nep-int New Economics Papers
on International Trade
Issue of 2012‒07‒23
sixteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Does input trade liberalization boost downstream firms’ exports? Theory and firm-level evidence By Chevassus-Lozza, Emmanuelle; Gaigne, Carl; Le Mener, Leo
  2. Trade Facilitation and Country Size By Mohammad Amin; Jamal Ibrahim Haidar
  3. Globalization and Multiproduct Firms By Nocke, Volker; Yeaple, Stephen R
  4. An Econometric Analysis of Trade Creation and Trade Diversion in Mercosur: the Case of Paraguay By Gauto, Victor F.
  5. Tariffs and welfare in new trade theory models By Felbermayr, Gabriel; Jung, Benjamin; Larch, Mario
  6. The Impact of ACFTA on People’s Republic of China–ASEAN Trade: Estimates Based on an Extended Gravity Model for Component Trade By Sheng, Yu; Tang, Hsiao Chink; Xu, Xinpeng
  7. Language, Ethnicity and Intra-firm Trade By Debaere, Peter; Lee, Hongshik; Lee, Joonhyung
  8. Do Preferential Trade Agreements Increase Members’ Agri-food Trade? By Haq, Zahoor; Meilke, Karl D.; Orden, David
  9. The Trade Effects of Skilled versus Unskilled Migration By Egger, Peter; Nelson, Doug R; von Ehrlich, Maximilian
  10. Trade Preferences and Bilateral Trade in Goods and Services: A Structural Approach By Egger, Peter; Larch, Mario; Staub, Kevin E
  11. Competitiveness of Latvia's Exporters By Konstantins Benkovskis
  12. Agglomeration,Trade and Selection By Ottaviano, Gianmarco
  13. Impact of trade on viability and exporter selection with heterogeneous fixed cost in the Melitz model By Han-Hsin Chang; Charles van Marrewijk
  14. Non-tariff measures in international coffee trade By Almeida, Fernanda Maria de; Gomes, Marilia Fernandes Maciel; Silva, Orlando Monteiro da
  15. Determinants of Labor-intensive exports by the Developing Countries : A Cross Country Analysis By Mottaleb Khondoker; Kaliappa Kalirajan
  16. Offshoring, Unemployment, and Wages: The Role of Labor Market Institutions By Priya Ranjan

  1. By: Chevassus-Lozza, Emmanuelle; Gaigne, Carl; Le Mener, Leo
    Abstract: We analyze the impact of input tariffs on the export status and export performance of processing firms. From a theoretical model with heterogeneous downstream firms, we show that lower input tariffs may increase the export sales of the high productivity firms at the expense of low productivity firms and may decrease the probability of firms entering foreign markets. We compare the predictions of the theoretical model with firm-level data from the French agrifood sector by developing a two-stage estimation procedure that uses an equation for selection into export markets in the first stage and an exports equation in the second stage. Liberalization of agricultural trade appears to favor the reallocation of market share from low to high productive firms. In addition, our result suggests that, whether lower input tariffs increase total exports sales and jobs, a large fraction of least productive exporting firms may lose from an additional decrease in agricultural product tariffs.
    Keywords: Input tariffs, heterogeneous donwstream firms, exports, Agricultural and Food Policy, Industrial Organization, International Relations/Trade, F12, L11, L66,
    Date: 2012–01
  2. By: Mohammad Amin (World Bank - Enterprise Analysis Unit); Jamal Ibrahim Haidar (World Bank - Washington District of Columbia (United States), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne)
    Abstract: It is argued that compared with large countries, small countries rely more on trade and therefore they are more likely to adopt liberal trading policies. The present paper extends this idea beyond the conventional trade openness measures by analyzing the relationship between country size and the number of documents required to export and import, a measure of trade facilitation. Three important results follow. First, trade facilitation does improve as the country size becomes smaller ; that is, small countries perform better than large countries in terms of trade facilitation. Second, the relationship between country size and trade facilitation is non-linear, much stronger for the relatively small than the large countries. Third, contrary to what the existing studies might suggest, the relationship between country size and trade facilitation does not appear to be driven by the fact that small countries trade more as a proportion of their GDP than the large countries.
    Keywords: Country size, trade facilitation, openness.
