nep-int New Economics Papers
on International Trade
Issue of 2012‒02‒01
twenty-one papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Extensive and intensive trade margins: a state-by-state view By Cletus C. Coughlin
  2. Gravity Redux: Measuring International Trade Costs with Panel Data By Dennis Novy
  3. Trade, wages, and profits By Egger, Hartmut; Egger, Peter; Kreickemeier, Udo
  4. 'Distorted gravity: The intensive and extensive margins of international trade' revisited ; an application to an intermediate Melitz model By Prehn, Sören; Brümmer, Bernhard
  5. Global value chains during the great trade collapse: a bullwhip effect? By Carlo Altomonte; Filippo Di Mauro; Gianmarco Ottaviano; Armando Rungi; Vincent Vicard
  6. International Sourcing, Product Complexity and Intellectual Property Rights By Alireza Naghavi; Julia Spies; Farid Toubal
  7. Comparative advantage, multi-product firms and trade liberalisation : An empirical test By Catherine Fuss; Linke Zhu
  8. Entry on difficult export markets by Chinese domestic firms: The role of foreign export spillovers By Florian Mayneris; Sandra Poncet
  9. Trade and Innovation: Synthesis Report By Nobuo Kiriyama
  10. Time as a Trade Barrier By David Hummels; Georg Schaur
  11. Free Trade, Time-Consistent Tariff, and Market Size: The Role of GATT/WTO as Commitment Devices By Tsuyoshi Toshimitsu
  12. International Risk-Sharing and Commodity Prices By Martin Berka; Mario J. Crucini; Chih-Wei Wang
  13. Assessing the Trade Impact of the European Neighborhood Policy on EU-MED Free Trade Area By Pierluigi Montalbano; Silvia Nenci
  14. French Firms at the Conquest of Asian Markets: The Role of Export Spillovers By Florian Mayneris; Sandra Poncet
  15. Trade Openness, Market Competition, and Inflation : Some Sectoral Evidence from OECD Countries By Mahir Binici; Yin-Wong Cheung; Kon S. Lai
  16. Endogenous labour market imperfection and the HOS model: some counterintuitive trade-theoretic results By Chaudhuri, Sarbajit
  17. How Does Quality Impact on Import Prices? By Konstantins Benkovskis; Julia Wörz
  18. Trade in Environmental Goods, with Focus on Climate-Friendly Goods and Technologies By ZhongXiang Zhang
  19. Reputation, Competition, and Entry in Procurement By Giancarlo Spagnolo
  20. Emigration and Wages: The EU Enlargement Experiment By Benjamin Elsner
  21. The macroeconomic consequences of migration diversion: evidence for Germany and the UK By Timo Baas; Herbert Brücker

  1. By: Cletus C. Coughlin
    Abstract: This paper examines a topic of increasing interest, the potential determinants of extensive (i.e., number of firms) and intensive (i.e., average exports per firm) trade margins, using state-level trade to 190 countries. In addition to distance and country size, other factors affecting trade costs and export demand are explored. In state-by-state regressions, these other factors exhibit more consistent and statistically significant effects on the extensive than on the intensive trade margin. One noteworthy finding is that U.S. foreign direct investment has a positive effect on both margins. In regressions using all state-level data simultaneously, some factors affect both margins, but not necessarily in the same way. For example, the impact of the communications infrastructure in the importing country affects the extensive margin positively and the intensive margin negatively. Finally, reasons for differences across states, such as state size and trade missions, are identified.
    Date: 2012
  2. By: Dennis Novy
    Abstract: Barriers to international trade are known to be large but due to data limitations it is hard to measure them directly for a large number of countries over many years. To address this problem I derive a micro-founded measure of bilateral trade costs that indirectly infers trade frictions from observable trade data. I show that this trade cost measure is consistent with a broad range of leading trade theories including Ricardian and heterogeneous firms models. In an application I show that U.S. trade costs with major trading partners declined on average by about 40 percent between 1970 and 2000, with Mexico and Canada experiencing the biggest reductions.
