nep-int New Economics Papers
on International Trade
Issue of 2012‒09‒03
twenty-one papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Trade Productivity Upgrading, Trade Fragmentation, and FDI in Manufacturing: The Asian Development Experience By Singh, Nirvikar; Mora, Jesse
  2. Do falling iceberg costs explain recent U.S. export growth? By George Alessandria; Horag Choi
  3. There goes gravity: how eBay reduces trade costs By Lendle, Andreas; Olarreaga, Marcelo; Schropp, Simon; Vézina, Pierre-Louis
  4. Offshoring and the Skill Structure of Labour Demand By Gaaitzen De Vries; Neil Foster; Robert Stehrer
  5. Credit Constraints, Quality, and Export Prices: Theory and Evidence from China By Fan, Haichao; Lai, Edwin L.-C.; Li, Yao Amber
  6. Impact of ASEAN-India Free Trade Agreement on Indian Dairy Trade: A Quantitative Approach By Bitan Mondal, Bitan Mondal; Smita Sirohi, Smita Sirohi; Vishal Thorat, Vishal Thorat
  7. Reciprocal Trade Agreements: Impacts on U.S. and Foreign Suppliers in Commodity and Manufactured Food Markets By Roberts, Donna; Vollrath, Thomas L.; Grant, Jason; Hallahan, Charles
  8. The curse of being landlocked: Institutions rather than trade By Fabrizio Carmignani
  9. Visit and Buy. An Empirical Analysis on Tourism and Exports By A.M. Pinna
  10. Gains and Losses from International Trade in a Knowledge-driven Semi-endogenous Growth Model with Heterogeneous Firms By katsufumi, fukuda
  11. Global supply chains: Why they emerged, why they matter, and where they are going By Baldwin, Richard
  12. Task dependence of U.S. service offshoring patterns By Püschel, Julia
  13. Quality pricing-to-market By Raphael A. Auer; Thomas Chaney; Philip Sauré
  14. Incentive Contracts and Efficient Unemployment Benefits in a Globalized World By Carsten Helm; Dominique Demougin
  15. Sources of Comparative Advantage in Polluting Industries By Fernando Broner; Paula Bustos; Vasco M. Carvalho
  16. Tariffs and income: A time series analysis for 24 countries By Lampe, Markus; Sharp, Paul
  17. Real Exchange Rate Variations, Nontraded Goods and Disaggregated CPI Data By Marco A. Hernandez Vega
  18. International partnerships, foreign control and income levels : theory and evidence By Christa N. Brunnschweiler and Simone Valente
  19. Is labor flexibility a substitute to offshoring? Evidence from Italian manafacturing By Andrea Filippo Presbitero; Matteo G. Richiardi; Alessia Amighini
  20. On two-part tariff competition in a homogeneous product duopoly By Griva, Krina; Vettas, Nikolaos
  21. Asymmetric exchange rate pass-through in the Euro area: New evidence from smooth transition models By Ben Cheikh, Nidhaleddine

  1. By: Singh, Nirvikar; Mora, Jesse
    Abstract: This paper examines the experience of 10 Asian countries with respect to growth, trade and FDI. It explores relationships between the nature of exports and imports and growth, as well as the relevance of FDI as a channel for these relationships. We find that FDI is often positively correlated with higher productivity levels in exports and imports. The effect for imports is particularly apparent for imported intermediate goods, reflecting the emergence of greater trade fragmentation. In turn, both imported intermediates and exports that are associated with higher productivity levels are positively correlated with per capita GDP. This paper therefore brings together empirical evidence that integrates discussions of FDI, trade fragmentation and improvements in the productivity of traded goods.
    Keywords: Economics, international trade, trade policy, product upgrading, trade fragmentation, vertical specialization, FDI, economic development
    Date: 2012–03–03
  2. By: George Alessandria; Horag Choi
    Abstract: We study empirically and theoretically the growth of U.S. manufacturing exports from 1987 to 2007. We identify the change in iceberg costs with plant-level data on the intensity of exporting by exporters. Given this change in iceberg costs, we find that a GE model with heterogeneous establishments and a sunk cost of starting to export is consistent with both aggregate U.S. export growth and the changes in the number and size of U.S. exporters. The model also captures the non-linear dynamics of U.S. export growth. A model without a sunk export cost generates substantially less trade growth and misses out on the timing of export growth. Contrary to the theory, employment was largely reallocated from very large establishments, those with more than 2,500 employees, toward very small manufacturing establishments, those with fewer than 100 employees. Allowing for faster productivity growth in manufacturing, changes in capital intensity, and some changes in the underlying shock process makes the theory consistent with the changes in the employment size distribution. We also find that the contribution of trade to the contraction in U.S. manufacturing employment is small.
