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on International Trade |
| By: | Hayakawa, Kazunobu; Tanaka, Kiyoyasu |
| Abstract: | This paper investigates theoretically and empirically firms' productivity ranking among traditional horizontal foreign direct investment (HFDI), pure platform FDI (PFDI), and complex platform FDI (CFDI). Using data on Japanese outward FDI, we define firms conducting HFDI or PFDI as those Japanese firms that maintain production affiliates only in the U.S. or Mexico, respectively. The firms for CFDI are defined as having production affiliates in both the U.S. and Mexico. The theoretical illustration shows that the CFDI firms should have the highest productivity when trade costs between the U.S. and Mexico are low. By carefully disentangling firms' self-selection effects from learning-by-investing effects, we find some evidence consistent with this hypothesis for a period of relatively low trade costs. Our results indicate the importance of trade costs in developing countries with neighboring markets in attracting foreign investment by highly productive multinational firms. |
| Keywords: | Mexico, Japan, United States, Foreign investments, Foreign affiliated firm, Exports, Costs, Export platform, FDI, Firm heterogeneity, Trade costs |
| JEL: | F21 F23 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper310&r=int |
| By: | James Harrigan; Ariell Reshef |
| Abstract: | We propose a theory that rising globalization and rising wage inequality are related because trade liberalization raises the demand for highly competitive skill-intensive firms. In our model, only the lowest-cost firms participate in the global economy exactly along the lines of Melitz (2003). In addition to differing in their productivity, firms in our model differ in their skill intensity. We model skill-biased technology as a correlation between skill intensity and technological acumen, and we estimate this correlation to be large using firm-level data from Chile in 1995. A fall in trade costs leads to both greater trade volumes and an increase in the relative demand for skill, as the lowest-cost/most-skilled firms expand to serve the export market while less skill-intensive non-exporters retrench in the face of increased import competition. This mechanism works regardless of factor endowment differences, so we provide an explanation for why globalization and wage inequality move together in both skill-abundant and skill-scarce countries. In our model countries are net exporters of the services of their abundant factor, but there are no Stolper-Samuelson effects because import competition affects all domestic firms equally. |
| JEL: | F1 F16 J3 J31 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17604&r=int |
| By: | Murat Genc (University of Otago, New Zealand); Masood Gheasi (VU University Amsterdam, The Netherlands); Peter Nijkamp (VU University Amsterdam, The Netherlands); Jacques Poot (University of Waikato, New Zealand) |
| Abstract: | Since the early 1990s many empirical studies have been conducted on the impact of international migration on international trade, predominantly from the host country perspective. Because most studies have adopted broadly the same specification, namely a log-linear gravity model of export and import flows augmented with the logarithm of the stock of immigrants from specific source countries as an additional explanatory variable, the resulting elasticities are broadly comparable and yield a set of estimates that is well suited to meta-analysis. We therefore compile and analyze in this paper the distribution of immigration elasticities of imports and exports across 48 studies that yielded 300 observations. The results show that immigration complements rather than substitutes for trade flows between host and origin countries. Correcting for heterogeneity and publication bias, an increase in the number of immigrants by 10 percent may be expected to increase the volume of trade on average by about 1.5 percent. However, the impact is lower for trade in homogeneous goods. Over time, the growing stock of immigrants decreases the elasticities. The estimates are affected by the choice of some covariates, the nature of the data (cross-section or panel) and the estimation technique. Elasticities vary between countries in ways that cannot be fully explained by study characteristics; trade restrictions and immigration policies matter for the impact of immigration on trade. The migrant elasticity of imports is larger than that of exports in about half the countries considered, but the publication bias and heterogeneity-corrected elasticity is slightly larger for exports than for imports. |
| Keywords: | international trade, imports, exports, immigration, gravity model, meta-analysis |
| JEL: | F16 F22 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:nor:wpaper:2011020&r=int |
| By: | R. AEBERHARDT (Insee); I. BUONO (Banca d'italia); H. FADINGER (Department of Economics,University of Vienna) |
