nep-int New Economics Papers
on International Trade
Issue of 2012‒04‒03
nineteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Intermediaries in International Trade: Direct Versus Indirect Modes of Export By Andrew B. Bernard; Marco Grazzi; Chiara Tomasi
  2. Intra-National Regional Heterogeneity in International Trade: Foreign Growth on Exports and Production of Domestic Regions By Kyoko Hirose; Yushi Yoshida
  3. The impact of trade promotion services on Canadian exporter performance By Jo VAN BIESEBROECK; Emily YU; Shenjie CHEN
  4. Institutions and export dynamics By Luis Araujo; Giordano Mion; Emanuel Ornelas
  5. Globalization and Individual Gains from Trade (revised version) By Kristian Behrens; Yasusada Murata
  6. Crossing Industrial Borders: German Manufacturers as Services Exporters By Markus Kelle
  7. Greenfield FDI and Skill Upgrading By Davies, Ronald; Desbordes, Rodolphe
  8. Prices, Markups and Trade Reform By Jan De Loecker; Pinelopi K. Goldberg; Amit K. Khandelwal; Nina Pavcnik
  9. Strategic Foreign Direct Investment in Vertically Related Markets By ISHIKAWA Jota; HORIUCHI Eiji
  10. Global sourcing of a complex good By Johannes Van Biesebroeck; Lijun ZHANG
  11. Trade, Employment and Structural Change: The Australian Experience By Greg Thompson; Tim Murray; Patrick Jomini
  12. Liberalization of Trade in Services: Toward a Harmonized ASEAN++ FTA By Hikari Ishido; Yoshifumi Fukunaga
  13. Fire-Sale FDI? The Impact of Financial Crisis on Foreign Direct Investment By Olga Bogach; Ilan Noy
  14. Trade Effects of Exchange Rates and their Volatility: Chile and New Zealand By Marilyne Huchet-Bourdon; Jane Korinek
  15. Domestic transport infrastructure and firms’ export market participation. By Albarrán, Pedro; Carrasco, Raquel; Holl, Adelheid
  16. The Causal Effects of Exporting on Japanese Workers: A firm-level analysis By TANAKA Ayumu
  17. The retail trade sector and the food industry in Italy By Eliana Viviano; Luciana Aimone Gigio; Emanuela Ciapanna; Daniele Coin; Fabrizio Colonna; Federica Lagna; Raffaele Santioni
  18. How Does Country Risk Matter for Foreign Direct Investment? By Kazunobu HAYAKAWA; Fukunari KIMURA; Hyun-Hoon LEE
  19. Determinants of Transport Costs for Inter-regional Trade By KONISHI Yoko; Se-il MUN; NISHIYAMA Yoshihiko; Ji Eun SUNG

  1. By: Andrew B. Bernard; Marco Grazzi; Chiara Tomasi
    Abstract: This paper examines the factors that give rise to intermediaries in exporting and explores the implications for trade volumes. Export intermediaries such as wholesalers serve different markets and export different products than manufacturing exporters. In particular, high market-specific fixed costs of exporting, the (lack of) quality of the general contracting environment and product- specific factors play important roles in explaining the existence of export intermediaries. These underlying differences between direct and intermediary exporters have important consequences for trade flows. The ability of export intermediaries to overcome country and product fixed costs means that they can more easily respond along the extensive margin to external shocks. Intermediaries and direct exporters respond differently to exchange rate fluctuations both in terms of the total value of shipments and the number of products exported as well as in terms of prices and quantities. Aggregate exports to destinations with high shares of indirect exports are much less responsive to changes in the real exchange rate than are exports to countries served primarily by direct exporters.
    Keywords: heterogeneous firms, international trade, intermediation, wholesalers, export entry costs, product adding and dropping, exchange rates
    JEL: D22 F12 F14 L22 L23
    Date: 2012–03
  2. By: Kyoko Hirose (Faculty of Economics, Kyushu Sangyo University); Yushi Yoshida (Faculty of Economics, Kyushu Sangyo University)
    Abstract: International trade can induce changes in production structure across domestic regions as well as across industries. While the literature is well established on the latter issue, the former issue has been examined less. We present a two-country model with explicit incorporation of two regions in a home country and one region in a foreign country. Skilled workers, freely mobile across domestic regions, are required to set up a firm, and one region is located closer to a foreign country. Our theoretical model suggests that effects of foreign growth on production are asymmetric among regions while causing positive effects on the exports of all regions. We empirically test our theoretical hypothesis with production and export datasets of Japanese regions. Our empirical results provide strong evidence in support of a positive growth effect of a foreign market on regional exports and capture asymmetric effects of foreign growth on the production of domestic regions.
