nep-int New Economics Papers
on International Trade
Issue of 2011‒10‒01
fifteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. The Tip of the Iceberg: A Quantitative Framework for Estimating Trade Costs By Alfonso A. Irarrazabal; Andreas Moxnes; Luca David Opromolla
  2. Is there really no link between international trade and wage differentials? A cross-country analysis By Lorenzo Corsini
  3. Love for Quality, Comparative Advantage, and Trade By Esteban Jaimovich; Vincenzo Merella
  4. Does going green pay off? The effect of an international environmental agreement on tropical timber trade By Stefan Borsky; Andrea Leiter; Michael Pfaffermayr
  5. Trade Costs and Economic Development By Michele Fratianni; Francesco Marchionne
  6. International Fragmentation of Production and the Labour Input into Germany’s Exports – An Input-Output-Analysis – By Ulrich Brautzsch; Udo Ludwig
  7. Administrative Barriers and the Lumpiness of Trade By Cecília Hornok; Miklós Koren
  8. Trading and Enforcing Patent Rights By Galasso, Alberto; Schankerman, Mark; Serrano, Carlos
  9. Non-scale endogenous growth effects of subsidies for exporters By Óscar Afonso; Armando Silva
  10. Swedish Business R&D and its Export Dependence By Bergman, Karin; Ejermo, Olof
  11. Internationalisation and the Innovation Activities of Services Firms By Siedschlag, Iulia; Killeen, Neil; Smith, Donal; O'Brien, Catriona
  12. China-Malaysia’s long run trading and exchange rate: complementary or conflicting? By Chan, Tze-Haw; Hooy, Chee-Wooi
  13. A Rationale For Evidence On Service Offshoring By Tobal, Martin
  14. Policymakers' Horizon and Trade Reforms By Paola Conconi; Giovanni Facchini; Maurizio Zanardi
  15. Remittances and Financial Openness By Michel Beine; Elisabetta Lodigiani; Robert Vermeulen

  1. By: Alfonso A. Irarrazabal; Andreas Moxnes; Luca David Opromolla
    Abstract: International economics has overwhelmingly relied on Samuelson's (1954) assumption that trade costs are proportional to value. We develop a quantitative analytical framework that features both additive and multiplicative (iceberg) trade costs, building on a model of international trade with heterogeneous firms and demand heterogeneity. We structurally estimate the magnitude of additive trade costs, for every product and destination available in our firm-level data of Norwegian exporters. Identification is aided by the theoretical finding that the elasticity of demand to producer price is dampened, in absolute value, when prices are low, and this mechanism is magnified when additive trade costs are high. This magnification mechanism becomes useful in<br>the subsequent econometric analysis. Estimated additive trade costs are substantial. On average, additive costs are 33 percent, expressed relative to the median price. This leads us to reject the pure iceberg cost assumption. We assess the importance of these costs in shaping global trade flows. Our micro estimates of additive trade costs explain most of the geographical variation in aggregate trade. An implication of our work is that inferring trade costs from standard gravity models suffers from specification bias, since these models assume away the role of additive trade costs.
    JEL: F10
    Date: 2011
  2. By: Lorenzo Corsini
    Abstract: This paper investigates empirically the relationship between international trade (in particular with non-OECD countries) and wage differentials of workers with different skills. We examine years from 1996 and 2005 in several countries and, whereas past studies (conducted on previous years) had not detected any relevant relationship, we find a clean cut positive effect of imports from non-OECD countries on differentials. In addition, we find evidence that technological change is having a polarization effect on wages.
    Keywords: International Trade; Wage Differentials, Skills.
    JEL: D31 F16 J31
    Date: 2011–01–09
  3. By: Esteban Jaimovich; Vincenzo Merella
    Abstract: We propose a theory of trade in which comparative advantages reveal themselves gradually over the path of development. Following the Ricardian tradition, countries specialise and export the set of goods they are able to produce at relatively lower cost given their exogenous initial endowments. However, we introduce two new features into a Ricardian trade model with horizontally and vertically differentiated goods. First, individuals have nonhomothetic preferences in that their willingness to pay for quality rises with their income. Second, heterogeneities in productivity become more pronounced at higher levels of quality of production. As a result, our theory predicts that the scope for international trade widens and productive specialisation increases as real incomes grow and wealthier consumers raise the quality of their consumption baskets. Our predictions find empirical support in a number tests performed using bilateral trade data at the product level.
    Keywords: International Trade; Nonhomothetic Preferences; Quality Ladders
    JEL: F11 F43 O40
    Date: 2011
  4. By: Stefan Borsky; Andrea Leiter; Michael Pfaffermayr
    Abstract: Trade-related measures aim to regulate side-effects in international environmental agreements and are expected to positively influence the level of participation in the agreements as well as their degree of stability. In this paper we examine one side-effect of the 1994 International Tropical Timber Agreement - its impact on tropical timber trade. We use a cross-sectional dataset on bilateral trade flows of tropical timber that additionally contains information on trading partners' economic and geographical characteristics. Our empirical specification is based on a gravity equation, which is estimated using Heckman's selection model to address the potentially systematic selection of trading partners. We find significantly positive impacts of the 1994 ITTA on member countries' level of tropical timber trade. Furthermore, poor exporter countries benefit more from this trade enhancing effect than their richer counterparts.
