nep-int New Economics Papers
on International Trade
Issue of 2012‒05‒29
nineteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Incomplete specialization and offshoring across Europe By Richard Frensch; Jan Hanousek; Evžen Kocenda
  2. Cross-Border and Foreign-Affiliate Sales of Services: Evidence From German Micro-Data By Markus Kelle , Jörn Kleinert , Horst Raff , Farid Toubal
  3. Foreign Aid, Exports and Development in Euromed By Inmaculada Martínez-Zarzoso; Felicitas Nowak-Lehmann D.; Florian Johannsen
  4. Which immigrants stimulate exports in their host country? (en homenaje a José Vicente Blanes) By Francisco Requena; Vicente Pallardó; Andrés Artal
  5. Networked FDI: Sales and Sourcing Patterns of Japanese Foreign Affiliates By Baldwin, Richard; Okubo, Toshihiro
  6. Heterogeneity and the Distance Puzzle By Elizaveta Archanskaia; Guillaume Daudin
  7. Structural Hamiltonian of the international trade network By Agata Fronczak
  8. European enlargement policy, technological capabilities and sectoral export dynamics By Valeria Costantini; Francesco Crespi
  9. Trade liberalization and inter-industry productivity spillovers: an analysis of the 1989-1998 Brazilian trade liberalization episode By Paz, Lourenco
  10. China and the TPP: A Numerical Simulation Assessment of the Effects Involved By Chunding Li; John Whalley
  11. Intermediated Trade By Antras, Pol; Costinot, Arnaud
  12. Time zones matter: The impact of distance and time zones on services trade By Elisabeth Christen
  13. The impacts of trade liberalization on informal labor markets: an evaluation of the Brazilian case. By Paz, Lourenco
  14. Unemployment Benefits as Redistribution Scheme of Trade Gains - a Positive Analysis By Marco de Pinto
  15. Estimating transport costs and trade barriers in China: Direct evidence from Chinese agricultural traders By Zhigang Li; Xiaohua Yu; Yinchu Zeng; Rainer Holst
  16. Productivity and FDI of Taiwan Firms: A review from a nonparametric approach By WAKASUGI Ryuhei; NATSUHARA Takashi
  17. Environmental Regulation and the Pattern of Outward FDI: An Empirical Assessment of the Pollution Haven Hypothesis By Sunghoon Chung
  18. The Role of Borders, Languages, and Currencies as Obstacles to Labor Market Integration By Bartz, Kevin; Fuchs-Schündeln, Nicola
  19. Networks, Trust, and Trade: The Microeconomics of China–North Korea Integration By Marcus Noland; Stephan Haggard

  1. By: Richard Frensch; Jan Hanousek; Evžen Kocenda
    Abstract: Recent empirical studies have been searching for evidence on and driving forces for offshoring. Frequently, this has been done by analyzing gross trade flows related to offshore activities using gravity equations augmented by ad hoc measures of supply-side country differences. This paper suggests that gravity formulations of this sort are mis-specified, due to theoretically unmotivated attempts to allow for both complete and incomplete specialization influences on gross trade flows within the same gravity framework. We suggest an alternative specification rooted in incomplete specialization that views bilateral gravity equations as statistical relationships constrained on countries’ multilateral specialization patterns. This view reveals that countries’ multilateral specialization incentives drive bilateral trade, corresponding to and competing with the role of multilateral trade resistance. Our results support evidence for offshoring activities across Europe, driven by countries’ multilateral specialization incentives, as expressed by supply-side country differences relative to the rest of the world.
