nep-int New Economics Papers
on International Trade
Issue of 2013‒04‒27
fourteen papers chosen by
Alessia A. Amighini
Universita' Amedeo Avogadro

  1. Icebergs versus tariffs: A quantitative perspective on the gains from trade By Felbermayr, Gabriel; Jung, Benjamin; Larch, Mario
  2. Multinational Retailers and Home Country Exports By Angela Cheptea; Charlotte Emlinger; Karine Latouche
  3. Estimating the elasticity of trade: the trade share approach By Mauro Lanati
  4. Firm-Level Heterogeneity and the Decision to Export: A Real Option Approach By Naudé, Wim; Gries, Thomas; Bilkic, Natasa
  5. Globalisation and Ireland's Export Performance By Ruane, Frances; Siedschlag, Iulia; Murphy, Gavin
  6. Different Partners, Different Patterns: Trade and Labour Market Dynamics in Brazil's Post-Liberalisation Period By David Kupfer; Marta Castilho; Esther Dweck; Marcelo Nicoll
  7. Dynamic Selection and the New Gains from Trade with Heterogeneous Firms By Thomas Sampson
  8. China's Pure Exporter Subsidies By Fabrice Defever; Alejandro Riaño
  9. Does freer trade really lead to productivity growth?: Evidence from Africa By Bresnahan, Lauren; Coxhead, Ian; Foltz, Jeremey; Mogues, Tewodaj
  10. Export liberalization, job creation and the skill premium : evidence from the U.S.-Vietnam bilateral trade agreement By Fukase, Emiko
  11. Market Access, Export performance and Survival: Evidence from Peruvian Firms By Marco Fugazza; Alain McLaren;
  12. Relationship between trade openness and economic growth of India: A time series analysis By Monojit Chatterji; Sushil Mohan; Sayantan Ghosh Dastidar
  13. Export performance, invoice currency, and heterogeneous exchange rate pass-through By Richard Fabling; Lynda Sanderson

  1. By: Felbermayr, Gabriel; Jung, Benjamin; Larch, Mario
    Abstract: Recent quantitative trade models treat import tariffs as pure cost shifters so that their effects are similar to iceberg trade costs. We introduce revenue-generating import tariffs, which act as demand shifters, into the framework of Arkolakis, Costinot and Rodriguez-Clare (2012), and generalize their gains from trade equation. Our formula permits easy quantification based on countries' observed degrees of openness, tariff revenues, and on the gravity elasticities of tariffs and icebergs. Export selection drives a wedge between these two elasticities and matters for welfare gains. However, in all model variants, an analysis based on iceberg costs necessarily underestimates the true gains from trade relative to autarky. Our quantitative exercise suggests that the bias can be numerically significant. For countries with relatively high tariffs, our formula predicts 30-60% larger gains from trade when iceberg trade costs and/or tariffs are liberalized as compared to a pure reduction of iceberg trade costs. --
    Keywords: Gravity Equation,Monopolistic Competition,Heterogeneous Firms,Armington Model,International Trade,Trade Policy,Gains from Trade
    JEL: F10 F11 F12
    Date: 2013
  2. By: Angela Cheptea; Charlotte Emlinger; Karine Latouche
    Abstract: This paper questions whether the overseas expansion of a country’s retailers fosters overall bilateral exports towards these host markets. To address this question, we consider an empirical trade model, where the foreign sales of multinational retailers reduce the fixed and variable trade costs of their co-national firms towards the same destination markets. We test our model with data on bilateral exports on a large panel of countries and the foreign sales of world’s largest one hundred retailers over the 2001-2010 decade. We find a strong positive effect of the overseas presence of a country’s retailers on its exports to those markets. This outcome is far from being trivial, as most products sold in retailers foreign outlets are locallyproduced. It testifies that the overseas presence of a country’s retail companies contributes to the reduction of trade costs towards these markets for other origin country firms. Our result is robust to different specifications, the use of different sets of instrumental variables and econometric approaches.
    Keywords: international trade, multinational retailers
    JEL: F10 F12 F14 F23
    Date: 2013
  3. By: Mauro Lanati
    Abstract: Recent theoretical work on international trade emphasizes the importance of trade elasticity as the fundamental statistic needed to conduct welfare analysis. Eaton and Kortum (2002) proposed a two-step method to estimate this parameter, where exporter fixed effects are regressed on proxies for technology and wages. Within the same Ricardian model of trade, the trade share provides an alternative source of identication for the elasticity of trade. Following Santos Silva and Tenreyro (2006) both trade share and EK models are estimated using OLS and Poisson PML to test for the presence of heteroskedasticity-type-of-bias. The evidence from both specifications suggests that the bias in the OLS estimates significantly impacts the magnitude of trade cost elasticity. The welfare analysis reveals that the resulting extreme variability of the trade cost elasticity and the imposition of a common manufacturing share parameter for all countries generate substantial distortions in the calculation of benefits from trade.
