nep-int New Economics Papers
on International Trade
Issue of 2012‒07‒29
eleven papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Carry-Along Trade By Bernard, Andrew B.; Blanchard, Emily; van Beveren, Ilke; Vandenbussche, Hylke
  2. Inequality, status effects and trade By Marjit, Sugata; Roychowdhury, Punarjit
  3. How Trade Credits Foster International Trade By Eck, Katharina; Engemann, Martina; Schnitzer, Monika
  4. Import Prices, Income, and Inequality By Eddy Bekkers; Joseph F. Francois; M. Manchin
  5. The Effect of Trade and Migration on Income By Francesc Ortega; Giovanni Peri
  6. Trade in Value Added and the Valued Added in Trade By Robert Stehrer
  7. Coordination cost and the distance puzzle By Sandrine Noblet; Antoine Belgodere
  8. The Locational Determinants of Turkish Outward FDI in Eurasian Countries By Nuri Yavan
  9. The Theory of the Firm goes Global By Marin, Dalia
  10. The Organization of European Multinationals By Marin, Dalia; Rousová, Linda
  11. International Trade and Productivity: Does Destination Matter? By Yevgeniya Shevtsova

  1. By: Bernard, Andrew B.; Blanchard, Emily; van Beveren, Ilke; Vandenbussche, Hylke
    Abstract: Large multi-product firms dominate international trade flows. This paper documents new facts about multi-product manufacturing exporters that are not easily reconciled with existing multi-product models. Using novel linked production and export data at the firm-product level, we find that the overwhelming majority of manufacturing firms export products that they do not produce. Three quarters of the exported products and thirty percent of export value from Belgian manufacturers are in goods that are not produced by the firm, so-called Carry-Along Trade (CAT). The number of CAT products is strongly increasing in firm productivity while the number of produced products that are exported is weakly increasing in firm productivity. We propose a general model of production and sourcing at multi-product firms. While the baseline model fails to reconcile the relationships between firm productivity and the numbers of exported products observed in the data, several demand and supply-side extensions to the model are more successful. Looking at export price data, we find support for a novel theoretical extension based on demand-scope complementarities.
    Keywords: demand-scope complementarity; exporting; heterogeneous firms; intermediation; multi-product firms; productivity; sourcing
    JEL: F12 F13 F14 L11
    Date: 2012–07
  2. By: Marjit, Sugata; Roychowdhury, Punarjit
    Abstract: In this paper we attempt to examine the role of social inequality and status effects in driving trade between two countries which differ systematically only in terms of income-distribution using a status-driven model of consumption involving a status and a non-status good. Our model illustrates that when trade opens up, the country characterized by a higher level of inequality is likely to export the non-status good to the country characterized by a lower level of inequality, thus, establishing the extent of inequality as a determining factor behind comparative advantage.
    Keywords: Inequality; Status effects; Trade
    JEL: D31 F11 D01
    Date: 2012–07–22
  3. By: Eck, Katharina; Engemann, Martina; Schnitzer, Monika
    Abstract: Internationally active firms rely intensively on trade credits even though they are considered particularly expensive. This phenomenon has been little explored so far. Our theoretical analysis shows that trade credits can alleviate financial constraints arising from asymmetric information because they serve as a quality signal and reduce the uncertainty related to international transactions. We use unique survey data on German enterprises to test the effect of the use of trade credits on firms' exporting and importing behavior, both at the extensive and intensive margins. Our results support the assertion that trade credits have a positive impact on firms' exporting and importing activities.
    Keywords: trade credits; international trade; financial constraints; export; import; BEEPS
    JEL: F10 G30
    Date: 2012–04
  4. By: Eddy Bekkers; Joseph F. Francois; M. Manchin
    Abstract: We compare three theoretical explanations for the positive empirical relationship between importer income per capita and traded goods prices. A first explanation is that consumers with higher incomes demand higher quality goods with higher prices. A second explanation is that wealthier people exhibit an increased willingness to pay for necessary goods as more goods enter the consumption set in a hierarchic demand system, and can thus be charged higher markups. A third explanation is that consumers with higher incomes are more finicky regarding their preferred variety in an ideal variety framework and can thus be charged higher markups. We discriminate between these three theories by focusing on the effect of income inequality on trade prices. Based on a large dataset with bilateral HS6 level data on 1260 final goods categories from more than 100 countries between 2000 and 2004, we find a highly significant negative effect of income inequality on unit values. This contradicts both the demand for quality and finickyness theories, while providing support for the increased willingness to pay theory linked to hierarchic demand. These findings on income inequality do not falsify the quality expansion model and the ideal variety model per se. However, the results do argue for place of importance of hierarchic demand.