    Keywords: Trade Costs, Gravity, Multilateral Resistance, Ricardian Trade, HeterogeneousFirms
    JEL: F10 F15
    Date: 2012–01
  3. By: Egger, Hartmut; Egger, Peter; Kreickemeier, Udo
    Abstract: This paper formulates a structural empirical model of heterogeneous firms whose workers exhibit fair-wage preferences. In the underlying theoretical framework, such preferences lead to a link between a firm's operating profits on the one hand and wages of workers employed by this firm on the other hand. The latter establishes an exporter wage premium, since exporters have higher profits, given their productivity, than non-exporting firms. We estimate the parameters of the model in a data-set of five European economies and find that, when evaluated at these parameter values, the model has a high level of explanatory power. The estimates also enable us to quantify the exporter wage premium and the consequences of trade for the main variables of interest. According to our results, openness to international trade contributes to greater inequality across firms in terms of both operating profits and average wages. We also find evidence for gains from trade for all five countries, which go along with negative, but quantitatively moderate, aggregate employment effects. --
    Keywords: structural models,heterogeneous firms,fair wages,labour market imperfections,exporter wage premium
    JEL: C31 F12 F16 J31
    Date: 2011
  4. By: Prehn, Sören; Brümmer, Bernhard
    Abstract: With the extension of the standard Melitz Model from Ahn et al. [2011], the important role of intermediaries in facilitating trade is now recognized. In this paper, we are going to expand Chaney's [2008] approach to an Intermediate Melitz Model. By researching if Chaney's results still apply for an Intermediate Melitz Model, main results of Chaney are confirmed for the direct export model, but this is not so for the indirect export mode. Here, the elasticity of substitution still dampens the extensive margins; however, whether the dampening effect on the extensive margin still dominates the magnifying effect on the intensive margin is ambiguous. Also, the elasticities of trade ows are no longer larger, but rather smaller than in the Krugman Model. All results are economically meaningful. --
    Keywords: international trade,Intermediate Melitz Model,firm heterogeneity,elasticities of trade flows,extensive and intensive margins
    Date: 2011
  5. By: Carlo Altomonte (Bocconi University, Via Roberto Sarfatti, 25, 20136 Milano, Italy.); Filippo Di Mauro (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Gianmarco Ottaviano (LSE, Houghton Street, London WC2A 2AE, UK and Bocconi University.); Armando Rungi (Bocconi University, Via Roberto Sarfatti, 25, 20136 Milano, Italy.); Vincent Vicard (Banque de France, 31 rue Croix des petits champs, 75001 Paris, France.)
    Abstract: This paper analyzes the performance of global value chains during the trade collapse. To do so, it exploits a unique transaction-level dataset on French firms containing information on cross-border monthly transactions matched with data on worldwide intra-firm linkages as defined by property rights (multinational business groups, hierarchies of firms). This newly assembled dataset allows us to distinguish …rmlevel transactions among two alternative organizational modes of global value chains: internalization of activities (intra-group trade/trade among related parties) or establishment of supply contracts (arm's length trade/trade among unrelated parties). After an overall assessment of the role of global value chains during the trade collapse, we document that intra-group trade in intermediates was characterized by a faster drop followed by a faster recovery than arms length trade. Amplified fluctuations in terms of trade elasticities by value chains have been referred to as the "bullwhip effect" and have been attributed to the adjustment of inventories within supply chains. In this paper we first confirm the existence of such an effect due to trade in intermediates, and we underline the role that di¤erent organizational modes can play in driving this adjustment. JEL Classification: F23, F15, L22.
    Keywords: Trade collapse, multinational firms, global value chains, hierarchies of firms , vertical integration.
    Date: 2012–01
  6. By: Alireza Naghavi (Dipartimento di Scienze Economiche, University of Bologna and Fondazione Eni Enrico Mattei); Julia Spies (Institute for Applied Economic Research (IAW) and Fondazione Eni Enrico Mattei); Farid Toubal (University of Angers, Paris School of Economics and CEPII)
    Abstract: In this paper, we propose the technological complexity of a product and the level of Intellectual Property Rights (IPRs) protection to be the co-determinants of the mode through which multinational firms purchase their goods. We study the choice between intra-firm trade and outsourcing given heterogeneity at the product- (complexity), firm- (productivity) and country- (IPRs) level. Our findings suggest that the above three dimensions of heterogeneity are crucial for complex goods, where firms face a trade-off between higher marginal costs in the case of trade with an affiliate and higher imitation risks in the case of sourcing from an independent supplier. We test these predictions by combining data from a French firm-level survey on the mode choice for each transaction with a newly developed complexity measure at the product-level. Our fractional logit estimations confirm the proposition that although firms are generally reluctant to source highly complex goods from outside the firm’s boundaries, they do so when a strong IPR regime in the host country guarantees the protection of their technology.