| Abstract: | We consider a model where exporting requires finding a local partner in each market. Contracts are incomplete and exporters must learn the reliability of their partners through experience. In the model, export behavior is state-dependent due to matching frictions, although there are no sunk costs. Better legal institutions alleviate contracting frictions especially in sectors with large contracting problems. Thus, measures of legal quality help reduce the risk that a match between an exporter and a local distributor splits, and they are all the more effective in sectors that are more exposed to hold-up problems. Moreover, the breaking risk declines with the age of the relationship, as unreliable partners are weeded out. We find strong evidence in favor of the model's predictions when testing them with a French dataset that includes information on firm-level exports by destination country. |
| Keywords: | Trade Dynamics, Learning, Incomplete Contracts, State dependence, Firm-level Trade Data |
| JEL: | F12 F14 L14 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpdeee:g2011-16&r=int |
| By: | Hayakawa, Kazunobu; Lee, Hyun-Hoon; Park, Donghyun |
| Abstract: | In this paper, we examine the role of export promotion agencies (EPAs) in promoting exports from Japan and Korea. Looking at two home countries enables us to tackle endogeneity issues by controlling for both country-pair time-invariant characteristics and importing country time-varying characteristics. Our empirical results indicate that the coefficients of the EPA dummy are similar in size to those of the FTA dummy. This implies that establishing an EPA office in a country is equivalent to signing an FTA with that country. In addition, we find that EPA’s effects are larger for manufactured products than non-manufactured products. Finally, the EPA effect is larger for low income trade partners than for high income trade partners. |
| Keywords: | South Korea, Japan, Imports, Administrative organization, Trade policy, Export promotion, FTA, Gravity model |
| JEL: | F10 F13 F14 F15 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper313&r=int |
| By: | Jung Hur (Department of Economics, Sogang University, Seoul); Hea-Jung Hyun (Department of International Trade, Dankook University, Gyeonggi-do, Korea) |
| Abstract: | Recent theories and empirics suggest that trade openness increases world trade through production fragmentation across countries. In this paper we focus on the relationship between trade openness and firms¡¯ choices of vertical structure. We find firm-level data evidence that upon trade liberalization firms have been restructuring their organization by downsizing their domestic production processes (i.e. domestic vertical disintegration), and relocating their input production plants to other countries (i.e. cross-border vertical integration). |
| Keywords: | Trade Openness, Vertical Integration, Intra-Firm Trade, Foreign Outsourcing |
| JEL: | F23 L22 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:sgo:wpaper:1106&r=int |
| By: | Hayakawa, Kazunobu; Kimura, Fukunari; Nabeshima, Kaoru |
| Abstract: | The scope of recent regional trade agreements (RTAs) is becoming much wider in terms of including several provisions such as competition policy or intellectual property. This paper empirically examines how far advanced, non-conventional provisions in RTAs increase trade values among RTA member countries, by estimating the gravity equation with more disaggregated indicators for RTAs. As a result, we find that the provision on competition policy has the largest impacts on trade values, following that on government procurement. Our further analysis reveals that the more significant roles of these two provisions can be also observed in the impacts on the intensive and extensive margins. |
| Keywords: | International trade, International agreements, Gravity, RTA, Extensive and intensive margins |
| JEL: | F15 F20 F53 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper309&r=int |
| By: | Vahagn Galstyan (Institute for International Integration Studies, Trinity College Dublin); |
| Abstract: | This paper contributes to empirical research on the dynamics of the terms of trade. We start by proposing a method for constructing different measures of the terms of trade. This is achieved by estimating a range of substitution elasticities using a panel data approach and highly disaggregated data on trade flows. Next, various measures of the terms of trade and trade margins are related to productivity and demand proxies. We find that domestic demand side movements are positively related to the terms of trade, while domestic productivity gains result in a deterioration of the terms of trade. Our results suggest that higher relative productivity raises the real component of exports relative to imports along the intensive margin inducing a weakening of the terms of trade. |
| Keywords: | Terms of trade; Trade margins; International prices |
| JEL: | F40 F41 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp382&r=int |
| By: | Eddy Bekkers; Robert Stehrer |