    Keywords: International trade, gravity model, offshoring, panel data, European Union
    JEL: F14 F16 L24
    Date: 2012–05
  2. By: Markus Kelle , Jörn Kleinert , Horst Raff , Farid Toubal
    Abstract: We merge German balance-of-payments and foreign-affiliate-trade statistics to obtain data about trade in commercial services at the firm level. We use these data to study export market participation and the choice of export mode: cross-border versus foreign affiliate sales. We find that for firms in our sample productivity is both a statistically significant and economically important determinant of the export participation and export mode choice. We also identify the role of industry- and country-specific determinants
    Keywords: international trade, trade in services, supply modes, commercial presence, foreign direct investment, multinational enterprises, firm heterogeneity
    JEL: F12 F15 L13
    Date: 2012–04
  3. By: Inmaculada Martínez-Zarzoso (Georg-August-Universität Göttingen / Germany); Felicitas Nowak-Lehmann D. (Georg-August-Universität Göttingen / Germany); Florian Johannsen (Georg-August-Universität göttingen / Germany)
    Abstract: This paper investigates the link between foreign aid and exports between the two shores of the Mediterranean. The main hypothesis is that the Euro-Mediterranean Process should promote not only trade but also stronger links between the European Union (EU) and the Middle East and North Africa (MENA). Hence, we expect development aid to have a positive impact on exports, which could also intensify the aid-trade relationship. In particular, we expect to find higher trade volumes in both directions after the process started in 1995 and intensified in the late 1990s and early 2000s, when several bilateral free trade agreements were signed. A gravity model augmented with bilateral and multilateral aid and trade regime variables is estimated for exports and imports from recipient countries to donor countries for the period 1988 to 2007 using advanced panel data techniques. Our method addresses the endogeneity bias of the trade regime/economic integration agreement (EIA) variable, assuming that decisions to form or enlarge EIAs are slow-moving relative to trade flows.
    Keywords: International Trade; Foreign Aid; Euro-mediterranean Process
    JEL: F10 F35
    Date: 2012–05–08
  4. By: Francisco Requena (Universidad de Valencia); Vicente Pallardó (Universidad de Valencia); Andrés Artal (Universidad Politécnica de Cartagena)
    Abstract: We use province migration-trade panel data to examine the importance of geographic proximity in the effectiveness of ethnic networks on bilateral trade. Empirical findings from the gravity model show that the migration-trade link is clearly in-province: exports from a province to a country do not receive any stimuli from immigrants from this country living outside of the province, once we control for country-province time-invariant fixed effects.
    Keywords: province-level exports, immigration, ethnic networks, gravity
    JEL: C23 F22 O24
    Date: 2012–05
  5. By: Baldwin, Richard; Okubo, Toshihiro
    Abstract: Using firm-level data on the sales and sourcing patterns of Japanese affiliates, this paper suggests that very little FDI falls neatly into the standard bins of horizontal, vertical and export-platform FDI. Most affiliates import some intermediates and export some output suggesting a pattern that might be called ‘networked FDI’. This suggests that that the nature of FDI is influenced by ‘regional comparative advantage’ i.e. the proximity of markets and suppliers. The paper also suggests an empirical strategy for testing and classifying the nature of FDI based on firms’ sales and sourcing patterns rather than standard macro-level variables such as market size and income differences.
    Keywords: complex FDI; Japanese foreign affiliates; networked FDI; sales; sourcing; vertical and horizontal FDI
    JEL: F21 F23
    Date: 2012–05
  6. By: Elizaveta Archanskaia; Guillaume Daudin
    Abstract: This paper shows that reduced heterogeneity of exporter-specific goods can provide a direct explanation of the distance puzzle. Using COMTRADE 4-digit bilateral trade data we find that the elasticity of trade to distance has increased by 8% from 1962 to 2009. Theoretical foundations of the gravity equation indicate that the distance coefficient is the product of the elasticity of trade costs to distance and a measure of heterogeneity, e.g. the substitution elasticity between exporter-specific goods in the Armington framework. This parameter has increased by at least 12-29% from 1962 to 2009. The evolution of the distance coefficient is thus compatible with a 4-16% reduction in the elasticity of trade costs to distance.