    Keywords: Sourcing Decision, Product Complexity, Intellectual Property Rights, Fractional Logit Estimation
    JEL: F12 F23 O34
    Date: 2011–11
  7. By: Catherine Fuss (National Bank of Belgium, Research Department); Linke Zhu (Katholieke Universiteit Leuven, LICOS)
    Abstract: This paper investigates how economies of scope in multi-product firms interact with comparative advantage in determining the effect of trade liberalisation on resource reallocation, using Belgian manufacturing firm- and firm-product-level data over the period 1997-2007. We first provide evidence on industry integration induced by multi-product firms producing simultaneously in multiple industries and on the extent to which industry integration occurs between industries that have different degrees of comparative advantage. We then examine the impact of opening up trade with low-wage countries on both inter- and intra-industry resource reallocation, taking into account heterogeneity in the integration rate across sectors and industries. Our results indicate that, within more closely integrated sectors, trade liberalisation with low-wage countries leads to less reallocation from low-skill-intensity (comparative-disadvantage) industries to high-skill-intensity (comparative-advantage) industries, both in terms of employment and output. We also find that more integrated industries experience less skill upgrading after trade liberalisation with low-wage countries. Furthermore, we find that within sectors with a low integration rate, trade liberalisation with low-wage countries induces relatively more aggregate TFP and average firm output growth in comparative-advantage industries than in comparative-disadvantage industries, in line with the prediction of Bernard, Redding and Schott (2007), while the opposite is true in highly integrated sectors. Decomposition of the industry-level aggregate TFP changes reveals that the result is mainly driven by reallocation between incumbent firms within industries. Overall, the results are highly consistent with the predictions of the Song and Zhu (2010) model.
    Keywords: trade liberalisation, industry integration, comparative advantage, firm heterogeneity, microeconomic panel data, Total Factor Productivity
    JEL: F11 F12 F14 L23
    Date: 2012–01
  8. By: Florian Mayneris; Sandra Poncet
    Keywords: Export spillovers, China, agglomeration
    JEL: F1 R12 A A
    Date: 2011–12
  9. By: Nobuo Kiriyama
    Abstract: Innovation is critical to creating new sources of growth. Trade is one of the framework conditions that can strengthen innovation in the business sector, as set out in the OECD Innovation Strategy in 2010. This paper broadly sets out three channels through which trade affects innovation. First, imports and foreign direct investment (FDI) as well as trade in technology serve as channels of technology diffusion. Second, imports, FDI and technology licensing contribute to intensifying competition, which can affect incentives for innovation. Third, exports can affect innovation as it serves as a learning opportunity and gives incentives for innovative activities...
    Keywords: multilateral trade negotiations, NAMA notifications, World Trade Organisation, trade and innovation, international technology diffusion, competition and innovation, exports and innovation
    JEL: F13 F23 L60 O24
    Date: 2012–01–20
  10. By: David Hummels; Georg Schaur
    Abstract: A large and growing share of international trade is carried on airplanes. Air cargo is many times more expensive than maritime transport but arrives in destination markets much faster. We model firms’ choice between exporting goods using fast but expensive air cargo and slow but cheap ocean cargo. This choice depends on the price elasticity of demand and the value that consumers attach to fast delivery and is revealed in the relative market shares of firms who air and ocean ship. We use US imports data that provide rich variation in the premium paid for air shipping and in time lags for ocean transit to identify these parameters and extract consumer’s valuation of time. By exploiting variation across US entry coasts we are able to control for selection and for unobserved shocks to product quality and variety that affect market shares. We estimate that each day in transit is equivalent to an ad-valorem tariff of 0.6 to 2.3 percent and that the most time-sensitive trade flows are those involving parts and components trade. These results suggest a link between sharp declines in the price of air shipping and rapid growth in trade as well as growth in world-wide fragmentation of production. Our estimates are also useful for assessing the economic impact of policies that raise or lower time to trade such as security screening of cargo, port infrastructure investment, or streamlined customs procedures.
    JEL: F1 F15
    Date: 2012–01
  11. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: We examine whether free trade is superior to tariff policy if the government of an importing country cannot precommit to an ex ante optimal tariff rate in the presence of a time lag between production and trade decisions. Based on a simple partial equilibrium model with an export monopoly, we show that the preferable choice between free trade and a time-consistent tariff policy depends on the market size of the importing country. More specifically, if the market size is larger than a certain level, the importing country prefers free trade to the time-consistent tariff policy. However, because a free trade policy is not credible in the presence of a time lag, the government of the importing country requires international organizations and rules such as GATT/WTO as commitment devices. Thus, using a game theoretic approach, we analyze under what conditions becoming a member of the international organizations is a subgame perfect Nash equilibrium and show that a free trade policy under the GATT/WTO regime is Pareto improving for the importing and exporting countries.
