nep-int New Economics Papers
on International Trade
Issue of 2014‒03‒15
forty papers chosen by
Luca Salvatici
Universita' di Roma 3

  1. Bilateral Equivalence between Trade in Value Added and Value Added Content of Trade By Kuboniwa, Masaaki
  2. Are Stricter Investment Rules Contagious? Host Country Competition for Foreign Direct Investment through International Agreements By Eric Neumayer; Peter Nunnenkamp; Martin Roy
  3. Gravity with Scale Economies By Anderson, James; Vesselovsky, Mykyta; Yotov, Yoto
  4. Trade Flows and Trade Disputes By Kara M. Reynolds; Chad P. Brown
  5. The Effect of the Canada-US Free Trade Agreement on Canadian By Joseph Mai; Andrey Stoyanov
  6. Globalization, Infrastructure, and Inclusive Growth By L. Alan Winters
  8. Macroeconomic Consequences of Terms of Trade Episodes, Past and Present By Tim Atkin; Mark Caputo; Tim Robinson; Hao Wang
  9. Regional Trade Agreements with Labor Clauses: Effects on labor standards and trade By KAMATA Isao
  10. State Space Application to Recent Automobile Sector Triangle Trade between Japan and Latin America By Nobuaki Hamaguchi; Silvio Miyazaki; Leonardo Correia
  11. A gravity model of virtual water trade By Fracasso, Andrea
  12. Trade Liberalization and Optimal R&D Policies with Process Innovation By Thanh Le; Cuong Le Van
  13. Technology, trade, and growth: The role of education By Prettner, Klaus; Strulik, Holger
  14. The Structure and Growth of World Trade, and the Role of Europe in the Global Economy By Sufrauj, Shamnaaz; Schiavo, Stefano; Riccaboni, Massimo
  15. Foreign Exchange Risk and the Predictability of Carry Trade Returns By Gino Cenedese; Lucio Sarno; Ilias Tsiakas
  16. Trade and Uncertainty By Dennis Novy; Alan M. Taylor
  17. Driving a firmÕs export propensity and export intensity: the role of experience, innovation, and international marketing strategy By Eleonora Di Maria; Roberto Ganau
  18. On the Role of Management Commitment in Export Performance: A Meta-Analysis By Anissa Chaibi; Hind El Makrini
  19. Trade, externalities, and the impact of asymmetric information on trade policy By G. F. Gori; L. Lambertini
  20. The Unbalanced Physical Movements of International Trade By Liu, Haiyang
  21. Financial crisis, internationalization choices and Italian firm survival By Costa, Stefano; Pappalardo, Carmine; Vicarelli, Claudio
  22. Exchange Rate Predictability in a Changing World By Joseph P. Byrne; Dimitris Korobilis; Pinho J. Ribeiro
  23. Rulemaking in Super-RTAs: Implications for China and India By Suparna Karmakar
  24. Trade Liberalization and Environmental Taxation in Federal Systems By Per G. Fredriksson; Xenia Matschke
  25. Regional Settlement Infrastructure and Currency Internationalization : The Case of Asia and the Renminbi By Changyong Rhee; Lea Sumulong
  26. Emerging Economies’ Supply Shocks and Japan’s Price Deflation : International Transmissions in a Three-Country DSGE Model By Naohisa Hirakata; Yuto Iwasaki; Masahiro Kawai
  27. Czech Export Credit Agencies and their Market Power By Janda, Karel
  28. Home Country Bias in the Legal System: Empirical Evidence from the Intellectual Property Rights Protection in Canada By Joseph Mai; Andrey Stoyanov
  29. Import dynamics and demands for protection By Hillberry, Russell; McCalman, Phillip
  30. How Far Can Renminbi Internationalization Go? By Yu Yongding
  31. Economic Enclaves or Bridges to the Global Economy? Foreign and Diaspora Investments in Developing Countries By Vito Amendolagine; Nicola D. Coniglio
  32. Foreign ownership and market power in banking: Evidence from a world sample By Delis, Manthos D; Kokas, Sotiris
  33. Working Paper 198 - Can Intra-Regional Trade Act as a Global Shock Absorber in Africa? By Mthuli Ncube; Zuzana Brixiova; Meng Qingwei
  34. European market integration and the determinants of firm localization: The case of Poland By Gehringer, Agnieszka; Krenz, Astrid
  35. The Impact of Multinationals' Overseas Expansion on Employment at Suppliers at Home: New evidence from firm-level transaction relationship data for Japan By ITO Keiko; TANAKA Ayumu
  36. International Cables, Gateways, Backhaul and International Exchange Points By OECD
  37. CGE modeling of the impact of skilled labor movements in ASEAN Economic Community focusing on telecommunication industry By Sudtasan, Tatcha; Suriya, Komsan
  38. Remittances and Child Labour in Africa: Evidence from Burkina Faso By Bargain, Olivier; Boutin, Delphine
  39. Are immigrants a burden for the state budget? Review paper By Pawel Kaczmarczyk
  40. Regional Financial Regulation in Asia By Masahiro Kawai; Peter J. Morgan

  1. By: Kuboniwa, Masaaki
    Abstract: This paper demonstrates that the bilateral equivalence between trade in value added (TiVA) and value added content of trade. TiVA, based on value added exports, which is proposed by Johnson-Noguera and OECD-WTO, measures origin country’s value added exports induced by each destination country’s final demand, excluding intermediates, for the world. Value added content of trade or “value added in trade (VAiT),” which is proposed by Trefler and followed by Stehrer, measures value added induced by appropriately arranged gross trade, including intermediates. At a glance, these two measures may look quite different. This paper shows that in the world with two countries and many countries these two measures of TiVA and value added content of trade are bilaterally equivalent.