    Keywords: International environmental agreements, side benefits, bilateral trade flows, product quality, sample selection
    JEL: F53 Q23 Q27 F18 L15
    Date: 2011–09
  5. By: Michele Fratianni (Indiana University, Kelly School of Business, Bloomington US, Univ. Plitecnica Marche - Dept of Economics, MoFiR); Francesco Marchionne (Universit… Politecnica delle Marche, Faculty of Economics "Giorgio Fu…")
    Abstract: We test the hypothesis of the circular causality between trade costs and degree of economic development using data on Italian provinces. Using different methods to control for multilateral resistance, we apply a gravity equation to estimate sectoral exports to 188 countries over the period 1995-2004. Provincial trade costs are constructed as the sum of five province-specific elasticities, including distance, adjacency, and common money. We find that Italian provinces are heterogeneous with respect to trade costs. These costs are influenced by lagged provincial per capita income and industrial structure. In turn, trade costs influence future provincial per capita income. This two-way relationship between trade costs and income is broadly consistent with the cumulative causation process emphasized by the New Economic Geography.
    Keywords: economic development, gravity equation, heterogeneity, trade costs
    JEL: F10 F14 O52 R12
    Date: 2011–09
  6. By: Ulrich Brautzsch; Udo Ludwig
    Abstract: The import penetration of exports has become a topic of public debate, particularly in the context of Germany’s position as one of the world’s leading exporters. The growth in the volume of intermediate products purchased from abroad for subsequent processing into export goods in Germany seems to be undermining the importance of exports as a driver of domestic production and employment. The gains that arise from an increase in exports seem to have been offset by the losses caused by the crowding out of local production by imports. Empirical evidence on the impact of this international integration of the goods market on the German labour market is ambiguous. Short-term negative effects on employment are claimed to be offset by the long-term benefit that the jobs lost in the short run will eventually be replaced by higher-skilled jobs with better perspectives. Against this background, the following hypothesis is tested empirically: Germany is poor in natural resources, but rich in skilled labour. In line with the Heckscher- Ohlin theory, Germany should therefore specialize in the production of export goods and services that are relatively intensive in these factors and should import those goods and services that are relatively intensive in unskilled labour. The empirical part of the paper deals with the extent of the German export penetration by imports. At first, it analyses by what ways imports are affecting the exports directly and indirectly and shows the consequences of import penetration of exports for the national output and employment. Secondly consequences for employment are split in different skill types of labour. These issues are discussed with the standard open static inputoutput- model. The data base is a time series of official input-output tables. The employment effects for Germany divided by skill types of labour are investigated using skill matrices generated by the authors.
    Keywords: international trade, labour and skills market interactions, input-output models
    JEL: C67 F14 F16
    Date: 2011–09
  7. By: Cecília Hornok; Miklós Koren
    Abstract: We document that administrative trade costs of per shipment nature (documentation, customs clearance and inspection) lead to less frequent and larger-sized shipments, i.e., more lumpiness, in international trade. We build a model where consumers have heterogeneous preferences for the arrival time of a non-storable product and firms compete by selecting the time of their shipment. Per shipment costs reduce shipment frequency, increase the shipment size and the product price and lead to welfare losses. We provide empirical evidence for these effects on detailed export data from the US and Spain. We find that US and Spanish exporters send fewer and larger shipments to countries with higher administrative barriers. However, we find no robust evidence that such destination would command higher prices.
    Date: 2011–09–22
  8. By: Galasso, Alberto; Schankerman, Mark; Serrano, Carlos
    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 affect 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.
    Keywords: capital gains taxation; litigation; market for innovation; patents
    JEL: H24 K41 O32 O34
    Date: 2011–09
  9. By: Óscar Afonso (CEFUP, NIFIP, OBEGEF, Faculdade de Economia, Universidade do Porto); Armando Silva (Instituto Politécnico do Porto-ESEIG)
    Abstract: We built a general equilibrium endogenous growth model in which final goods are produced either in the relatively skilled-labour intensive exports sector or in the relatively unskilled-labour intensive domestic sector. We show that, by affecting the technological-knowledge bias, subsidies explain the simultaneous rise in the exports sector, the skill wage premium and the economic growth rate. Then, we use a Portuguese longitudinal database (1996-2003) and implement a propensity score matching approach to shed light upon the causal nexus between production-related subsidies and exports. Our empirical results seem to prove the theoretical predictions: subsides generate the rise in the wage premium of exporters and the increase in the relative size of export sector, even if no impact of subsidies is found in the capacity of enhancing new exporters.
