nep-int New Economics Papers
on International Trade
Issue of 2013‒10‒05
sixteen papers chosen by
Alessia A. Amighini
Universita' Amedeo Avogadro

  1. Endogenous Trade Policy with Heterogeneous Firms By Jennifer Abel-Koch
  2. Poverty, Inequality and Trade Facilitation in Low and Middle Income Countries By Nguyen, Cuong
  3. Trade Costs - What Have We Learned?: A Synthesis Report By Evdokia Moïsé; Florian Le Bris
  4. Specialization, gravity, and European trade in final goods By Richard Frensch; Jan Hanousek; Evzen Kocenda
  5. EU Enlargement and the New Goods Margin in Austrian Trade By Dalton, John
  6. Learning by Exporting: Evidence from India By Gupta, Apoorva; Patnaik, Ila; Shah, Ajay
  7. Migration and Trade: A Complex-Network Approach By Giorgio Fagiolo; Marina Mastrorillo
  8. Trade, firm selection, and innovation: the competition channel By Giammario Impullitti; Omar Licandro
  9. Inequality, Trade and Development: Evidence from Developing Countries By Majeed, Dr. Muhammad Tariq
  10. Les exportations de marchandises favorisent-elles celles de services ? Une étude à partir du modèle de gravité By Damien Broussolle
  11. Developments in Regional Trade Agreements and the Environment: 2012 Update By Clive George
  12. Domestic Incentive Measures for Renewable Energy With Possible Trade Implications By Heymi Bahar; Jagoda Egeland; Ronald Steenblik
  13. Imports and productivity: the impact of geography and factor intensity By Marcel van den Berg; Charles van Marrewijk
  14. Agricultural Trade, Institutions, and Depletion of Natural Resources By Sheetal Sekhri; Paul Landefeld
  15. Corruption, Networking and Foreign Ownership: Recent Evidence from CEE Countries By Pal, Sarmistha
  16. The Impact of FDI on Firm Survival and Employment: A Comparative Analysis for Turkey and Italy By FERRAGINA, Anna Maria

  1. By: Jennifer Abel-Koch (Nottingham Centre for Research on Globalisation and Economic Policy, University of Nottingham and Gutenberg School of Economics and Management, University of Mainz)
    Abstract: The present paper modifies the \Protection for Sale" model of Grossman and Helpman (1994) to account for heterogeneous firms lobbying for non-tariff barriers to trade, such as technical standards or certification requirements. They raise the fixed costs of market access for both domestic producers and foreign exporters, force the least efficient firms to exit and shift profits to the most efficient firms. Non-tariff barriers to trade shift profits both within and across countries, but not necessarily to the country in which firms are more productive on average. They decrease social welfare as they reduce competition and product variety, but may nevertheless be implemented if only the largest domestic firms lobby the government. When variable trade costs fall or foreign firms become relatively more competitive, the potential for profit shifting and hence non-tariff barriers to trade decrease. The paper also analyzes the case of international trade negotiations, and it addresses the issue of endogenous lobby formation.
    Keywords: Endogenous trade policy, non-tariff barriers to trade, heterogeneous firms, lobbying
    JEL: F12 F13 D70
    Date: 2013–08–01
  2. By: Nguyen, Cuong
    Abstract: Although there are numerous empirical studies on the effect of trade facilitation on international trade and GDP, there have been no studies on the association between trade facilitation and poverty as well as inequality. This paper examines this association in low and middle income countries using GMM-type instruments for trade facilitation. It is found that trade facilitation which is measured by the number of documents and the time for exports and imports is strongly correlated with poverty, inequality and per capita GDP. Countries with more improvement in trade facilitation are more likely to have lower poverty and inequality, and higher per capita GDP than other countries with less improvement in trade facilitation.
    Keywords: Trade facilitation, poverty, inequality, international trade, developing countries.
    JEL: F1 F13 F16 I3
    Date: 2013–09–15
  3. By: Evdokia Moïsé; Florian Le Bris
    Abstract: Understanding trade costs is essential for formulating policy interventions designed to reduce such costs. This report synthesises all OECD work on cost factors across the entire trade chain. These factors can be located behind the border, such as non-tariff regulatory measures, market access restrictions, trade finance availability and costs and general impediments on doing business; crossing the border, such as documentation and customs compliance requirements, lengthy administrative procedures and other delays; and in all stages of the international trade chain, such as transport infrastructure and logistics. The report proposes a series of questions to help identify priority areas, taking into account country specificities. The strong interdependencies between cost factors, magnified by the prevalence of global value chains, mean that policies to address costs and facilitate trade need to be undertaken in a comprehensive manner, although the cost-benefit ratio of certain trade facilitation reforms, particularly at the border, may offer immediate and significant benefits.