    Keywords: trade in value added, value added content of trade, gross trade, input-output
    JEL: F1 F15 F19 R15
    Date: 2014–02
  2. By: Eric Neumayer; Peter Nunnenkamp; Martin Roy
    Abstract: We argue that the trend toward international investment agreements (IIAs) with stricter investment rules is driven by competitive diffusion, namely defensive moves of developing countries concerned about foreign direct investment (FDI) diversion in favor of competing host countries. Accounting for spatial dependence in the formation of bilateral investment treaties (BITs) and preferential trade agreements (PTAs) that contain investment provisions, we find that the increase in agreements with stricter provisions on investor-state dispute settlement and pre-establishment national treatment is a contagious process. Specifically, a developing country is more likely to sign an agreement with weak investment provisions if other developing countries that compete for FDI from the same developed country have previously signed agreements with similarly weak provisions. Conversely, contagion in agreements with strong provisions exclusively derives from agreements with strong provisions that other FDI-competing developing countries have previously signed with a specific developed source country of FDI
    Keywords: bilateral investment treaties, preferential trade agreements, investment provisions, competition for FDI, spatial dependence
    JEL: F21 F53
    Date: 2014–03
  3. By: Anderson, James (Boston College); Vesselovsky, Mykyta (Department of Foreign Affairs and International Trade); Yotov, Yoto (School of Economics LeBow College of Business Drexel University)
    Abstract: We extend the structural gravity model to identify external economies or diseconomies of scale elasticities of cross-border trade. We find statistically and quantitatively significant economies of scale in cross-border trade in 5/8ths of sector-direction cases for Canadian provinces while the remaining 3/8ths of cases have constant returns to scale. Incomplete passthrough of large exchange rate changes at two year intervals from 1997 to 2007 is amplified by scale economies to produce direct effects on bilateral trade for 12 of 19 goods sectors but none of 9 services sectors.
    Keywords: Gravity; Scale Effects; Exchange Rates; Goods and Services
    JEL: F14 F15 F16
    Date: 2014–02–24
  4. By: Kara M. Reynolds; Chad P. Brown
    Abstract: This paper establishes a set of stylized facts regarding the “trade” that countries fight about under WTO dispute settlement. It characterizes the levels of and changes to the trade values, market shares, volumes, prices, and scope of products that eventually become subject to WTO litigation. The first result is striking heterogeneity in the level of market access at stake across disputes: e.g., 14 percent of cases over disputed import products feature bilateral trade that is less than $1 million per year, and another 15 percent feature bilateral trade that is more than $1 billion per year. Though the levels of trade and scope of targeted products can make WTO dispute settlement seem as if it can occur anywhere, sensible patterns emerge from a carefully nuanced examination of the trade data. For example, both high- and low-income complainants tend to suffer important losses in foreign market access in the products under dispute, once the data are appropriately scaled. Furthermore, while the decline in the value of bilateral trade in disputed products after the respondent imposes its disputed policy is more attributable to reductions in trade volumes than prices on average, negative terms-of-trade effects nevertheless appear particularly important for complainant exporters in the sizeable subset of disputes over national treatment (NT) violations. We also show how NT versus most-favored-nation treatment violations can affect trade differentially for complainant versus other (non-complainant) exporters of the disputed product, which is likely to affect the litigation allegiance of third countries. Finally, we find that the complainants in the disputes are typically low-priced exporters of the product subject to litigation.