    Keywords: free trade, time-consistent tariff, time lag, market size, GATT/WTO
    JEL: F1
    Date: 2012–01
  12. By: Martin Berka (Victoria University of Wellington); Mario J. Crucini (Department of Economics, Vanderbilt University); Chih-Wei Wang (Department of Economics, Pacific Lutheran University)
    Abstract: Cole and Obstfeld (1991) exposited a classic result where equilibrium movements in the terms of trade could make ex ante risk-sharing arrangements unnecessary: a unity elasticity of substitution across goods and production specialization. This paper extends their model to N countries and M commodities (N > M). Here the terms of trade provides insurance against commodity-specific shocks, not country-specific shocks. Using commodity-level production data at the national level and world commodity prices we document significant terms of trade variability and positive responses of nation-specific production to terms of trade improvements. The endogenous terms of trade insurance mechanism highlighted in CO is virtually non-existent.
    Keywords: Risk-sharing; developing countries; terms of trade
    JEL: F3 F4
    Date: 2011–10
  13. By: Pierluigi Montalbano (Department of Economics, University of Sussex and Sapienza University); Silvia Nenci (University of Roma Tre)
    Abstract: The goal of this paper is to provide an "ex ante" assessment of the long-run "treatment" effect of ENP on EU-MED Free Trade Area. Supplementary objectives are the presentation of new up-to-date "in-sample" estimates of the actual trade potential in the Pan-european Common Market as well as more robust estimates of the trade enhancing impact of EU deep integration policy. The novel aspect of this work is twofold: i) to present nonparametric matching estimators along with gravity estimates; ii) to assume, as a counterfactual (i.e., the hypothetical situation of ENP full implementation), the ex-post long-run average treatment effect of the Europe Agreements, which are the unique experience to date of "full partnership without membership". Our empirical outcomes show a likely strong and robust impact on EU-MED trade integration of the new "deep integration" efforts made by the EU. This is confirmed by both the applied dummy strategy and the non parametric matching technique. This result seems to be linked to other factors than simply trade preferences alone. Our empirical evidence is relevant both to policymaking, since it provides an "ex ante" assessment of the efficacy of deep integration under the EU-MED regional cooperation framework, and to the methodological point of view, since it contributes to improvements in empirical estimates of the "policy impact" of EU preferential agreements.
    Keywords: Trade policy, European integration, Gravity Model, Matching econometrics, Southern Mediterranean Countries
    JEL: F13 F15 F17
    Date: 2012–01
  14. By: Florian Mayneris; Sandra Poncet
    Keywords: Export spillovers, agglomeration, market entry barriers
    JEL: F10 R12 A A A A
    Date: 2011–12
  15. By: Mahir Binici; Yin-Wong Cheung; Kon S. Lai
    Abstract: This study evaluates the role market competition plays in determining inflation based on sectorlevel data from OECD countries. In theory, trade openness can affect inflation through changes in market competitiveness and productivity. Nonetheless, previous empirical studies often fail to account for productivity effects, and their results may overstate the role of market competition. This study shows that inflation decreases with greater market competitiveness even after controlling for productivity effects. Indeed, when market competition and productivity effects are both accounted for, trade openness becomes insignificant in explaining inflation. The results support that changes in market competitiveness and productivity are the main channels through which trade openness affects inflation.
    Keywords: Trade openness, inflation, market structure, static panel, dynamic panel
    JEL: C23 E31 L16
    Date: 2012
  16. By: Chaudhuri, Sarbajit
    Abstract: This paper introduces endogenous labour market imperfection in an otherwise Heckscher-Ohlin-Samuelson (HOS) model. It demonstrates that this framework satisfies the Stolper-Samuelson theorem and the magnification effect and that it is capable of producing certain trade-theoretic results which are contrary to the standard HOS and the Corden and Findlay (1975) results.
