nep-int New Economics Papers
on International Trade
Issue of 2013‒06‒24
fifteen papers chosen by
Alessia A. Amighini
Universita' Amedeo Avogadro

  1. Foreign Ownership and the Extensive Margins of Exports: Evidence for Manufacturing Enterprises in Germany By Horst Raff; Joachim Wagner
  2. Pattern, Determinants and Dynamics of Austrian Service Exports – A Firmlevel Analysis By Yvonne Wolfmayr; Elisabeth Christen; Michael Pfaffermayr
  3. Do Preferential Trade Policies (Actually) Increase Exports? An analysis of EU trade policies By Cipollina, Maria; Laborde, David; Salvatici, Luca
  4. Intra-industry trade By Kwok Tong Soo
  5. How many dimensions do we trade in ? product space geometry and latent comparative advantage By Arvis, Jean-Francois
  6. Tariffs and the Organization of Trade in China By Peter M. Morrow; Loren Brandt
  7. Comparing the Performance of Uganda’s Intra-East African Community Trade and Other Trading Blocs: A Gravity Model Analysis By Isaac, Shinyekwa; Lawrence, Othieno
  8. Credit Constraints, Technology Choice and Exports - A Firm Level Study for Latin American Countries By Hasan, Syed M.
  9. Trade Patterns and Export Pricing Under Non-CES Preferences By Sergey Kichko; Sergey Kokovin; Evgeny Zhelobodko
  10. Do Trade Costs Affect the Extensive Margin of Trade? Lessons from U.S. Fresh Fruits and Vegetables Imports By Hejazi, Mina; Grant, Jason
  11. Nontariff Barriers as Bridge to Cross By Munasib, Abdul; Roy, Devesh
  12. Quality Standards, International Trade and the Evolution of Industries By Gaigné, Carl; Larue, Bruno
  13. Does Trade Drive Global Growth? By Leon Podkaminer
  14. Trade Liberalization and Skill Premium in Chile By Yoshimichi Murakami
  15. Specialisation and/or Convergence: Structure of European Exports and Production By Kaitila, Ville

  1. By: Horst Raff (University of Kiel, Germany); Joachim Wagner (Leuphana University Lueneburg, Germany)
    Abstract: We examine how foreign ownership of a firm affects the variety of goods that the firm exports and the number of countries it trades with. We construct a simple theoretical model of how foreign ownership may affect these extensive margins of exports and take this model to data from Germany, one of the leading actors on the world market for goods. In line with theoretical predictions we find that foreign-owned firms do export more goods to more countries after controlling for firm size, productivity and industry affiliation. These differences between foreign-owned firms and domestically controlled firms are highly statistically significant, and they are large from an economic point of view, with foreign-owned firms exporting up to 39% more goods to up to 31% more countries.
    Keywords: international trade, foreign ownership, multinational enterprise, foreign direct investment, extensive margins of exports, Germany
    JEL: F14 F23
    Date: 2013–06
  2. By: Yvonne Wolfmayr; Elisabeth Christen; Michael Pfaffermayr
    Abstract: Most firm-level research on the characteristics and strategies of globalized firms focuses on manufacturing industries while firm-level evidence on trade in services is still rare and has just recently begun to emerge. This study uses an unique dataset of Austrian service exporting firms over a four-year period to add to this literature. We show that service export participation is very low and highly concentrated among a few firms and that service exporters are on average larger and more productive than non-exporters. We also find that firm productivity increases with the number of export markets served. The detailed analysis on the export premium suggests the self-selection of firms as well as learning effects from exporting for export starters. The dynamic analysis reveals that the rate of export exits is high for export starters in the first year of exporting, especially for firms of small size. Movements into and out of exporting are however less frequent than moving in and out of individual markets. Entry and exit of markets (extensive margin) is an important component of overall export flows, especially for less popular markets, overall, however the intensive margin of trade contributes most. Analysis based on a Heckman sample selection specification including firm characteristics as well as the standard gravity variables on geographical characteristics of destination markets confirm this finding. In particular, distance to the destination market, firm productivity as well as destination market characteristics (market size, policy environment) significantly influence the probability of exporting but even more so the volume of service trade flows. Results from the counterfactual analysis suggest that export market growth and policy reforms produce the relative strongest impact on the entry into new markets. Hence, this decomposition of overall export growth into contributions attributable to the extensive and intensive margin allow for new insights for economic policy.