    Keywords: trade cost elasticity; gravity model; competitiveness equation; trade share; gains from international trade
    Date: 2013–04–23
  4. By: Naudé, Wim (Maastricht School of Management); Gries, Thomas (University of Paderborn); Bilkic, Natasa (University of Paderborn)
    Abstract: In "new" new international trade theory, whether firms export or not are determined by their productivity. These models assume that firms enter a market to find their productivity levels revealed to them as in a lottery. In this paper we propose an alternative way to model whether firms export or not, namely as a firm-level decision akin to an investment decision with a real option value. We show that endogenizing the export decision is consistent with patterns of productivity and exporting reported in the empirical literature.
    Keywords: international new ventures, firm-level heterogeneity, start-ups, stochastic dynamic programming, trade, exports, productivity, real option theory, investment, firms, international entrepreneurship
    JEL: D92 D81 L26 M13
    Date: 2013–04
  5. By: Ruane, Frances; Siedschlag, Iulia; Murphy, Gavin
    Abstract: This paper provides empirical evidence on Ireland's export performance in the context of increased globalisation over the past ten years. Using insights from recent contributions to international trade and economic growth theories, we first examine patterns and changes of revealed comparative advantages for Ireland's exports of goods and services. We then investigate whether Irish exports have specialised in fast growing industries and markets in world exports over the period. Third, we analyse determinants of export performance dynamics focusing on product and market structures and competitiveness effects. Finally, to put Ireland's export performance into perspective, we compare this evidence with recent developments in other selected European small open economies.
    Keywords: Comparative/competitiveness/economic growth/growth/Ireland/Services/Trade
    Date: 2013–03
  6. By: David Kupfer; Marta Castilho; Esther Dweck; Marcelo Nicoll
    Abstract: This paper seeks to evaluate to what extent the greater external exposure of the Brazilian economy in the past decade has contributed to the evolution of employment in the country. This investigation has been undertaken in two ways. First, the total employment variation was decomposed in order to identify the contribution of the final demand components – exports in particular – to this evolution. The decomposition was carried out using the Input-Output Matrix (IOM) methodology and, due to the availability of the estimated IOMs for Brazil, the exercise focused on the period 2000-07. Then, based on the labour content of trade, we estimated the volume of direct employment associated with exports, according to the skill level of workers and to the geographical composition of Brazilian exports, focusing in particular on the years 2002 and 2008. The paper finds that Brazilian exports expanded vigorously in the 2000s and contributed positively to employment generation, though this contribution was relatively small. Largely as a consequence of technological change and shifts in the composition of trade, the jobs created by exports only amounted to about 15% of those created by domestic demand and the export-related jobs were predominantly low skilled jobs.
    Keywords: exports, trade, employment
    JEL: F16
    Date: 2013–04–18
  7. By: Thomas Sampson
    Abstract: This paper develops an open economy growth model in which firm heterogeneity increases the gains from trade. Technology spillovers from incumbent firms to entrants cause the productivity threshold for firm survival to grow over time as competition becomes tougher. By raising the profits of exporters, trade increases the entry rate and generates a dynamic selection effect that leads to higher growth. The paper shows that the gains from trade can be decomposed into: static gains that equal the total gains from trade in an economy without technology spillovers, and; dynamic gains that are strictly positive. Since trade raises growth through selection, not scale effects, the positive growth effect of trade vanishes when firms are homogeneous. Thus, firm heterogeneity creates a new source of dynamic gains from trade. Calibrating the model to the U.S. economy implies that dynamic selection approximately triples the gains from trade.
    Keywords: Gains from Trade, Endogenous Growth, Firm Heterogeneity
    JEL: F12 F43 O41
    Date: 2013–04
  8. By: Fabrice Defever; Alejandro Riaño
    Abstract: One third of Chinese exporters sell more than ninety percent of their production abroad. We argue that this distinctive pattern is attributable to the widespread use of subsidies that require firms to export the vast majority of their output. We study this type of subsidy in the context of a heterogeneous-firm model, and show that it is worse from a welfare standpoint than a regular export subsidy, partly because it increases protection of the domestic market. A counterfactual analysis suggests that eliminating these subsidies would result in a welfare gain for China comparable to that of halving its trade costs.
    Keywords: Trade Policy, Export Subsidies, Heterogeneous Firms, China
    JEL: F12 F13 O47
    Date: 2013–04
  9. By: Bresnahan, Lauren; Coxhead, Ian; Foltz, Jeremey; Mogues, Tewodaj
    Abstract: We use firm-level data from the World Bank’s Regional Program on Enterprise Development, covering Ghana, Kenya, Nigeria, and Tanzania for 1991–2003. Econometric results confirm well-known relationships, such as a positive association between export intensity and TFP, which implies that more productive firms are more likely to select in to exporting.
