nep-int New Economics Papers
on International Trade
Issue of 2012‒10‒06
seventeen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Factor Price Overshooting with Trade Liberalization: Theory and Evidence By Julian Emami Namini; Ricardo Lopez
  2. Effects of Ownership on Exports and FDI: Evidence from Chinese firms By WAKASUGI Ryuhei; Hongyong ZHANG
  3. Specialization, gravity, and European trade in final goods By Richard Frensch; Jan Hanousek; Evžen Kočenda
  4. Productivity and the extensive margins of trade in German manufacturing firms: Evidence from a non-parametric test By Joachim Wagner
  5. Quality Differentiation and Trade Intermediation By Heiwai Tang; Yifan Zhang
  6. A note on the links between manufacturing, goods and services exports By Damien Broussolle
  7. Information and Communications Technology (ICT) and Trade in Emerging Market Economies By Hiranya K. Nath; Lirong Liu
  8. Trade Credit and the Propagation of Corporate Failure: An Empirical Analysis By Jacobson, Tor; von Schedvin, Erik
  9. InternationalPolitics and Import Diversification in the Second Wave of Globalization By Sergey Mityakov; Heiwai Tang; Kevin K. Tsui
  10. On the Path to Trade Liberalization: Political Regimes in International Trade Negotiations By Florian Mölders
  11. Asia-Latin America Free Trade Agreements : An Instrument for Inter-Regional Liberalization and Integration? By Ganeshan Wignaraja; Dorothea Ramizo; Luca Burmeister
  12. Non-price competitiveness of exports from emerging countries By Benkovskis, Konstantins; Wörz, Julia
  13. Antidumping and Market Competition: Implications for Emerging Economies By Chad P. Bown; Rachel McCulloch
  14. Is labor flexibility a substitute to offshoring? Evidence from Italian manafacturing By Andrea F. Presbitero; Matteo G. Richiardi; Alessia Amighini
  15. Political Risk, Institutions and Foreign Direct Investment: How Do They Relate in Various European Countries? By Vladimír Benácek; Helena Lenihan; Bernadette Andreosso-O’Callaghan; Eva Michalíková; Denis Kan
  16. A Framework for Analyzing Language and Welfare By Jacques Mélitz
  17. Financial Development, Exporting and Firm Heterogeneity in Chile By Roberto Alvarez; Ricardo Lopez

  1. By: Julian Emami Namini (Erasmus University Rotterdam); Ricardo Lopez (International Business School, Brandeis University)
    Abstract: This paper develops an intra-industry trade model with skilled and unskilled labor as factors of production, endogenous accumulation of skilled labor and firm heterogeneity in factor intensities to examine the effect of trade reforms on factor prices. Since exporters are more skill intensive than non-exporters, a decrease in trade barriers initially increases wage inequality between skilled and unskilled worker, as a result of an increase in the relative demand for skilled labor. Over time, however, as agents respond to the change in relative wages by investing in skilled labor, the relative wage of skilled labor decreases. Evidence from Chilean plant-level data supports the idea of factor price overshooting with trade liberalization.
    Keywords: Intra-industry trade, Firm heterogeneity in factor intensities, Wage inequal- ity, Overshooting, Impact versus long run effect, Chile
    JEL: F12 E22 O41 O54
    Date: 2012–09
  2. By: WAKASUGI Ryuhei; Hongyong ZHANG
    Abstract: The standard model in the literature indicates that heterogeneity in productivity and fixed costs is the key in determining firms' internationalization. However, few studies have considered the effect of ownership structure on firms' exporting and foreign direct investment (FDI). This study examines how differences in productivity and ownership structure affect the exporting and FDI of Chinese firms with different types of ownership: privately owned firms, state-owned enterprises (SOE), and foreign affiliates. Using our original dataset of Chinese firms, our statistical estimations yield several new findings. We find that privately-held and SOE firms must be highly productive to engage successfully in both exporting and FDI, whereas foreign-owned firms need relatively little productivity to be successful exporters and foreign direct investors. We also find that the interaction between the mode of ownership and experience with exporting and FDI has heterogeneous effects on expanding FDI. For privately-owned and state-owned Chinese firms, experience with exporting and FDI has a stronger effect on expanding FDI than on foreign-owned firms.
    Date: 2012–09
  3. By: Richard Frensch (IOS-Regensburg); Jan Hanousek; Evžen Kočenda
    Abstract: We suggest that bilateral gravity equations augmented by ad hoc measures of absolute supply-side country differences are misspecified. Building on Haveman and Hummels (2004), we develop and test an alternative specification rooted in incomplete specialization that views bilateral gravity equations as statistical relationships constrained on countries’ multilateral specialization patterns. According to our results, specialization incentives seem not to play much of a role in the average European bilateral final goods trade relationship. However, this aggregate view conceals that trade in final goods between Western and Eastern Europe is driven by countries’ multilateral specialization incentives, as expressed by supply-side country differences relative to the rest of the world, fully compatible with incomplete specialization models. This indicates that many of the final goods traded between Western and Eastern Europe are still different, rather than differentiated, products.