    Keywords: border procedures, non-tariff measures, trade facilitation, trade costs, trade finance, transport and logistics
    JEL: F13 F14 F15
    Date: 2013–04–23
  4. By: Richard Frensch; Jan Hanousek; Evzen Kocenda
    Abstract: By combining and extending the previous literature, we develop and test a gravity specification that views bilateral gravity equations rooted in a Heckscher-Ohlin framework as statistical relationships constrained on countries’ multilateral specialization patterns. According to our results, Heckscher- Ohlin specialization incentives do not seem to play much of a role in the average European bilateral final goods trade relationship. However, this aggregate view conceals that trade in final goods between Western and Eastern Europe is driven by countries’ multilateral specialization incentives, as expressed by supply-side country differences relative to the rest of the world, fully compatible with the incomplete specialization version of Heckscher-Ohlin. This indicates that many of the final goods traded between Western and Eastern Europe are still different, rather than differentiated, products.
    Keywords: international trade, gravity models, panel data, European Union
    JEL: F14 F16 L24
    Date: 2013–07–15
  5. By: Dalton, John
    Abstract: Using the methodology developed in Kehoe and Ruhl (2013), I measure the change in the extensive, or new goods, margin of trade between Austria and the ten new entrants to the European Union in 2004. On average, the new goods account for 42% of the bilateral trade flow after enlargement. A time series measure shows growth in the new goods margin coincides with the 2004 enlargement, which provides evidence on the importance of the role played by the new goods margin in the growth in trade following a trade liberalization.
    Keywords: extensive margin, international trade, trade liberalization, Austria, EU
    JEL: F10 F13 F14
    Date: 2013–09
  6. By: Gupta, Apoorva (National Institute of Public Finance and Policy); Patnaik, Ila (National Institute of Public Finance and Policy); Shah, Ajay (National Institute of Public Finance and Policy)
    Abstract: The empirical evidence on learning by exporting is mixed. In this paper, we examine whether productivity growth among Indian exporters is higher than that of non-exporters. After controlling for self-selection into exporting, we do not find evidence for learning by exporting in a panel of manufacturing firms. There is also no evidence of heterogeneity in learning by exporting with regard to age, size, or productivity. The study finds that exporters grow bigger at a significantly higher rate than their domestic counterparts. But the growth in size does not appear to translate into growth in productivity after entry into foreign markets. Instead, exporters exhibit a boost in productivity 1 year prior to entering export markets.
    Keywords: Exports; self-selection; learning by exporting (LBE); firm productivity
    JEL: D24 F43
    Date: 2013–08–01
  7. 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.
    Keywords: International migration, International trade, Complex networks, Gravity model
    Date: 2013–09–27
  8. By: Giammario Impullitti; Omar Licandro
    Abstract: The availability of rich ?rm-level data has led researchers to uncover new evidence on the effects of trade liberalization. First, trade openness forces the least productive fi?rms to exit the market; secondly, it induces surviving fi?rms to increase their innovation efforts; thirdly, it increases the degree of product market competition. In this paper, we propose a model aimed at providing a coherent interpretation of these ?ndings, and use it to asses the role of fi?rm selection in shaping the aggregate welfare gains from trade. We introduce ?firm heterogeneity into an innovation-driven growth model where incumbent fi?rms operating in oligopolistic industries perform cost-reducing innovation. In this environment, trade liberalization leads to lower markups level and dispersion, tougher fi?rm selection, and more innovation. Calibrated to match US aggregate and fi?rm-level statistics, the model predicts that moving from a 13% variable trade costs to free trade increases the stationary annual rate of productivity growth from 1:19 to 1:29% and increases welfare by about 3% of steady state consumption. Selection accounts for about 1/4th of the overall growth increase and 2/5th of the welfare gains from trade.
    Keywords: International Trade, Heterogeneous Firms, Oligopoly, Innovation, Endogenous Markups, Welfare, Competition. JEL codes: F12, F13, O31, O41
    Date: 2013–04
  9. By: Majeed, Dr. Muhammad Tariq
    Abstract: This study analyzes the impact of trade on cross-country inequality using a panel data set from 65 developing counties over a long period 1970-2008. This study differs from the existing literature on distributional impact of trade by explicitly noting the importance of development stage in shaping the link. The analysis shows that the effect of trade on inequality depends upon the level of development of a trade integrating economy. Economies that have a high level of economic development acquire a favorable effect of trade while underdeveloped economies suffer from international economic integration. In sum, trade accentuates not ameliorate inequality in countries with low level of economic development.
