nep-int New Economics Papers
on International Trade
Issue of 2011‒11‒21
fourteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. The new version of gravity model in explaining bilateral trade. “A comparative study for developed and developing nations” By Subhani, Dr. Muhammad Imtiaz; Osman, Ms. Amber; Khokhar, Rabia
  2. Trade Policy Determinants and Trade Reform in a Developing Country By Baybars Karacaovali
  3. A matching approach to study the impact of agoa on Sub-Saharan African countries By Cooke, Edgar F. A.
  4. Entry Costs and Increasing Trade By Lincoln, William F.; McCallum, Andrew H.
  5. Networks and the disappearance of the intranational home bias By Aitor Garmendia; Carlos Llano; Asier Minondo; Francisco Requena
  6. Forbearance in Optimal Multilateral Trade Agreements By Bowen, Renee
  7. Trade Prices and the Global Trade Collapse of 2008-2009 By Gita Gopinath; Oleg Itskhoki; Brent Neiman
  8. Production Networks in East Asia: What We Know So Far By Kimura, Fukunari; Obashi, Ayako
  9. Relocation and Investment in R&D by Firms. By Juan Carlos Barcena-Ruiz; Maria Begoña Garzon
  10. Trade Policy Mix and the STO: Protection of TRIPS and R&D Subsidies By Moonsung Kang
  11. Product Differentiation, the Volume of Trade and Profits under Cournot and Bertrand Duopoly By Collie, David R.; Le, Vo Phuong Mai
  12. Informality, Corruption and Trade Reform By Sugata Marjit; Amit K. Biswas
  13. The internationalization profiles of Portuguese SMEs By Pedro Oliveira; Aurora A.C. Teixeira
  14. How Do Foreign and Domestic Demand Affect Exports Performance? An Econometric Investigation of Indonesia's Exports By Rudy Rahmaddi; Masaru Ichihashi

  1. By: Subhani, Dr. Muhammad Imtiaz; Osman, Ms. Amber; Khokhar, Rabia
    Abstract: World trade has grown rapidly. Several factors are highlighted by literature as the driving forces behind the growth of world trade. Reductions in barriers to trade are one of them. A comprehensive empirical investigation is carried to ascertain the trade reducing and increasing effect of barriers to trade and facilitators to trade. The new version of gravity model is developed in the connections in this study while analyzing the effect of GDP, distance, remittances, FDI, transportation cost, exchange rate, inflation, population, import and export of specifically trading partners on trade flows during bilateral trade. The study revealed that the developed version of gravity model explains the trade flows substantially and vigorously for the nations from developed world than for the nations from developing world.
    Keywords: Gravity model; Export; Import; Trade barriers; Trade facilitators
    JEL: O1 O16
    Date: 2011
  2. By: Baybars Karacaovali (Department of Economics, University of Hawaii)
    Abstract: In this paper, I start out with a standard political economy of trade policy model to guide the subsequent estimation of the determinants of trade policy in a developing country. I carefully test the model with Colombian data from 1983 to 1998 accounting for endogeneity and omitted variable bias concerns and then expand it empirically in several directions. I show that it is important to control for the impact of a drastic trade reform shock that affects all sectors and disentangle its effect from preferential trade agreements (PTAs). I find that protection is higher in sectors that are important exports for preferential partners which may be seen as a stumbling block effect of PTAs for Colombia. I also relax the assumption of fixed political weights that measure the extra importance of producers' welfare relative to consumers in the government objective. I measure the impact of sectoral characteristics on tariffs indirectly through political weights as a novel alternative to nonstructurally estimating them as determinants of protection. Accordingly, I obtain more realistic estimates for the political weights further contributing to the literature.