    Keywords: international trade, gravity models, panel data, European Union
    JEL: F14 F16 L24
    Date: 2012–09
  4. By: Joachim Wagner (Leuphana University Lueneburg, Germany)
    Abstract: This paper contributes to the literature by comparing the productivity distribution for firms with various numbers of goods traded and various numbers of countries traded with from Germany, one of the leading actors on the world market for goods. It applies a non-parametric test for first-order stochastic dominance of one productivity distribution over another. We find that the larger the number of goods exported or imported, and the larger the number of countries exported to or imported from, the higher is the productivity of the firms – not only on average, but over the whole productivity distribution. This is in line with implications of recent theoretical models of multi-product multi-country trading firms.
    Keywords: Exports, imports, number of goods, number of countries, Germany
    JEL: F14
    Date: 2012–09
  5. By: Heiwai Tang; Yifan Zhang
    Abstract: Existing studies show that intermediaries can help verify or screen product quality for buyers. This paper examines this claim both theoretically and empirically in the context of international trade. We develop a heterogeneous-firm model that features vertical and horizontal differentiations of products, a coexistence of direct exporting and indirect exporting through intermediaries, and firms' investment in quality signaling. When complete contracts are not available, intermediaries underinvest in quality signaling from the perspective of the producer. For products that are more horizontally differentiated, competition is less intense and even low-quality firms export via intermediaries. These two mechanisms yield a negative (positive) cross-product relation between vertical (horizontal) differentiation and the prevalence of trade intermediation. Intermediation is more prevalent in the more (both physically and culturally) distant destinations, more so for the more vertically and horizontally differentiated products. Using detailed product-level data from China, we find supporting evidence for these predications.
    Keywords: Trade intermediation, vertical differentiation, product differentiation
    JEL: F12 L15
    Date: 2012
  6. By: Damien Broussolle (LaRGE Research Center, Université de Strasbourg)
    Abstract: The paper deals with the links between goods and services exports. First it explains the reasons why services exports are presumably connected with manufacturing exports and altogether to goods exports. The paper scruti-nises the various headings of the services account of the BOP. It points out that firms, whether manufacturing or services-producing tend to exports both goods and services. It then turns to the international division of labour and fragmentation process. Second the paper proposes statistical analyses based on time series of goods and services exports. The first one concerns annual one-digit headings for 13 developed countries. The last one pertains to quarterly data from 1994 to 2011 for 24 developed countries. Not surprisingly, the results tend to ascertain the complementa-rities of the two types of exports, with a correlation of around 60 %. This exploratory study however calls for future improvements and reconsidera-tions that could go beyond basic time series analysis.
    Keywords: services trade, international trade, goods & services exports.
    JEL: F14 L8
    Date: 2012
  7. By: Hiranya K. Nath (Department of Economics and International Business, Sam Houston State University); Lirong Liu (Department of Economics and International Business, Sam Houston State University)
    Abstract: This paper examines the effects of information and communications technology (ICT) on international trade in emerging markets. Using panel data for 40 emerging market economies (EMEs) for a period from 1995 to 2010, we estimate fixed effects models of exports and imports on ICT and other control variables. Our ICT variables include the growth of telecom investment, international Internet bandwidth, Internet subscriptions per 100 people, and the number of Internet hosts per 100 people. We use the share of total exports and of total imports in GDP as the dependent variables. Additionally, we consider the GDP share of exports and imports for goods and services separately. The main control variables are: per capita GDP growth, population growth, and the GDP growth for the rest of the world. The empirical results overwhelmingly suggest that Internet bandwidth, Internet subscriptions, and Internet hosts have significant positive impacts on export share while all four ICT variables including telecom investment growth have significant positive impacts on import shares in emerging market economies. This result is robust across shorter sample period, a subsample of EMEs, alternative estimation method, and alternative model specifications. There are important policy implications of this result for developing countries.
    Date: 2012–08
  8. By: Jacobson, Tor (Research Department, Central Bank of Sweden); von Schedvin, Erik (Research Department, Central Bank of Sweden)
    Abstract: We quantify the importance of trade credit chains for the propagation of corporate bankruptcies. Our results show that trade creditors (suppliers) that issue more trade credit are more exposed to trade debtor (customer) failures, both in terms of the likelihood of experiencing a debtor failure and the loss given failure. We further document that the credit loss invoked by a debtor failure imposes a substantially enhanced bankruptcy risk on the creditors. The propagation mechanism is mitigated for creditors that are less levered, cash rich, and highly profitable, and enhanced in R&D intense industries and during economic downturns.