    Date: 2012–05
  3. By: Nocke, Volker; Yeaple, Stephen R
    Abstract: We present an international trade model of multiproduct firms where firms differ in their endowment of managerial resources and in how effectively these resources can be used in making production more efficient. The model gives rise to a trade-off between conglomerate and specialization strategies of firms, yielding testable predictions on the relationship between firm size, scope and productivity. More efficient firms become exporters, but not all exporters are large and not all large firms export. Following a trade liberalization, non-exporters experience a fall in their market-to-book ratio and consolidate the number of products they manage to lower their marginal costs while the opposite holds for exporters.
    Keywords: diversification discount; firm heterogeneity; multiproduct firms; productivity; trade liberalization
    JEL: F12 F15
    Date: 2012–07
  4. By: Gauto, Victor F.
    Abstract: This paper analyzes the effects of Mercosur on Paraguayan import flows using detailed trade values to identify patterns of trade creation and trade diversion at aggregate and disaggregate commodity levels. It is well know that the share of foreign trade with respect to GDP is larger for small countries. Consequently, the effects of a trade agreement between large and small countries are likely to be larger in small economies. I use a variant of the gravity model employing a reparameterization of the difference-in-difference estimator to analyze import flows over time from member and non-member countries. Additionally, I explicitly include zero trade flows and implement a Heckman sample selection correction along with country fixed effects. I find the creation of Mercosur has increased average regional imports by 266% since 1995, which is evidence of trade creation. The greatest import expansions have been in Beverages and Tobacco and Animal and vegetable oils & fats. Finally, I do not find statistically significant evidence of trade diversion in any of the ten commodity categories.
    Keywords: International Relations/Trade, Research Methods/ Statistical Methods,
    Date: 2012
  5. By: Felbermayr, Gabriel; Jung, Benjamin; Larch, Mario
    Abstract: Arkolakis, Costinot and Rodriguez-Clare (ACR, 2012) prove that, conditional on the change in openness, the welfare gains from foreign trade reforms are quantitatively identical across single-sector trade models with radically different micro-foundations. We generalize this result to domestic and multilateral trade reforms. And we extend it to cover revenue generating import tariffs. This gives rise to a new type of welfare isomorphisms across models and liberalization scenarios and allows deriving a structurally identical optimal tariff formula. In contrast to the case of iceberg trade costs, welfare formulas based on tariff reforms are highly nonlinear and build on different types of trade elasticities and openness indices. Most importantly, the ACR iceberg formula necessarily underestimates the gains from trade. A stylized calibration of the model shows that the underestimation can be large. --
    Keywords: Gravity Equation,Monopolistic Competition,Heterogeneous Firms,Armington Model,International Trade,Trade Policy,Gains from Trade
    JEL: F12 R12
    Date: 2012
  6. By: Sheng, Yu (The Australian National University); Tang, Hsiao Chink (Asian Development Bank); Xu, Xinpeng (The Hong Kong Polytechnic University)
    Abstract: This paper uses an extended gravity model to shed light on the impact of the free trade area agreement between the Association of Southeast Asian Nations (ASEAN) and the People's Republic of China (PRC) on the members' trade flows and trade patterns. New determinants that capture the rising importance of global production sharing and intraregional trade in parts and components in East Asia are proposed. Results from the extended gravity model show that the free trade agreement leads to substantially higher bilateral trade between ASEAN and the PRC, more than what a conventional gravity model predicts. The increase is concentrated in the ASEAN countries with stronger industrial linkages with the PRC.
    Keywords: ACFTA; gravity model; parts and components trade
    JEL: F17 O53
    Date: 2012–07–01
  7. By: Debaere, Peter; Lee, Hongshik; Lee, Joonhyung
    Abstract: We study the significant variation in intrafirm versus arm’s-length trade with micro data. Exploiting the fact that Korean is an uncommon second language and that Korean culture is relatively homogenous, we show how intrafirm sourcing by South Korean affiliates abroad increases with their share of South Korean employees. This positive association is pervasive and nontrivial. Parsing the data more carefully, we find that South Korean employees are primarily high skilled, and that their presence matters for internal trade, not for trade with South Korea per se. The share of South Koreans is also higher in affiliates from nonroutine sectors in host countries that are culturally distant from South Korea. Our empirical evidence thus supports especially Costinot, Oldenski and Rauch (2011)’s view of multinational in-house production for nonroutine activities that require adaptation and internal communication.