    Keywords: service trade, firm-level evidence, export productivity premium, intensive and extensive margin of trade, gravity model, firm heterogeneity, sample selection, market coverage
    JEL: C12 C21 D22 F14 L80 C15 L20
    Date: 2013–06
  3. By: Cipollina, Maria; Laborde, David; Salvatici, Luca
    Abstract: Trade preferences have been used by the European Union and most developing countries can export with preferential market access under different schemes. We study the trade impact of these policies using highly disaggregated 8-digit data in a theoretically grounded gravity model framework. We provide an explicit measure of preferential tariff margins, using alternative definitions based on a comparison between bilateral applied tariffs and two different reference points: the MFN duty or a CES price aggregator. From a policy perspective, preferential schemes have a significant impact on volumes of trade, although with significant differences across sectors. From the methodological point of view, our results show that the definition of the margin has a significant impact on the assessment of the policy impact.
    Keywords: Theoretical Gravity Model, Preferential trade agreements, Trade cost elasticity Sectoral trade flows, Agricultural and Food Policy, International Relations/Trade, F13, F14,
    Date: 2013
  4. By: Kwok Tong Soo
    Abstract: This paper develops a many-good, many-country model of international trade which combines Ricardian comparative advantage and increasing returns to scale. It is shown how the gains from trade depend on relative country sizes, trade cost, and the technological similarity between countries. Trade consists of both inter- and intra-industry trade. The trade-weighted Grubel-Lloyd index of intra-industry trade is positively related to own country size and the number of exported sectors, and is negatively related to average partner country size, the number of imported sectors, and the trade cost. The empirical evidence supports most of these predictions, and the model fits the data better for OECD than for non-OECD countries.
    Date: 2013
  5. By: Arvis, Jean-Francois
    Abstract: This paper proposes a new quantitative implementation of Balassa's idea that export composition and revealed comparative advantage inform the relationship between endowments in domestic factors of production and exports. It proposes that the export composition of countries is close to a low-dimensional manifold or"Product Space"within the space of export composition, which has as many dimensions as product lines. The Product Space corresponds to a few latent endowments explaining the structure of the trade matrix. The model uses non-linear techniques to identify the product space from the 2010 export matrix of 128 countries and 61 products, and to estimate the latent factors of endowments by country. It formalizes a concept of latent comparative advantage, which has practical country specific applications, relevant for"trade competitiveness"policies. Compared with classical revealed comparative advantage, the model assesses how well countries are matching their potential implied by the latent variables, and also identifies products for which the latent advantage is not yet revealed (extensive margin). The data suggests that the degree of overlap between latent and revealed advantage is a metric of"trade competitiveness."
    Keywords: Economic Theory&Research,Markets and Market Access,Inequality,Free Trade,E-Business
    Date: 2013–06–01
  6. By: Peter M. Morrow; Loren Brandt
    Abstract: This paper examines the impact of China's falling import tariffs on the organization of exports between ordinary and processing trade. These trade forms differ in terms of tariff treatment and the ability of firms to sell on the domestic market. At the industry level, we find that falling input tariffs are the source of 90 percent of the average increase in the share of exports occurring through ordinary trade, most of which occurs on the extensive margin through new entry. The choice of trade is also tied to the size of the domestic market, which processing firms cannot access. Consistent with the literature, we also document that the domestic content share of ordinary exports is 30 percentage points higher than for processing. Our back of the envelope calculations imply an increase in demand for local factors of production of 12-21 billion U.S. dollars in 2006 associated with the change in the composition of trade from processing to ordinary exports resulting from tariff cuts between 2000-2006.
    Keywords: China, Processing Trade, Domestic Content, Taris
    JEL: F14 F16
    Date: 2013–06–18
  7. By: Isaac, Shinyekwa; Lawrence, Othieno
    Abstract: This paper examines factors that determine Uganda’s trade flows and specifically compares the impact and performance of the different trade blocs on Uganda’s trade patterns and flows. The empirical question is whether Uganda’s trade is getting more integrated in the East African Community (EAC) region or is still dominated by other trading blocs, namely European Union (EU), Asia and Common Market for Eastern and Southern Africa (COMESA)? Two analytical approaches are used, namely: trade indicators and estimation of the gravity models using data extracted from COMTRADE for the period 2001 – 2009 (panel). We estimate determinants of export and import trade flows separately using static random, dynamic random and IV GMM models. The results suggest a strong relationship between belonging to a trading bloc and trade flows. Likewise, Uganda’s import and export trade flows have conspicuously adjusted to the gravitational forces of the EAC during the progress of the integration. Whereas exports are being integrated more in the EAC and COMESA regions, imports are more integrated in the Asian and EU trading blocs. Therefore, strong links with trading blocs outside the EAC (i.e. EU and Asia) with regards to imports still exist. The trade indicators demonstrate that Uganda exports largely primary products and imports manufactured products. It is imperative for Uganda to target implementation of regional trade agreements to expand the country’s export markets. The EAC region should attract investment in production of high technology products to increase intra-EAC imports and reduce imports from Asia and the EU.