    Keywords: gravity equation, distance puzzle, trade elasticity, trade costs
    JEL: F15 N70
    Date: 2012–05
  7. By: Agata Fronczak
    Abstract: It is common wisdom that no nation is an isolated economic island. All nations participate in the global economy and are linked together through trade and finance. Here we analyze international trade network (ITN), being the network of import-export relationships between countries. We show that in each year over the analyzed period of 50 years (since 1950) the network is a typical representative of the ensemble of maximally random networks. Structural Hamiltonians characterizing binary and weighted versions of ITN are formulated and discussed. In particular, given binary representation of ITN (i.e. binary network of trade channels) we show that the network of partnership in trade is well described by the configuration model. We also show that in the weighted version of ITN, bilateral trade volumes (i.e. directed connections which represent trade/money flows between countries) are only characterized by the product of the trading countries' GDPs, like in the famous gravity model of trade.
    Date: 2012–05
  8. By: Valeria Costantini; Francesco Crespi
    Abstract: This paper examines how the last wave of the European Union enlargement process has influenced the export competitiveness of EU countries. A technology-augmented gravity model is applied to distinguished manufacturing sectors to test the effect of the economic integration as well as the role of technological capabilities on export dynamics in old and new EU countries. The main findings reveal that the enlargement process has produced an overall larger positive impact on export flows for new members and that this positive effect appears not to be confined to low-tech sectors. In addition, the study shows that the level of technological capabilities is a crucial driving factor for export dynamics, both for old and new EU countries, and that the interrelations between the EU enlargement process and the level of technological capabilities are relevant.
    Keywords: EU enlargement, technological capabilities, innovation, industries, international trade, gravity models
    JEL: F14 F15 O14
    Date: 2012–05
  9. By: Paz, Lourenco
    Abstract: The desire to increase manufacturing productivity has been a commonly cited goal of the trade liberalization episodes that have swept several developing countries since the 1980s. The literature has found evidence supporting such an increase in productivity. However, this paper finds that the methodology used in the literature ignores inter-industry productivity spillovers and suggests that this omission biases estimates of the impact of import tariff reduction on industry-level productivity. The findings from a case study of the Brazilian trade liberalization episode (1989-1998) indicate that the literature has overestimated the direct effect of trade liberalization by at least 25%, and that inter-industry productivity spillovers exist, are positive, and account for 70% of the increase in productivity that results from a reduction in import tariffs.
    Keywords: productivity; trade liberalization; Brazil; spillovers
    JEL: L6 F1 O3
    Date: 2012–02–15
  10. By: Chunding Li; John Whalley
    Abstract: The Trans-Pacific Partnership (TPP) is a new negotiation on cross border liberalization of goods and service flows going beyond WTO disciplines and focused on issues such as regulation and border controls. Though the US, Australia and other pacific countries are included, China is notable for its exclusion from the process thus far. This paper uses numerical simulation methods to assess the potential effects of a TPP agreement on China and the other participating countries. We use a numerical five-country global general equilibrium model with trade costs and monetary structure incorporating inside money to allow for impacts on trade imbalances. Trade costs are calculated using a method based on gravity equations. Simulation results reveal that China will be hurt by TPP initiatives, but the negative effects are relatively small given the geographical and commodity composition of China’s trade. Other non-TPP countries will be hurt but member countries will all gain. Japan’s joining TPP would be beneficial to both herself and all other TPP countries, but negative effects on China and other non-TPP countries will increase further. If China takes part in TPP, it will increase China’s and other TPP countries’ gain, but non-TPP countries will be hurt more. As a regional free trade arrangement, TPP effects are different from global free trade effects which will benefit all countries (not just member countries) in the world, and the positive effects of global free trade are stronger than TPP effects.
    JEL: C68 F47 F53
    Date: 2012–05
  11. By: Antras, Pol; Costinot, Arnaud
    Abstract: This paper develops a simple model of international trade with intermediation. We consider an economy with two islands and two types of agents, farmers and traders. Farmers can produce two goods, but in order to sell these goods in centralized (Walrasian) markets, they need to be matched with a trader, and this entails costly search. In the absence of search frictions, our model reduces to a standard Ricardian model of trade. We use this simple model to contrast the implications of changes in the integration of Walrasian markets, which allow traders from different islands to exchange their goods, and changes in the access to these Walrasian markets, which allow farmers to trade with traders from different islands. We find that intermediation always magnifies the gains from trade under the former type of integration, but leads to more nuanced welfare results under the latter, including the possibility of aggregate losses.
