nep-int New Economics Papers
on International Trade
Issue of 2012‒11‒11
eighteen papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Trade Costs, Innovation, and the Gains from Trade By Jeff Thurk
  2. Product relatedness and firm exports in China By Sandra Poncet; Felipe Starosta de Waldemar
  3. Export upgrading and growth: the prerequisite of domestic embeddedness By Sandra Poncet; Felipe Starosta de Waldemar
  4. Estimates of the Trade and Welfare Effects of NAFTA By Lorenzo Caliendo; Fernando Parro
  5. Globalization and Female Labor Force Participation in Developing Countries: An Empirical (Re-)Assessment By Arusha Cooray; Isis Gaddis; Konstantin M. Wacker
  6. Selection Effects with Heterogeneous Firms By Monika Mrázová; J. Peter Neary
  7. Information Frictions in Trade By Treb Allen
  8. The Determinants of Service Imports: The Role of Cost Pressure and Financial Constraints By Elena Biewen; Daniela Harsch; Julia Spies
  9. Trade Policy and Wage Inequality: A Structural Analysis with Occupational and Sectoral Mobility By Erhan Artuç; John McLaren
  10. Trade and Inequality: From Theory to Estimation By Stephen Redding; Oleg Itskhoki; Marc-Andreas Muendler; Elhanan Helpman
  11. Skilled-Unskilled Wage Gap Versus Evolving Trade And Labour Market Structures in the EU By Aleksandra Parteka
  12. Trade and Divergence in Education Systems By Pao-Li Chang; Fali Huang
  13. Critical Review of 'A Simple Model of Firm Heterogeneity, International Trade and Wages' By Atif, Syed Muhammad
  14. Estimating the Extensive Margin of Trade By J.M.C. Santos Silva; Silvana Tenreyro; Kehai Wei
  15. European Export Performance By Angela Cheptea; Lionel Fontagné; Soledad Zignago
  16. Geographical simulation analysis for logistics enhancement in Asia By Kumagai, Satoru; Hayakawa, Kazunobu; Isono, Ikumo; Keola, Souknilanh; Tsubota, Kenmei
  17. Native language, spoken language, translation and trade By Jacques Melitz; Farid Toubal
  18. Determinants of transport costs: Are they uniform across countries? By Schürenberg-Frosch, Hannah

  1. By: Jeff Thurk (University of Notre Dame)
    Abstract: We ask whether incorporating product quality differentiation has real effects on trade flows and welfare. We develop and calibrate a multi-country, general equilibrium model of international trade that includes endogenous product quality differentiation amongst heterogeneous firms. Separable transportation and ad valorem trade costs as in Hummels and Skiba (2004) creates a mechanism for product quality to have real effects. The model provides a framework to quantify the effects of quality dierentiation on trade flows and welfare in response to a trade liberalization. We find that this channel amplifies the effects of trade liberalization on welfare and exports by 46% and 34%, respectively. Roughly 80% of these effects are driven by liberalization of tariffs rather than transport or fixed export costs.
    Date: 2012
  2. By: Sandra Poncet; Felipe Starosta de Waldemar
    Abstract: We propose the first evaluation using micro-level data of the expected growth gains from the consistency of activities with local comparative advantage. Using firm level data from Chinese customs over 2000-2006, we investigate the relationship between the export performance of firms and how their products relate to local comparative advantage. Our key indicator measures the density of the links between a product and the local product space. It hence combines information on the intrinsic relatedness of a good to that on the local pattern of specialization. Our results indicate that exports grow faster for goods that have denser links with those currently produced in the firm’s locality. The density of links between products thus seems to yield export-enhancing spillovers. We however also show that this positive effect of product relatedness on export performance is mainly limited to ordinary trade activities and domestic firms. It is also stronger for more productive firms, suggesting that spillover diffusion may be hindered by insufficient absorptive capacity.
    Keywords: Product space;density;spillovers;export performance;China
    JEL: F10 O11 O14 O40 O53
    Date: 2012–10
  3. By: Sandra Poncet; Felipe Starosta de Waldemar
    Abstract: Our work contributes to the literature relating output structure and economic development by showing that growth gains from upgrading are not unconditional. Relying on data from a panel of Chinese cities, we show that the level of capabilities available for domestic firms operating in ordinary trade is an important driver of economic growth. However, no direct gains emanate from the complexity of goods produced by either processing-trade activities or foreign firms. This suggests that the sources of product upgrading matter, and that domestic embeddedness is the key for capacity building and technology adoption to be growth enhancing.