    Keywords: WTO, dispute settlement, trade agreements, national treatment, MFN treatment
    Date: 2014
  5. By: Joseph Mai (Department of Economics, York University, Toronto, Canada); Andrey Stoyanov (York University)
    Abstract: In this paper show that the Canada-US Free Trade Agreement (CUSFTA) tari¤ preferences have triggered a decline in Canadian external tariffs, explaining a two percentage point reduction in the average tariff between 1989 and 1998. Next, we found that industries which generate the least export rent to the US firms experienced deeper tariff cuts in Canada; this result provides evidence of cooperation in trade policies between the US and Canada. Finally, we estimate the e¤ect of the CUSFTA on the intensity of industrial lobbying for trade policy in Canada and find no relationship between preferential trade liberalization and lobbying activity.
    Date: 2014–02–02
  6. By: L. Alan Winters (Asian Development Bank Institute (ADBI))
    Abstract: This paper covers threes issues : first, defining and measuring inclusive growth; second, the relationship between international trade and inequality; and third, the links between infrastructure and inequality. Both international trade and infrastructure make it easier for people to exchange goods and services and to increase income by allowing specialization, economies of scale, variety, etc. The gains are important not only in aggregate, but also at an individual level, and different people’s ability to take advantage of them varies. Hence each can increase inequality. Critical to sharing the gains from trade is mobility—specifically labor mobility, which determines the capacity of people to move from areas, sectors, skills, or firms of low or declining opportunity to those of higher opportunity. In the context of inclusive growth, this constitutes a challenge. However, the answer should not be to eschew opening up the economy or building infrastructure, but to do so in an informed way and seek to undertake complementary policies that help the less well-off take advantage of them.
    Keywords: inclusive growth, international trade and inequality, infrastructure and inequality, Infrastructure, globalization
    JEL: F16 H54
    Date: 2014–02
    Date: 2014
  8. By: Tim Atkin; Mark Caputo; Tim Robinson; Hao Wang
    Abstract: The early 21st century saw Australia experience its largest and longest terms of trade boom. This paper places this recent boom in a long-run historical context by comparing the current episode with earlier cycles. While similarities exist across most episodes, current macroeconomic policy frameworks and settings are quite different to those of the past. This mitigated the broader macroeconomic consequences of the upswing and as the terms of trade decline may do likewise.
    Keywords: commodity prices, terms of trade, macroeconomic policy
    JEL: E30 E60 N17
    Date: 2014–01
  9. By: KAMATA Isao
    Abstract: An increasing number of regional trade agreements (RTAs) include "labor clauses" that require or urge the signatory countries to commit to maintaining a certain level of labor standards. This paper, starting by classifying more than 200 currently effective RTAs depending on the nature and extent of labor provisions, empirically analyzes the effect of a RTA with labor clauses on domestic labor conditions in the signatory countries as well as the effect on trade growth between the countries, using data for up to 220 countries for the period 1995-2012. The study finds that (i) intensive trade with the partner(s) of a labor-clause-inclusive RTA may have a positive impact on labor earnings that concentrate on middle-income countries; but also that (ii) labor clauses may reduce the trade-promoting effect of the RTA for the middle-income countries, especially when the RTA partner is a high-income country. These results offer a policy implication that the inclusion of labor clauses in a trade agreement should involve non-negligible costs for possible benefits that may not be expected for every country.
    Date: 2014–03
  10. By: Nobuaki Hamaguchi (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Silvio Miyazaki (Escola de Artes, Ciências e Humanidades, University of São Paulo); Leonardo Correia (Catholic University of São Paulo, PUC SP)
    Abstract: The flow of foreign direct investment (FDI) has the effect of shifting trade patterns, especially those of developing countries. With FDI flow growth, vertical intra-industry trade increases as those production-fragmentation-led investments mature. This relation is readily apparent in the respective automobile sectors of Brazil and Mexico. This paper generates empirical evidence on the vertical intra-industry trade pattern between Japan-Brazil and Japan-Mexico using a state space econometric framework. Results show that Mexico is more integrated into the worldwide production chain than Brazil, where risks such as exchange rate volatility are higher. Results also show how each structure is affected by the 2008 recession and how the difference in the intensity can be regarded as further evidence of how Mexico is advancing more rapidly into the fragmentation process than Brazil is.