| Abstract: | We study firm heterogeneity in a specific factors model to address the effect of factor mobility on reallocation gains from trade. A model is proposed with Melitz type firm heterogeneity with two sectors, two countries and two fixed factors and one factor mobile across sectors. Equilibrium in each sector can be concisely represented by a demand and supply equation and a FE and ZCP condition. Varying the substitution elasticity between the fixed and mobile factor we show that the welfare gains from trade liberalization are larger in countries with a lower substitution elasticity. Furthermore, it is shown that the immobile production factor in the comparative disadvantage sector can still gain from trade liberalization due to the reallocation effect. |
| Keywords: | Firm heterogeneity, Specific Factors, Reallocation Gains from Trade |
| JEL: | F12 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2011_15&r=int |
| By: | Hayakawa, Kazunobu |
| Abstract: | In this paper, using the worldwide dataset of bilateral tariff rates, we explore how serious the omission of bilateral tariff rates in gravity is. Our findings are as follow. Firstly, the omission of bilateral tariff rates seems not to be so serious in terms of omitted-variable biases because the coefficients for the usual gravity variables do not change before or after their inclusion. Secondly, while the widely-used dummy variable of regional trade agreement could not play an alternative role in place of tariff rates, the inclusion of time-invariant pair fixed effects in addition to the time-variant importer fixed effects and exporter fixed effects accounts for the omission of tariff rates. The inclusion of those fixed effects makes the coefficient for bilateral tariff rates insignificant. |
| Keywords: | Developing countries, International trade, Tariff, Gravity, Tariff rates, Free Trade Agreement |
| JEL: | F10 F15 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper311&r=int |
| By: | Defever, Fabrice; Toubal, Farid |
| Abstract: | We investigate the roles of productivity and the specificity of inputs for the international sourcing strategy of firms which are part of a multinational network. We present a framework in which firms decide to import from a foreign independent supplier or from their related party abroad according to these two dimensions. We use a detailed survey that provides a detailed geographical breakdown of French firms' imports at the product level as well as the sourcing mode used for each transaction. The dataset also provides information to estimate the firms' productivity and their intensity in relationship-specific inputs. After controlling for countries of origin, products and sectors specific effects, the empirical results provide evidence that for the most productive multinationals the likelihood of trading through an independent supplier is higher especially if they use relationship-specific inputs intensively. |
| Keywords: | incomplete contracts; intra-group trade; outsourcing; productivity |
| JEL: | F14 F23 L22 L23 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8656&r=int |
| By: | Pflüger, Michael P. (University of Passau); Russek, Stephan (University of Passau) |
| Abstract: | The robust empirical finding that exporting firms are systematically different from firms that merely serve domestic consumers has inspired the development of a new brand of trade theory, the theory of heterogeneous firms and trade. The establishment of a canonical model due to Melitz (2003) has induced a recent wave of research which explores various policy issues and policy instruments. This paper uses a simple tractable two-sector model of monopolistic competition as unifying framework to bring out key lessons of this recent research. We address the gains from trade, country asymmetries involving technology potentials, market sizes, trade openness and various business conditions as well as the international repercussions that emerge when countries non-cooperatively choose entry subsidies and their levels of basic research. We also reinvestigate the process of market exit. |
| Keywords: | firm heterogeneity, monopolistic competition, economic policies and welfare |
| JEL: | F12 F13 F15 L25 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6109&r=int |
| By: | Harry Kelejian (University of Maryland); George S. Tavlas (Bank of Greece); Pavlos Petroulas (Bank of Greece) |
| Abstract: | Trade is spatial in nature. However, when specifying trade regressions, spatial issues are typically not accounted for in a satisfactory way. We specify a trade model which relates to the effects that the introduction of the euro had on exports for the euro countries. Our model contains country pair fixed effects and error terms which are spatially and time autocorrelated, as well as heteroskedastic. Our spatial weighting matrix has unique characteristics. Our model also allows for endogenous regressors, and so we estimate it by an instrumental variable procedure. We find that the results of estimation are substantially affected when one accounts for statistical complications. Specifically, euro effects on exports are significantly reduced and are only "borderline" significant. Also, dummy variables measuring the effects of EU-membership on exports become insignificant. The results relating to other variables do not seem to be substantially affected. All of this suggests that, perhaps, the effects of currency unions on trade as described in the previous literature has been severely overstated. |
