nep-int New Economics Papers
on International Trade
Issue of 2012‒04‒10
eleven papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. The Rise of Middle Kingdoms: Emerging Economies in Global Trade By Gordon H. Hanson
  2. Addresing the Implementation of Preferential Trade Agreements: The Law and Pratice of the European Union-MJS By David Luff
  3. Impact of environmental regulations on trade in the main EU countries: conflict or synergy? By de santis, roberta
  4. Getting Ready: Preparation for Exporting By Iacovone, Leonardo; Javorcik, Beata
  5. Trade, FDI, growth and biodiversity: an empirical analysis for the main OECD countries. By de santis, roberta
  6. R&D Expenditures and the Global Diversification of Export Sales By Christopher F Baum; Mustafa Caglayan; Oleksandr Talavera
  7. Trade, Variety, and Immigration By Chen Bo; David S. Jacks
  8. Financing Constraints, Firm Dynamics, Export Decisions and Aggregate productivity By Andrea Caggese; Vincente Cunat
  9. (When) Does Tit-for-Tat Diplomay in Trade Policy Pay Off? By Dluhosch, Barbara; Horgos, Daniel
  10. Globalization and political trust By Fischer, Justina AV
  11. Absorptive Capacities and the Impact of FDI on Economic Growth By Beatrice Farkas

  1. By: Gordon H. Hanson
    Abstract: In this paper, I examine changes in international trade associated with the integration of low- and middle-income countries into the global economy. Led by China and India, the share of developing economies in global exports more than doubled between 1994 and 2008. One feature of new trade patterns is greater South-South trade. China and India have booming demand for imported raw materials, which they use to build cities and factories. Industrialization throughout the South has deepened global production networks, contributing to greater trade in intermediate inputs. A second feature of new trade patterns is the return of comparative advantage as a driver of global commerce. Growth in low- and middle-income nations makes specialization according to comparative advantage more important for the global composition of trade, as North-South and South-South commerce overtakes North-North flows. China’s export specialization evolves rapidly over time, revealing a capacity to speed up product ladders. Most developing countries hyper-specialize in handful of export products. The emergence of low- and middle-income countries in trade reveals significant gaps in knowledge about the deep empirical determinants of export specialization, the dynamics of specialization patterns, and why South-South and North-North trade differ.
    JEL: F10
    Date: 2012–03
  2. By: David Luff
    Abstract: Trade agreements imply preferential trade treatment among the parties. As such, they must in principle meet the conditions of Articles XXIV of GATT and V of GATS. This means that an agreement must provide for reciprocal trade benefits for substantially all trade in goods between the parties, and it must have substantial sectoral coverage in relation to services. It can apply to selected countries as opposed to others. Trade preferences are also possible under the Enabling Clause. While in this case reciprocal trade benefits are not required, the preferences must be granted to developing countries only, and no discretionary selection of them is possible otherwise than through objective criteria.
    Keywords: Integration & Trade :: Globalization & Regionalization, Integration & Trade :: Trade Agreements
    Date: 2011–09
  3. By: de santis, roberta
    Abstract: In an increasingly integrated world with declining trade barriers, environmental regulations can have a decisive role in shaping countries’ comparative advantages. The conventional wisdom about environmental protection is that it comes at an additional cost on firms imposed by the government, which may erode their global competitiveness. However, this paradigm has been challenged by some analysts. In particular, Porter (1991) and Porter and Van der Linde (1995) argue that pollution is often associated with a waste of resources and that more stringent environmental policies can stimulate innovations that may over-compensate for the costs of complying with these policies. This is known as the Porter hypothesis. While there is a broad empirical literature on the impact of trade on environment the empirical literature on the impact of environmental regulations on trade flows is relatively scarce, very heterogeneous and presents mixed results. The innovative feature of this paper is its attempts to estimate, in a gravity setting, augmented with a proxi of environmental stringency, the impact of three major Multilateral Environmental Agreements (MEAs) on 15 EU countries bilateral exports. According to our estimates, in the period 1988-2008, to be member of MEAs had a positive average impact on EU15 bilateral exports. This evidence can be partly explained by a possible trade diversion effect with respect to countries that did not sign MEAs, and a corresponding trade creation effect among members of the environmental agreements. Furthermore, evidence coming from interaction effects estimates seems to show that for exporting countries having signed the UNFCCC and the Montreal agreements, partly mitigates (by the amount of the estimated coefficient ) the negative impact of having a relatively more stringent environmental regulation on bilateral trade. This result could have important policy implications for the future international trade- environmental negotiations.