    Keywords: Political economy of trade policy, trade liberalization, preferential trade agreements, empirical trade
    JEL: F13 F14 F15
    Date: 2011–11–01
  3. By: Cooke, Edgar F. A.
    Abstract: The impact of the USA's agoa preferences on SSA countries is studied using a matching approach. The results indicate that agoa beneficiaries have exported less to the USA compared to their matched controls. However, this has not been the case for their exports to the EU which has seen a higher share of exports relative to the control group. In addition, the results show that, in the short--run the SSA countries reduce exports to the EU in order to take advantage of agoa. Thus, due to capacity constraints these countries switched exports from the EU to the USA market. China, OECD, European and other developed countries are excluded from the control group used in the analysis. We therefore do not expect the strengths of these economies to be driving any of our results
    Keywords: African Growth and Opportunity Act; Africa; Trade preferences; Matching
    JEL: F00 F10
    Date: 2011–11–13
  4. By: Lincoln, William F. (University of Michigan); McCallum, Andrew H. (University of Michigan)
    Abstract: Using confidential microdata from the US Census, we find that the fraction of manufacturing plants that export rose from 21% in 1987 to 39% in 2006. It has been suggested that similar trends in other countries may have been caused by declining costs of entering foreign markets. Our study tests this hypothesis for the first time. Both reduced form and structural estimation approaches find little evidence that the entry costs declined significantly in the US over this period. We instead argue that changes in other factors that determine export status are sufficient to explain these trends.
    Keywords: entry costs, extensive margin
    JEL: F14
    Date: 2011–11–04
  5. By: Aitor Garmendia (Deusto Business School); Carlos Llano (Universidad Autónoma de Madrid); Asier Minondo (Deusto Business School); Francisco Requena (Universidad de Valencia)
    Abstract: Previous studies have shown that, not only countries, but also regions have a preference to trade within their administrative borders. Using unique trade flows data, we also find a large home bias in Spanish intranational trade. However, we show that this home bias disappears once we take into account the higher density of social and business networks within regions than between regions. We also find that the home bias does not disappear if intranational trade flows are measured in quantity rather than value. This fact might explain why previous studies on other European countries still find an intranational home bias, even when network effects are taken into account.
    Keywords: home bias, state borders, intranational trade, networks, business groups, Spain
    JEL: F12 F15
    Date: 2011–11
  6. By: Bowen, Renee (Stanford University)
    Abstract: I present a theory of optimal multilateral trade agreements with public political shocks. I first show that "forbearance"-- where one country withholds retaliation when its trading partner receives a shock-- is a feature of an optimal agreement. This provides a rationale for countries not acting on retaliatory rights granted under GATT. Second I show that there is a limit to forbearance allowable in a self-enforcing agreement. This limit is increasing in the number of countries in the agreement, increasing in the common discount factor, and increasing in the size of the export sector.
    JEL: C73 D74 F10
    Date: 2011–11
  7. By: Gita Gopinath; Oleg Itskhoki; Brent Neiman
    Abstract: We document the behavior of trade prices during the Great Trade Collapse of 2008-2009 using transaction-level data from the U.S. Bureau of Labor Statistics. First, we find that differentiated manufactures exhibited marked stability in their trade prices during the large decline in their trade volumes. Prices of non-differentiated manufactures, by contrast, declined sharply. Second, while the trade collapse was much steeper among differentiated durable manufacturers than among non-durables, prices in both categories barely changed. Third, despite this lack of movement in average price levels, the frequency and magnitude of price adjustments at the product level noticeably changed with the onset of the crisis.
    JEL: E3 F1 F4
    Date: 2011–11
  8. By: Kimura, Fukunari (Asian Development Bank Institute); Obashi, Ayako (Asian Development Bank Institute)
    Abstract: Production networks in East Asia, particularly in the manufacturing and machinery industries, are well recognized as the most advanced in the world, in terms of their magnitude, extensiveness, and sophistication. This paper tries to link various economic studies on related topics, to see how much we understand about production networks in East Asia. After providing a brief overview of international trade statistics, the paper reviews a number of academic papers concerning (i) the structure and mechanics of production networks, (ii) the conditions for production networks, and (iii) the properties and implications thereof.