    Keywords: Subsidies, Exports, Scale-invariant growth, Wages
    JEL: C61 J31 O13 O31 F13 F14 H29
    Date: 2011–09
  10. By: Bergman, Karin (Department of Economics, Lund University); Ejermo, Olof (CIRCLE)
    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 in stimulating R&D as compared to a domestic sales effect, and finds, in line with the literature, that R&D rises proportionally to sales in cross-sections from 1991 to 2001. Among manufacturing firms, foreign sales are distinctly more 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, economize on transport costs and are subject to learning-by-exporting effects. In general, the results highlight the dependence on openness in stimulating R&D in a small economy, especially among manufacturing firms.
    Keywords: R&D; size; exports; Sweden
    JEL: L23 O32
    Date: 2011–09–20
  11. By: Siedschlag, Iulia; Killeen, Neil; Smith, Donal; O'Brien, Catriona
    Abstract: This paper examines the relationship between the internationalisation of firms in services and their innovation performance. We use firm-level data over the period 2004- 2006 and estimate an augmented structural model to account for the role of foreign direct investment and exporting on the innovation performance of services firms in Ireland. Our research shows that in comparison to firms serving only the Irish market, domestic exporters were more likely to engage in R&D and innovation and they were more likely to be successful in terms of innovation output, over and above firm characteristics such as size and distance to the technology frontier. Further, we find that adoption of information and communication technologies was positively associated with innovation output. Co-operation with suppliers was positively associated with all innovation types, while knowledge flows from customers and from the government or public research institutes were positively linked to product innovation. Co-operation with universities was positively linked to innovation measured by patents.
    Keywords: Multinational Firms/Exporting/Knowledge Production/Services
    Date: 2011–09
  12. By: Chan, Tze-Haw; Hooy, Chee-Wooi
    Abstract: This paper examines the long run dynamics of exchange rate and bilateral export-import flows between China and Malaysia. Our analysis contributed in using high frequency monthly data for the recent period from January 1990 to January 2008, based on the Autoregressive Distributed Lag bound testing procedure, the fully modified OLS, dynamic OLS and rolling estimations, as well as the generalised impulse response (IRF) and variance decomposition (VDC) analyses. Our empirical findings reveal that the Marshall-Lerner condition holds in the long run but the export-import demands do not adhere to the J-curve pattern. And, expansionary effect is of greater evidence for Malaysia due to real exchange shocks but inconclusive for China. More important, the VDC results imply that China-Malaysia trade is along the sustainable path. In brief, the study supports for the complementary role of China instead of conflicting (competing) features in the China-Malaysia bilateral trading
    Keywords: Exchange rates; J-curve; Marshall-Lerner Condition; ARDL Bound Test; Rolling; FMOLS; DOLS
    JEL: C51 F42 F31
    Date: 2011–06–11
  13. By: Tobal, Martin
    Abstract: On the one hand, empiricists debate on which and how many labor dimensions are relevant for understanding the employment effects of the 1990's service offshoring boom. On the other hand, theorists pursue trade theory's traditional goal: to explain wage-responses to the shock. This paper rationalizes recent evidence on employment and reconciles theory with a current empirical debate. To this purpose, the article derives employment responses that are continous in occupations' off shoring costs and depend on two labor dimensions: skill-intensities and tradeability characteristics. Furthermore, the paper yields intutitive wage-respsonses and addresses theorists' traditional concern. In particular, under the assumption that knowledge is occupation-specific, the article derives wage- responses that are not fully explained by skill-levels. More precisely, service offshoring deteriorates the wage of "many" skilled workers whose tasks have relatively low offshoring costs.
    Keywords: labor; wages, Labor Economics
    Date: 2011–09–01
  14. By: Paola Conconi; Giovanni Facchini; Maurizio Zanardi
    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: term length; election proximity; trade reforms
    JEL: D72 F10
    Date: 2011–08
  15. By: Michel Beine; Elisabetta Lodigiani; Robert Vermeulen
    Abstract: Migrant remittances increased strongly since the 1980s, becoming an important and reliable source of funds for many developing countries. Therefore, there is a strong incentive for receiving countries to attract more remittances, especially through formal channels that turn to be either less expensive and/or less risky than informal ones. One way of doing so is to increase their country’s financial openness, but this policy option might also generate additional costs in terms of macroeconomic volatility. In this paper we investigate the link between remittance receipts and financial openness. We develop a small model and statistically test for the existence of such a relationship with a sample of 66 mostly developing countries from 1980-2005. Empirically we use a dynamic generalized ordered logit model to deal with the categorical nature of the financial openness policy. We apply a two-step method akin to two stage least squares to deal with the endogeneity of remittances and potential measurement errors. We find a strong positive statistical and economic effect of remittances on financial openness.
    Keywords: remittances; financial openness; government policy
    JEL: E60 F24 F41 O10
    Date: 2011–08

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