    Keywords: Trade; Development; Inequality; Developing Countries
    JEL: C23 D31 F41
    Date: 2013–10–02
  10. By: Damien Broussolle (LaRGE Research Center, Université de Strasbourg)
    Abstract: Based on a gravity analysis, the paper shows that there is a significant relationship between goods and services exports, at least as they are measured in the current account of the BOP. Truly enough several recent works have already, but incidentally, shed some light on this issue. The paper is structured as follows. First it recalls what the gravity model is and how it was previously applied to services exports. The second section deals with the panel data. The bilateral trade panel includes 30 OECD countries; it covers the years 2004 to 2008. The section explains the problems that were encountered when building the panel and how they were overcome. The third section describes the available services headings of the EBOPS-OECD data that might, for theoretical reasons, be related to commodities exchange. It suggests a specific services indicator that the paper tests afterwards. The fourth section proposes three econometric analyses. The initial one validates the basic model by comparing its results for commodities and services exports. The following one focuses on the relation between commodities exports and the two services exports indicators. The last one studies the case of transport and travel services, those two headings are expected to generate opposite results when tested with the model. The analysis confirms that several services exports are truly and significantly linked with commodities exports. Nevertheless it also demonstrates, that available data are too scarce and somewhat not enough detailed to go beyond rather broad views. Consequently, on the one hand spurious correlation may arise (Travel), while on the other hand true potential ones may remain concealed (Merchanting).
    Keywords: services trade, goods & services exports, gravity analysis
    JEL: F14 L8 F41
    Date: 2013
  11. By: Clive George
    Abstract: This report provides an update on recent developments in the field of Regional Trade Agreements and the environment. Issues arising in the implementation of RTAs with environmental considerations are examined as well as experience in assessing their environmental impacts. It is the sixth update prepared under the aegis of the Joint Working Party on Trade and Environment (JWPTE). The document covers developments from late 2011 to October 2012. It is based on publicly available information.
    Keywords: trade policy, trade and environment, free trade agreements, regional trade agreements, environmental provisions
    JEL: F13 F18 N50 Q56
    Date: 2013–07–04
  12. By: Heymi Bahar; Jagoda Egeland; Ronald Steenblik
    Abstract: In recent years the manufacturing of renewable-energy technologies has become truly global. The associated rise in international investment and trade in goods and services related to renewable energy has been rapid, but it has not always been smooth. Already there have been challenges at the WTO, and the unilateral imposition of countervailing and anti-dumping duties, in response to some countries‘ policies on the grounds that they distort trade. Against this background, this paper surveys, through the lenses of market-pull and technology-push policies, the numerous domestic incentives used by governments to promote renewable energy, focusing on those that might have implications for trade — both those that are likely to increase opportunities for trade and those that may be inhibiting imports or promoting exports. Many OECD countries, and an increasing number of non-OECD countries, have established national targets for renewable energy. To help boost the rate of penetration of renewable energy in their economies, most of the same countries are providing additional incentives. Market-pull incentives for the deployment of renewable-energy-based electricity generating plants include quota systems, usually administrated through "green" certificates, and fixed per kilowatt-hour feed-in tariffs and premiums. Renewable fuels for transport are typically promoted by governments through obliging fuel suppliers to mix ethanol or biodiesel with their corresponding petroleum-derived fuels. Frequently, renewable fuels for transport also benefit from exemptions, or reductions in, fuel-excise taxes, and in a few countries from production bounties. Many national and sub-national governments also support capital formation in these industries with grants, subsidised loans, loan guarantees, or a combination of instruments. In some jurisdictions, access to government support schemes have been made conditional upon meeting certain minimum levels of domestic content. Such domestic-content requirements are highly controversial because of their direct effects on trade. These effects, and the effects of other policies in combination and in isolation, are examined through a graphical analysis of generic policies, using a simplified stylised representation of the relevant markets. The basic message is that while many domestic incentives are both increasing the supply of renewable energy and facilitating trade in associated technologies and renewable fuels, some — especially those combined with border protection or domestic-content requirements — are likely reducing export opportunities for foreign suppliers, and raising domestic prices for renewable energy as a consequence.
