nep-int New Economics Papers
on International Trade
Issue of 2013‒10‒02
seventeen papers chosen by
Alessia A. Amighini
Universita' Amedeo Avogadro

  1. Quality, Trade, and Exchange Rate Pass-Through By Chen, Natalie; Juvenal, Luciana
  2. Expanding Export Variety: The Role of Institutional Reforms in Developing Countries By Sheng, Liugang; Yang, Dennis Tao
  3. Regional Trade in a Purely Competitive Model By Henry Thompson
  4. Capturing the jobs from globalization: trade and employment in global value chains By Xiao Jiang; William Milberg
  5. The Floating World: Issues in International Trade Theory By Wilfred J. Ethier
  6. What Separates Us? Sources of Resistance to Globalization By Keith Head; Thierry Mayer
  7. Trade Liberalization, Division of Labor, and Firm Productivity By Kamei, Keita
  8. Trade, informal employment and labor adjustment costs By Arias, Javier; Artuc, Erhan; Lederman, Daniel; Rojas, Diego
  9. Task Routineness and Trade Policy Preferences By Bruce A. Blonigen; Jacob McGrew
  10. Migration and Trade: A Complex-Network Approach By Giorgio Fagiolo; Marina Mastrorillo
  11. Network Analysis of World Trade using the BACI-CEPII dataset By Luca De Benedictis; Silvia Nenci; Gianluca Santoni; Lucia Tajoli; Claudio Vicarelli
  12. Does Agglomeration Promote the Internationalization of Chinese Firms? By ITO Banri; XU Zhaoyuan; YASHIRO Naomitsu
  13. Does German Development Aid Promote German Exports and German Employment? By Inmaculada Martínez-Zarzoso; Felicitas Nowak-Lehmann D.; Stephan Klasen; Florian Johannsen
  14. Cumulative Benefits from Trade Liberalization for the South African Economy By Matthias Bauer; Andreas Freytag
  15. Local embeddedness, upgrading and skill development: global value chains and foreign direct investment in Lesotho’s apparel industry By Cornelia Staritz; Mike Morris
  16. Local embeddedness and economic and social upgrading in Madagascar’s export apparel industry By Cornelia Staritz; Mike Morris
  17. Gravity Equations: Workhorse,Toolkit, and Cookbook By Keith Head; Thierry Mayer

  1. By: Chen, Natalie (University of Warwick, CAGE and CEPR); Juvenal, Luciana (International Monetary Fund)
    Abstract: This paper investigates the heterogeneous response of exporters to real exchange rate ‡uctuations due to product quality. We combine a unique data set of highly disaggregated Argentinean …rm-level wine export values and volumes between 2002 and 2009 with experts wine ratings as a measure of quality. In response to a real depreciation, we …nd that …rms signi…cantly increase more their markups and less their export volumes for higher quality products, but only when exporting to high income destination countries. These results remain robust to di¤erent measures of quality, samples, speci…cations and to the potential endogeneity of quality. To motivate our …ndings we extend the model of Corsetti and Dedola (2005) with local distribution costs and allow …rms to export multiple products with heterogeneous levels of quality. The model shows that the elasticity of demand perceived by exporters decreases with a real depreciation and with quality, leading to more pricing-to-market and to a smaller response of export volumes to a real depreciation for higher quality goods. Overall our results help to explain the low exchange rate pass-through that is typically observed in aggregate data.
    Keywords: Exchange rate pass-through, pricing-to-market, quality, unit values, exports, …rms, wine.
    Date: 2013
  2. By: Sheng, Liugang (Chinese University of Hong Kong); Yang, Dennis Tao (University of Virginia)
    Abstract: This paper presents theory and evidence showing that institutional reforms in developing countries can effectively expand their product varieties in export. Our model demonstrates that relaxing foreign ownership controls and improving contract enforcement can induce multinational companies to produce new products in host developing countries, and that a combination of the two reforms has an amplifying effect on the introduction of product varieties. Consistent with these theoretical predictions, we find empirically that ownership liberalization and judicial quality played an important role in raising the extensive margin of processing exports in China for the period of 1997-2007.
    Keywords: export variety, ownership structure, contract environment, processing trade, policy reform, China
    JEL: D23 F14 L22
    Date: 2013–09
  3. By: Henry Thompson
    Abstract: This paper develops a competitive model of trade between three countries with constant cost production and identical utility functions. Trade depends on country size and productivity, and may be limited to two of the countries. Regional trade is observed if they happen to be closer together. The two countries trading only with each other avoid export competition. A country is excluded from trade if it has too little production potential. In the model with three goods, trade is limited to two countries unless each ranks highest in production potential for a unique good.