    Keywords: trade; firm productivity; Manufacturing industries; exports; trade liberalization;,
    Date: 2013
  10. By: Fukase, Emiko
    Abstract: This paper explores how the expansion of labor-intensive manufacturing exports resulting from the United States-Vietnam Bilateral Trade Agreement in 2001 translated into wages of skilled and unskilled workers and the skill premium in Vietnam through the channel of labor demand. In order to isolate the impacts of trade shock from the effects of other market-oriented reforms, a strategy of exploiting the regional variation in difference in exposure to trade is employed. Using the data on panel individuals from the Vietnam Household Living Standards Surveys of 2002 and 2004, and addressing the issue of endogeneity, the results confirm the existence of a Stolper-Samuelson type effect. That is, those provinces more exposed to the increase in exports experienced relatively larger wage growth for unskilled workers and a decline of (or a smaller increase in) the relative wages of skilled and unskilled workers. During the period 2000-2004, the skill premium increased for Vietnam's economy as a whole in the sample of panel individuals. Thus, the Stolper-Samuelson type effect appears to have mitigated but did not outweigh the impacts of other factors that contributed to the rise in the skill premium.
    Keywords: Labor Markets,Economic Theory&Research,Free Trade,Trade Policy,Labor Policies
    Date: 2013–04–01
  11. By: Marco Fugazza; Alain McLaren;
    Abstract: This paper explores the effect of market access on firms' export performance and their survival on foreign markets. The data used covers all Peruvian exporting firms between 2002 and 2008, a period during which Peru was active in joining the global economy. This is done using two indices, one that summarizes the tariffs faced by exports, the other that measures the preferential margin at the bilateral level. Results show that more than market access conditions per se, it is market access conditions relative to those faced by competitors that significantly influences export performance and survival. About a fifth of the increase of exports directed to Mercosur countries is due to improvement in preference margins.
    Keywords: export performance, survival analysis, Peru, firm level data, market access
    Date: 2013–02
  12. By: Monojit Chatterji; Sushil Mohan; Sayantan Ghosh Dastidar
    Abstract: The paper aims to examine the empirical relationship between trade openness and economic growth of India for the time period 1970-2010. Trade openness is a multi-dimensional concept and hence measures of both trade barriers and trade volumes have been used as proxies for openness. The estimation results from Vector Autoregressive method suggest that growth in trade volumes accelerate economic growth in case of India. We do not find any evidence from our analysis that trade barriers lower growth.
    Keywords: Trade openness, economic growth, India, time series analysis
    JEL: F14 F43 O40
    Date: 2013–04
  13. By: Richard Fabling; Lynda Sanderson (The Treasury)
    Abstract: Using comprehensive, shipment-level merchandise trade data, we examine the extent to which New Zealand exporters maintain stable New Zealand dollar prices by passing on exchange rate changes to foreign customers. We find that the extent to which firms absorb exchange rate fluctuations in the short run is significantly related to both invoice currency choice and exporter characteristics when these are analysed separately. However, when jointly accounted for, the role of exporter characteristics largely disappears. That is, some firm types are more inclined to invoice in the New Zealand dollar, while others use either the importer or a third currency. In the short run, this translates into differences in exchange rate pass through because of price rigidity in the invoice currency. Differences across invoice currencies diminish, but do not disappear, over time as prices adjust to reflect bilateral exchange rate movements.
    Keywords: Exchange rate pass-through; Firm performance
    JEL: D21 F14 F31
    Date: 2013–02
  14. By: Olivier Cardi; Romain Restout
    Abstract: This paper investigates the relative price and relative wage effects of a higher productivity in the traded sector compared with the non traded sector in a two-sector open economy model with imperfect substitutability in hours worked across sectors. The Balassa- Samuelson model predicts that a rise in the sectoral productivity ratio by 1% raises the relative price of non tradables by 1% while leaving unchanged the non traded wage-traded wage ratio. Applying cointegration methods to a panel of fourteen OECD countries over the period 1970-2007, our estimates show that the relative price rises by only 0.78% while the relative wage falls by 0.27%. Hence, our first set of empirical ¯ndings cast doubt on the quantitative predictions of the Balassa-Samuelson model. A second set of empirical findings highlights the role of imperfect labor mobility: interacting the ratio of sectoral labor share-adjusted total factor productivities with an index of labor mobility across sectors, we find that the relative price responds more to a productivity differential between tradables and non tradables while the reaction of the relative wage is more muted as the degree of labor mobility increases. We show that the ability of the two-sector model to account for our evidence quantitatively relies upon two ingredients: i) imperfect mobility of labor across sectors, and ii) physical capital accumulation. Finally, our numerical results are robust to the introduction of i) non-separability in preferences between consumption and labor, and ii) traded investment.
    Keywords: Relative price of non tradables, Sectoral wages, Productivity growth, Sectoral labor reallocation, Investmen.
    JEL: E22 F11 F41 F43
    Date: 2013

This nep-int issue is ©2013 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.