    Keywords: Trade credit; Credit chains; Bankruptcy; Contagion
    JEL: G30 G33
    Date: 2012–08–01
  9. By: Sergey Mityakov; Heiwai Tang; Kevin K. Tsui
    Abstract: We provide evidence that deterioration of relations between the United States and another country, measured by divergence in their UN General Assembly voting patterns, reduces US imports from that country during the second wave of globalization. Though statistically, significant, such an effect of "political distance" on trade is small compared with the frictions imposed by other trade barriers. Indeed, using sector-level trade data, we show that except for petroleum and some chemical products, US imports are not affected by international politics. American firms, however, diversify their import of crude oil significantly away from the political opponents of the US, even after controlling for wars, sanctions, and tariffs. To explain the distinctive political impact on oil import diversification, we test the strategy commodity hypothesis over the hold-up risk hypothesis, because while oil is widely thought to be a strategic commodity, oil trade is also often associated with backward vertical FDI that is subject to the risks of hold-up and expropriation. Our results suggest both political and economic forces are at work. First, although the political limits on oil import are only significant when American firms import oil from dictators, the effect is even more pronounced when the exporting countries have high expropriation risk. Second, a similar import pattern is observed only for other major powers or countries with oil companies operating overseas. Finally, we show that while the US imports of a few strategic commodities, such as tin, are also discouraged by political distance, a similar political effect is also observed in the import of R&D intensive goods, in which case quasi-rents derived from backward FDI in R&D may be expropriated by a hostile government.
    Keywords: international politics, hold-up risk, energy security
    JEL: F13 F51 F59 Q34
    Date: 2012
  10. By: Florian Mölders
    Abstract: The number of free trade agreements has increased substantially since 1980 despite efforts to promote multilateral trade liberalization. While there is evidence on the determinants of FTA formation, still little is known on the processing of trade agreements, particularly regarding the pre-implementation duration. This paper fills the research gap by using event data on the proposal, the negotiation, the signing, and the implementation of trade agreements. Duration analysis is employed to examine the connection between regime types and the lengths of the negotiation and the ratification stages. The results support the claim that higher levels of democratization and political constraints are associated with delays in the implementation of an agreement. This is primarily observable in the ratification stage. Moreover, I detect significantly prolonged negotiation talks and ratifications if the European Union participates.
    Keywords: Free trade agreements, international cooperation, duration analysis
    JEL: F13
    Date: 2012
  11. By: Ganeshan Wignaraja (Asian Development Bank Institute (ADBI)); Dorothea Ramizo; Luca Burmeister
    Abstract: Trade integration and free trade agreement (FTA)-led cooperation between Asia and Latin America has increased since the early 2000s. Using new criteria, this paper examines whether Asia-Latin America FTAs have facilitated market-led integration by liberalizing trade and behind the border regulatory barriers. Overall Asia-Latin America FTAs provide the foundations for inter-regional integration by liberalizing goods and services trade as well as some regulatory barriers. Future FTAs can support deeper integration by reducing residual regulatory barriers. Other policy priorities include forming a large inter-regional FTA, stimulating business use of FTAs and accelerating structural reforms.
    Keywords: Trade integration, Free Trade Agreement, Asia-Latin America FTAs, regulatory barriers, inter-regional integration, behind the border
    JEL: F15 O24 O53 O54
    Date: 2012–09
  12. By: Benkovskis, Konstantins (BOFIT); Wörz, Julia (BOFIT)
    Abstract: This analysis of global competitiveness of emerging market economies accounts for non-price aspects of competitiveness. Building on the methodology pioneered by Feenstra (1994) and Broda and Weinstein (2006), we construct an export price index that adjusts for changes in the set of competitors (variety) and changes in non-price factors (quality in a broad sense) for nine emerging economies (Argentina, Brazil, Chile, China, India, Indonesia, Mexico, Russia and Turkey). The highly disaggregated dataset covers the period 19992010 and is based on the standardized 6-digit Harmonized System (HS). Unlike studies that use a CPI-based real effective exchange rate, our method highlights notable differences in non-price competitiveness across markets. China shows a huge gain in international competitiveness due to non-price factors, suggesting that China critics may be overstressing the role of renminbi undervaluation in explaining China’s competitive position. Oil exports account for strong improvement in Russia’s non-price competitiveness, as well as the modest losses of competitiveness for Argentina and Indonesia. Brazil, Chile, India and Turkey show discernible improvements in their competitive position when accounting for non-price factors. Mexico’s competitiveness deteriorates regardless of the index chosen.