    Date: 2013–09
  4. By: Xiao Jiang; William Milberg
    Abstract: Abstract With the steady growth of global value chains (GVCs), each country’s trade now has a more complex relationship with the international division of labor. We decompose the employment effects of a country’s trade into five components, specifically the labour content (1) in exports, (2) in imports, (3) in the import content of exports, (4) in the export content of imports and (5) in intermediates contained in imports. The last three components relate strictly to a country’s participation in GVCs. With the availability of World Input-Output Database (WIOD), we are able to compute the amount of employment generated by each component for 39 countries over 1995-2009. On the aggregate level, final goods trade generated demand for about 538 million jobs in 2009, and GVC trade produced demand for about 88 million jobs. The countries with the greatest GVC-based labour demand are Germany, the US, China, the Netherlands and France. The only emerging developing economy that comes close to them in this respect is China. The countries with the largest positive difference between domestic and foreign labour demand are China, India, Indonesia and Brazil. On the other hand, the countries with greatest negative difference between domestic and foreign labour demand are the US, Germany and Japan. For the full sample in 2009, the import content of exports led to the demand for about 44 million jobs. Third-party intermediates contained in imports generated labour demand of about 39 million jobs. And the export content of imports created demand for about 5 million jobs. Using the data on ‘hours worked by skill type’ in the Social Economic Accounts, we find that, on a global scale, vertical specialization contained significantly more medium-skill and low-skill than high-skill labour content.
    Date: 2013
  5. By: Wilfred J. Ethier (Department of Economics, University of Pennsylvania)
    Abstract: A deranged publisher decided to produce a volume of some of my papers and asked me to write some comments. Since these amount to a summary of my views about international trade theory over the latest forty years or so, I’m giving the comments a separate alternative existence as a discussion paper.
    Keywords: factor endowments, scale economies, trade policy, direct investment, regionalism
    JEL: F10 F11 F12 F13 F15 F23
    Date: 2013–09–20
  6. By: Keith Head; Thierry Mayer
    Abstract: With increasing sophistication, economists have been estimating gravity equations for five decades. Robust evidence shows that borders and distance impede trade by much more than tariffs or transport costs can explain. We therefore advocate investigation of other sources of resistance, despite the greater difficult involved in measuring and modeling them. From our selective review of recent findings, a unifying explanation emerges. A legacy of historical isolation and conflict forged a world economy in which neither tastes nor information are homogeneously distributed. Cultural difference and inadequate information manifest themselves most strongly at national borders and over distance.
    Keywords: Globalization;Gravity;Cultural differences
    JEL: F10
    Date: 2013–09
  7. By: Kamei, Keita
    Abstract: In this paper, we construct a simplified general oligopolistic equilibrium (GOLE) model, in which Smith's (1776) famous theory of division of labor is embedded. In the absence of labor market integration with trading countries, we show that trade liberalization promotes a reduction of the number of firms in each country and a deeper division of labor, thus increasing firm productivity and improving welfare. Our model suggests a new interpretation of the trade-induced firm productivity effect.
    Keywords: Trade Liberalization; Division of Labor; Firm Productivity; Cournot Competition; General Oligopolistic Equilibrium (GOLE)
    JEL: F1 F12 F16 L1 L16
    Date: 2013–09–30
  8. By: Arias, Javier; Artuc, Erhan; Lederman, Daniel; Rojas, Diego
    Abstract: Informal employment is ubiquitous in developing countries, but few studies have estimated workers'switching costs between informal and formal employment. This paper builds on the empirical literature grounded in discrete choice models to estimate these costs. The results suggest that inter-industry labor mobility costs are large, but entry costs into informal employment are significantly lower than the costs of entry in formal employment. Simulations of labor-market adjustments caused by a trade-related fall in manufacturing goods prices indicate that the share of informally employed workers rises after liberalization, but this is due to entry into the labor market by previously idle labor.