    Keywords: Full information maximum likelihood; International trade; Regional exports; Regional heterogeneity; Regional production.
    JEL: F12 F14 R12
    Date: 2012–03
  3. By: Jo VAN BIESEBROECK; Emily YU; Shenjie CHEN
    Abstract: We evaluate the impact of the export promotion program delivered by the Canadian Trade Commissioner Service on various dimensions of export performance. Over the 1999-2006 time period we study, Canadian firms successfully diversified their exports to destinations beyond the United States and smaller firms increased their share of total exports. Both of these achievements are explicit aims of the program, but in order to make causal inferences we rely on various identifying assumptions from the treatment effects literature. The results indicate very robustly that the program had an effect at the intensive margin, boosting the average level of exports to given product-destination markets. Effects at the extensive margins of trade, increasing the number of export destinations or number of products exported, are smaller and more sensitive to the identification assumption. This finding differs from previous studies for several Latin American countries where extensive margin effects were most robust. One reason is that the Canadian program was most effective for larger firms and for firms already active on several export markets.
    Date: 2011–09
  4. By: Luis Araujo (Michigan State University); Giordano Mion (London School of Economics); Emanuel Ornelas (London School of Economics)
    Abstract: We study the role of contract enforcement in shaping the dynamics of international trade at the firm level. We develop a theoretical model to describe how agents build reputations to overcome the problems created by weak enforcement of international contracts. We find that, all else equal, exporters start their activities with higher volumes and remain as exporters for a longer period in countries with better contracting institutions. However, conditional on survival, the growth rate of a firm’s exports to a country decreases with the quality of the country’s institutions. We test these predictions using a rich panel of Belgium exporting firms from 1995 to 2008 to every country in the world. We adopt two alternative empirical strategies. In one specification we use firm-year fixed effects to control for time-varying firm-specific characteristics. Alternatively, we model selection more explicitly with a two-step Heckman procedure using “extended gravity” variables as our exclusion restrictions. Results from both specifications support our predictions. Overall, our findings suggest that weak contracting institutions cannot be thought simply as an extra sunk or fixed cost to exporting firms; they also significantly affect firms’ trade volumes and have manifold implications for firms’ dynamic patterns in foreign markets.
    Keywords: Firm Exports, Contract enforcement, Contracting institutions, Firm dynamics
    JEL: F10 F12 L14
    Date: 2012–02
  5. By: Kristian Behrens; Yasusada Murata
    Abstract: We analyze the impact of globalization on individual gains from trade in a general equilibrium model of monopolistic competition featuring product diversity, pro-competitive effects and income heterogeneity between and within countries. We show that, although trade reduces markups in both countries, its impact on variety depends on their relative position in the world income distribution: product diversity in the lower income country always expands, while that in the higher income country may shrink. When the latter occurs, the richer consumers in the higher income country may lose from trade because the relative importance of variety versus quantity increases with income. Using data on GDP per capita and population, as well as on the U.S. income distribution, we illustrate our theoretical results in two different contexts: the hypothetical bilateral trade liberalization between the U.S. and 188 countries; and the historical sequence of U.S. free trade agreements since 1985.
    Keywords: Income heterogeneity, product diversity, pro-competitive effects, general equilibrium, monopolistic competition
    JEL: D43 F12 F15
    Date: 2012
  6. By: Markus Kelle (Centro Studi Luca d\'Agliano)
    Abstract: Manufacturing firms increasingly engage in service trade activities. Microlevel data show that German manufacturers account for roughly 25% of German cross-border producer service exports. I have found that particular construction, engineering, and R&D services are exported. The machinery industries and automobile and chemicals producers dominate the overall pattern. The types of services exported vary strongly across industries. Furthermore, export activities are concentrated on a few large exporters. Service exports of advertising, data processing, and R&D services are found to likely support foreign affiliates of firms. However, these headquarter services are only infrequently observable. Much more important are construction and engineering services exported by machinery firms. These might represent installation and maintenance services exported to complement the supply of machinery. Beyond the support of foreign affiliates of firms, R&D services exports might be also important to transfer knowledge between unaffiliated firms at different stages of the value chain.