    Keywords: intra-firm trade; multinationals
    JEL: F1
    Date: 2012–06
  8. By: Haq, Zahoor; Meilke, Karl D.; Orden, David
    Abstract: This study estimates the effect of a diverse group of 30 PTAs on members’ trade of 26 agri-food products categorized into eight commodity sectors for 1990, 1995, 2000 and 2000 using disaggregated trade data for 40 countries and the Heckman selection model. Results show that whether reported zero trade-flows are considered actual or potential affects the size of the estimated PTA impacts. However, irrespective of the true nature of the zero trade-flows, the effects of PTAs are found positive and statistically significant. OLS estimates fall between the Heckman-model-derived conditional and unconditional effects of PTAs.
    Keywords: Trade Policy, Trade Agreements, Selection Bias, Research Methods/ Statistical Methods, F130, C180,
    Date: 2012
  9. By: Egger, Peter; Nelson, Doug R; von Ehrlich, Maximilian
    Abstract: In this paper, we assess the role of skilled versus unskilled migration for bilateral trade using a flexible reduced-form model where the stocks of skilled and unskilled migrants at the country-pair level are determined as endogenous continuous treatments. The impact of different levels of skilled and unskilled migration on the volume and structure of bilateral trade is identified in a quasi-experimental design. This is accomplished through a generalization of propensity score estimation procedures for a case of multivariate, multi-valued treatments whereof the bivariate continuous treatment model is a special case. We find evidence of a polarized impact of skill-specific migration on trade: highly concentrated skilled or unskilled migrants induce higher trade volumes than a balanced composition of the immigrant base. Regarding the structure of trade, we observe a polarization specifically for differentiated goods and for north-south trade. Both bits of evidence are consistent with a segregation of skill-specific immigrant networks and corresponding consumption patterns and effects on trade.
    Keywords: Bilateral trade; Generalized propensity score estimation; Quasi-randomized experiments; Skilled vs. unskilled immigration
    JEL: C14 C21 F14 F22
    Date: 2012–07
  10. By: Egger, Peter; Larch, Mario; Staub, Kevin E
    Abstract: The large reduction in tariff rates worldwide under several rounds of the GATT is commonly credited with being one of the most notable economic policy accomplishments since World War II. However, the remarkable progress towards free trade of goods is unparalleled in trade with services where liberalization agreements are much harder to achieve and cross-border transactions are impeded by far tighter barriers than for the exchange of goods. In any case, the question as to how trade policy affects services trade is complex for various reasons. First, services transactions are much harder to measure than goods transactions and acceptable data on service trade have only recently become available, mostly for trade of OECD countries. Second, neither production nor trade of goods and services are independent; often they are even inseparable. Thus, achievements towards liberalizing cross-border trade of goods should have an impact on services and, by the same token, the lack of liberalization of services trade should be responsible for there being less goods trade than possible. We provide a general equilibrium comparative static estimate of the trade and welfare effects of trade policy measures towards goods and services trade.
    Keywords: Goods trade; Gravity equation; Services trade; Structural estimation
    JEL: F10 F12 F13
    Date: 2012–07
  11. By: Konstantins Benkovskis
    Abstract: The paper evaluates competitiveness of Latvia's exporters from various aspects by using detailed trade data from Comtrade. Competitiveness represented by the market share of Latvia's products in world trade was on the rising trend, growing almost two times between 1999 and 2010. Such a dynamic improvement was mainly accounted for by intensive margin, as Latvia's exporters increased their presence on traditional markets. Moreover, the contribution of extensive margin was also positive due to geographical expansion. The analysis of non-price competitiveness signals that although Latvia's export unit values were increasing faster than those of its main rivals, relative quality and taste for Latvia's products were rising even faster, and, overall, competitiveness of Latvia's exporters improved.
    Keywords: exports, extensive margin, intensive margin, non-price competitiveness, Latvia
    JEL: C43 F12 F14 L15
    Date: 2012–07–18
  12. By: Ottaviano, Gianmarco
    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 endogenous markups. 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 can not be fully understood without paying due attention to various moments of the underlying firm productivity distribution.