    Date: 2011
  12. By: Elisabeth Christen
    Abstract: Using distance and time zone differences as a measure for coordination costs between service suppliers and consumers, we employ a Hausman-Taylor model for services trade by foreign affiliates. Given the need for proximity in the provision of services, factors like distance place a higher cost burden on the delivery of services in foreign markets. In addition, differences in time zones add significantly to the cost of doing business abroad. By decomposing the impact of distance into a longitudinal and latitudinal component and accounting for differences in time zones, we can identify in detail the factors driving the impact of increasing coordination costs on the delivery of services through foreign affiliates. Working with a bilateral U.S. data set on foreign affiliate sales in services we examine the impact of time zone differences and East-West and North-South distance on U.S. outward affiliate sales. We find that both distance as well as time zone differences have a significant positive effect on foreign affiliate sales. By decomposing the effect of distance our results show that increasing East-West or North-South distance by 100 kilometers raises affiliates sales by 2%. Finally, focusing on time zone differences our findings suggest that affiliate sales increase the more time zones we have to overcome.
    Keywords: Foreign Affiliates Trade, International Trade in Services, Coordination Costs, Time zones
    JEL: F14 F21 F23 L80
    Date: 2012–05
  13. By: Paz, Lourenco
    Abstract: Several developing countries that underwent trade liberalization experienced an increase in the share of informal workers in manufacturing industries. This phenomenon deserves careful examination because informal jobs are not only generally viewed as low-quality and low-paying jobs, but they also account for more than 30% of the workforce in some countries. In this paper, I examine the effects of the Brazilian trade liberalization episode (1989-2001) on the industry-level share of informal workers and on the average formal and informal wages. I find that a percentage point decrease in import tariffs increases the informality share by 0.09 percentage points and the average informal wage by 0.06%, and decreases the average formal wage by 0.05%. A similar change in foreign import tariffs decreases the informality share by 0.17 percentage points and the average informal wage by 0.34%, and increases the average formal wage by 0.32%. The results are found to be robust to endogeneity and self-selection concerns, which are addressed using instrumental variables and a switching regressions approach.
    Keywords: informal labor markets; trade liberalization; Brazil
    JEL: F16 O17 F12 H26
    Date: 2012–03–12
  14. By: Marco de Pinto
    Abstract: Trade liberalization is no Pareto-improvement - there are winners (high-skilled) and losers (low-skilled). To compensate the losers the government is assumed to introduce unemployment benefits (UB). These benefits are financed by either a wage tax, a payroll tax, or a profit tax. Using a Melitz-type model of international trade with unionized labor markets and heterogeneous workers we show that: (i) there is a threshold level of UB where all trade gains are destroyed, (ii) this threshold differs between different kind of taxes, (iii) there is a clearcut ranking in terms of welfare for the chosen funding of the UB: 1. wage tax, 2. profit tax, 3. Payroll tax.
    Keywords: trade liberalization, heterogeneous firms, trade unions, skillspecific unemployment, unemployment benefits, taxes
    JEL: F1 F16 H2
    Date: 2012–05
  15. By: Zhigang Li (University of Hong Kong); Xiaohua Yu (Georg-August-University Göttingen); Yinchu Zeng (Renmin University of China); Rainer Holst (Georg-August-University Göttingen)
    Abstract: Using a unique survey data on agricultural traders in China in 2004, this study provides direct evidence on the significance of inter-regional trade barriers and their key components. Our major findings are as follows. (1) The trade barriers within China are fairly small, accounting for about 20 percent of trade value. (2) Transport and non-transport costs respectively contribute 42% and 58% to the trade barriers. (3) Labor and transport-related taxes are the two largest proportions of total transport costs, and respectively accounts for 35% and 30%. (4) Artificial trade barriers created by the government are not sizable as we perceived. (5) Road quality is crucial for reducing transport costs within China: Increasing transport speed by 1 km per hour, the total transport costs for Chinese agricultural traders would decrease by 0.6 percent mainly due to improved fuel-burning efficiency and reduced labor requirement.