    Keywords: Triangle trade ; State space models; Exchange rate volatility; Automobile industry
    JEL: F14
    Date: 2014–02
  11. By: Fracasso, Andrea
    Abstract: This work investigates the determinants of virtual water trade (VWT) flows by means of an estimated gravity model of trade applied to the virtual water embodied in the agricultural goods exchanged across countries. In line with the recent literature on the gravity model, the paper presents a battery of estimation methods: cross-section and panel, OLS and pseudo maximum likelihood, with and without two-way fixed effects. The analysis shows that bilateral VWT flows are affected by the classical determinants of trade, but also by national water endowments as well as by the level of pressure on water resources. These general findings are robust, even though some variation can be observed across the estimation methods and, in particular, when smaller sub-samples of countries (such as continents and regional groups) are considered. This contributes to account for the mixed evidence in the literature on the importance of water endowments for the VWT flows.
    Keywords: Virtual Water, Gravity Model of Trade
    JEL: F11 F18 Q25 Q56
    Date: 2014–02
  12. By: Thanh Le; Cuong Le Van
    Abstract: We set up a theoretical framework to discuss the impact of trade liberalization and R&D policies on domestic exporting firms' incentive to innovate and social welfare. In this framework, exporting firms invest in R&D to reduce their production costs and, in return, receive R&D subsidies from the government. While firms target at maximizing their profits, the government aims to maximize the social welfare. We consider different settings of firm competition to explore their strategic behaviours as well as the government's strategic behaviour at the policy stage. We find that tradeliberalization in the foreign market is always welfare enhancing and, in most cases, leads to higher export sales and R&D investments of firms, and raises productivity at firms and industry level. When firms are independent monopolies in the overseas market, it is optimal for the government not to provide any R&D subsidy. When goods are close substitutes, the social optimum can be achieved as a Nash equilibrium by applying an optimal R&D tax. Trade liberalization induces a higher R&D tax rate to be levied on firms. When firms also conduct business in the home market, it is always optimal for the government to provide firms with a financial support to their R&D activity. While this R&D subsidy is decreasing in the trade cost when firms are independent monopolies, its monotonicity in the trade costs is determined by the convexity of the R&D cost function when firms produce close substitutes.
    Keywords: Trade, R&D, subsidies, welfare
    JEL: F12 F13 F15 O31
    Date: 2014–02–25
  13. By: Prettner, Klaus; Strulik, Holger
    Abstract: We generalize a trade model with firm-specific heterogeneity and R&D-based growth to allow for an endogenous education decision of households and an endogenously evolving population. Our framework is able to explain cross-country differences in living standards and trade intensities by the differential pace of human capital accumulation among industrialized countries. Consistent with the empirical evidence, scale matters for relative economic prosperity as long as countries are closed, whereas scale does not matter in a fully globalized world. Interestingly, however, the average human capital level of a country influences its relative economic prosperity irrespective of its trade-openness. While being consistent with the empirical evidence, our framework has the additional advantage that steady-state growth of income does not hinge on the unrealistic assumption of an ever expanding population. --
    Keywords: technological progress,globalization,demographic change,education,human capital accumulation
    JEL: F10 I25 O31 O41
    Date: 2014
  14. By: Sufrauj, Shamnaaz; Schiavo, Stefano; Riccaboni, Massimo
    Abstract: This paper presents a simple stochastic model of proportionate growth to describe international trade and it applies this set-up to the relationship between export dynamics and economic development. Trade flows are assumed to grow as a geometric Brownian motion while new trade links follow a preferential attachment mechanism, and these two processes are assumed to be independent. This simple set-up accurately describes many of the empirical features that characterize the structure and growth of the international trade network. Furthermore, it reconciles diverging views of industrial policy in the economic development literature: although export is very concentrated so that large bilateral flows are rare, countries characterized by a large number of export relations are more likely to capture such “big hits”. The stochastic model provides a simple benchmark against which we can assess countries’ export performance. We then investigate the determinants of deviation of empirical data from the predictions of the model in terms of the number of “big hits”.
    Keywords: export, big hits, development, international trade, industrial policy
    JEL: F14 O1 O14
    Date: 2014–01
  15. By: Gino Cenedese (Bank of England, UK); Lucio Sarno (City University London, UK; CEPR, UK); Ilias Tsiakas (University of Guelph, Canada)
    Abstract: This paper provides an empirical investigation of the time-series predictive ability of foreign exchange risk measures on the return to the carry trade, a popular investment strategy that borrows in low-interest currencies and lends in high-interest currencies. Using quantile regressions, we nd that higher market variance is signicantly related to large future carry trade losses, which is consistent with the unwinding of the carry trade in times of high volatility. The decomposition of market variance into average variance and average correlation shows that the predictive power of market variance is primarily due to average variance since average correlation is not signicantly related to carry trade returns. Finally, a new version of the carry trade that conditions on market variance generates performance gains net of transaction costs.
