nep-int New Economics Papers
on International Trade
Issue of 2013‒09‒28
fourteen papers chosen by
Alessia A. Amighini
Universita' Amedeo Avogadro

  1. Who Profits from Trade Facilitation Initiatives? By Hoekman, Bernard; Shepherd, Ben
  2. The Gravity Equation in International Trade: An Explanation By Chaney, Thomas
  3. Policy Uncertainty, Trade and Welfare: Theory and Evidence for China and the U.S. By Handley, Kyle; Limão, Nuno
  4. Multilateralising Regionalism: Strengthening Transparency Disciplines in Trade By Iza Lejárraga
  5. Commodity Trade and the Carry Trade: a Tale of Two Countries By Robert Ready; Nikolai Roussanov; Colin Ward
  6. Trade, economic geography and the choice of product quality By PICARD, Pierre M.
  7. The rise of the East and the Far East: German labor markets and trade integration By Wolfgang Dauth; Sebastian Findeisen; Jens Suedekum
  8. Export Quality in Developing Countries By Christian Henn; Chris Papageorgiou; Nicola Spatafora
  9. Extensive margins of imports in The Great Import Recovery in Germany, 2009/2010 By Wagner, Joachim
  10. Accession to the World Trade Organization and Tariff Evasion By Javorcik, Beata; Narciso, Gaia
  11. Four Decades of Terms-of-Trade Booms: Saving-Investment Patterns and a New Metric of Income Windfall By Gustavo Adler; Nicolas E. Magud
  12. Re-Thinking Economic Development in the WTO By Bernard Hoekman
  13. Sustaining trade reform : institutional lessons from Peru and Argentina By Baracat, Elias A.; Finger, J. Michael; Thorne, Raul Leon; Nogues, Julio J.
  14. Bite the Bullet: Trade Retaliation, EU Jurisprudence and the Law and Economics of ‘Taking One for the Team’ By Hoekman, Bernard; Mavroidis, Petros C

  1. By: Hoekman, Bernard; Shepherd, Ben
    Abstract: Extensive research has demonstrated the existence of large potential welfare gains from trade facilitation—measures to reduce the overall costs of the international movement of goods. From an equity perspective an important question is how those benefits are distributed across and within nations. After discussing the possible impacts of trade facilitation, we use firm-level data for a wide variety of developing countries to investigate whether it is mostly large firms that benefit from trade facilitation. We find that firms of all sizes export more in response to improved trade facilitation. Our results suggest that trade facilitation can be beneficial in a range of countries, including those that are primarily involved in value chains as suppliers.
    Keywords: developing countries; firm-level data; global value chains; logistics; supply chains; trade costs; trade facilitation; WTO
    JEL: F13 F14 O24
    Date: 2013–05
  2. By: Chaney, Thomas
    Abstract: The gravity equation in international trade is one of the most robust empirical finding in economics: bilateral trade between two countries is proportional to size, measured by GDP, and inversely proportional to the geographic distance between them. While the role of size is well understood, the role of distance remains a mystery. I propose the first explanation for the gravity equation in international trade, based on the emergence of a stable network of input-output linkages between firms. Over time, a firm acquires more suppliers and customers, which tend to be further away. I show that if, as observed empirically, (i) the distribution of firm sizes is well approximated by Zipf’s law and (ii) larger firms export over longer distances on average, then aggregate trade is inversely proportional to distance. Data on firm level, sectoral, and aggregate trade support further predictions of the model.
    Keywords: Gravity
    JEL: F1
    Date: 2013–08
  3. By: Handley, Kyle; Limão, Nuno
    Abstract: We assess the impact of U.S. trade policy uncertainty (TPU) toward China in a tractable general equilibrium framework with heterogeneous firms. We show that increased TPU reduces investment in export entry and technology upgrading, which in turn reduces trade flows and real income for consumers. We apply the model to analyze China's export boom around its WTO accession and argue that in the case of the U.S. the most important policy effect was a reduction in TPU: granting permanent normal trade relationship status and thus ending the annual threat to revert to Smoot-Hawley tariff levels. We construct a theory-consistent measure of TPU and estimate that it can explain between 22-30% of Chinese exports to the US after WTO accession. We also estimate a welfare gain of removing this TPU for U.S. consumers and find it is of similar magnitude to the U.S. gain from new imported varieties in 1990-2001.