    Keywords: Exports ; Trade
    Date: 2012
  3. By: Lendle, Andreas; Olarreaga, Marcelo; Schropp, Simon; Vézina, Pierre-Louis
    Abstract: We compare the impact of distance, a standard proxy for trade costs, on eBay and offline international trade flows. We consider the same set of 62 countries and the same basket of goods for both types of transactions. We find the effect of distance to be on average 65 percent smaller on the eBay online platform than offline. Using interaction variables, we show this difference is explained by a reduction of information and trust frictions enabled through online technology. We estimate the welfare gains from a reduction in offline frictions to the level prevailing online at 29 percent on average.
    Keywords: eBay; Gravity; Online trade; Trade costs
    JEL: F10 F13 L81
    Date: 2012–08
  4. By: Gaaitzen De Vries; Neil Foster (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: In this paper we examine the link between international outsourcing – or offshoring – and the skill structure of labour demand for a sample of 40 countries over the period 1995 2009. The paper uses data from the recently compiled World-Input-Output-Database (WIOD) to estimate a system of variable factor demand equations. These data allow us to exploit both a cross-country and cross-industry dimension and split employment into three skill categories. Our results indicate that while offshoring has impacted negatively upon all skill levels, the largest impacts have been observed for medium-skilled (and to a lesser extent high-skilled) workers. Such results are consistent with recent evidence indicating that medium-skilled workers have suffered to a greater extent than other skill types in recent years.
    Keywords: offshoring, trade, wages, labour demand
    JEL: F14 J31
    Date: 2012–06
  5. By: Fan, Haichao; Lai, Edwin L.-C.; Li, Yao Amber
    Abstract: This paper examines (i) the relationship between the credit constraints faced by a firm and the unit value prices of its exports, as well as (ii) the relationship between the export prices of a firm and its productivity. The paper extends Melitz's (2003) model of trade with heterogeneous firms by introducing endogenous quality, credit constraints and marketing costs. There are three key findings. First, there exists a positive relationship between firm productivity and export prices because the choice of higher-quality inputs is associated with higher productivity. Second, tighter credit constraints faced by a firm reduces its optimal prices as its choice of lower-quality inputs dominates the price distortion effect resulting from credit constraints. Third, if one adopts the alternative assumption that quality is exogenous across firms, then completely opposite results would be expected: there would be a negative relationship between prices and productivity; prices increase as firms face tighter credit constraints. An empirical analysis using Chinese bank loans data, Chinese firm-level data from the National Bureau of Statistics of China (NBSC), and Chinese customs data strongly supports the predictions of the endogenous-quality model, and confirms the existence of the quality adjustment effect: firms optimally choose lower quality when facing tighter credit constraints. Our finding of a significant impact of credit constraints on export prices indicates the prevalence of heterogeneity of product quality across firms.
    Keywords: credit constraints; credit access; credit needs; endogenous quality; export prices; quality; heterogeneous firms; productivity
    JEL: G2 D2 F1 L1
    Date: 2012–08–01
  6. By: Bitan Mondal, Bitan Mondal; Smita Sirohi, Smita Sirohi; Vishal Thorat, Vishal Thorat
    Abstract: The study attempts a quantitative assessment of the impact of recently signed ASEAN-India FTA (AIFTA) for dairy commodities in India. ASEAN is strategically a potential market in dairy for India and our country already stands as net exporter of dairy products in this region. Partial equilibrium model (SMART model) has been used to simulate the likely impact of dairy exports to and imports from ASEAN countries under the proposed tariff reduction schedule of the AIFTA. The SMART model simulations suggest that AIFTA has generated an additional scope for India to increase its dairy exports to ASEAN countries. On the other hand, tariff elimination from India’s side creates little scope for ASEAN nations to expand their shares. The threat of cheap imports competing with the domestic products in the Indian markets is therefore not alarming. However necessary adjustment assistance may be provided to the dairy product manufacturers to counter the competition in the relevant product lines.