    Keywords: Gravity model, imports, exports, intra, trade intensity index, trade indices, trade flows, trade shares, blocs, regional integration, panel, random and fixed effects., Demand and Price Analysis, Industrial Organization, Institutional and Behavioral Economics, International Development, International Relations/Trade, Labor and Human Capital, Political Economy,
    Date: 2013–04
  8. By: Hasan, Syed M.
    Abstract: This paper introduces technology choice and credit access constraints in Melitz (2003) model under a dynamic setting to explain the factors that limit the prospects of a firm from availing trade liberalization benefits. Two such constraints which are specifically relevant in a developing country context are firm's access to credit and frontier level technology. The theoretical model confirms that firms face varying levels of credit constraints depending on their initial productivity and small firms are more constrained compared to large firms. Thus credit constrained firms operating below the production frontier may never be able to cross the minimum productivity threshold required to enter and sustain in a foreign market. The empirical evidence of the model is derived by analyzing the firm level data for five Latin American countries. The empirical findings indicate that firms are constrained both in technology adoption and the extensive margin of trade The study is significant as it focuses on firm level constraints which impact a country's participation in international trade by analyzing both theoretically and empirically the impact of credit constraints on the extensive and intensive margins of trade. An important policy implication of this study, for increasing exports, could be the diversion of public resources from subsidizing production to extending credits to prospective exporters which will ultimately result in directing resources towards more productive sectors of the economy.
    Keywords: Credit, Innovation, Constraints, Firm, Export, Monopolistic, Technology, International Development, International Relations/Trade, Productivity Analysis, F12, F14, F16,
    Date: 2013
  9. By: Sergey Kichko; Sergey Kokovin; Evgeny Zhelobodko
    Abstract: We develop a two-factor, two-sector trade model of monopolistic competition with variable elasticity of substitution. Firm profit and firm size may increase or decrease with market integration depending on the degree of asymmetry between countries. The country in which capital is relatively abundant is a net exporter of the manufactured good, while both firms' size and profits are lower in this country than in the country where capital is relatively scarce. By contrast, the pricing policy adopted by firms does not depend on capital endowment and country asymmetry. It is determined by the nature of preferences: when demand elasticity increases (decreases) with consumption, firms practice dumping (reverse-dumping).
    Keywords: two-factor trade model, monopolistic competition, capital asymmetry, variable markups
    JEL: F12 F13 L13
    Date: 2013–06
  10. By: Hejazi, Mina; Grant, Jason
    Abstract: Recent empirical studies have estimated the trade flow effect of membership in the World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT). One important, although largely untested, conclusion from this literature is that the GATT/WTO works well if we ignore trade in agriculture - one of the institution’s seemingly apparent failures. This article investigates this conclusion using a large panel of agricultural and non-agricultural trade flows. The results are impressive: the multilateral institution has delivered significant positive effects on members’ agricultural trade despite its sensitive nature and the reluctance of members to undertake serious reform. These findings are robust to various slices of the data and recent advances in the specification and estimation of the gravity equation to account for sample selection issues and the extensive margin of trade.
    Keywords: agricultural trade, GATT, WTO, gravity equation, panel data, intensive and extensive margin, Agricultural and Food Policy, International Development, International Relations/Trade, F13, Q17,
    Date: 2013
  11. By: Munasib, Abdul; Roy, Devesh
    Abstract: This research assesses the effects of sanitary and phytosanitary (SPS) standards in international trade by introducing a new concept, bridge to cross (BTC), with product standards. The BTC in this paper is the regulatory gap between the exporting and importing countries with regard to any particular SPS measure. Assuming that each country’s standard is binding in its own domestic markets, the standard of the importing country emerges as an effective trade barrier only when it exceeds the standard in the domestic market of the exporting country. Given the need to account for unobserved heterogeneity (multilateral resistance) in empirical trade models; in reduced form gravity models, the effect of regulation cannot be identified as it varies at the level of importing country over time. This happens because correct accounting for multilateral resistance mandates exporter x time and importer x time fixed effects. However, the effect of BTC can still be identified because it varies over time by the pair of countries involved in trade. As an application we apply the method to an SPS regulation relating to aflatoxin contamination in maize. In our empirical analysis we find that the effect of BTC is higher for poorer countries. The results have a significantly different policy implication for market access of poor countries. Not only weaker standards in the importing country but tighter standards in domestic markets of exporters could have a significant positive effect on exports.