    Keywords: unit values, importer characteristics, quality expansion, hierarchic demand, ideal variety
    JEL: F12
    Date: 2012–06
  5. By: Francesc Ortega; Giovanni Peri
    Abstract: This paper explores the relationship between openness to trade and to immigration on income per person. To address endogeneity concerns we extend the instrumental-variables strategy first used by Frankel and Romer (1999). We show that distance (geographical and cultural) can be used to build a strong predictor of openness to immigration and to trade. Our instrumental-variables estimates establish a robust, positive effect of openness to immigration on long-run income per capita, using demanding econometric specifications that account for trade openness, the role of institutions, and early development. In contrast the positive effect of trade openness on income is not robust to controlling for the direct effects of geography, providing support for the critique by Rodriguez and Rodrik (2001). We also show that the main effect of migration operates through total factor productivity, consistent with a theory where immigration increases the variety of skills available for production. We provide further evidence in support of this mechanism by showing that the degree of diversity (by origin country) in migration flows has an additional positive effect on income. Finally, we also find that immigration increases (ethnic and linguistic) fractionalization, which are associated to negative effects on income per capita. However, the direct gains from greater skill diversity appear to be larger than the costs arising from increased fractionalization. We do not find evidence of increased income inequality due to openness to immigration or trade.
    JEL: E25 F10 F22 O15
    Date: 2012–07
  6. By: Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This paper discussed two measures of value added flows between countries ‘Trade in value added’ accounts for value added of one country directly and indirectly embodied in final consumption of another country. ‘Value added in trade’ measures the value added embodied in gross trade flows. The paper shows that both measures result in the same overall net trade of a country which equals its trade balance in gross terms which however does not hold for bilateral relations. These value added flows can further be broken down by various production factors including capital and labour income by educational attainment categories. Using the recently compiled World Input-Output Database (WIOD) selected results comparing the EU-27, the USA, Japan and China based on both concepts regarding value added flows across countries are presented. For example, the US trade deficit with China is reduced by about 25% but would increase with respect to the EU-27 by about 20%. These imbalances are further broken down by factor incomes.
    Keywords: value added trade, factor content of trade, trade integration, vertical specialization, production networks
    JEL: F1 F15 F19
    Date: 2012–06
  7. By: Sandrine Noblet; Antoine Belgodere
    Abstract: The distance puzzle has been wildly discussed in the literature since Leamer and Levinsohn (1995) shed the light on it. This puzzle simply says that “the world is not getting smaller”: distance still matters to account for trade. This is reflected in a decreasing distance of trade (DOT), or in a stable or increasing (negative) elasticity of trade with respect to distance (Disdier and head, 2008). Several explanations of this puzzle have been emphasized in the empirical International Economics literature. Duranton and Storper (2008) contribute to this issue in offering a full theoretical framework to account for this puzzle. They explain that an improvement in transport technology can increase the transport costs, because it creates an incentive to trade higher quality goods. Our paper proposes a new theoretical explanation of this puzzle. This explanation shares with Duranton and Storper's two important characteristics: i) there is a non monotonic relationship between transport cost and trade cost. ii) this phenomenon is due to contract incompleteness. However, the mechanism that we underline is quite different: in our model, based on a Dixit-Stiglitz increasing return to scale technology, a fall in transport cost increases the international division of labour. It follows that input-output linkages require a higher level of coordination. Such a coordination is easier between neighbors than between very distant countries. As a result, trade increases with all partners, but more quickly for neighbors than for distant countries.