    Keywords: SMART Model; Dairy Products; AIFTA; Simulation; Export-Import
    JEL: F17
    Date: 2012–08–20
  7. By: Roberts, Donna; Vollrath, Thomas L.; Grant, Jason; Hallahan, Charles
    Abstract: Reciprocal trade agreements (RTAs), which grant special preferences to members, affect the pattern and volume of bilateral trade in global markets. This study uses the gravity framework and panel data depicting annual trade between 69 countries over 31 years to examine how 11 RTAs have shaped U.S. and other suppliers’ exports of commodity and manufactured foods. Empirical results show that joint RTA membership enabled exporters to increase their trade with member country importers in the two food markets. The few agreements that failed to have a positive effect on member trade in either commodity food or manufactured food involve developing countries that typically grant very limited cross-border trade preference to member countries. Interestingly, model results indicate that RTAs can be a vehicle to increase trade externally. Nine of the 11 RTAs also expanded exports externally to nonmember countries, albeit to a lesser degree than with member importers. In some cases, however, nonmember exporters of food bore the cost of the RTA-induced expansion of trade. Five RTAs lowered food imports from nonmember suppliers. The adverse effects on nonmember suppliers were more pronounced for the United States than for other competitors.
    Keywords: Trade policy, reciprocal trade agreements, agricultural and food trade, gravity models, Agricultural and Food Policy, International Development, International Relations/Trade,
    Date: 2012–08
  8. By: Fabrizio Carmignani
    Keywords: Landlocked, income, trade, institutions, system of equations
    JEL: C31 O11 F15
    Date: 2012–04
  9. By: A.M. Pinna
    Abstract: The impact of international tourism flows has been poorly studied within the international trade literature. In this paper I use disaggregated bilateral data on both movements of people and movements of goods in order to carry out a panel data analysis on how the two flows are linked. Rajan and Zingales (1998) methodology is applied in order to identify those products (experienced goods) which are more likely to be sampled by foreign visitors. I concentrate on 11 manufacturing industries whose products are ’local’ varieties and are likely to be part of the traveling experience. I compute an index of experienced good intensity and I use products which are not final consumption goods as a control group. The identifying strategy enables us to robustly assess the influence of total arrivals in a country on its exports. After considering 25 EU countries, it is found that tourism promotes exports and its effect is not negligible, particularly for the EU15 group, being of 3.5% for sectors at mean of the experienced good intensity distribution.
    Keywords: Trade; Tourism; Gravity
    JEL: F14 F15
    Date: 2012
  10. By: katsufumi, fukuda
    Abstract: We consider a semi endogenous R&D growth model with international trade, firm heterogeneity, and local knowledge spillover in a closed economy and international knowledge spillover in a symmetric two country economy. We show that by opening trade R&D difficulty (the number of varieties produced) and welfare are ambiguously affected. When the international spillover is large (small), the former is increased (decreased). When the size of the international knowledge spillover is large (small) or the size of the international knowledge spillover is small and the size of intertemporal knowledge spillover is small (large), the latter increases (decreses). Without intertemporal and international knowledge spillovers, welfare increases.
    Keywords: Heterogeneous Firms; Semi Endogenous Growth; Gains and Losses from International Trade
    JEL: F15 O30 F12 O33
    Date: 2012–08–21
  11. By: Baldwin, Richard
    Abstract: Global supply chains (GSCs) are transforming the world. This paper explores why they emerged, why they are significant and future directions they are likely to take along with some implications for policy. After putting global supply chains into an historical perspective, the paper presents an economic framework for understanding the functional and geographical unbundling of production. The fundamental trade off in supply chain fractionalisation is between specialisation gains and coordination costs. The key trade-off in supply chain dispersion is between dispersion and agglomeration forces. Supply-chain trade should be not viewed as standard trade in parts and components rather than final goods. Production sharing has linked cross-border flows of goods, investment, services, know-how and people in novel ways. The paper suggest that future of global supply chains will be influenced by: 1) improvements in coordination technology that lowers the cost of functional and geographical unbundling, 2) improvements in computer integrated manufacturing that lowers the benefits of specialisation and shifts stages toward greater skill-, capital, and technology-intensity, 3) narrowing of wage gaps that reduces the benefit of North-South offshoring to nations like China, and 4) the price of oil that raises the cost of unbundling.