    Keywords: Comparative advantage; environmental regulation; trade
    JEL: F18
    Date: 2011
  4. By: Iacovone, Leonardo; Javorcik, Beata
    Abstract: This study examines developments at the plant-product level preceding an expansion into foreign markets. It relies on very detailed Mexican data for 1994-2004, a period of liberalization in US trade policy vis a vis Mexico, mandated by the North American Free Trade Agreement. Our approach is novel in that we focus on quality, proxied by domestic price premium, of current and future export products. Our findings are consistent with quality upgrading taking place in preparation for entry into export markets. We show that manufacturers who export a particular product variety tend to obtain a price premium for their domestic sales of this variety. Consistently with the hypothesis of quality upgrading before exporting, we find evidence that this premium emerges exactly one year before a variety starts being exported. We find no evidence of upgrading after entering export markets. Our IV estimates suggest that the changes in the price premium are driven by the anticipated cuts in US tariffs and are particularly pronounced among producers exhibiting better performance in the initial period.
    Keywords: exporting; Mexico; NAFTA; plant-product level data; quality
    JEL: F10 F15
    Date: 2012–04
  5. By: de santis, roberta
    Abstract: Whether the Environmental Kutznets curve relationship holds for biodiversity or not remains an open issue. While there are several studies investigating the EKC relationship for biodiversity, they suffer from some limitations and the empirical evidence is inconclusive. More specifically, with few exceptions, the previous EKC studies for biodiversity looked into the diversity of a particular species or a number of species rather than a broader measure of biodiversity. In addition, these studies do not control for some economic factors that could directly or indirectly affect the biodiversity stock such as trade and foreign direct investments (FDI). International trade, in fact, could influence the biodiversity trough the effects on economic growth, production specialization and technological innovation diffusion. The presence or not of FDI in a country could be of help in assessing the “pollution haven” hypothesis that has obvious feedbacks on biodiversity. The innovative features of this paper are its attempts to estimate a ECK for biodiversity using an overall index of biodiversity terrestrial and marine and the inclusion in the traditional ECK equation of proxies for trade and FDI. According to our estimates for the main OECD countries in the period 1990-2010, the ECK hypothesis is partially verified. Rising incomes are first associated with increasing biodiversity then with decreasing biodiversity and eventually with increasing biodiversity again. This non-monotonic relationship could be explained by the fact that a certain level of income (production) there may be some biodiversity losses that cannot be continuously substituted with environmental-friendly production technology due to ecological threshold and the unique nature of the damage.
    Keywords: Biodiversity risk; Trade; FDI; Environmental Kuznets curve
    JEL: Q32 O11 F18
    Date: 2012–03–20
  6. By: Christopher F Baum (Boston College; DIW Berlin); Mustafa Caglayan (University of Sheffield); Oleksandr Talavera (Durham Business School, Durham University)
    Abstract: We empirically examine the role of diversification in export markets on firm-level R&D activities. In our investigation we allow for heterogeneous behavior across firms and industries. To properly treat the incidence of R&D as a variable with a sizable concentration of zeroes, we produce Tobit and Generalized Linear Model (GLM) estimates. Our results provide strong evidence that export sales diversification across different regions induces firms to increase R&D expenditures, as they must innovate and develop new products to maintain a competitive edge over their rivals. When we split the data into durable versus nondurable firms, we observe that this effect is mainly operational among firms in the durable goods sector.
    Keywords: R&D investment, Export diversification, Foreign direct investment, Cash holdings
    JEL: G21 G32 C24
    Date: 2012–03–30
  7. By: Chen Bo; David S. Jacks
    Abstract: What are the gains from international trade? And how do immigrants influence this process? While economists have considered these questions before, particularly in the context of aggregate trade flows, there has been no work assessing the relation between immigration and international trade in varieties—that is, the trade of particular goods from particular geographic areas. We consider the case of Canada, document its impressive experience with import variety growth in the period from 1988 to 2007, and relate this variety growth to the process of immigration. We find that import varieties grew 76%, that this growth is associated with a welfare gain to Canadian consumers as large as 28%, and that enhanced immigration flows may be responsible for 25% of this variety growth and its attendant welfare gains for native-born Canadians.
