nep-int New Economics Papers
on International Trade
Issue of 2012‒03‒14
nine papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Trade Productivity Upgrading, Trade Fragmentation, and FDI in Manufacturing: The Asian Development Experience By Mora, Jesse; Singh, Nirvikar
  2. Unilateral trade liberalization in the Melitz model: A note By Felbermayr, Gabriel; Jung, Benjamin
  3. What Drives FDI from Non-traditional Sources? A Comparative Analysis of the Determinants of Bilateral FDI Flows By Maximiliano Sosa Andrés, Peter Nunnenkamp, Matthias Busse
  4. Trends in Tariff Reforms and Trends in the Structure of Wages By Sebastián Galiani; Guido Porto
  5. Estimating the Impact of Currency Unions on Trade Using a Dynamic Gravity Framework By Campbell, Douglas L.
  6. Trade Dynamics in the East Asian Miracle: A Time Series Analysis of U.S.-East Asia Commodity Trade, 1962-1992 By Carolan, Terrie; Mora, Jesse; Singh, Nirvikar
  7. The Currency of the People’s Republic of China and Production Fragmentation By Nobuaki Yamashita
  8. Agglomeration, Trade and Selection By Gianmarco I. P. Ottaviano
  9. Governance Infrastructure and Location of Foreign Direct Investment in the People’s Republic of China By Jia He; Oliver M. Rui; Xiaolei Zha

  1. By: Mora, Jesse; Singh, Nirvikar
    Abstract: This paper examines the experience of 10 Asian countries with respect to growth, trade and FDI. It explores relationships between the nature of exports and imports and growth, as well as the relevance of FDI as a channel for these relationships. We find that FDI is often positively correlated with higher productivity levels in exports and imports. The effect for imports is particularly apparent for imported intermediate goods, reflecting the emergence of greater trade fragmentation. In turn, both imported intermediates and exports that are associated with higher productivity levels are positively correlated with per capita GDP. This paper therefore brings together empirical evidence that integrates discussions of FDI, trade fragmentation and improvements in the productivity of traded goods.
    Keywords: international trade; trade policy; product upgrading; trade fragmentation; vertical specialization; FDI and economic development
    JEL: O1 O24 F14 O33
    Date: 2012–03
  2. By: Felbermayr, Gabriel; Jung, Benjamin
    Abstract: In the two-country Melitz (2003) model, unilateral trade liberalization is often cast as a reduction of iceberg transportation costs and wages are determined by a linear outside sector. We show that welfare results reverse when wages adjust and trade frictions are revenue-generating tariffs. --
    Keywords: monopolistic competition,heterogeneous firms,international trade,trade policy
    JEL: F12 R12
    Date: 2012
  3. By: Maximiliano Sosa Andrés, Peter Nunnenkamp, Matthias Busse
    Abstract: Non-traditional source countries of FDI play an increasingly important role, notably in developing host countries. This raises the question of whether the determinants of FDI differ systematically between traditional and non-traditional source countries. We perform Logit and Poisson Pseudo Maximum Likelihood estimations drawing on UNCTAD’s database on bilateral FDI flows, including various emerging and developing countries as sources of FDI outflows. We find that economic geography variables are more relevant for FDI from non-traditional sources, while non-traditional investors appear to be as risk adverse as traditional investors. Access to raw materials represents a less important driving force of FDI from non-traditional sources. The differences are less pronounced for other types of FDI
    Keywords: FDI flows, types of FDI, source-host country pairs, location choices, gravity-type models
    JEL: F21
    Date: 2012–01
  4. By: Sebastián Galiani (Department of Economics, Washington University in St Louis); Guido Porto (Development Research Group, The World Bank)
    Abstract: This paper provides new evidence on the impacts of trade reforms on wages. We first introduce a model of trade that combines a non-competitive wage setting mechanism due to unions with a factor abundance hypothesis. The predictions of the model are then econometrically investigated using Argentine data. Instead of achieving identification by comparing industrial wages before and after one episode of trade liberalization, our strategy exploits the recent historical record of policy changes adopted by Argentina: from significant protection in the early 1970s, to the first episode of liberalization during the late 1970s, then back to a slowdown of reforms during the 1980s, and finally to the second episode of liberalization in the 1990s. These swings in trade policy represent broken trends in trade reforms that we can compare with observed trends in wages and wage inequality. We use unusual historical data sets of trends in tariffs, wages, and wage inequality to examine the structure of wages in Argentina and to explore how it is affected by tariff reforms. We find that i) trade liberalization, ceteris paribus, reduces wages; ii) industry tariffs reduce the industry skill premium; iii) conditional on the structure of tariffs at the industry level, the average tariff in the economy is positively associated with the aggregate skill premium. These findings suggest that the observed trends in wage inequality in Latin America can be reconciled with the Stolper-Samuelson predictions in a model with unions.