    Keywords: global supply chains; globalisation; second unbundling
    JEL: F1 F2 F21 F23 F43
    Date: 2012–08
  12. By: Püschel, Julia
    Abstract: This work offers new insights into the determinants of service offshoring across countries and across service industries. Combining different data sources over the 2006-2009 period, I find that certain country characteristics affect offshoring costs for all services, while the effects of other characteristics depend on the coordination requirements of the respective service industry. The results from a zero-inflated Poisson pseudomaximum likelihood estimation indicate that the effects of a membership in NAFTA, and a common colonial past on service offshoring patterns depend on the task content of the services. These results are robust to the control for unobservable country-level heterogeneity. The quality of legal institutions, a common legal origin, geographic distance, and time zone differences influence offshoring patterns identically across all service industries. --
    Keywords: Offshoring,Services,Tasks,Coordination,Poisson pseudo-maximum likelihood
    JEL: F14 F23 F20
    Date: 2012
  13. By: Raphael A. Auer; Thomas Chaney; Philip Sauré
    Abstract: We document that in the European car industry, exchange rate pass-through is larger for low than for high quality cars. To rationalize this pattern, we develop a model of quality pricing and international trade based on the preferences of Mussa and Rosen (1978). Firms sell goods of heterogeneous quality to consumers that differ in their willingness to pay for quality. Each firm produces a unique quality of the good and enjoys local market power, which depends on the prices and qualities of its closest competitors. The market power of a firm depends on the prices and qualities of its direct competitors in the quality dimension. The top quality firm, being exposed to just one direct competitor, enjoys the highest market power and equilibrium markup. Because higher quality exporters are closer to the technological leader, markups are generally increasing in quality, exporting is relatively more profitable for high quality than for low quality firms, and the degree of exchange rate pass-through is decreasing in quality.
    Keywords: Price levels ; International trade
    Date: 2012
  14. By: Carsten Helm (University of Oldenburg); Dominique Demougin (European Business School at the EBS University, Wiesbaden)
    Abstract: Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyse this issue in a principal-agent model, higher level of unemployment benefits improves the workers' position in wage bargaining, leading to stronger effort incentives and higher output. However, it also reduces incentives for labor market participation. Accordingly, there is a trade-off. We analyze how changes in the economic environment such as globalization and better educated workers affect this trade-off.
    Keywords: Unemployment benefits, incentive contracts, Nash bargaining, moral hazard, globalization
    JEL: J65 D82 J41 E24
    Date: 2012–08
  15. By: Fernando Broner; Paula Bustos; Vasco M. Carvalho
    Abstract: We study the determinants of comparative advantage in polluting industries. We combine data on environmental policy at the country level with data on pollution intensity at the industry level to show that countries with laxer environmental regulation have a comparative advantage in polluting industries. Further, we address the potential problem of reverse causality. We propose an instrument for environmental regulation based on meteorological determinants of pollution dispersion identified by the atmospheric pollution literature. We find that the effect of environmental regulation on the pattern of trade is causal and comparable in magnitude to the effect of physical and human capital.
    JEL: F11 F18 Q53 Q56
    Date: 2012–08
  16. By: Lampe, Markus (Department of Economic History and Institutions); Sharp, Paul (Department of Business and Economics)
    Abstract: We argue for a new approach to examining the relationship between tariffs and growth. We demonstrate that more can be learned from time series analyses of the experience of individual countries rather than the usual panel data approach, which imposes a causal relation and presents an average coefficient for all countries. Tentative initial results using simple two variable cointegrated VAR models suggest considerable heterogeneity in the experiences of the countries we look at. For most, however, there was a negative relationship between tariffs and levels of income for both the pre- and post-Second World War periods. However, in the second half of the twentieth century, the causality ran from income to tariffs: i.e. countries simply liberalized as they got richer. Policy decisions based on the usual panel approach might thus be very inappropriate for individual countries.