    Keywords: trade, environment, renewable energy, environmental subsidies, bioenergy, biofuels
    JEL: F18 H23 L98 O38 Q42 Q56 Q58
    Date: 2013–06–27
  13. By: Marcel van den Berg; Charles van Marrewijk
    Abstract: Using micro-data for Dutch firms, we argue that the productivity spillovers from importing technology intensive products from Taiwan differ from importing unskilled- labor intensive products from Switzerland. We show that both the geographic component (what country is the import from) and the intensity component (what type of good is imported) is crucial for measuring and understanding these spillovers. We show that increasing distance and decreasing levels of development of the origin economy negatively affect the diffusion of efficiency gains embodied in imported goods. Similarly, these gains are larger for technology intensive goods and smaller for unskilled-labor intensive goods. This implies that the geographic- intensity markets are unique and cannot be lumped together. In addition, a diversified import portfolio (the extensive dimension) is always positively associated with firm-level productivity.
    Keywords: Firm heterogeneity, imports, productivity, geography, factor intensity
    JEL: D22 F14 F23
    Date: 2013–09
  14. By: Sheetal Sekhri; Paul Landefeld
    Abstract: Globalization can lead to either conservation or depletion of natural resources that are used in the production of traded goods. Rising prices may lead to better resource man- agement. Alternatively, stronger incentives to extract these resources may exacerbate their decline- especially in open access institutional frameworks. We examine the impact of agricultural trade promotion on the groundwater extraction in India using nationally representative data from 1996-2005. We nd evidence that trade promotion leads to de- pletion of groundwater reserves. Access to world markets does not result in emergence of institutions that would enable protection of the resource.
    Keywords: Groundwater Depletion, Agricultural Trade
    JEL: O13 Q25 Q56
    Date: 2013–09
  15. By: Pal, Sarmistha (University of Surrey)
    Abstract: The present paper argues that the effect of corruption on foreign ownership is not necessarily linear and depends on the level of host corruption. So long as the expected returns from foreign investments exceed its expected costs, higher host corruption will be associated with higher foreign ownership. However, costs may exceed or exactly compensate the returns to foreign investment at very high level of corruption, giving rise to negative or even an insignificant relationship when positive and negative effects outweigh each other. Further, we argue that this non-linear corruption effects may arise from multinational firms' attempts to investing in countries with similar environment and/or ensuring some formal networking with host countries in a bid to limit the damages caused by high level of host corruption. Panel fixed effects estimates (after correcting for foreign entry selection) using a recent large home-host matched panel data from central and eastern European host countries provide some support to these hypotheses: (i) higher corruption is associated with significantly higher foreign ownership unless corruption is at its fourth quartile value. (ii) There is also some confirmation that this non-linear corruption effects is linked to parent firms' attempts to ensure institutional similarity while investing in corrupt host countries: in particular, foreign multinationals from EU/OECD home countries tend to hold higher ownership in EU/OECD host countries and also when the home-host relative corruption distance is small.
    Keywords: corruption, relative corruption, EU/OECD home-host link, foreign ownership, joint venture vs sole subsidiaries, Central and Eastern Europe
    JEL: F23 G32 L24 O17 P33
    Date: 2013–09
  16. By: FERRAGINA, Anna Maria (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy)
    Abstract: This report summarizes the findings of a research project using firm level data on Italian and Turkish manufacturing industries. In this project we study the dynamics of firm survival and growth, and the spillover effects from foreign-owned to domestic firms. First, we investigate the differences in survival patterns of foreign-owned and domestic firms and test the hypothesis that foreign multinational enterprises (FMNEs) display “foot-loose” behavior. Secondly, we analyse the effects of FDI on the survival and growth prospects of domestic firms by disentangling horizontal and vertical spillovers. We use hazard models for the econometric analysis of firm survival and the system-GMM and Heckman selection models for the analysis of firm (employment) growth. In the case of Italy, a comparison of survival rates of domestic and foreign firms shows that foreign firms are more likely to survive than domestic firms, although the survival rates of foreign firms are not much different than those of Italian multinational firms. To check for a more general applicability of this preliminary finding, we estimate the hazard functions for the domestic and foreign firms, controlling for a number of sector-specific and firm-specific characteristics. The results reveal that foreign firms are more “foot-loose” compared to their domestic counterparts while Italian multinationals exhibit lower hazard rates with respect to both domestic non-multinational firms and to foreign multinationals. Besides, the foreign firms’ likelihood of exit compared to domestic firms is higher in sectors with low technology- and knowledge-intensity. In the Turkish case, the simple comparison of survival rates also highlights that foreign firms are more likely to survive than Turkish firms, although the survival rates of foreign firms are not different from those of large domestic firms. Since foreign firms usually start with a larger size, use more capital-intensive technologies, survival rates may