    Keywords: fragmentation; agglomeration; vertical specialization; multinational enterprises; foreign direct investment
    JEL: F14 F15 F23
    Date: 2011–11–11
  9. By: Juan Carlos Barcena-Ruiz (UPV/EHU); Maria Begoña Garzon (UPV/EHU)
    Abstract: The literature on foreign direct investment has analyzed firms' location decisions when they invest in R&D to reduce production costs. Such firms may set up new plants in other developed countries while maintaining their domestic plants. In contrast, here we considerer firms that close down their domestic operations and relocate to countries where wage costs are lower. Thus, we assume that firms may reduce their production costs by investing in R&D and also by moving their plants abroad. We show that these two mechanisms are complementary. When a firm relocates it invests more in R&D than when it does not change its location and, therefore, its production cost is lower in the first case. As a result, investment in R&D encourages firms to relocate. When firms do not invest in R&D on relocation, R&D discourages firms to relocate since the investment made by the firms that remain in the country partially offsets the labor cost advantage obtained by the firms that move their plants abroad.
    Keywords: Relocation, R&D, Trade Unions, Social welfare, Imperfect competition
    JEL: D6 F16 J51 L13
    Date: 2011–11–14
  10. By: Moonsung Kang (KIEP - Korea Institute for International Economic Policy)
    Abstract: This paper provides a theoretical framework to explain why governments seek restrictions on IPR protection and allow R&D subsidies through multilateral trade agreements such as the TRIPS Agreement and the Agreement on Subsidies and Countervailing Measures. After 7 years of discussion, the Uruguay Round extends GATTs trade-liberalizing philosophy to worldwide use of subsidies as a secondary means to intervene in international trade. Through the Agreement on Subsidies and Countervailing Measures the WTO tries to preserve one of basic principles of GATTs philosophy: Fair Competition. The principle of Fair Competition is of particular importance in understanding the WTO. To harness GATTs trade liberalizing philosophy, the WTO as a successor of GATT takes this principle as objectives that are pursued through the enforcement and implementation of other principles, for instance the nondiscrimination and reciprocity. As an example of the fair competition principle, the WTO prohibited any type of export subsidies through the Agreement on Subsidies and Countervailing Measures, but allowed R&D subsidies. The allowance of R&D subsidies by the WTO is a puzzle because it is well known that R&D subsidization forms the prisoners dilemma when governments are active to set R&D policy. In order to find any reasonable logic to explain this puzzle, we focus on the interaction between strategic trade policy tools: R&D subsidization and IPR protection. Indeed, at an international level IPR protection has been a major focus of negotiations along with R&D subsidies. The WTO also requires member countries to strongly enforce patent protection through the TRIPS Agreement. In our analysis, it turns out that it is globally optimal to perfectly disseminate knowledge without IPR protection and to subsidize inventive firms by solving a problem that the weak IPR protection damages firms incentive to invest in R&D activities. However, current trade agreements do not match with our global optimum. We show that exporting countries may benefit at the expense of importers from a trade agreement to demand stronger enforcement on IPR protection because exporting countries experience the prisoners dilemma problem when both countries free ride on the rival firms R&D outcome. Therefore we conclude that it is possible to understand the TRIPS Agreement as an inefficient victory of the interests of northern exporting countries over those of southern importing countries.
    Keywords: Trade Policy Mix, TRIPS, R&D subsidies, Agreements on Subsidies, Countervailing Measures
    JEL: O32 O34 F13
    Date: 2011–11
  11. By: Collie, David R. (Cardiff Business School); Le, Vo Phuong Mai (Cardiff Business School)
    Abstract: This paper analyses how product differentiation affects the volume of trade under duopoly using Shubik-Levitan demand functions rather than the Bowley demand functions used by Bernhofen (2001). The Shubik-Levitan demand functions have the advantage that an increase in product differentiation does not increase the size of the market as happens with the Bowley demand functions. It is shown that the volume of trade in terms of quantities is decreasing in the degree of product differentiation when the trade cost is relatively low, but increasing in the degree of product differentiation when the trade cost is relatively high.