    Keywords: Labor Markets,Labor Policies,Economic Theory&Research,Work&Working Conditions,Labor Standards
    Date: 2013–09–01
  9. By: Bruce A. Blonigen; Jacob McGrew
    Abstract: Understanding the formation of individual trade policy preferences is a fundamental input into the modeling of trade policy outcomes. Surprisingly, past studies have found mixed evidence that various labor market and industry attributes of workers affect their trade policy preferences, even though recent studies have found that trade policy can have substantial impacts on workers’ incomes. This paper provides the first analysis of the extent to which task routineness affects trade policy preferences using survey data from the American National Election Studies (ANES). We find substantial evidence that greater task routineness leads workers to be much more supportive of import restrictions, consistent with recent evidence on how trade openness puts downward pressure on employment and wages for workers whose occupations involve routine tasks. In fact, other than education levels, task routineness is the only labor market attribute that displays a robust correlation with individuals’ stated trade policy preferences. We also provide evidence that there are some significant interactions between the economic and non-economic factors in our study. For example, women’s trade policy views are much more invariant to their labor market attributes than men.
    JEL: D72 F13
    Date: 2013–09
  10. By: Giorgio Fagiolo; Marina Mastrorillo
    Abstract: This paper explores the relationships between migration and trade using a complex-network approach. We show that: (i) both weighted and binary versions of the networks of international migration and trade are strongly correlated; (ii) such correlations can be mostly explained by country economic/demographic size and geographical distance; (iii) pairs of countries that are more central in the international-migration network trade more.
    Date: 2013–09
  11. By: Luca De Benedictis; Silvia Nenci; Gianluca Santoni; Lucia Tajoli; Claudio Vicarelli
    Abstract: In this paper we explore the BACI-CEPII database using Network Analysis. Starting from the visualization of the World Trade Network, we then define and describe the topology of the network, both in its binary version and in its weighted version, calculating and discussing some of the commonly used network's statistics. We finally discuss some specic topics that can be studied using Network Analysis and International Trade data, both at the aggregated and sectoral level. The analysis is done using multiple software (Stata, R, and Pajek). The scripts to replicate part of the analysis are included in the appendix, and can be used as an handson tutorial. Moreover,the World Trade Network local and global centrality measures, for the unweighted and the weighted version of the Network, calculated using the bilateral aggregate trade data for each country (178 in total) and each year (from 1995 to 2010,) can be downloaded from the CEPII webpage.
    Keywords: International Trade;Network Analysis;Density;Centrality;Stata;R;Pajek
    JEL: F10 F11 F14
    Date: 2013–08
  12. By: ITO Banri; XU Zhaoyuan; YASHIRO Naomitsu
    Abstract: This study empirically examines the role of agglomeration in enabling firms to begin exporting, using a large dataset of Chinese firms. Knowledge spillover caused by the agglomeration of exporters can reduce the initial cost of export, thereby lowering the "productivity cut-off" required to export. A parametric estimation of an export entry model indicates that the agglomeration of incumbent exporters contributes significantly to export participation, although its magnitude is limited. These spillover effects are generated not only by the agglomeration of exporting foreign invested firms (FIFs), but also, more importantly, by that of indigenous Chinese exporters. In fact, the agglomeration of exporting FIFs only contributes to the export entry of FIFs, yet has a negative impact on indigenous Chinese firms' export participation.
    Date: 2013–09
  13. By: Inmaculada Martínez-Zarzoso (University of Goettingen / Germany); Felicitas Nowak-Lehmann D. (University of Goettingen / Germany); Stephan Klasen (University of Goettingen / Germany); Florian Johannsen (University of Goettingen / Germany)
    Abstract: This paper uses an augmented sectoral gravity model of trade to investigate the link between German development aid and exports from Germany to the aid recipient countries. The findings indicate that in the long run each dollar of German aid is associated with an average increase of US$ 0.83 of German exports of goods. The effect varies by sector and the sectors that gain the most are machinery, electrical equipment and transport equipment. By using German input-output tables and according to our estimates, the aid-induced gains in exports generate a total employment effect of about 164,000 jobs of which 66,000 jobs are created in machinery, 26,000 in transport equipment, 24,000 in electrical equipment, 23,500 in basic metals and 18,000 in food, beverages and tobacco. The paper distinguishes among recipient countries and finds that the return on aid measured by German exports is higher for aid to countries considered as partner countries by the German Ministry for Economic Cooperation and Development (BMZ countries).