    Keywords: China; policy uncertainty; trade; welfare; World Trade Organization
    JEL: D8 D92 F1 F13 F14 F5 O24
    Date: 2013–08
  4. By: Iza Lejárraga
    Abstract: Countries embarking on trade negotiations are not only seeking increased market access, but also, reduced market opacity. This study distils the most progressive practices for promoting regulatory transparency in over one hundred regional trade agreements (RTAs) concluded by OECD and large emerging economies over the last decade. While there is a lively discussion on strengthening transparency in the World Trade Organization (WTO), scant attention has been paid to the evolution of corresponding disciplines in RTAs. And yet, this study finds that RTAs can be credited for introducing instruments that not only deepen existing multilateral transparency commitments (“WTO-plus”), but expand them to new areas that do not have precedents in WTO agreements (“WTO-beyond”). In particular, the paper illuminates a number of options that may be useful for policy-makers to consider in their efforts to reinforce transparency and predictability in international trade policy. Most of the transparency mechanisms identified are being applied on a non-discriminatory basis, since they are often non-excludable and non-exhaustible. The implication is that, although WTO-plus transparency measures may be de jure preferential by virtue of being inscribed in an RTA, they are de facto being extended on a most-favoured nation (MFN) basis. Moreover, there is a considerable level of homogeneity in WTO-plus transparency provisions across a critical mass of RTAs, which may facilitate convergence and adoption at the multilateral level.
    Keywords: trade, WTO, regional trade agreements, free trade agreements, regulatory cooperation, preferential trade agreements, multilateralising regionalism, RTAs, anti-corruption, PTAs, FTAs, World Trade Organisation, transparency, anti-bribery
    JEL: F1 F10 F13 F15
    Date: 2013–06–26
  5. By: Robert Ready; Nikolai Roussanov; Colin Ward
    Abstract: Persistent differences in interest rates across countries account for much of the profitability of currency carry trade strategies. "Commodity currencies'' tend to have high interest rates while low interest rate currencies belong to exporters of finished goods. This pattern arises in a complete-markets model with trade specialization and limited shipping capacity, whereby commodity-producing countries are insulated from global productivity shocks, which are absorbed by the final goods producers. Empirically, a commodity-based strategy explains a substantial portion of the carry-trade risk premia, and all of their pro-cyclical predictability with commodity prices and shipping costs, as predicted by the model.
    JEL: F31 G12 G15
    Date: 2013–08
  6. By: PICARD, Pierre M. (CREA, University of Luxembourg; Université catholique de Louvain, CORE, Belgium)
    Abstract: The present paper studies the effect of the choice of product quality on trade and location of firms. We discuss a model where consumers have preferences for the quality of a set of differentiated varieties. Firms do not only develop and sell manufacturing varieties in a monopolistic competitive market but also determine the quality level of their varieties by investing in research and development. We explore the price and quality equilibrium properties when firms are immobile. We then consider a footloose capital model where capital is allocated to the manufacturing firms in the region offering the highest return. We show that the larger region produces varieties of higher quality and that the quality gap increases with larger asymmetries in region sizes and with larger trade costs. Finally, the home market effect is mitigated when firms choose their product quality.