    Keywords: Product Differentiation; Cournot Oligopoly; Bertrand Oligopoly
    JEL: F12 F13
    Date: 2011–11
  12. By: Sugata Marjit (City University of Hong Kong); Amit K. Biswas
    Abstract: Stringent regulations coupled with corruption generate and sustain extra legal or informal transactions in the developing countries. Does trade related reform discourage informal activities and corruption? This paper attempts to analyze such a phenomenon. An import competing firm allocates production between a high wage formal and a low wage informal segment. Illegal use of labour in the informal sector is characterized by a probability of punishment which depends on the size of the informal output. In such a structure, as tariff comes down, total employment contracts but the informal sector expands. However, lowering of interest rate, possibly through the liberalization of capital account, tends to reduce the size of the informal segment. Hence, trade reforms may have conflicting impact on informality and corruption.
    Keywords: Trade Liberalization, Informal sector, corruption
    JEL: F11
    Date: 2011–05
  13. By: Pedro Oliveira (Faculdade de Engenharia, Universidade do Porto); Aurora A.C. Teixeira (CEF.UP, Faculdade de Economia, Universidade do Porto; INESC Porto; OBEGEF)
    Abstract: Given the (increasing) view point that firms’ internationalization strategy is the unique path to overcome the Portuguese dismissal economic growth, the present paper offers a comprehensive picture of the internationalization behavior of Portuguese SME, constituting therefore an important tool for political action. On the basis of the literature review and the factorial and cluster analyses performed, we propose three main segmentation criteria, one (‘Whole encompassing segmentation’: Experienced Medium Low-Tech firms; Low skill, Low-Tech firms; Young High-Tech firms) based on language skills, SME business experience, foreign market dependency, introduction of organizational innovation, exporting to ‘High income countries’ and education level of executive teams. The second segmentation proposal (‘Intermediate segmentation’: Young small-sized firms; Young micro-sized firms; Mature small-sized firms; Young medium-sized firms; Mature medium-sized firms; Foreign equity firms; Highly productive firms) has as criteria the firm size, the SME export intensity and industry. The last segmentation proposal (‘Parsimonious segmentation’: Medium-sized firms; Small-sized manufacturing firms; Micro-sized firms; Non-manufacturing small-sized firms; Export active small-sized firms; Potential exporters; Promising exporters firms) is based on SME size, business experience, foreign capital presence, and average productivity. Given the need for a parsimonius segmentation criterion, we convey that the most adequate segmentation criterion is the one combining SME size, export intensity and industry. This restricted number of criteria does not, however, affect the quality of the proposed SME segmentation, and has the advantage of being stasticaly adequate and user/cost friendly.
    Keywords: Internationalization performance determinants, Portugal, Segmentation, SME
    Date: 2011–11
  14. By: Rudy Rahmaddi; Masaru Ichihashi (Graduate School for International Development and Cooperation, Hiroshima University)
    Abstract: This paper explores the impacts of foreign and domestic demand on Indonesia's exports within demand and supply frameworks using aggregate data of 1971 - 2007. To capture effects of secular and cyclical movements on exports, we dissect income variables into trend and business cycle as proxies of productive capacity and capacity utilization rate, respectively. Our result suggests that both demand- and supply-price elasticity are elastic, and secular and cyclical movements may have contrast effects on exports. The findings draw policy implications namely the importance of price-based policy, provision of adequate and sound infrastructures, and further development of human capital-based industrialization.
    Keywords: Exports; demand and supply for exports; domestic demand pressure; Indonesia; simultaneous equations.
    JEL: F11 O19
    Date: 2011–09

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