    Keywords: Transport Costs; China; Agricultural Traders; Infrastructure
    Date: 2012–05–16
  16. By: WAKASUGI Ryuhei; NATSUHARA Takashi
    Abstract: This paper examines whether firms' productivity and the attributes of foreign direct investment (FDI) destinations affect both the choice of these destination as well as the accumulated number. The results of our examination, using firm-level data of Taiwan, present new evidence: (i) the productivity of firms conducting FDI in high-wage countries is higher than that in low-wage countries, but is not higher than the productivity of non-FDI firms; and (ii) the higher the productivity, the larger the number of FDI destinations regardless of the market attributes. These results provide the policy implication that government support for raising the productivity and lowering the cost of internationalization will accelerate the internationalization of Taiwan firms and eventually enhance economic growth in Taiwan.
    Date: 2012–05
  17. By: Sunghoon Chung (Southern Methodist University)
    Abstract: This paper studies how environmental regulation plays a role in shaping the pattern of outward foreign direct investment, and thereby assesses the pollution haven hypothesis. Empirical evidence for the pollution haven hypothesis has been inconsistent in the literature, possibly due to data aggregation across industries, clean technology innovation in advanced countries, factor endowment effects, unobserved heterogeneity, or endogeneity of environmental policies. To circumvent these problems, we exploit highly disaggregated industry-level panel data from South Korea along with an identification and estimation strategy that has been rarely used in prior studies. After dealing with such issues, we find strong evidence that polluting industries tend to invest more in countries with laxer environmental regulations. As a complementary evidence, we also find that environmentally lax countries tend to specialize in polluting industries when the same strategy is applied to South Korean import data covering the same sample countries, industries, and time periods. Theoretically, our findings are in line with a chain proposition of comparative advantage, also called the Quasi-Heckscher-Ohlin prediction.
    Keywords: pollution haven hypothesis, environmental regulation, comparative advantage, foreign direct investment, South Korea.
    JEL: F18 F23 Q56
    Date: 2012–05
  18. By: Bartz, Kevin; Fuchs-Schündeln, Nicola
    Abstract: Based on a modified Spatiotemporal Autoregressive Model (STAR), we analyze whether borders still constitute significant impediments to labor market integration in the European Union, despite the formal law of free movement of labor. Using regional data from the EU-15 countries over 21 years, we find that this is the case. We further investigate whether the abolishment of border checks through the Schengen agreement or the introduction of the Euro improved our measure of labor market integration across borders, and do not find evidence in favor. Last, we investigate the role of languages, and potentially cultures, as obstacles to labor market integration. We find that indeed language borders play a larger role than country borders in explaining the lack of labor market integration across borders.
    Keywords: European integration; labor market integration; spatial econometrics
    JEL: C4 J4 J6
    Date: 2012–05
  19. By: Marcus Noland (Peterson Institute for International Economics); Stephan Haggard (University of California, San Diego Graduate School of International Relations and Pacific Studies)
    Abstract: A central hope of engagement with North Korea is that increased cross-border exchange will encourage the strengthening of institutions, and eventually, a moderation of the country’s foreign policy. An unprecedented survey of Chinese enterprises operating in North Korea reveals that trade is largely dominated by state entities on the North Korean side, although the authors cannot rule out de facto privatization of exchange. Little trust is evident beyond the relationships among Chinese and North Korean state-owned enterprises. Formal networks and dispute settlement mechanisms are weak and do not appear to have consequences for relational contracting. Rather, firms rely on personal ties for identifying counterparties and resolving disputes. The weakness of formal institutions implies that the growth in exchange does not conform with the expectations of the engagement model and may prove self-limiting. The results also cast doubt that integration between China and North Korea, at least as it is currently proceeding, will foster reform and opening.
    Keywords: trust, relational contracting, economic integration, institutions, China, North Korea
    JEL: P33 P25 L14 F15
    Date: 2012–05

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