    Keywords: monopolistic competition, endogenous quality, economic geography
    Date: 2013–07–23
  7. By: Wolfgang Dauth; Sebastian Findeisen; Jens Suedekum
    Abstract: We analyze the effects of the unprecedented rise in trade between Germany and “the East” – China and Eastern Europe – in the period 1988 – 2008 on German local labor markets. Using detailed administrative data, we exploit the cross-regional variation in initial industry structures and use trade flows of other high-income countries as instruments for regional import and export exposure. We find that the rise of “the East” in the world economy caused substantial job losses in German regions specialized in import-competing industries, both in manufacturing and beyond. Regions specialized in export-oriented industries, however, experienced even stronger employment gains and lower unemployment. In the aggregate, we estimate that this trade integration has caused some 493,000 additional jobs in the economy and contributed to retaining the manufacturing sector in Germany. We also conduct our analysis at the individual worker level, and find that trade had a stabilizing overall effect on employment relationships.
    Keywords: International trade, import competition, export opportunities, local labor markets, employment, China, Eastern Europe, Germany
    JEL: F16 J31 R11
    Date: 2013–08
  8. By: Christian Henn; Chris Papageorgiou; Nicola Spatafora
    Abstract: This paper develops new, far more extensive estimates of export quality, covering 178 countries and hundreds of products over 1962–2010. Quality upgrading is particularly rapid during the early stages of development, with quality convergence largely completed as a country reaches upper middle-income status. There is significant cross-country heterogeneity in quality growth rates. Within any given product line, quality converges both conditionally and unconditionally to the world frontier; increases in institutional quality and human capital are associated with faster quality upgrading. In turn, faster growth in quality is associated with more rapid output growth. The evidence suggests that quality upgrading is best encouraged through a broadly conducive domestic environment, rather than sector-specific policies. Diversification is important to create new upgrading opportunities.
    Keywords: Exports;Developing countries;Manufacturing sector;Agricultural commodities;Agricultural exports;Cross country analysis;Exports; Product Quality; Upgrading; Developing Countries.
    Date: 2013–05–15
  9. By: Wagner, Joachim (Leuphana University Lueneburg and CESIS, Stockholm)
    Abstract: This paper contributes to the literature by documenting for the first time the contribution of adding (and dropping) goods and countries of origin to the sharp increase in imports of goods in the German economy as a whole during the Great Import Recovery in 2009/2010. The empirical investigation finds that firms that imported in both 2009 and 2010 are much more important for the import dynamics than import starters and import stoppers. Firms that increased their imports (and that were the drivers of the import boom) imported on average more goods and from more countries of origin in 2009 than firms that decreased their imports, and they increased both extensive margins of imports on average while firms with decreased imports reduced both the number of goods exported and the number of countries of origin.
    Keywords: Extensive margins of imports; The Great Import Recovery; Germany
    JEL: F14
    Date: 2013–09–13
  10. By: Javorcik, Beata; Narciso, Gaia
    Abstract: This study documents some unintended consequences of the WTO membership by providing evidence on displacement of tariff evasion driven by the WTO accession process. We argue that implementation of Article VII of the GATT resulted in limiting discretion of customs officials in terms of assessing unit values of goods. While prior to the WTO accession, officials were free to use minimum or reference prices, after their country joined the WTO they were mandated to accept the invoice issued by the exporter. This limited the scope for negotiation between importers and customs officials and their ability to misrepresent import prices. This institutional reform has effectively shut down one channel of import duty evasion. Dishonest importers have responded by relying more heavily on alternative evasion channels, such as undercounting quantities and product misclassification. We formally test these hypotheses using data on 15 countries which joined the WTO between 1996 and 2008. We calculate the discrepancy in the unit values of imports as reported by the exporter and the importer and find that there is a positive relationship between the tariff rate and misrepresentation of import prices prior to the accession. This relationship disappears after the country joins the WTO. However, at the same time we find that removing the opportunity to underreport unit values has induced importers to underreport quantities. We find that in the post-accession period there is a positive and statistically significant relationship between underreporting of import quantities and the tariff rate. Further, we find that the relationship between the tariff on similar products and underreporting quantities becomes stronger after the accession, which is suggestive of product misclassification becoming more widespread.
