nep-int New Economics Papers
on International Trade
Issue of 2013‒07‒05
thirteen papers chosen by
Alessia A. Amighini
Universita' Amedeo Avogadro

  1. An Oligopolistic Theory of Regional Trade Agreements By Soegaard, Christian
  2. The effect of product standards on agricultural exports from developing countries By Ferro, Esteban; Wilson, John S.; Otsuki, Tsunehiro
  3. Free Trade Agreements as dynamic farsighted networks By James Lake
  4. The Impact of EU Trade Preferences on the Extensive and Intensive Agricultural and Food Product Margins By Scoppola, M.; Raimondi, V.; Olper, A.
  5. Supporting the Growth and Spread of International Production Networks in Asia: How Can Trade Policy Help? By Menon, Jayant
  6. Liquidity Constrained Exporters By Thomas Chaney
  7. Trade and productivity: The family connection redux By Prettner, Klaus; Strulik, Holger
  8. Does Services Liberalization Affect Manufacturing Firms' Export Performance? Evidence from India By Maria Bas
  9. Trade and innovation in services : evidence from a developing economy By Iacovone, Leonardo; Mattoo, Aaditya; Zahler, Andres
  10. On the Use of FTAs: A Review of Research Methodologies By Hamanaka, Shintaro
  11. Design and Implementation of Food-Import Related Regulations: Experiences from Some Regional Trade Agreements By Martin von Lampe; Hyunchul Jeong
  12. Trade and the Topography of the Spatial Economy By Treb Allen; Costas Arkolakis
  13. Increase in protectionism and its impact on Sri Lanka's performance in global markets By Kaminski, Bartlomiej; Ng, Francis

  1. By: Soegaard, Christian (Department of Economics, University of Warwick,)
    Abstract: Why are trade agreements regional? I address this question in a model of oligopoly featuring product variety. Tariffs have the effect of manipulating a country's terms of trade and shifting profits towards the domestic market at the expense of foreign trade partners. Countries endogenously form into regional trade agreements or global free trade in a framework where any agreement must be sustained by repeated interaction. A crucial parameter determining the degree of regionalism is product variety. I demonstrate that for a given trade cost and discount factor, increases in product variety leads to greater scope for global free trade relative to regional trade agreements. JEL classification: trade policy ; self-enforceability ; trade costs ; regional trade agreements. JEL codes: F13 ; F15.
    Date: 2013
  2. By: Ferro, Esteban; Wilson, John S.; Otsuki, Tsunehiro
    Abstract: The authors create a standards restrictiveness index using newly available data on maximum residue levels of pesticides for 61 importing countries. The paper analyzes the impact that food safety standards have on international trade of agricultural products. The findings suggest that more restrictive standards are associated, on average, with a lower probability of observing trade. However, after controlling for sample selection and the proportion of exporting firms in a gravity model, the analysis finds that the effect of standards on trade intensity is indistinguishable from zero. This is consistent with the assumption that meeting stringent standards increases primarily the fixed costs of exporting. Once firms enter the market, however, standards do not impact the level of exports. The analysis also finds a greater marginal effect of BRICS (Brazil, Russia, India, China, and South Africa) standards on the probability of trade, relative to other countries'standards, keeping in mind however that on average BRICS standards are less restrictive. The analysis also suggests that exporters in low-income countries are more adversely affected by stricter standards.
    Keywords: Free Trade,Economic Theory&Research,Labor Policies,Food&Beverage Industry,Trade Law
    Date: 2013–06–01
  3. By: James Lake (Southern Methodist University)
    Abstract: In the presence of multilateral negotiations, are Free Trade Agreements (FTAs) necessary for, or will they prevent, free trade? This question is explored using a novel dynamic network theoretic model where countries are farsighted and asymmetric in terms of market size. I develop a new equilibrium concept that endogenizes the order of negotiations. FTAs are necessary for free trade when there are two small countries and one large country but FTAs prevent free trade when there are two large countries and one small country. The model provides insights into the dynamics of recent trade negotiations involving the US.
    Keywords: Free Trade Agreements, preference erosion, multilateralism, free trade, networks, farsighted
    JEL: C71 F12 F13
    Date: 2013–06
  4. By: Scoppola, M.; Raimondi, V.; Olper, A.
    Abstract: In this paper we study the trade creation effects of the EU preferential trade agreements (PTAs) in the agriculture and food sectors for a large sample of developing countries in the period 1990-2006. We build upon the existing literature on trade with heterogeneous firms, by investigating the extent to which the effects of PTAs occurs mainly through the extensive – number of exported products – or the intensive – volume of existing products – margins. A direct measure of export diversification based on the theoreticallyfounded decomposition of trade into the two margins is here used. Empirically, we use a gravity framework in a panel data setting, and different estimators to deal with the issues of zero trade flows and of the presence of an upper bound in the dependent variable, which has been recently shown to raise new problems in the most common gravity econometric approaches. Main results show that the EU PTAs positively affect the agricultural extensive margins, especially through other than tariff provisions linked with the PTA, while in the food industry results are more sensitive to the estimator used. As far as concern the intensive margin, the PTAs effect is only driven by the role of tariff, while other provisions of the PTAs do not exert any relevant impact in both agricultural and food products.