    Keywords: Economic complexity;export upgrading;FDI;processing trade;growth;China
    JEL: F10 O11 O14 O40 O53
    Date: 2012–10
  4. By: Lorenzo Caliendo; Fernando Parro
    Abstract: We build into a Ricardian model sectoral linkages and differing productivity levels across sectors to understand how the gains from tariff reductions in a given sector spread to the rest of the economy. We also propose a new method to estimate sectoral trade elasticities consistent with any trade model that delivers a gravity trade equation. We apply our model and use our estimated elasticities to identify the impact of NAFTA's tariff reductions on exports and imports of all members. We find that the trade and welfare effects of tariff reductions are reduced by more than 40% when the structure of production does not take into account intermediate goods in production and input-output linkages. We then decompose the effects of tariff changes for NAFTA members and find that 93% of Mexico's, 58% of Canada's and 55% of the United States' trade effects due to tariff reductions can be attributed to NAFTA's tariff reductions.
    JEL: F10 F11 F13 F14 F17
    Date: 2012–11
  5. By: Arusha Cooray (University of Wollongong); Isis Gaddis (Georg-August-University Göttingen); Konstantin M. Wacker (Georg-August-University Göttingen)
    Abstract: We investigate the impact of foreign direct investment (FDI) and trade, as two measures of globalization, on female labor force participation in a sample of 80 developing countries over the last decades. Contrary to the mainstream view in the literature, which is mainly based on country-case studies or simple cross-country variation, we find that both, FDI and trade have a generally negative impact on female labor force participation. While the impact is of negligible economic size, it is stronger for younger cohorts, potentially reflecting a higher incentive to stay out of the labor force and invest in education in view of an increased skill premium due to globalization. We also find that the direction of the effect depends on the industrial structure of the economy. This suggests that there is no evidence of a (conditional) anti-female bias in multinational corporations' factor demand once one controls for the interaction of FDI with the size of the agricultural sector. We can thereby explain why country studies find other effects and question the generalization of their results into an overarching globalization tale concerning female labor force participation.
    Keywords: Globalization; Labor Force Participation; FDI; Trade; Development; Hierarchical Panel Data Models
    JEL: F0 J22 O1
    Date: 2012–10–30
  6. By: Monika Mrázová; J. Peter Neary
    Abstract: We provide a general characterization of which firms will select alternative ways of serving a market. If and only if firms' maximum profits are supermodular in production and marketaccess costs, more efficient firms will select into the activity with lower market-access costs. Our result applies in a range of models and under a variety of assumptions about market structure. We show that supermodularity holds in many cases but not in all. Exceptions include FDI (both horizontal and vertical) when demands are "sub-convex" (i.e., less convex than CES), fixed costs that vary with access mode, and R&D with threshold effects.
    Keywords: Foreign direct investment (FDI), heterogeneous firms, proximity-concentration trade-off, R&D with threshold effects, super- and sub-convexity, supermodularity
    JEL: F23 F15 F12
    Date: 2012–10
  7. By: Treb Allen (Yale University)
    Abstract: It is costly to acquire information about markets in other places, especially in developing countries. In this paper, I examine the effect of such information frictions on trade. I embed a process where heterogeneous producers sequentially search across regions to determine where to sell their produce into a perfect competition Ricardian trade model. Information frictions explain the empirical failure of price arbitrage and provide new insight into how market conditions affect trade flows. Using a data set I assemble on regional agricultural trade in the Philippines, I show that observed trade flows and prices suggest the presence of substantial information frictions. I then structurally estimate the model to disentangle information frictions from transportation costs. I find that (1) estimated transportation costs are half as large as those implied by complete information models and more consistent with observed freight costs; and (2) the vast majority (93 percent) of the “gravity†relationship between trade flows and distance can be attributed to information frictions rather than transportation costs.
    Date: 2012
  8. By: Elena Biewen; Daniela Harsch; Julia Spies
    Abstract: This study provides evidence on how German multinational firms restructured their service activities during the last decade. Making use of new micro-level data on service imports of German multinationals from 2002-2008, we assess the determinants of service offshoring along the extensive and intensive margins. In particular, we evaluate how internal frictions in terms of lower sales level (per employee) and external frictions in terms of a reduced availability of credit co-determine the likelihood and the extent of sourcing services from abroad. First, we find a decreasing probability of starting to import services from abroad if firms are already under cost pressure. By contrast, firms intensify existing linkages of service imports in times of a sales drop. Second, financial constraints, which play a major role for goods trade, do not have any significant effect on service imports. These results are in line with the argument that the generally observed crisis-resilience of service trade stems from increased pressures to save on variable costs through offshoring and from its lower dependence on external finance. Furthermore, we find that a decline in sales and labor productivity induces firms to sort into intra-firm rather than arm’s-length trading.