    Keywords: Labour market imperfection; Heckscher-Ohlin-Samuelson model; Corden and Findlay model; foreign capital; trade liberalization; general equilibrium
    JEL: F20 O17 F21
    Date: 2012–01–10
  17. By: Konstantins Benkovskis (Monetary Policy Department, Latvijas Banka); Julia Wörz (Foreign Research Division, Oesterreichische Nationalbank)
    Abstract: Understanding the dynamics of import price developments is an important but challenging issue which affects the way we look on consumers' welfare, real exchange rates and exchange rate pass-through. In this paper we propose an exact import price index which extends the approach by Broda and Weinstein (2006) who adjust price developments for changes in varieties of imported products. We relax two assumptions still underlying the Broda and Weinstein (2006) approach, thus allowing the set of imported goods and the quality to vary. This variety-, set-of-products-, and quality-adjusted import price index shows that gains from variety in European G7 countries, although positive, are rather small compared to calculated gains from quality. Using HS 07 (vegetables) as our benchmark group of products with unchanged quality, we find significant gains from quality for Germany, France, Italy and the UK between 1995 and 2010. Although these results are not invariant to the choice of the benchmark category, they clearly stress the importance of incorporating the quality issues in empirical literature. Ignoring changes in import quality can give misleading estimates of import prices and consumers' welfare. JEL classification: C43, D60, F12, F14, L15
    Keywords: import variety, price index, quality, welfare gains from trade
    Date: 2011–12–31
  18. By: ZhongXiang Zhang (East-West Center)
    Abstract: Paragraph 31(iii) of the Doha Ministerial Declaration mandates to the liberalization of environmental goods and services. This mandate offers a good opportunity to put climate-friendly goods and services on a fast track to liberalization. Agreement on this paragraph should represent one immediate contribution that the WTO can make to fight against climate change. This paper presents the key issues surrounding the liberalization of trade in climate-friendly goods and technologies in WTO environmental goods negotiations. It begins with discussing what products to liberalize and how. Given that WTO Members are divided by this key issue, the paper explores options to move current negotiations on the liberalization of trade in environmental goods and technologies forward, both within and outside the WTO. Recognizing that there is no one-size-fits-all strategy for tariff liberalization for all countries and for all environmental goods, the paper suggests the need for a high degree of flexibility to accommodate different situations and stakes in the liberalization of trade in environmental goods. Given that there are simply not enough environmental markets or these markets are weak in many developing countries, the paper emphasizes that creating markets for environmental goods in developing countries is far more important than just improving market-access conditions for associated goods, and discusses how to best serve the interests and concerns of developing countries.
    Keywords: Environmental Goods and Services, Low-Carbon Goods and Technologies, Market Access, Doha Round, WTO, Renewable Energy Technologies
    JEL: F18 F13 P28 Q42 Q48 Q56 Q54 Q58 Q48
    Date: 2011–11
  19. By: Giancarlo Spagnolo (SITE, Tor Vergata, Eief and CEPR)
    Abstract: Based on my recent work with several co-authors this paper explores the relationship between discretion, reputation, competition and entry in procurement markets. I focus especially on public procurement, which is highly regulated for accountability and trade reasons. In Europe regulation constrains the use of past performance information to select contractors while in the US its use is encouraged. I present some novel evidence on the benefits of allowing buyers to use reputational indicators based on past performance and discuss the complementary roles of discretion and restricted competition in reinforcing relational/reputational forces, both in theory and in a new empirical study on the effects restricted rather than open auctions. I conclude reporting preliminary results form a laboratory experiment showing that reputational mechanisms can be designed to stimulate rather than hindering new entry.
    Date: 2012
  20. By: Benjamin Elsner (Trinity College Dublin, Department of Economics and IIIS)
    Abstract: This paper studies the impact of a large emigration wave on real wages in the source country. Following EU enlargement in 2004, a large share of the workforce of the Central and Eastern Europe emigrated to Western Europe. Using data from Lithuania for the calibration of a factor demand model I show that emigration had a significant short-run impact on real wages in the source country. In particular, emigration led to a change in the wage distribution between young and old workers. The wages of young workers increased by 6%, whereas the wages of old workers decreased by around 1%. On the contrary, I find no effect on the wage distribution between workers of different education levels.
    Keywords: Emigration, EU Enlargement, European Integration, Wage Distribution
    JEL: F22 J31 O15 R23
    Date: 2011–11
  21. By: Timo Baas (Institute for Employment Research (IAB) and Free University of Berlin); Herbert Brücker (University of Bamberg, Institute for Employment Research (IAB) and IZA)
    Abstract: This paper examines the macroeconomic consequences of the diversion of migration flows away from Germany towards the UK in the course of the EU’s Eastern Enlargement. The EU has agreed transitional periods for the free movement of workers with the new member states from Central and Eastern Europe. The selective application of migration restrictions during the transitional periods has resulted in a reversal of the pre-enlargement allocation of migration flows from the new member states across the EU. Based on a forecast of the migration potential under the conditions of free movement and of the transitional arrangements, we employ a CGE model with imperfect labour markets to analyse the macroeconomic effects of this diversion process. We find that EU Eastern enlargement has increased in the GDP per capita in the UK substantially, but that the diversion of migration flows towards the UK has reduced wage gains and the decline in unemployment there. The effects of the EU Eastern enlargement are less favourable for Germany, but the diversion of migration flows has protected workers there against a detrimental impact on wages and unemployment.
    Keywords: EU Eastern enlargement, international migration, computable equilibrium model, wage-setting.
    JEL: F15 F22 C68 J61 J30
    Date: 2012–01

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