| Keywords: | Trade; EMU; Spatial Econometrics; Panel Data |
| JEL: | F15 F33 C31 C33 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:136&r=int |
| By: | Achim Schmillen (Osteuropa-Institut, Regensburg (Institut for East European Studies)) |
| Abstract: | This study uses detailed, reliable and up-to-date linked employer-employee data that take account of both the demand and the supply side of the labor market to challenge the conventional wisdom of a universal exporter wage premium. It investigates whether for German establishments an exporter wage premium can be found irrespective of export destination and the distance between export origin and destination. As expected, it finds that exporters generally pay higher wages than non-exporters. But it also shows that only exporting to certain countries is associated with a wage premium. Moreover, such a premium exists only for establishments that ship goods over a relatively long distance. |
| Keywords: | Exporter wage premium, Export destinations, Linked employer-employee data |
| JEL: | F14 J31 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:ost:wpaper:305&r=int |
| By: | Hiratsuka, Daisuke |
| Abstract: | Production networks have been extensively developed in the Asia-Pacific region. This paper employs two micro-level approaches, case studies and econometric analysis, using JETRO's firm surveys which investigate Japanese affiliates operating in Southeast Asia. These two approaches found that production networks have extended, involving suppliers, across various nations in the Asia-Pacific region, and that production bases in host and home countries have different roles. A home country serves as a headquarters with services such as R&D, international marketing, and financing. A high tariff policy in a host country may foster domestic industries through the expansion of procurement from domestic suppliers, either indigenous or foreign, but it may discourage a country from becoming an export platform. |
| Keywords: | Southeast Asia, Japan, Foreign affiliated firm, Industrial management, Production management, International economic relations, Skilled differentiation, High tariff policy, Export-platform FDI |
| JEL: | F14 F15 F23 L23 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper315&r=int |
| By: | Jung Hur (Department of Economics, Sogang University, Seoul); Hea-Jung Hyun (Department of International Trade, Dankook University, Gyeonggi-do, Korea) |
| Abstract: | This paper examines the role of firm heterogeneity in the choice made by multinationals with regards to FDI type and location. Using Korean firm-level data, we find that highly productive firms are more likely than their less efficient counterparts to invest in tough markets and choose combined FDI strategy against either horizontal FDI or vertical FDI across different host countries. These findings, consistent with the recent theories in international economics, suggest that firm heterogeneity may play a significant role in FDI strategy as well as location decision. |
| Keywords: | Foreign Direct Investment, Multinationals, Horizontal Investment, Vertical Investment, Firm Heterogeneity, Location Decision |
| JEL: | F23 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:sgo:wpaper:1105&r=int |
| By: | A'Hearn, Brian; Venables, Anthony J. |
| Abstract: | This paper explores the interactions between external trade and regional disparities in the Italian economy since unification. It argues that the advantage of the North was initially based on natural advantage (in particular the endowment of water, intensive in silk production). From 1880 onwards the share of exports in GDP stagnated and then declined; domestic market access therefore became a key determinant of industrial location, inducing fast growing new sectors (especially engineering) to locate in regions with a large domestic market, i.e. in the North. From 1945 onwards trade growth and European integration meant that foreign market access was the decisive factor; the North had the advantage of proximity to these markets. |
| Keywords: | geographic concentration; industrialisation; Italian regions; market integration; new economic geography |
| JEL: | F14 F15 N63 N64 N93 N94 R11 R12 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8655&r=int |
| By: | Dorn, Sabrina; Egger, Peter |