    Keywords: import duties; tax evasion; WTO
    JEL: F13 F14
    Date: 2013–08
  11. By: Gustavo Adler; Nicolas E. Magud
    Abstract: We study the history of terms-of-trade booms (during 1970–2012), with a focus on Latin America, through the prisms of a simple metric that quantifies the associated income windfall. We also document saving patterns during these episodes and propose a measure of how much of the income windfall was saved. We find that Latin America‘s terms-of-trade shocks of the last decade have not differed much in magnitude from those observed during the 1970s, but that the associated windfall have been substantially larger. While aggregate saving increased more than in past episodes, the share of the windfall saved (the marginal saving rate) seems to be lower, suggesting that greater aggregate saving reflects mainly the sheer size of the windfall rather than a greater 'effort' to save it. Finally, we find evidence that, while savings during the boom help to increase post-boom income, the composition of such savings matters. Specifically, in past episodes, savings allocated to foreign asset accumulation appear to have contributed more to post-boom income than those devoted to domestic investment.
    Keywords: Terms of trade;Latin America;External shocks;Savings;Investment;Income;Business cycles;Cross country analysis;Terms of trade, windfall, real income, aggregate saving, saving rate
    Date: 2013–05–09
  12. By: Bernard Hoekman
    Abstract: The disagreements between the old and new trade powers in the WTO on market access issues that have deadlocked the Doha Round are in part a reflection of the “special and differential treatment†that developing countries have historically pursued in the WTO. A re-thinking of that approach is in order. This paper argues for greater effort and new approaches to use the WTO as a mechanism to help developing countries to reduce the trade and transactions costs that prevent firms and farmers from benefitting from trade opportunities. What is needed are processes for regular dialogue, peer review and independent assessment of the impacts of domestic policies, with active participation by firms that operate in the country concerned, and a focus on identification of good practices and priorities for reform and public investment.
    Keywords: WTO, economic development, special and differential treatment, trade preferences
    Date: 2013–06
  13. By: Baracat, Elias A.; Finger, J. Michael; Thorne, Raul Leon; Nogues, Julio J.
    Abstract: This paper examines trade policies in Peru and Argentina since the reforms of the 1990s. Peru provides a valuable example of sustaining reform. Leaders have used negotiations and other international instruments to disseminate among Peruvians a positive vision of Peru in the international economy and to extend the application of World Trade Organization-based governance principles. Peru has introduced few new restrictions and all of them have been through World Trade Organization-sanctioned policy instruments. Argentina, by contrast, has introduced multiple restrictions, through procedures that eschew World Trade Organization governance principles. Moreover, leaders there have returned trade politics to the dependencia philosophy that sees the international economy as an exploitive environment. The paper brings out the weakness of international obligations to limit Argentina's return to import substitution and the pains at which Peru has gone to maintain the management of its economy within the same rules that Argentina has so easily violated.
    Keywords: Trade Law,Trade Policy,Economic Theory&Research,Free Trade,Emerging Markets
    Date: 2013–09–01
  14. By: Hoekman, Bernard; Mavroidis, Petros C
    Abstract: This paper discusses the Fedon case law of the European Court of Justice (ECJ), which involved a claim for compensation by Fedon (an Italian producer of eye glass cases) from the EU for the imposition of WTO-authorized retaliatory trade barriers by the United States following the failure by the EU to comply with an adverse ruling by the WTO regarding its import-regime for bananas. As a result of the EU non-compliance, European banana distributors and some bananas producers benefitted from WTO-illegal protection, at the expense of a set of EU exporters, including Fedon, that were hit by US countermeasures. By not complying with its international (WTO) obligations, the EU redistributed income across producers in different sectors as well as between suppliers and consumers of bananas. Fedon contested the non-compliance by the EU before the ECJ and sought compensation. This paper assesses the ECJ ruling against Fedon and argues that the ECJ got it wrong, both in terms of legal principle and as a matter of legal technicalities. An alternative approach is proposed that would better balance individual rights to property against the ‘general’ EU interest whether or not to comply with adverse WTO rulings.
    Keywords: dispute settlement; EU law; trade agreements; trade retaliation; WTO
    JEL: F13 K41 K42
    Date: 2013–06

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