    Keywords: Services Exports, Manufacturing Sector, Goods Trade, Multinational Firms
    JEL: D22 F14 F23 L80
    Date: 2012–03–27
  7. By: Davies, Ronald; Desbordes, Rodolphe
    Abstract: Globalisation is one of the primary accused culprits of growing income inequality in the developed world. In particular, outbound foreign direct investment (FDI) is often associated with general "skill upgrading" in the home country, that is, a shift in relative labour demand from low skilled workers towards more skilled workers. Nevertheless, the empirical evidence indicates that such effects are small at best, especially in contrast to those for overall trade in intermediates (which includes both intra-firm trade and foreign outsourcing). In response, we utilise a proprietary dataset on greenfield FDI. In contrast to M&A FDI, which can represent acquisition of new technologies or elimination of competitors, greenfield FDI may be more closely linked to skill upgrading, especially when it’s done to take advantage of international differences in factor prices. Given that our data delineate FDI by function as well as by destination country, we are able to capture the different motives of FDI and to account for the fact that different functions in different countries may substitute for different skill levels at home. Using these data in conjunction with industry-level data on seventeen developed home countries, we find that greenfield FDI results in polarised skill upgrading, i.e. an increase in the relative share of employment and compensation of the most skilled workers to the detriment of the medium skilled workers. This impact is strongest for support services (e.g. call centres), knowledge services (e.g. R&D), and retail FDI with little indication of an impact from FDI in other functions. Our estimates suggest that the change in the high skilled compensation share explained by support services is of the same order of magnitude as what is found in other studies for trade in services. Unlike those studies, however, we find that demand for medium skilled workers falls from outbound FDI whereas that of the lowest skilled workers remains unchanged. Thus, in contrast to overall trade in services where globalisation leads to increased income inequality between the lowest skilled workers and other groups, increased outbound FDI leads to an increased gap between the most skilled and the moderately skilled workers. FDI then has parallels to the results from the labour literature estimating the non-monotonic impacts on the demand for skills of computerisation and service offshoring.
    Keywords: Greenfield FDI; labour demand; skill upgrading
    JEL: F21 J23 J24
    Date: 2012–03
  8. By: Jan De Loecker; Pinelopi K. Goldberg; Amit K. Khandelwal; Nina Pavcnik
    Abstract: This paper examines how prices, markups and marginal costs respond to trade liberalization. We develop a framework to estimate markups from production data with multi-product firms. This approach does not require assumptions on the market structure or demand curves faced by firms, nor assumptions on how firms allocate their inputs across products. We exploit quantity and price information to disentangle markups from quantity-based productivity, and then compute marginal costs by dividing observed prices by the estimated markups. We use India’s trade liberalization episode to examine how firms adjust these performance measures. Not surprisingly, we find that trade liberalization lowers factory-gate prices. However, the price declines are small relative to the declines in marginal costs, which fall predominantly because of the input tariff liberalization. The reason is that firms offset their reductions in marginal costs by raising markups. This limited pass-through of cost reductions attenuates the reform’s impact on prices. Our results demonstrate substantial heterogeneity and variability in markups across firms and time and suggest that producers benefited relative to consumers, at least immediately after the reforms. To the extent that higher firm profits lead to the new product introductions and growth, long-term gains to consumers may be substantially higher.
    JEL: F1 L1
    Date: 2012–03
    Abstract: By using a simple North-South trade model with vertically related markets, this paper draws our attention to previously unidentified effects of foreign direct investment (FDI), namely that a North downstream firm affects the pricing behavior of an input supplier through technology spillovers and market integration led by FDI. Whether the North firm strategically undertakes FDI in the presence of technology spillovers depends on the South firm's capacity to absorb the North's technology. When capacity is not very high, the North firm could actually gain from technology spillovers to the South firm. FDI may benefit all producers and consumers. We also explore the South's policy measures to attract FDI. Our analysis suggests that the South's very tight intellectual property rights (IPR) protection may benefit neither side.
    Date: 2012–03
  10. By: Johannes Van Biesebroeck; Lijun ZHANG
    Abstract: We analyze a firm that produces a final good from multiple intermediates that can each be sourced domestically or from a low-wage country. The model explicitly incorporates that sourcing decisions of intermediates are interdependent. Equilibrium predictions depend crucially on a key modeling assumption - the nature of the trade friction that foreign production has to overcome. If production abroad involves a fixed cost, offshoring one intermediate unambiguously facilitates offshoring of other intermediates. However, if production abroad involves incomplete contracts, offshoring one intermediate almost always makes it more difficult to offshore others. We illustrate that the pattern in prices at which successive automotive parts are imported into the U.S. accords better with the predictions of the incomplete contracting model, except for a few countries with the best governance indicators.