    Keywords: agglomeration; economic geography; heterogeneity; selection; trade
    JEL: F12 R11 R12
    Date: 2012–07
  13. By: Han-Hsin Chang; Charles van Marrewijk
    Abstract: This paper presents a model aim to reconcile the discrepancy between the theoretical and empirical depiction of the productivity distribution. The Melitz (2003) while being able to reflect on the asymmetric selection of heterogeneous firms in trade, the model strictly truncate the least productive firms leaving the productivity distribution with a distinctive cut-off threshold at the lower end. This contradicts the empirical findings (Mayer and Ottaviano, 2007). The model in this paper proposed that firms are not only heterogeneous in terms of productivity but also in terms of fixed cost. In other words, viability selection in our model is based on firms' efficiency (TFP). This model successfully depicts the productivity distributions of active firms in the market that resemble the empirical findings, for which a great range of productivity distribution of exporters and domestic firms overlap. In addition, we show that only when the fixed exporting cost is no less than proportionate to the domestic fixed cost will the ultimate free trade scenario ensure that the weighted productivity in trade be greater than the weighted productivity in autarky. Lastly, trade liberation is always welfare improving, mainly due to the increasing product varieties.
    Keywords: Firm heterogeneity; Productivity distribution; Exporting
    JEL: F14 D20
    Date: 2012–03
  14. By: Almeida, Fernanda Maria de; Gomes, Marilia Fernandes Maciel; Silva, Orlando Monteiro da
    Abstract: This paper is focused on analyzing notification effects on TBT and SPS Agreements of worldwide green coffee exports. A gravity model was used to estimate Poisson Pseudo Maximum Likelihood (PPML) panel data, which considered the trade flow to be zero. Results indicated that notifications TBT would negatively affect coffee exports during the period from 1996 to 2010, but SPS notifications not.
    Keywords: Coffee, international trade, non-tariff measures, gravity model., Agricultural and Food Policy, International Relations/Trade, F10, Q17.,
    Date: 2012
  15. By: Mottaleb Khondoker (International Rice Research Institute); Kaliappa Kalirajan (Manila and Crawford School of Public Policy)
    Abstract: While it is widely recognized that industrial development is imperative in developing countries to reduce poverty and to attain sustainable economic growth, there is no consensus on how to develop industries and where to start. Generally, the literature argues that developing countries should concentrate on promoting labour intensive industries and exports first due to their low capital stock and relatively abundant labor force. Though many developing countries are attempting to follow this path, the interesting observation is that not all developing countries are reaping the benefits of promoting labor intensive industries in terms of employment generation and sustaining economic growth. This raises an important question as to how it is possible for some developing countries to enjoy more benefits from labor intensive industries, while others are not able to do so. Using cross-country panel data in explaining heterogeneous performance in exporting labor intensive products by the developing countries, an attempt has been made in this paper to identify the important factors over and above the conventional factors such as low labor wages that contribute to the sustained growth of labor intensive exports from developing countries. The empirical findings of this paper emphasizes that even to initiate and sustain the growth of the low value added industries, such as garments, the developing countries should develop basic infrastructure and maintain a friendly business environment.
    Keywords: Developing country, Garment and textile export, Infrastructure, Business Environment, Asia, Sub-Saharan Africa.
    JEL: L67 F14 O14
    Date: 2012–07
  16. By: Priya Ranjan (Department of Economics, University of California-Irvine)
    Abstract: It is shown that when wages are determined through collective bargaining, there is a non-monotonic relationship between the cost of o§shoring and unemployment. Starting from a high cost of off- shoring, a decrease in the cost of o§shoring reduces unemployment first and then increases it. The non-monotonicity of unemployment in the cost of offshoring does not obtain if wages are determined by individual Nash bargaining instead of collective bargaining. The non-monotonic relationship between the cost of offshoring and unemployment is verified through a calibration exercise performed using parameters for Sweden. The calibration exercise predicts that a decrease in the cost of o§shoring, starting from the present level, would reduce unemployment in Sweden. In a two country framework of o§shoring (source country and host country) it is shown how changes in the labor market institutions in one country affect labor market outcomes in both countries.
    Keywords: Offshoring; Unemployment; Collective bargaining; Unions; Unemployment benefits; Recruitment cost
    JEL: F16 J64 J50
    Date: 2012–07

This nep-int issue is ©2012 by Alessia A. Amighini. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.