    Keywords: Gravity equation, trade preferences, extensive mergin, Demand and Price Analysis, International Relations/Trade, F13, Q17, F14,
    Date: 2013
  5. By: Menon, Jayant (Asian Development Bank)
    Abstract: Free trade agreements (FTAs) have been proliferating in Asia for more than a decade. International fragmentation of production and the resultant cross-border production networks have been growing for a much longer period. Although FTAs are not necessary for the formation of production networks, can they support their further growth or spread? Empirical studies of this issue have produced mixed results, presumably because the causality can run either way. Therefore, this paper employs a qualitative approach that carefully examines the characteristics of both product fragmentation trade and FTAs in Asia to ascertain possible linkages. We find the relationship to be tenuous for a number of reasons. First, most product fragmentation trade already takes place at zero or low tariffs because of the International Technology Agreement, various duty-drawback schemes, and the location of most multinationals in duty-exempt export processing zones. Second, much of fragmentation trade is unlikely to benefit from FTA tariff concessions given the inability to satisfy rules of origin (ROOs) because of limited value-addition and/or classification problems relating to tariff-line shifting. Third, almost all FTAs involving Asian countries are relatively shallow, limiting their ability to promote production networks. Even if they were to deepen over time, it is difficult or costly to remove the non-tariff barriers that affect this trade in a preferential manner. For these reasons, it would be more useful if FTA preferences were multilateralized, and other accords were offered to all on most-favored nation basis. This, combined with national liberalization actions that deal with incumbency issues irrespective of nationality, would be the best way to support the growth of production networks involving current participants and the spread to new ones.
    Keywords: Production networks; product fragmentation; free trade areas; trade facilitation; Asia
    JEL: F14 F15 F23
    Date: 2013–05–01
  6. By: Thomas Chaney
    Abstract: I build a model of international trade with liquidity constraints. If firms must pay some entry cost in order to access foreign markets, and if they face liquidity constraints to finance these costs, only those firms that have sufficient liquidity are able to export. A set of firms could profitably export, but they are prevented from doing so because they lack sufficient liquidity. More productive firms that generate large liquidity from their domestic sales, and wealthier firms that inherit a large amount of liquidity, are more likely to export. This model predicts that the scarcer the available liquidity and the more unequal the distribution of liquidity among firms, the lower are total exports. I also offer a potential explanation for the apparent lack of sensitivity of exports to exchange rate fluctuations. When the exchange rate appreciates, existing exporters lose competitiveness abroad, and are forced to reduce their exports. At the same time, the value of domestic assets owned by potential exporters increases. Some liquidity constrained exporters start exporting. This dampens the negative competitiveness impact of a currency appreciation. Under some circumstances, it may actually reverse it altogether and increase aggregate exports. This model provides some argument for competitive revaluations.
    JEL: F1 F4 G3
    Date: 2013–06
  7. By: Prettner, Klaus; Strulik, Holger
    Abstract: We investigate the effects of demographic change and human capital accumulation on trade and productivity of domestic firms. In so doing we integrate a micro-founded education and fertility decision of households into a model of international trade with firm heterogeneity. Our framework leads to four testable implications: i) the export share of a country increases in the education level of its population, ii) the export share of a country decreases in the birth rate of its population, iii) the average profitability of firms increases in the education level of a country, iv) the average profitability of firms decreases in the birth rate of a country. We find that all four implications are supported by empirical evidence for a panel of OECD countries from 1960 to 2010. Our results suggest that investments in human capital accumulation, especially in higher education, are an important determinant of a country's international competitiveness. Furthermore, falling birth rates need not be a serious concern with respect to productivity and international competitiveness of countries. --
    Keywords: firm heterogeneity,international competitiveness,education,fertility decline
    JEL: F12 F14 I20 J11
    Date: 2013
  8. By: Maria Bas
    Abstract: This paper investigates the relationship between the reform of energy, telecommunications and transport services in India in the mid-1990s and manufacturing firms’ export performance. The empirical analysis relies on exogenous indicators of regulation of Indian services sectors and detailed firm-level data from India in the 1994-2004 period. I find that the reform of upstream services sector has increased the probability of exporting and export sales shares of firms producing in downstream manufacturing industries. The results suggest that the effect of services liberalization on manufacturing firms’ export performance is stronger for initially more productive firms. These empirical findings are robust to alternative econometric specifications that control for other reforms, industry, firm characteristics and that deal with potential reverse causality concerns.