    Keywords: International Trade; Foreign Aid; Germany
    JEL: F10 F35
    Date: 2013–09–20
  14. By: Matthias Bauer (Friedrich Schiller University Jena); Andreas Freytag (Friedrich-Schiller-University Jena and University of Stellenbosch)
    Abstract: South Africa's trade barriers are still relatively high compared to other emerging market economies, and its industrial policy still preferentially treats certain industries. Based on a static GTAP model, we estimate the economic impact of further trade liberalization on the South African economy. We particularly take into account core NTB's on tradable commodities and the costs imposed by cross-border trade facilitation, which is particularly inefficient in South Africa. Our results indicate that a full liberalization package, including a reduction of core NTB's as well as a substantial increase in the efficiency of cross-border trade facilitation to the levels of Singapore, would cause the South African GDP to rise by up to 4.51 per cent. This implies an increase in aggregate welfare of up to 21 billion US Dollars. This sum is the equivalent of what should be given to the South African economy in order to leave citizens as well of as after the implementation of a full liberalization package, given South African policy-makers abstain from further trade liberalization policies.
    Keywords: South Africa, trade policy, international trade, non-tariff trade barriers, GTAP
    JEL: D58 K2 L5 F1 F17
    Date: 2013–09–19
  15. By: Cornelia Staritz; Mike Morris
    Abstract: Abstract Many low-income countries (LICs) are integrated into apparel global value chains (GVCs) through foreign direct investment (FDI). This is also the case in Lesotho, which developed into the largest Sub-Sahara African (SSA) apparel exporter to the US under the African Growth and Opportunity Act (AGOA). More recently, a new apparel export market opportunity has emerged in Lesotho, that of the regional market of South Africa. The two export markets, the US and South Africa, are supplied by different types of FDI firms, affiliates of largely Taiwanese transnational producers and of South African manufacturers that are incorporated into distinct value chains. This paper assesses the implications for upgrading integration into these two value chains in Lesotho, the first value chain characterized by Taiwanese investment and feeding into the US market under AGOA and the second characterized by South African investment and feeding into the South African market. These value chains differ with regard to ownership patterns, end markets, export products, governance structures and firm set-up, investors’ motivations and perceptions on the main challenges. These different characteristics have crucial impacts on upgrading possibilities, including functional, process and ‘local’ upgrading. Thus, from the perspective of upgrading and sustainability, ownership patterns, local embeddedness and market diversification matter. The emergence of South Africa as an alternative end market and the different value chain dynamics operating in the South African retailer-governed value chain open up new opportunities away from those of the AGOA-/Taiwanese-dominated value chain.
    Date: 2013
  16. By: Cornelia Staritz; Mike Morris
    Abstract: Abstract Over the past decade, several Sub-Saharan African (SSA) countries have developed or expanded export-oriented apparel industries in the context of the Multi-Fibre Arrangement (MFA) quotas and preferential market access, most importantly under the African Growth and Opportunity Act (AGOA). Madagascar is different to the other main SSA low-income country (LIC) apparel exporters – Kenya, Lesotho and Swaziland – given its more diverse end markets and ownership structures and the political instability that led to the loss of AGOA status at the end of 2009. This paper assesses the development of Madagascar’s export-oriented apparel industry and economic and social upgrading dynamics in particular in the context of the AGOA loss. It identifies four types of firms and value chains that differ with regard to ownership patterns, end markets and, most importantly, ‘local embeddedness’, with important implications for both economic upgrading dynamics and possibilities and the sustainability of the industry. The paper concludes that, despite the contraction in the export-oriented apparel industry post-AGOA, Madagascar is still a more successful apparel producer in terms of economic upgrading than the other main apparel-exporting LICs in SSA. The key to this trajectory lies in the differentiation of global value chain (GVC) relationships, local embeddedness and export diversification.
    Date: 2013
  17. By: Keith Head; Thierry Mayer
    Abstract: This chapter focuses on the estimation and interpretation of gravity equations for bilateral trade. This necessarily involves a careful consideration of the theoretical underpinnings since it has become clear that naive approaches to estimation lead to biased and frequently misinterpreted results. There are now several theory-consistent estimation methods and we argue against sole reliance on any one method and instead advocate a toolkit approach. One estimator may be preferred for certain types of data or research questions but more often the methods should be used in concert to establish robustness. In recent years, estimation has become just a first step before a deeper analysis of the implications of the results, notably in terms of welfare. We try to facilitate diffusion of best-practice methods by illustrating their application in a step-by-step cookbook mode of exposition.
    Keywords: Gravity equations;International trade
    JEL: F10
    Date: 2013–09

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