| Abstract: | This paper provides evidence of heterogeneous treatment effects on trade from switching among three types of de-facto exchange rate regimes: freely floating, currency bands, and pegs or currency unions. A cottage literature at the interface of macroeconomics and international economics focuses on the consequences of exchange rate regimes for economic outcome such as trade. The majority of contributions points to trade-stimulating average effects of tighter exchange rate tying in general and of currency unions in specific. While there is great variability of the estimated quantitative effects across studies, all of the associated work adopted at least two and most of it all of the following three assumptions: assignment of countries to exchange rate regimes is random, the treatment effect of adopting a currency union is independent of the underlying regime transition, and it is homogeneous and hence fully captured by the average. This paper allows for self-selection into exchange rate regimes conditional on observable characteristics and a given regime state prior to a transition and provides evidence of strong impact heterogeneity on bilateral trade among otherwise observationally equivalent country-pairs. |
| Keywords: | Endogenous treatment effects; Exchange rate regimes; Heterogeneous treatment effects |
| JEL: | C22 C32 F31 F33 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8654&r=int |
| By: | Nicos Christodoulakis (Athens University of Economics and Business); Vassilis Sarantides (Athens University of Economics and Business) |
| Abstract: | A few years after the establishment of the European Economic and Monetary Union (EMU), large asymmetries emerged in the trade balances and the current accounts of the member-states. A divide seems to separate two groups in the euro area, one with the northern countries achieving external surpluses and the other including the southern countries with large external deficits. We argue that a crucial factor in shaping productivity, and consequently affecting competitiveness and the external position of the economy, is the size and composition of Foreign Direct Investment (FDI) and find that the northern countries received more total FDI than the southern group. Moreover, the southern countries attracted more investment in real estate rather than the productive sector. Focusing on ten euro area economies over the period 1980-2009, we establish a positive relationship between FDI flows and trade balances in the northern countries, in contrast to a negative one for the southern group. Using industry-level data, we also establish a positive (negative) long-run relationship between FDI in the manufacturing (non-manufacturing) sector and the trade balance for the northern (southern) countries. |
| Keywords: | Euro area; trade balance; Foreign Direct Investment (FDI) |
| JEL: | F15 F21 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:132&r=int |
| By: | Barry Eichengreen; Hui Tong |
| Abstract: | We examine the impact of renminbi revaluation on firm valuations, considering two surprise announcements of changes in China’s exchange rate policy in 2005 and 2010 and data on 6,050 firms in 44 countries. Renminbi appreciation has a positive effect on firms exporting to China but little positive or even a negative impact on those providing inputs for China’s processing exports. Stock prices rise for firms competing with China in their home market while falling for firms importing Chinese products with large imported-input content. Renminbi appreciation also reduces the valuation of financially-constrained firms, particularly in more financially integrated countries. |
| JEL: | F0 F3 F30 F31 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17593&r=int |
| By: | Kozo Kiyota |
| Abstract: | In light of the importance of the relationship between trade and employment in Japan, this paper examines the effects of exports on employment (i.e. the number of workers), working-hours, and total worker-hours (i.e. employment times working-hours). This paper utilized the Japanese input-output table for the period from 1975 to 2006, which enables us to estimate the effects of exports on the industry's employment (i.e. direct effect) but also on other industries' employment (i.e. indirect effect). The major findings are threefold. First, the demand for worker-hours from exports increased but this is not large enough to offset the decreases in demand for worker hours from domestic final demand. As a result, total worker-hours in Japan have declined since 1990. Second, the demand for employment from exports has increased since 1985 both in manufacturing and non-manufacturing. This result implies that the manufacturing exports affected indirectly non-manufacturing employment through inter-industry linkages. Finally, the overall demand for working-hours from exports and domestic final demand declined between 1980 and 2006 although it increased slightly in manufacturing after 1995. There are two possible policy influences behind these adjustment processes. One is the change in Japanese labour standard law. The other is the change in the Japanese worker dispatch law. Although these two policies have different implications, policy makers need to recognize the importance of the flexibility of the adjustment in either case. |
| Keywords: | trade, employment, wages, inclusive growth |
| JEL: | F16 |
| Date: | 2011–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:oec:traaab:127-en&r=int |