    Keywords: non-price competitiveness; quality; relative export price; emerging countries
    JEL: C43 F12 F14 L15
    Date: 2012–09–24
  13. By: Chad P. Bown (The World Bank); Rachel McCulloch (Department of Economics, Brandeis University)
    Abstract: While the original justification of the antidumping laws in the industrial economies was to protect domestic consumers against predation by foreign suppliers, by the early 1990s the laws and their use had evolved so much that the opposite concern arose. Rather than attacking anti-competitive behavior, dumping complaints by domestic firms were being used to facilitate collusion among suppliers and enforce cartel arrangements. This paper examines the predation and anti-competitiveness issues from the perspective of the “new users” of antidumping—the major emerging economies for which antidumping is now a major tool in the trade policy arsenal. We examine these concerns in light of important ways in which the world economy and international trading system have been changing since the early 1990s, including more firms and more countries participating in international trade, but also more extensive links among suppliers and consumers through multinational firm activity and vertical specialization.
    Keywords: Antidumping, Temporary trade barriers, Competition, Antitrust, WTO
    JEL: F13
    Date: 2012–08
  14. By: Andrea F. Presbitero; Matteo G. Richiardi; Alessia Amighini
    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: offshoring, labor flexibility, temporary work, delocalization, labor market reforms,cost saving
    JEL: J21 F16 F23
    Date: 2012
  15. By: Vladimír Benácek (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Helena Lenihan (University of Limerick); Bernadette Andreosso-O’Callaghan (University of Limerick); Eva Michalíková (Brno University of Technology); Denis Kan (University of Limerick)
    Abstract: This paper examines theoretically and empirically the extent to which the decision by foreign firms to invest in a group of countries is influenced by economic factors, as opposed to political risk and institutional performance. We consider the importance of these factors as drivers of foreign direct investment (FDI) for 32 European countries (subsequently divided into three pooled clusters) by means of panel regression techniques in two specifications over the 1995-2008 period. Our results suggest that risk and institutional factors considered in both static and dynamic perspectives significantly influence the behaviour of investors. Policies and institutions that vary widely between countries modify their decision-making, so that the purely economic factors have different statistical significance and impacts on the intensity of FDI, as was revealed by clustering countries into three groups according to levels of economic maturity. Additionally, not all factors of risk have an identical impact on FDI decisions in particular groups of countries. However, we find that as measures of political risk, monetary discipline, low regulation, effective government and good education prove to be highly significant for most country groupings. All of these measures reduce political risk and positively affect the level of FDI.
    Keywords: FDI; Political risk; Economic institutions; Panel regression; European Union
    JEL: F2 D81 C23
    Date: 2012–07
  16. By: Jacques Mélitz (Heriot-Watt University,CEPR,CREST,CEPII)
    Abstract: The paper proposes a general model that will encompass trade and social benefits of a common language, a preference for a variety of languages, the fundamental role of translators, an emotional attachment to maternal language, and the threat that globalization poses to the vast majority of languages. With respect to people’s emotional attachment, the model considers minorities to suffer losses from the subordinate status of their language. In addition, the model treats the threat to minority language as coming from the failure of the parents in the minority to transmit their maternal language (durably) to their children. Some familiar results occur. In particular, we encounter the usual social inefficiencies of decentralized solutions to language learning when the sole benefits of the learning are communicative benefits (though translation intervenes). However, these social inefficiencies assume a totally different air when the consumer gains of variety are brought in. One fundamental aim of the paper is to bring together contributions to the economics of language from labor economics, network externalities and international trade that are typically treated separately
    Keywords: Language, Welfare, Trade
    JEL: D60 F10 Z10
    Date: 2012–08
  17. By: Roberto Alvarez (University of Chile and Central Bank of Chile); Ricardo Lopez (International Business School, Brandeis University)
    Abstract: Using plant-level data from the manufacturing sector of Chile for the period 1990-2000, this paper examines the effect of financial development on the probability of exporting at the plant level, with a special focus on the heterogeneous responses of plants with different characteristics. The main results are that an improvement in financial development increases the probability of exporting of more productive plants and those with foreign ownership operating in manufacturing sectors that are more dependent on external finance. Our estimates also show that financial development does not appear to improve the probability of exporting for relatively smaller and younger plants. This result suggests that, at least for the case of exporting in Chile, smaller and younger plants are not necessarily more likely to benefit than larger and older plants from improvements in access to credit.
    Keywords: Exporting, Financial Development, Credit Constraints, Plant Level Data, Chile
    JEL: F14 O16 O54
    Date: 2012–05

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