reflect the impact of entry characteristics. The hazard function estimates reveal that, when we control for sector-specific variables, foreign firms still have higher survival probabilities, but once firm-specific variables are included in the hazard function model, they appear more “foot-loose” for the 1983-2001 period. Foreign firms are more likely to survive than the domestic firms in the 2003-2009 period even after firm-specific variables are taken into account, but the inclusion of firm-specific variables reduces the impact of foreign ownership on the likelihood of survival considerably. These results for Italy and Turkey indicate that foreign ownership has not necessarily a positive impact on firm survival. Conversely, there is evidence that multinational experience matters for survival because multinational firms have larger size and may employ more capital-intensive technologies thanks to their superior financial strength and experience in other markets. Other firm-level characteristics (size, skill level, etc) are also crucial for survival. The exit behavior of foreign firms is also quite related to the technological environment due to the role played by opportunity costs, which are more relevant in low-tech industries, and by sunk investments costs, which (on average) are lower in more traditional sectors. The mixed results for Turkey across the two periods considered also highlight the importance of the institutional setting for firm survival and growth. Turkey experienced two different policy and growth regimes in the 1990s and 2000s. The 1990s, which is labeled by some researchers as the “lost decade”, is characterized by extreme uncertainty and boom-and-bust cycles, whereas the Turkish economy achieved a high and stable growth performance in the 2000s. In terms of industrial policy, the foot-loose behavior of foreign multinationals should be taken into account in designing investment incentives to attract foreign multinationals also pursuing sector specific policies and institutional reforms ensuring that managers have the right incentives to make long-term investment and to enhance absorptive capacity development. Besides, to improve the likelihood of firm survival, policy makers should target firm-specific characteristics that are crucial determinants of performance gaps in survival, primarily size, productivity and multinational activities. Concerning the issue of how the presence of foreign firms affects the domestic firms’ survival and employment growth, our findings suggest that there is a huge degree of heterogeneity across firms, periods and sectors in both countries. However, positive evidence in favour of positive spillovers is not overwhelming. In the case of Italy, the survival of domestic firms is positively affected by the increased presence of foreign firms within the same industry, but this only occurs in low- and medium-low tech industries. This result may be due to the fact that domestic firms in medium-high tech industries have not enough absorptive capacity to benefit from FDI spillovers. The relevance of domestic firms’ absorptive capacity for spillover effects is confirmed by our analysis: only domestic firms that have smaller technology gap vis-à-vis foreign firms benefit from significant horizontal and vertical (upstream) spillovers on survival. From the system GMM growth estimates we find that, in terms of FDI spillovers, there is evidence of a negative impact on domestic firms employment growth if the foreign firm share in the region employment increases (negative local spillovers), .and a negative employment impact for firms with a higher technology gap is detected if the foreign firm share in the sector increases. For Turkey, the regional share of foreign firms has a weak negative static impact on the survival rate, and an increase in the share of foreign firms in a sector also has a negative impact on survival in the 2003-2009 period. The foreign share of users seems to have positive coefficients, i.e., domestic firms will be more likely to survive if users are foreign, but these results are statistically significant only if firm-specific effects are not controlled for in the 2003-2009 period. Moreover, there is some evidence of a negative effect on survival if downstream firms are foreign in the 2003-2009 period. Regarding firm growth, foreign suppliers and change in regional share of foreign firms have strong negative impact on domestic firms' growth rates, i.e., those firms supplied by upstream foreign firms, and those firm operating in regions with an increasing foreign presence experience lower growth rates. There is also a weak negative impact of sectoral foreign share on growth whereas a weak positive impact is observed for the change in sectoral foreign share. These results do not support the broad conclusion that FDI have positive impact on firms’ indigenous survival and growth dynamics. Conversely, our findings provide not a favorable picture in terms of the balance between displacement/competition versus spillover effects of FDI on domestic firms. We also obtain evidence indicating that the interaction between the presence of foreign firms and domestic firm survival is markedly affected by the technological environment that shapes up domestic firms’ absorptive capacity. The displacement effect in dynamic industries implies that the damage is concentrated on high-tech firms, which should be the higher quality segment of national production. In terms of industrial policy, this implies that the desire to encourage FDI and simultaneously building up a stable supply of indigenous enterprises is more challenging in dynamic sectors, where a trade-off in terms of these objectives appears to exist.
    Keywords: International investment; Multinational firms; Duration analysis; Firm performance; International Linkages to Development
    JEL: C41 F21 F23 L25 O19
    Date: 2013–10–01

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