    Keywords: Tariff/growth relationship; protectionism; trade liberalization; cointegrated VAR
    JEL: F10 F40 N10 N70 O20
    Date: 2012–08–28
  17. By: Marco A. Hernandez Vega
    Abstract: The behavior of the real exchange rate, measuring movements in the relative consumer price indexes between countries, remains a prominent puzzle in international macroeconomics. Two key theories of the real exchange rate differ in the role played by goods not traded internationally. On one hand, the theory of Balassa-Samuelson, on the other hand, models with sticky prices. This study provides new empirical evidence on nontraded goods importance in real exchange volatility by using more highly disaggregated data than used in previous literature on prices and trade between the U.S. and Mexico for the period 2002-2009. The main results suggest that the nontraded component accounts for between 69 and up to 84 percent of the real exchange rate volatility. In addition, the results show that the nontraded component is negatively correlated with the traded component despite both countries being in a flexible exchange rate regime contradicting previous literature. These results generally support the Balassa-Samuelson theory.
    Keywords: Real exchange rates, Relative prices.
    JEL: F31
    Date: 2012–08
  18. By: Christa N. Brunnschweiler and Simone Valente (Department of Economics, Norwegian University of Science and Technology)
    Abstract: We analyze the effects of different regimes of control rights over critical resources on the total domestic income of open economies. Considering home control, foreign control, and international partnerships in a theoretical model with incomplete contracts and more productive foreign technologies, we show that (i) partnerships can be jointly optimal, (ii) foreign control is never optimal, (iii) assigning complete residual rights to foreign firms reduces domestic income via a Dutch-Disease mechanism. Empirical evidence using a new dataset on petroleum ownership structures for up to 68 countries between 1867-2008 shows that (i) international partnerships tend to generate higher domestic income than foreign control, and (ii) partnership and foreign control are linked to high or intermediate relative profitability of the domestic resource endowment, whereas home control is associated with low relative profitability.
    Date: 2012–08–17
  19. By: Andrea Filippo Presbitero (Universit… Politecnica delle Marche, MoFiR); Matteo G. Richiardi (Universit… di Torino, LABOR); Alessia Amighini (Universit… del Piemonte Orientale, SEMeQ)
    Abstract: We test whether labor flexibility acts as a substitute to delocalization. Using Italian survey data, we show that a higher share of temporary workers appears to reduce the likelihood of future offshoring. However, once reverse causality and spurious correlation are controlled for with IV techniques, the relationship vanishes. This finding suggests that the threat of delocalization to win support for further labor market reforms is probably misplaced.
    Keywords: cost saving, delocalization, labor flexibility, labor market reforms, offshoring, temporary work
    JEL: F16 F23 J21
    Date: 2012–08
  20. By: Griva, Krina; Vettas, Nikolaos
    Abstract: We explore the nature of two-part tariff competition between duopolists providing a homogeneous service when consumers differ with respect to their usage rates. Competition in only one price component (the fixed fee or the rate) may allow both firms to enjoy positive profits if the other price component has been set at levels different enough for each firm. Endogenous market segmentation emerges, with the heavier users choosing the lower rate firm and the lighter users choosing the lower fee firm. We therefore characterize how fixing one price component indirectly introduces an element of product differentiation to an otherwise homogeneous product market. We also examine the crucial role that non-negativity constraints play for the nature of market equilibrium.
    Keywords: Market segmentation; Non-linear pricing; Two-part tariffs
    JEL: D43 L13
    Date: 2012–08
  21. By: Ben Cheikh, Nidhaleddine
    Abstract: This paper examines the presence of asymmetric behavior in exchange rate pass-through (ERPT) to CPI inflation in 12 euro area (EA) countries. Using a class of nonlinear smooth transition models, we test for asymmetry with respect to the direction and the magnitude of exchange rate changes. On the one hand, we find only 5 out of 12 EA countries showing asymmetric pass-through to exchange rate appreciations and depreciations. Results are somewhat mixed with no clear evidence about the direction of asymmetry. On the other hand, we report strong evidence that ERPT responds asymmetrically to the size of exchange rate changes as a result of presence of menu costs. The degree of ERPT is found to be higher for large exchange rate changes than for small ones in 9 out of 12 EA countries. --
    Keywords: exchange rate pass-through,inflation,smooth transition regression models,euro area
    JEL: C22 E31 F31 F41
    Date: 2012

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