    Keywords: Service Imports, Intra-Firm Trade, Arm’s-Length Trade
    JEL: F12 F15 L13
    Date: 2012–10
  9. By: Erhan Artuç; John McLaren
    Abstract: A number of authors have argued that a worker's occupation of employment is at least as important as the worker's industry of employment in determining whether the worker will be hurt or helped by international trade. We investigate the role of occupational mobility on the effects of trade shocks on wage inequality in a dynamic, structural econometric model of worker adjustment. Each worker in our specification can switch either industry, occupation, or both, paying a time-varying cost to do so in a rational-expectations optimizing environment. We find that the costs of switching industry and occupation are both high, and of similar magnitude, but in simulations we find that a worker's industry of employment is much more important than either the worker's occupation or skill class in determining whether or not she is harmed by a trade shock.
    JEL: E24 F13 F16
    Date: 2012–11
  10. By: Stephen Redding (Princeton University); Oleg Itskhoki (Princeton University); Marc-Andreas Muendler (University of California, San Diego); Elhanan Helpman (Harvard University)
    Abstract: While neoclassical theory emphasizes the impact of trade on wage inequality between occupations and industries, more recent theories of firm heterogeneity point to the impact of trade on wage dispersion within occupations and industries. Using linked employer-employee data for Brazil, we show that much of the increase in wage inequality between 1986 and 1998 has occurred within sector-occupations; the increase in the within component of wage inequality is driven by wage dispersion across firms; and the change in wage dispersion between firms is related to trade participation. We then use an extension of the theoretical model from Helpman, Itskhoki, and Redding (2010a) to construct an econometric model of the effect of trade on inequality, which we estimate with Brazilian data. We show that the estimated model fits the data well, both in terms of some key moments as well as in terms of the overall distributions of wages and employment. International trade is important for this fit. In particular, we show that by shutting down the trade channel the estimated model is significantly less successful in matching the data. Finally, we quantify the contribution of the firm-based channel through which trade affects wage inequality.
    Date: 2012
  11. By: Aleksandra Parteka (Gdansk University of Technology, Gdansk, Poland)
    Abstract: This paper proposes an alternative approach to the empirical study of wage gap between workers with different educational levels in the enlarged EU. The analysis is based on sectoral database, linking labor market statistics and trade data at the level of 12 manufacturing sectors in a group of 20 European countries: selected New Member States (NMS-5) and former EU-15 economies, in the period 1995-2005. The results of the empirical model suggest that wage inequality between workers with academic education and lower is associated mainly with domestic (and not foreign) labor market conditions and, to a lower extent, to trade forces. Degree of trade penetration affects skilled-unskilled wage gaps but we do not find significant wage effects of imports from less developed EU countries. The same result is confirmed when we consider trade in intermediates and outsourcing practices in Europe.
    Keywords: wage inequality, skills, integration
    JEL: C62 F16 J31
    Date: 2012–11
  12. By: Pao-Li Chang (Singapore Management University, School of Economics); Fali Huang (Singapore Management University, School of Economics)
    Abstract: This paper presents a theory on the endogenous choice of a country's education policy and the two-way causal relationship between trade and education systems. The setting of a country's education system determines its talent distribution and comparative advantage in trade; the possibility of trade by raising the returns to the sector of comparative advantage in turn induces countries to further differentiate their education systems and reinforces the initial pattern of comparative advantage. Specifically, the Nash equilibrium choice of education systems by two countries interacting strategically are necessarily more divergent than their autarky choices, although the difference is still less than what is socially optimal for the world. We provide some preliminary empirical evidence on the relationship between education system and talent distribution.
    Keywords: Education System, Talent Distribution, Comparative Advantage, Trade Pattern
    JEL: F16 I20 J24
    Date: 2012–09
  13. By: Atif, Syed Muhammad
    Abstract: This report critically analyses the paper "A Simple Model of Firm Heterogeneity, International Trade and Wages' authored by, Stephen Ross Yeaple. Yeaple (2005) introduces a static model in which ex-ante homogeneous firms are differentiated based on heterogeneity in technology adoption and skill selection. The process of decision making is based on comparative study of revenues and costs associated with acquisition of technology and labor. By segmenting technology into high- and low-tech, and labor into high- and low-skilled, Yeaple suggests that high-tech firms hire skilled labor at greater wages and yield the access to international market, while on the other hand, the low-tech firms hire moderate skilled labor, pay lower wages and supply to the domestic market only. Furthermore, he shows that under an open economy, a reduction in costs of international trade leads to an increase in share of high-tech (exporting) firms and induces some low-tech firms to switch to the high-tech industry.