    Keywords: Sanitary and phytosanitary standards, gravity model, multilateral resistance, bridge to cross, Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety, International Development, International Relations/Trade, F13, F14, Q17,
    Date: 2013
  12. By: Gaigné, Carl; Larue, Bruno
    Abstract: We study the impact of public quality standards on industry structure and trade when firms may be able to develop their own private standard with a higher quality than the public standard. To reach our goal, we introduce vertical differentiation in an international trade model based on monopolistic competition in which firms differ in terms of their productivity and select non cooperatively the quality of their product. Firms must incur two fixed export costs when exporting to any given destination: a generic one (i.e., setting up a distribution system) and a destination‐specific one to meet the quality standard prevailing in the importing country. Variable costs are also increasing in quality. Not surprisingly, the absolute mass of firms in any given country is decreasing in the domestic standard, but contrary to popular wisdom, the relative mass (market share) of foreign firms is increasing in the domestic standard. A relatively lower (higher) wage (labour endowment) in the exporting country helps foreign firms gain market share in the domestic market. We also show that the ratio of minimum productivity required for foreign firms and for domestic firms to be active in the domestic market is increasing in trade costs, but decreasing in quality. The implication for public policy is that lowering tariffs and increasing quality standards benefit highly productive foreign firms which gain from the quality‐induced exit of less productive domestic and foreign firms. Welfare is concave with respect to quality and governments have an incentive to impose standards, but some firms have an incentive to impose higher private standards.
    Keywords: quality standards, industry configuration, welfare, Industrial Organization, Institutional and Behavioral Economics, International Relations/Trade,
    Date: 2013
  13. By: Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Conventional econometric analysis using VEC suggests that there is a long-term relationship between nominal world GDP and nominal world exports. The analysis cannot say anything about the causal relationships between the levels of GDP and exports. But it says a lot about the rules governing the short-term adjustments in GDP and exports. When considering such short-term adjustments, GDP plays the first fiddle. Short-term GDP changes have driven short-term changes in world exports, at least over the years 1987-2008. But the short-term changes in world exports did not ‘cause’ positive short-term changes in GDP.
    Keywords: world income, world trade, growth, globalization, VEC, Granger causality
    JEL: F43 F15 O41 O49
    Date: 2013–03
  14. By: Yoshimichi Murakami (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
    Abstract: This study empirically analyzes whether trade liberalization increases wage inequality between skilled and unskilled workers in Chile during 1974–2007. The findings show that tariff reductions contributed to increases in wage inequality by causing price reductions of unskilled labor-intensive goods protected with the highest tariffs prior to trade liberalization. In contrast, we found no evidence that new technologies embodied in capital and intermediate goods caused skill-biased technological change. In addition, this study shows that an increase in the relative supply of college equivalents did not contribute to wage equalization, while an increase in the minimum wages contributed to wage equalization during the period of the democratic governments.
    Date: 2013–06
  15. By: Kaitila, Ville
    Abstract: We analyse the degree of EU countries’ specialisation in their exports and manufacturing value added using the Herfindahl-Hirschmann index and the degree of structural similarity using the similarity index developed by Finger and Kreinin (1979). We also analyse the convergence of GDP growth rates over time and compare it with export similarity. At the industry level (HS2), EU15 countries’ exports became more specialised before the introduction of the euro and less specialised thereafter. However, exports have become more specialised at the product level (HS6) during the euro years. Manufacturing value added (21 sectors) has become more specialised both before and after 1999. The results for the ten ex-transition countries’ exports are different reflecting their economic transformation. Also the post-2008 period with economic distress creates special cases. Export structures became more similar before 2008. However, manufacturing value added similarity decreased. GDP growth rates have been more uniform after the introduction of the euro than in 1992–1999. We find that similarity in export structures is positively associated with the degree of GDP growth rate correlation vis-à-vis the Euro Area average. There are a half a dozen outliers that differ in their GDP growth developments, among them the Euro Area members Greece, Malta and Slovakia
    Keywords: Exports, manufacturing, specialisation, similarity, GDP growth
    JEL: F14 F15 F44
    Date: 2013–06–13

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