    Date: 2011–10
  11. By: Greg Thompson; Tim Murray; Patrick Jomini
    Abstract: International trade produces income gains across the world by facilitating an efficient allocation of production among trading countries. However, increased trade exposure also creates some challenges, and there are adjustment costs associated with changing trade patterns. Effective complementary policies, by promoting flexibility and adaptation within economies, can reduce adjustment costs associated with increased trade, and therefore ensure the benefits are maximised. This paper highlights these issues with reference to recent experience in Australia. Computable General Equilibrium modelling shows how the recent improvement in Australia‘s terms of trade is likely to have increased incomes and that the magnitude of these gains is directly linked to the degree of flexibility of the economy.
    Keywords: growth, trade, employment, wages
    JEL: F16
    Date: 2012–03–27
  12. By: Hikari Ishido (Hikari Ishido, Associate Professor, Chiba University); Yoshifumi Fukunaga (Yoshifumi Fukunaga, Senior Policy Coordinater, ERIA)
    Abstract: The East Asian countries are seriously discussing the consolidation of ASEAN+1 FTAs2 to develop so-called ASEAN++ FTA or RCEP3. The detailed analysis of services chapters in the existing ASEAN+1 FTAs gives insights to services trade liberalization in this new trade agreement. In order for ASEAN and its FTA partners to gain substantial new commitments that are genuinely gplush to the existing trade pacts, both WTO GATS and ASEAN+1 FTAs, ASEAN++ countries should aim at an ambitious level of liberalization much higher than the AFAS package 5. Also, the detailed analysis suggests a policy option of narrowing the types of services trade limitations, i.e., focusing on three types of limitations and hence improving transparency. Furthermore, we advocate for the needs of prioritizing production-related services sectors in the negotiation. Beyond ASEAN++ FTA, we briefly explain the critical roles of domestic regulatory reform.
    Date: 2012–03–01
  13. By: Olga Bogach (Department of Economics, University of Hawaii at Manoa); Ilan Noy (Department of Economics, University of Hawaii at Manoa)
    Abstract: In this paper, we analyze the evolution of foreign direct investment (FDI) inflows to developing and emerging countries around financial crises. We empirically and thoroughly examine the Fire-Sale FDI hypothesis and describe the pattern of FDI inflows surrounding financial crises. We also add a more granular detail about the types of financial crises and their potentially differential effects on FDI. We distinguish between Mergers and Acquisitions (M&A) and Greenfield investment, as well as between different motivations for FDI—horizontal (tariff jumping) and vertical (integrating production stages). We find that financial crises have a strong negative effect on inward FDI in our sample. Crises are also shown to reduce the value of horizontal and vertical FDI. We do not find empirical evidence of Fire-Sale FDI. On the contrary, financial crises are shown to affect FDI flows and M&A activity adversely.
    Keywords: International investment, Foreign direct investment (FDI), Financial crises, Mergers and Acquisitions, Multinational firms
    JEL: F21 F23 F29 G01 G34
    Date: 2012–03–21
  14. By: Marilyne Huchet-Bourdon; Jane Korinek
    Abstract: Trade deficits and surpluses are sometimes attributed to intentionally low or high exchange rate levels. The impact of exchange rate levels on trade has been much debated but the large body of existing empirical literature does not suggest an unequivocally clear picture of the trade impacts of changes in exchange rates. In addition, much of the evidence on this subject considers currencies of large economies, and overwhelmingly the United States.<p>This study examines the impact of exchange rates and their volatility on trade flows in two small, open economies – Chile and New Zealand – with three major trading partners, in two broadly defined sectors – agriculture on the one hand and manufacturing and mining on the other. It finds that exchange volatility impacts trade flows in the small, open economies more than was found for larger economies. Findings do not clearly indicate the direction of the impact, i.e. whether this volatility increases or decreases trade in all countries and sectors. Exchange rate levels, on the other hand, affect trade in both agriculture and manufacturing and mining sectors although their magnitude differs depending on the trading partner and sector. Moreover, this study indicates that a depreciation in the exchange rates in Chile and New Zealand would not lead to a strong change in their trade balances with three main trading partners across the board.