    Keywords: Firm Heterogeneity; International Trade
    JEL: F16 J21
    Date: 2012–10–26
  14. By: J.M.C. Santos Silva; Silvana Tenreyro; Kehai Wei
    Abstract: Understanding and quantifying the determinants of the number of sectors or firms exporting in a given country is of relevance for the assessment of trade policies. Estimation of models for the number of sectors, however, poses a challenge because the dependent variable has both a lower and upper bound, implying that the partial effects of the explanatory variables on the conditional mean of the dependent variable cannot be constant and must approach zero as the dependent variable approaches the bounds. We argue that ignoring these bounds by using OLS or count-data models that ignore the upper bound can lead to erroneous conclusions due to the model's misspecification. We propose a flexible specification that accounts for the doubly-bounded nature of the dependent variable. We empirically investigate the problem and the proposed solution, and find significant differences between estimates obtained with the proposed estimator and those obtained with standard approaches.
    Date: 2012–10–31
  15. By: Angela Cheptea; Lionel Fontagné; Soledad Zignago
    Abstract: Competitiveness has come to the forefront of the policy debate within the European Union, focusing on price competitiveness and intra-EU imbalances. But how to measure competitiveness properly, beyond price or cost competitiveness, remains an open methodological issue; and how can we explain the resilience of producers located in the EU to the competition of emerging economies? We analyze the redistribution of world market shares at the level of the product variety, as countries no longer specialize in sectors or even products, but in varieties of the same product, sold at dierent prices. We decompose changes in market shares into structural eects (geographical and sectoral) and a pure performance eect. Our method is based on an econometric shift-share decomposition and we regard the EU-27 as an integrated economy, excluding intra-EU trade. Revisiting the competitiveness issue in such a perspective sheds new light on the ongoing debate. From 1995 to 2009 the EU-27 withstood the competition from emerging countries better than the US and Japan. The EU market shares in the upper price range of the market proved quite resilient, by combining good performance and favorable structure eects, unlike the US and Japan. Finally, while most developed countries lose market shares in high-technology products to developing countries, the EU is slightly gaining, beneting of a favorable structure eect.
    Keywords: International Trade, Export Performance, Competitiveness, Market Shares, Shift-Share, European Union
    JEL: F12 F15
    Date: 2012–10
  16. By: Kumagai, Satoru; Hayakawa, Kazunobu; Isono, Ikumo; Keola, Souknilanh; Tsubota, Kenmei
    Abstract: This paper presents a simulation of the reduction of several components in trade cost for Asia and examines its impact on the economy. Our simulation model based on the new economic geography embraces seven sectors, including manufacturing and non-manufacturing sectors, and 1,715 regions in 18 countries/economies in Asia, in addition to the two economies of the US and the European Union. The geographical course of transactions among regions is modeled as determined based on firms’ modal choice. The model also includes estimates of some border cost measures such as tariff rates, non-tariff barriers, other border clearance costs, transshipment costs and so on. Our simulation analysis for Asia includes several scenarios involving the improvement/development of routes and the reduction of the above-mentioned border cost. We have shown that the contribution of physical and non-physical infrastructure improvements conducted together is larger than the sum of the contribution by each when conducted independently.
    Keywords: Asia, Transportation, Distribution, Costs, International trade, Geographical simulation, New economic geography, Trade cost
    JEL: F15 O53 R15
    Date: 2012–10
  17. By: Jacques Melitz; Farid Toubal
    Abstract: We construct new series for common native language and common spoken language for 195 countries, which we use together with series for common official language and linguistic proximity in order to draw inferences about (1) the aggregate impact of all linguistic factors on bilateral trade, (2) whether the linguistic influences come from ethnicity and trust or ease of communication, and (3) in so far they come from ease of communication, to what extent translation and interpreters play a role. The results show that the impact of linguistic factors, all together, is at least twice as great as the usual dummy variable for common language, resting on official language, would say. In addition, ease of communication is far more important than ethnicity and trust. Further, so far as ease of communication is at work, translation and interpreters are extremely important. Finally, ethnicity and trust come into play largely because of immigrants and their influence is otherwise difficult to detect.
    Keywords: Language, Bilateral Trade, Gravity Models
    JEL: F10 F40
    Date: 2012–07
  18. By: Schürenberg-Frosch, Hannah
    Abstract: The author shows with pooled OLS estimations based on transport margins from international social accounting data that investments in improved road infrastructure have the potential to significantly reduce transport costs. However, this result can only be clearly confirmed for industrial countries and is of primary importance for production and transportation of agricultural goods. For developing and transition countries, in contrast, the author finds other determinants such as weather conditions to be more important in determining transport costs. A key variable, especially in these countries, is corruption. Very high corruption has the potential to prevent positive effects from road infrastructure on transport costs or to even reverse them. This paper contributes to the literature on infrastructure investment by introducing and applying an internationally comparable measure of transport costs which can be calculated for a large and growing number of countries. The author concludes that investments in transport infrastructure can have substantial positive effects especially on agricultural production and the efficient marketing of agricultural products but only if specific additional conditions are given. --
    Keywords: infrastructure,transport networks,transport costs,agriculture,public investment,development
    JEL: O18 O11 R42
    Date: 2012

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