    Keywords: Services liberalization;manufacturing firms’ export performance;firm heterogeneity;firm level data
    JEL: O10 O12 F1 L8
    Date: 2013–06
  9. By: Iacovone, Leonardo; Mattoo, Aaditya; Zahler, Andres
    Abstract: Studies on innovation and international trade have traditionally focused on manufacturing because neither was seen as important for services. Moreover, the few existing studies on services focus only on industrial countries, although in many developing countries services are already the largest sector in the economy and an important determinant of overall productivity growth. Using a recent firm-level innovation survey for Chile to compare the manufacturing and"tradable"services sector, this paper reveals some novel patterns. First, although services firms have on average a much lower propensity to export than manufacturing firms, services exports are less dominated by large firms and tend to be more skill intensive than manufacturing exports. Second, services firms appear to be as innovative as -- and in some cases more innovative than -- manufacturing firms, in terms of both inputs and outputs of"technological"innovative activity, although services innovations more often take a"non-technological"form. Third, services exporters (like manufacturing exporters) tend to be significantly more innovative than non-exporters, with a wider gap for innovations close to the global technological frontier. These findings suggest that the growing faith in services as a source of both trade and innovative dynamism may not be misplaced.
    Keywords: E-Business,ICT Policy and Strategies,Public Sector Corruption&Anticorruption Measures,Housing&Human Habitats,Commodities
    Date: 2013–06–01
  10. By: Hamanaka, Shintaro (Asian Development Bank)
    Abstract: There has been much confusion, rather than debate, on the use of free trade agreements (FTAs). Unfortunately, a large part of the confusion is caused by the absence of consensus on the meaning of key terms such as the "utilization rate" and "usage rate" of FTAs, and the lack of knowledge on upward or downward biases from various information sources regarding the use of FTAs. Rather than making an original empirical contribution, this article reviews existing studies on the issue and attempts to identify the relevant methodologies for assessing the use of FTAs.
    Keywords: Free trade agreements (FTAs); utilization of FTAs; impacts of FTAs; margin of preference (MoP)
    JEL: F13 F15
    Date: 2013–05–01
  11. By: Martin von Lampe; Hyunchul Jeong
    Abstract: This report looks at procedures and processes related to non-tariff measures in agricultural trade. Based on the prior that countries are likely to make efforts to reduce the trade hindering effects of domestic food regulation within regional trade agreements, we focus on three different RTAs, including the North Atlantic Free Trade Agreement, the EU-Switzerland Free Trade Agreement (and more precisely, the EU-Switzerland Agreement on Trade in Agricultural Products), and the EU-Chile Free Trade Association. The paper first compares the texts of these RTAs with the provisions made in the WTO SPS and TBT Agreement and assesses their revealed ambition with respect to avoiding NTM-related frictions in agricultural trade between party countries. Based on a survey covering the countries party to these RTAs, the paper then analyses the way processes in the design and implementation of regulations differ across these countries. It identifies several areas where processes within RTA member countries could potentially inform process developments in other RTAs or at a multilateral level and calls for further research to better understand the empirical implications of such processes.
    Keywords: transparency, non-tariff measures, WTO, RTA, SPS measures, regulatory impact assessment, dispute settlement mechanism
    JEL: F13 F15 Q17 Q18
    Date: 2013–06–28
  12. By: Treb Allen; Costas Arkolakis
    Abstract: We develop a versatile general equilibrium framework to determine the spatial distribution of economic activity on any surface with (nearly) any geography. Combining the gravity structure of trade with labor mobility, we provide conditions for the existence, uniqueness, and stability of a spatial economic equilibrium and derive a simple set of differential equations which govern the relationship between economic activity and the geography of the surface. We then use the framework to estimate the topography of trade costs, productivities, amenities and the strength of spillovers in the United States. We find that geographic location accounts for 24% of the observed spatial distribution of income. Finally, we calculate that the construction of the interstate highway system increased welfare by 3.47%, roughly twice its cost.
    JEL: F10 O18 R12 R13
    Date: 2013–06
  13. By: Kaminski, Bartlomiej; Ng, Francis
    Abstract: Sri Lanka's external performance defies global trends on two counts. First, the level of openness as measured by the ratio of trade in goods and services, after a strong increase in 1987-95 and stagnation in 1996-2004, sharply fell in 2005-10 to the levels experienced during the era of import substitution. Second, the share of clothing in manufactured exports has remained largely unchanged over the past 25 years. Had there been no economic growth, this would not have been puzzling. The paper argues that these unique features can be traced to (a) the duality of Sri Lanka's economic regime -- the legacy of unfinished structural reforms of a socialist economic regime -- and (b) high and growing protectionism in the 2000s. Sri Lanka's experience shows that the lack of stability in trade policy combined with recently expanding protectionism and the state's micromanagement of investment does not create an institutional/policy setting conducive to rapidly evolving composition of exports and their fast growth. The practice of dealing with weaknesses in trade policies and the business environment through granting exemptions to various activities deemed desirable by the authorities only exacerbates distortions and creates more fertile ground for rent seeking. Without a radical overhaul of the current policy framework shaping interaction of Sri Lankan businesses with global markets, economic growth may be reduced, if not reversed.
    Keywords: Trade Policy,Free Trade,Economic Theory&Research,Debt Markets,Currencies and Exchange Rates
    Date: 2013–06–01

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