nep-int New Economics Papers
on International Trade
Issue of 2013‒08‒10
seven papers chosen by
Alessia A. Amighini
Universita' Amedeo Avogadro

  1. The Trade Consequences of Pricey Oil By David von Below; Pierre-Louis Vezina
  2. Chinese Export Competition, Declining Exports and Adjustments at the Industry and Regional Level in Europe By Flückiger, Matthias; Ludwig, Markus
  3. Testing the O-ring theory for FDI By Engemann, Martina; Lindemann, Henrike
  4. Trade Costs, Conflicts, and Defense Spending By Seitz, Michael; Tarasov, Alexander; Zakharenko, Roman
  5. Competitiveness and determinants of coffee exports, producer price and production for Ethiopia By Boansi, David; Crentsil, Christian
  6. Strategic Trade Policy in General Oligopolistic Equilibrium By Rudy Colacicco
  7. Cooperation in WTO's Tariff Waters By Alessandro Nicita; Marcelo Olarreaga; Peri Silva

  1. By: David von Below; Pierre-Louis Vezina
    Abstract: This paper examines the trade and trade-induced welfare effects of high oil prices. Using a gravity model of trade we find that the distance elasticity of trade significantly increases with the oil price. This suggests that high oil prices make trade less global. We estimate that an increase in the oil price from 100$ to 200$ would have the similar effect as imposing a world-wide import tariff between 4% and 9%, depending on the distance between countries. In turn, such higher tade costs would lower welfare by 1.8% in the average non-oil-exporting country.
    Keywords: oil prices, gravity, trade costs
    JEL: F14 Q43
    Date: 2013
  2. By: Flückiger, Matthias; Ludwig, Markus
    Abstract: We analyze how a set of 22 European countries are affected by increased Chinese export competition between 1995 and 2008. Employing product level data, we document a reduction in the export volume of European countries due to increased Chinese export competition. This alteration in the export sector induces changes within the manufacturing industries, especially a decline in employment. The analysis using more aggregated, regional level data, shows that the industry sector as whole declines resulting, amongst others, in an increased unemployment rate. The importance of Chinese export competition for Europe is attributable to its high export intensity.
    Keywords: China, Export Competition, Industry Labor Decline
    JEL: F14 F16
    Date: 2013–08
  3. By: Engemann, Martina; Lindemann, Henrike
    Abstract: Modern production processes often involve several sequential stages which are performed in many different countries. This pattern of vertical specialization does not only affect trade between countries but it is also of importance for foreign direct investment (FDI). In this paper, we therefore adopt the idea of Kremer (1993) and Costinot et al. (2011) of a sequential production process which is subject to mistakes to the theory of FDI. Using firm-level panel data on German outward FDI, we show that the affiliate sector's position in the value chain affects the firm's FDI location choice. Affiliates in sectors that are positioned toward the end of the value chain are more likely to be located in more productive countries. --
    Keywords: Foreign Direct Investment,O-Ring Theory,Upstreamness
    JEL: F14 F23
    Date: 2013
  4. By: Seitz, Michael; Tarasov, Alexander; Zakharenko, Roman
    Abstract: This paper develops a quantitative model of trade, military conflicts, and defense spending. Trade liberalization between two countries reduces probability of an armed conict between them, causing both to cut defense spending. This in turn causes a domino effect on defense spending by other countries. As a result, both countries and the rest of the world are better off. We estimate the model using data on trade, conflicts, and military spending. We find that, after reduction of costs of trade between a pair of hostile countries, the welfare effect of worldwide defense spending cuts is comparable in magnitude to the direct welfare gains from trade.
    Keywords: general equilibrium; gains from trade; defense spending
    JEL: C5 C6 F13 F51 H56
    Date: 2013–07–01
  5. By: Boansi, David; Crentsil, Christian
    Abstract: The objective of this study was to analyze the performance of Ethiopia in its exports of coffee and to estimate the magnitude and effects of key economic determinants of coffee exports, producer price and production. In analyzing the competitiveness of the country in its exports of coffee, three distinct periods were considered, namely, years under the imperial regime (1961-73), under the military rule (1974-1991) and under the reformist government (1992-2010). The Revealed Comparative Advantage (RCA) and Revealed Symmetric Comparative Advantage (RSCA) measures of competitiveness were used for the analysis. Even though the results show that Ethiopia has comparative advantage in export of coffee, the same cannot be said of its overall performance on the international market owing to factors such as challenges with management of price risk, high transaction cost resulting from the extensive nature of the supply chain and the numerous actors and processes therein, challenges with quality control, low productivity of growers’ fields, and incidence of smuggling. To improve upon its export performance and to ensure continuous growth in the major strongholds of the subsector (exports, prices and production), based upon estimates for the current study, we propose investment in yield-enhancing innovations, devising and implementation of measures to improve quality control in the supply chain, address issues with price risk, minimize incidence of smuggling and more importantly minimize transaction costs. In addition, measures should be put in place to increase and ensure continuous government support to the subsector, hold onto the current devaluation of the Ethiopian birr, ensure payment of fair prices to growers and appropriately transmit future increments, increase current area under cultivation to enhance efficient utilization of the abundant labour, and to attract more export-oriented foreign direct investments (as an opportunity for trade creation).
    Keywords: Competitiveness, supply chain, determinants, export, producer price, production
    JEL: Q1 Q11 Q13 Q17 Q18
    Date: 2013–08–04
  6. By: Rudy Colacicco
    Abstract: In a two-country general oligopolistic equilibrium model, I study how cross-sector strategic trade policy affects wages, countrywide profits, and welfare. Firms face resource constraints and wages are simultaneously determined. Relative to free trade, cross-sector protectionism generates a reduction in the foreign wage without affecting the domestic wage. Domestic countrywide profits benefit from small import tariffs, whereas the foreign counterpart is hit, but when sectors share the same technology. Domestic welfare is unambiguously penalized. Hence, the general-equilibrium cross-sector perspective goes against the textbook version theory of the optimal tariff in partial equilibrium. Rationalization of these effects suggests a political-economy view on tariff formation in general equilibrium.
    Keywords: Cournot Competition, Home Market, Import Tariff, Income Distribution; Welfare
    JEL: D43 D51 F12 F13 L11 L13
    Date: 2013–08
  7. By: Alessandro Nicita; Marcelo Olarreaga; Peri Silva
    Abstract: A rationale for cooperation in trade negotiations is the internalization of terms-of-trade externalities. With the help of a simple theoretical framework we show that the textbook prediction that non-cooperative tariffs are positively correlated to the importer’s market power is reversed when tariffs are set cooperatively. We use this prediction to identify the extent of cooperation reflected in WTO members’ tariffs. Because many members of the WTO apply tariffs well below the negotiated tariff bounds, creating what is known as tariff water, there is also room for WTO members to set non-cooperative tariffs. As expected, we found that in the absence of tariff water, WTO tariffs are set cooperatively. Interestingly, non-cooperative tariff setting is only observed in the presence of suffficiently large amounts of tariff water, suggesting that cooperation in the WTO goes well beyond negotiated tariff bounds. We also found evidence that cooperation within WTO tariff waters can be explained by the fear of retaliation from trading partners with market power and tariff water in their schedules.
    Keywords: Export supply elasticities, WTO cooperation, tariff water
    Date: 2013–06

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.