness checks.
    Keywords: Tax competition; Trade integration; New Economic Geography; Tax differentials
    Date: 2011
  21. By: Roy J. Ruffin (Department of Economics, University of Houston); Wilfred J. Ethier (Department of Economics, University of Pennsylvania)
    Abstract: We reconsider the economics of protection with an industry subject to increasing returns. Under strong comparative disadvantage in one country, any tariff-distorted equilibrium in which both countries produce the commodity must be unstable.In general, under strong comparative disadvantage, the case for free trade is greater than without increasing returns. Also, exceptionally high tariffs are required to protect a high cost increasing-returns industry. Beneficial tariffs or subsidies for the country with comparative disadvantage become prominent when the country with a comparative advantage faces a relevant capacity constraint.
    Keywords: increasing returns, protection, comparative-cost disadvantage, flexible capacity
    JEL: F12 F13
    Date: 2011–07–01
  22. By: Augustin Kwasi Fosu
    Abstract: The current paper demonstrates a dichotomy of the growth response to changes in the barter terms of trade (TOT), employing as case studies the following two African countries: Botswana and Nigeria. Using distributed-lag analysis, the paper finds that the effect of TOT on output is positive and negative for the two countries, respectively. I interpret these results as supportive of the ‘resource curse’ hypothesis for Nigeria but not for Botswana. I further argue that the superior institutional quality (IQ) in Botswana, relative to Nigeria, is likely responsible for the contrasting results. However, Nigeria appears to be making progress on IQ, especially in the last decade. Continuing such progress would be necessary if the country was to reverse course.
    Keywords: African resource economies; terms of trade; growth
    JEL: O13 O43 O55 O57
    Date: 2011
  23. By: Conconi, Paola; Facchini, Giovanni; Zanardi, Maurizio
    Abstract: Does policymakers’ horizon affect their willingness to support economic reforms? Voting in the U.S. Congress provides an ideal setting to address this question. Differences between the House and Senate, in which members serve two-year and six-year mandates respectively, allow to examine the role of term length; the staggered structure of the Senate allows to compare the behavior of different "generations" of senators and study the impact of election proximity. Considering all major trade liberalization reforms undertaken by the U.S. since the early 1970’s, we find that Senate members are more likely to support them than House members. However, inter-cameral differences disappear for third-generation senators, who face re-election at the same time as House members. Considering Senate votes alone, we find that the last generation is more protectionist than the previous two, a result that holds both when comparing different senators voting on the same bill and individual senators voting on different bills. Inter-generational differences disappear instead for senators who hold safe seats or have announced their retirement, indicating that the protectionist effect of election proximity is driven by legislators’ fear of losing office.
    Keywords: Election Proximity; Term Length; Trade Reforms
    JEL: D72 F10
    Date: 2011–09

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