    Keywords: Trade liberalization, Stolper-Samuelson, Wage inequality, non-competitive wages and unions.
    JEL: F14 F16
    Date: 2011–10
  5. By: Campbell, Douglas L.
    Abstract: Does leaving a currency union reduce international trade? This paper reexamines time series estimates of currency unions on trade from a historical perspective using a dynamic gravity equation and by conducting in-depth case studies of currency union breakups. The early large estimates are sensitive to dynamic specifications, and were driven by omitted variables, as many breakups were caused by warfare, communist takeovers, coup d'etats and other major geopolitical events. The methodology has general applicability for the use of gravity equations in policy analysis, and yields an imprecise point estimate of currency unions on trade close to one percent.
    Keywords: Currency Unions; Trade; Dynamic Gravity; Decolonization
    JEL: F10 F33 F54
    Date: 2012–02–26
  6. By: Carolan, Terrie; Mora, Jesse; Singh, Nirvikar
    Abstract: We examine the composition of bilateral trade between the United States and eight Asian Pacific economies from 1962 to 1992. Two complementary time series analyses of individual commodities at the SITC four-digit level indicate that significant changes occurred in trade composition during this period. We use a measure of normalized trade balances, developed by Gagnon and Rose (1995). For the eight bilateral trade relationships, commodities representing from fifty to seventy percent of 1992 dollar trade have shown statistically significant changes in the magnitude and, in some cases, in the direction of normalized trade balances, over the thirty-year period. Results support the conclusion that changes in trade patterns in both low-tech industries, such as textiles and clothing, and more high-tech industries, such as electronic parts and electronic goods, were important in the development of the East Asian economies.
    Keywords: international trade flows; time series; ADF; KPSS; trends; economic development
    JEL: F17 F02 F14 O14
    Date: 2012–02
  7. By: Nobuaki Yamashita (Asian Development Bank Institute (ADBI))
    Abstract: This paper examines how an appreciation of the currency of the People’s Republic of China (PRC)—renminbi—affects the country’s exports in the context of production fragmentation, using a panel data set of the PRC’s trade for 1992/93–2008/09. It constructs two exchange rates for renminbi : one is a bilateral real exchange rate and the other is a real effective exchange rate against East Asian component suppliers. It is found that appreciation of the renminbi would somewhat offset a reduction in the volume of the PRC’s exports induced by lower importing costs of components. Hence, evidence casts further doubts on the efficacy of further unilateral reform of the renminbi exchange rate regime on correcting trade imbalances.
    Keywords: exchange rate, renminbi, production fragmentation, the PRC
    JEL: F14 F23 F31
    Date: 2011–11
  8. By: Gianmarco I. P. Ottaviano
    Abstract: This paper studies how firm heterogeneity in terms of productivity affects the balance between agglomeration and dispersion forces in the presence of pecuniary externalities through a selection model of monopolistic competition with variable mark-ups. It shows that firm heterogeneity matters. However, whether it shifts the balance from agglomeration to dispersion or the other way round depends on its specific features along the two defining dimensions of diversity: 'richness' and 'evenness'. Accordingly, the role of firm heterogeneity in selection models of agglomeration cannot be fully understood without paying due attention to various moments of the underlying firm productivity distribution.
    Keywords: agglomeration, trade, heterogeneity, selection, economic geography
    JEL: F12 R11 R12
    Date: 2012–02
  9. By: Jia He (Asian Development Bank Institute (ADBI)); Oliver M. Rui; Xiaolei Zha
    Abstract: Standard neoclassical theory predicts that capital should flow from rich to poor countries. However, Lucas (1990) points out that these capital flows are actually very modest, and nowhere near the levels predicted by theory. The People’s Republic of China (PRC) now receives more foreign capital in the form of foreign direct investment (FDI) than any other country, but statistics indicate that this inward FDI flows unequally to different regions. In this study, using hand-collected data on FDI for more than 200 cities, we examine whether the Lucas paradox of capital exists within the PRC. We adopt the dynamic panel data generalized method of moments (GMM) framework to avoid the potential endogeneity issue. Using both provincial- and city-level data, the empirical results show that FDI flows to the PRC, as proxied by total gross domestic product (GDP) and per capita GDP, favor rich regions over poor regions. We also find that regional economic growth has no significant impact on FDI. These findings support the existence of the Lucas paradox in the PRC. We demonstrate that this paradox is not driven by government policy and explore possible explanations for its existence.
    Keywords: Governance infrastructure, the PRC, FDI flows, location
    JEL: F21
    Date: 2011–11

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