    Keywords: exchange rates, trade, New Zealand, real exchange rates, Chile, volatility, trade deficit, trade in agriculture, short-run effects, long-run effects, GARCH volatility, depreciation, currency movements, exchange rate appreciation, exchange hedging, small open economies, Chilean peso, New Zealand dollar
    JEL: F1 F31 O24 Q17
    Date: 2012–03–22
  15. By: Albarrán, Pedro; Carrasco, Raquel; Holl, Adelheid
    Abstract: Investment in transport infrastructure reduces the cost of distance and enables firms to establish contacts over larger distances. Using data from a panel of Spanish manufacturing firms and geographic information system techniques, this article studies the impact of domestic transport cost reductions on firms’ export market participation, taking into account the role of entry costs and other firm characteristics. We estimate dynamic probability models, controlling for the unobserved heterogeneity of firms and for the simultaneity of firms’ export and location decisions. Our results demonstrate a positive effect of domestic transport infrastructure improvements on small and medium-sized firms’ probability of exporting
    Keywords: Export decisions; Road transport infrastructure; Accessibility; Dynamic panel data; Geographic information systems;
    JEL: F14 R1 R4 L26
    Date: 2011
  16. By: TANAKA Ayumu
    Abstract: Japan experienced rapid growth in non-regular workers under globalization in the 2000s. This study seeks to identify the causal effects of exporting on the growth in labor and the share of non-regular workers in the Japanese manufacturing and wholesale sectors using extensive firm-level data. I employed a propensity score matching technique and investigated whether firms that start exporting experience higher growth in labor and the share of non-regular workers than do non-exporters. I found positive effects of exporting on labor growth in manufacturing, but, in general, there was little evidence for the effects on the share of non-regular workers in both sectors, although exporting to single regions had positive effects on the share of dispatched workers.
    Date: 2012–03
  17. By: Eliana Viviano (Banca d'Italia); Luciana Aimone Gigio (Banca d'Italia); Emanuela Ciapanna (Banca d'Italia); Daniele Coin (Banca d'Italia); Fabrizio Colonna (Banca d'Italia); Federica Lagna (Banca d'Italia); Raffaele Santioni (Banca d'Italia)
    Abstract: In this collection of papers we first analyze the evolution of the Italian food industry and the retail trade sector during the past decade (Chapters 1 and 2). Chapter 3 describes the structure of large retailers and buying groups in Italy. Chapter 4 proposes alternative measures of the degree of concentration of retail trade at the local level. Chapter 5 summarizes the main features of national and local regulations governing retail trade and proposes a set of indicators of regional liberalization. We then examine the relationship between large retailers and small firms in the Italian food industry, with a brief account of possible effects on the industry&#x2019;s structure and on prices (Chapter 6), and the effects of local retail trade concentration on product variety and price rigidity (Chapter 7).
    Keywords: retail trade sector, market concentration, price dynamics, buyer power, buying group
    JEL: L81 L11 L51
    Date: 2012–03
  18. By: Kazunobu HAYAKAWA (Kazunobu HAYAKAWA Bangkok Research Center, Japan External Trade Organization, Thailand); Fukunari KIMURA (Fukunari KIMURA Faculty of Economics, Keio University, Japan Economic Research Institute for ASEAN and East Asia (ERIA), Indonesia); Hyun-Hoon LEE (Hyun-Hoon LEE Department of International Trade and Business, Kangwon National University, Korea)
    Abstract: In this paper we empirically investigate the effects on inward FDI of various components of political and financial risk. We also examine the relationship between inward FDI and not only the level of these risks but also their changes over time. Two kinds of findings are noteworthy. One is that among the political and financial risks, only the political risk is associated with the FDI inflow. Specifically, the change in the level of political risk affects FDI inflows, while the initial level of political risk does not. The other is that, particularly in the case of developing countries, payment delays, contract expropriation, and corruption are negatively associated with the FDI inflow. However, significant improvement leads to increased FDI inflow, even if initial levels are high.
    Date: 2012–02–01
  19. By: KONISHI Yoko; Se-il MUN; NISHIYAMA Yoshihiko; Ji Eun SUNG
    Abstract: This paper presents a microeconomic model of inter-regional freight transportation based on careful formulation of the cost structure in trucking firms and market equilibrium, which takes into account the feature of transport service as a bundle of multiple characteristics. We estimate the parameters of the model using the micro-data of inter-regional freight flows from the 2005 Net Freight Flow Census in Japan. Estimation results show that the determinants of transport cost incorporated in the model have significant effects in the ways that the model predicts. The degree of competition also has significant effect on freight charge. It is shown that there exist significant scale economies with respect to lot size and long-haul economies. Quantitative extents of these effects are also demonstrated.
    Date: 2012–03

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