    Date: 2011–09
  8. By: Nuri Yavan
    Abstract: A large body of empirical literature exists on location specific factors of developed countries multinational firms. Indeed, most of previous studies focus on the flows of outward foreign direct investment (FDI) from developed economies. Nevertheless, still there exists a knowledge gap in the literature on the location choice of multinational firms from developing economies. Therefore, it is essential to investigate the role of firms from emerging economies like Turkey in this process. In this context, this paper seeks to examine the location determinants of Turkish outward FDI in Eurasian Countries. We empirically examine the important factors for the location decisions of Turkish outward FDI, considering both Central and Eastern Europe Countries (CEEC) and Independent State of Commonwealth (CIS) at very different stages of economic development. Thus, the paper investigates the determinants of Turkish outward FDI using location factors of CEEC and CIS countries. Based on various types of regression models, we test our hypotheses employing official Turkish outward FDI data collected between 1993 and 2006. Our empirical results indicates that several location factors of the host country such as cultural distance, natural resources, market size, privatization and wage are the significant determinants in the case of Turkish outward FDI. We also find important differences between CEE and CIS countries regarding location determinants. While some location factors are important for Turkish outward FDI in CEE countries, some of these have no impact on Turkish OFDI in CIS countries. As a result, this paper offers some theoretical and empirical contributions as well as managerial implications. Key Words: Outward foreign direct investment, Turkish outward FDI, Location choice, Economic geography, Multinational firm, CEE and CIS countries.
    Date: 2011–09
  9. By: Marin, Dalia
    Abstract: What insights can be gained from bringing the theory of the firm to the global economy? I discuss several new features of the world economy that can be explained by incorporating the theory of the firm into the theory of international trade. Among the new features I discuss are the move to flatter corporate hierarchies and the decentralization of authority in firms, the “war for talentâ€, the rise of CEO pay in rich countries, organizational convergence across countries, and firm heterogeneity.
    Date: 2012–01
  10. By: Marin, Dalia; Rousová, Linda
    Abstract: Recent literature on international trade has established that the most productive firms become multinationals. But our data reveal a startling variation in productivity levels of foreign affliates across the countries in Eastern Europe of the same European multinational parent firms suggesting that not all multinationals transplant their home productivity advantage to the new EU Member States and Emerging Europe. One candidate for this startling difference in productivity levels among foreign affiliates is the ability of European multinationals to transport their business model abroad. This paper examines the conditions under which European multinationals give autonomy to their subsidiaries and delegate authority to them. We also analyse the conditions under which European multinationals transplant their business model to Eastern Europe. We collect original and unique matched parent and affiliate data on the internal organization of 660 German and Austrian parent firms and 2200 of their subsidiaries in Eastern Europe including the former Soviet Union. We test the hypothesis that the ability of European multinationals to transplant their business model to foreign affiliates is determined by the organization of European multinationals on the one hand and the market environment their affiliate firms face in Eastern Europe on the other hand. We show that the business culture of parent firms accounts for about 50 percent of the variation of the organization of subsidiaries, while the market environment of subsidiaries contributes the rest.
    Date: 2011–11
  11. By: Yevgeniya Shevtsova
    Abstract: The paper empirically assesses microeconomic exporting-productivity nexus using the data for Ukrainian manufacturing and service sectors for the years 2000-2005. The results of the estimation show that firms with higher total factor productivity (TFP) levels in the period prior to entry are much more likely to enter export markets. Also age, size and intangible assets of the firm have significant positive influence on the probability of exporting. The results also suggest significant positive post-entry productivity effect for the firms that enter export markets and negative productivity effect for those that exit. At the industry level the results also confirm the presence of learning-by-exporting effect. However the effect is not universal and varies between different types of exporting firms and export destinations. Firms that export to the countries of the European Union and other OECD countries experience higher advances in their TFP than firms exporting to other CIS countries. The magnitude of the effect is also positively correlated with the capital intensity of the industries. These findings have important implications for the formation of industrial policies, suggesting that government programs designed to upgrade firms’ productivity and innovative capabilities would increase the ability of domestic firms to overcome foreign market barriers as well as assimilate further benefits arising from exporting, which can further enhance international competitiveness of Ukrainian firms.
    Keywords: exports; TFP; matching; Heckman procedure; system GMM; sample selection; endogeneity.
    JEL: D24 F14 L25 R38
    Date: 2012–07

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