    JEL: F1
    Date: 2012–03
  8. By: Andrea Caggese; Vincente Cunat
    Abstract: We develop a dynamic industry model where financing frictions affect the entry decisions of new firms in the home market, as well as the riskiness of operating firms. These two factors in turn determine a joint endogenous distribution of firms across productivity, volatility and financial wealth. We show that this endogenous distribution is crucial to understand export and productivity dynamics after a trade liberalization. In particular, the calibrated model predicts that financing frictions have an ambiguous effect on the number of firms starting to export. They reduce the ability of firms to finance the fixed costs necessary to start exporting, but they also change the distribution of domestic firms so that most of them find more profitable to access foreign markets. More importantly, the model predicts that financing constraints, even when they have a negligible net effect on the number of exporting firms, reduce the aggregate productivity gains induced by trade liberalization by 30% to 50%, because they distort the selection into export of the most productive firms. In the second part of the paper we verify the main predictions of the model with a rich dataset of Italian manufacturing firms for the period 1995-2003.
    Date: 2011–06
  9. By: Dluhosch, Barbara (Helmut Schmidt University, Hamburg); Horgos, Daniel (Helmut Schmidt University, Hamburg)
    Abstract: In international relations, short-run incentives for non-cooperation often dominate. Yet, (external) institutions for enforcing cooperation are hampered by national sovereignty, supposedly strengthening the role of selfenforcing mechanisms. This paper examines their scope with a focus on contingent protection aka tit-for-tat in trade policy. By highlighting various strategies in a (linear) partial-equilibrium framework, we show that retaliation of noncooperative behavior by limiting market access works as a disciplining device independently of supply and demand parameters. Our theoretical results are backed by empirical evidence that countries more frequently involved in WTO-mediated disputes entailing tit-for-tat strategies pursue on average more liberal trade regimes.
    Keywords: Int. Political Economy; Trade Policy Conflicts; Tit-for-Tat; WTO Dispute Settlement
    Date: 2012–03–26
  10. By: Fischer, Justina AV
    Abstract: This paper postulates that a country’s integration into the world economy may lower citizens’ political trust. I argue that economic globalization constrains government’s choice set of feasible policies, impeding responsiveness to the median voter. Matching individual-level survey data from 1981 to 2007, repeated cross-sections of altogether 260’000 persons from 80 countries, with a measure of a country’s degree of economic globalization for the same time period, I find that there is a trust-lowering impact of globalization; its magnitude, however, depends on whether or not the individual is informed about politics and the economy. Trust-lowering effects of globalization are larger for those who have no interest in politics, are unwilling to indicate their political leaning, or who have low educational levels. Two-stage least squares regressions and a set of country and time fixed effects support a causal interpretation. Obviously, viewing the domestic government as accountable for its policies plays a decisive role for the relation between economic globalization and political trust. Robustness against country’s degree of economic development, past globalization and different time periods is tested.
    Keywords: Political trust; globalization; international trade; openness; FDI; World Values Survey
    JEL: F15 H41 Z13
    Date: 2012–03–30
  11. By: Beatrice Farkas
    Abstract: This paper analyzes the necessary local conditions required for the existence of positive spillovers from multinationals' entry and it consists of a unified study of absorptive capacities. We start from the idea that FDI speeds up the diffusion of technologies across countries. Yet, the question that arises is: to what extent are these advanced technologies absorbed and successfully internalized by the receiving countries such that they materialize in welfare gains? The impact of FDI depends on the country specific absorptive capacity. We first interact FDI individually with different growth determinants and we find that the contribution of FDI to economic growth is positive and significant depending on the level of human capital and the development of financial markets, but its presence in developing countries must complement rather than substitute a set of other growth determinants. Then we test the robustness of the linear interaction terms relative to each other and we analyze the set of conditions that are most beneficial for FDI.
    Keywords: FDI, economic growth, absorptive capacity
    JEL: F23 F43
    Date: 2012

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