    Keywords: Exchange Rates; Carry Trade; Market Variance; Average Variance; Average Correlation; Quantile Regression
    JEL: F31 G15 G17
    Date: 2014–02
  16. By: Dennis Novy; Alan M. Taylor
    Abstract: We offer a new explanation as to why international trade is so volatile in response to economic shocks. Our approach combines the uncertainty shock idea of Bloom (2009) with a model of international trade, extending the idea to the open economy. Firms import intermediate inputs from home or foreign suppliers, but with higher costs in the latter case. Due to fixed costs of ordering firms hold an inventory of intermediates. We show that in response to an uncertainty shock firms optimally adjust their inventory policy by cutting their orders of foreign intermediates disproportionately strongly. In the aggregate, this response leads to a bigger contraction in international trade flows than in domestic economic activity. We confront the model with newly-compiled monthly aggregate U.S. import data and industrial production data going back to 1962, and also with disaggregated data back to 1989. Our results suggest a tight link between uncertainty and the cyclical behavior of international trade.
    JEL: E3 F10
    Date: 2014–02
  17. By: Eleonora Di Maria (University of Padova); Roberto Ganau (University of Padova)
    Abstract: Moving from the hypothesis of firm heterogeneity, we analyze whether the firmÕs experience, product and process innovation as well as a clear international marketing strategy affect firmsÕ probabilities of entering export markets and their export intensities (sales achieved abroad). The paper provides further knowledge on the determinants of both the decision to address foreign markets (firm export propensity) and the degree of penetration in those foreign markets (export intensity), by integrating the three above-mentioned streams of research usually approached as distinctive ones. Even though there is a large set of studies dealing with an analysis of export determinants, there is still a lack of theoretical and empirical investigation on how firmÕs innovation (product to be developed, process improvement) and marketing strategy (commitment, marketing investments) interplay in the international business processes, taking into account any prior experience of the firm in general terms as well as in the international scenario. Specifically, the paper empirically investigates how experience, innovation and international marketing strategy influence export behavior at the firm level in order to explore how these determinants act as export drivers for a firm and the consequences measured in terms of export intensity. We carried out a quantitative analysis based on a dataset on 582 Italian manufacturing firms observed over the three-year periods 2001Ð2003 and 2004Ð2006. As far as export propensity is concerned, it emerges that the main drivers affecting the firmÕs decision to enter foreign markets are related to its internal productivity level, innovation capabilities in terms of product innovation as well as an explicit marketing strategy oriented to foreign markets (establishing collaborations with foreign firms or direct commercial investment abroad). Thus, experience can be interpreted as the capability of a firm to manage internal processes (managerial experience) efficiently rather than in terms of knowledge cumulated through years of economic activities (captured through the age variable) or transferred from other partners or foreign ownership. When considering export intensity, two main elements arise from the analysis. The first one is that the shift from product to process innovations affects exports. This result can be explained by the firmÕs capability to efficiently change its internal processes to face the demand arising from foreign clients. The second important element refers to the remarkable role of direct commercial investment in influencing export intensity. This result confirms that the firm gains in terms of value captured by controlling directly its distribution channel.
    Keywords: experience; innovation; international marketing strategy; export intensity; Italy.
    Date: 2014–01
  18. By: Anissa Chaibi; Hind El Makrini
    Abstract: This article reviews the conceptual, methodological, and empirical insights gained from a systematic analysis of 65 studies conducted on the role of management commitment in the export performance of the firm. Undoubtedly, this stream of research has enhanced understanding of the importance of management commitment in affecting exporting activities. However, conceptually, there is still a lack of integral theoretical framework. Methodologically, limitations are identified concerning sampling designs, fieldwork procedures, and analytical methods. Empirically, hypothesized associations between export commitment and export performance lead to conflicting findings. After a presentation of meta-analysis techniques used and articles compiled, our paper provides an original investigation of this issue by implementing three meta-analyses to examine the relationship between commitment to export and export performance. The meta-analysis, more relevant than simple literature surveys, generally leads to the conclusion that there is a significant positive relationship between export commitment and export performance. Moreover, our findings suggest directions for future research in the field.
    Keywords: commitment to export, export performance, meta-analysis, exporting inquiry.
    Date: 2014–02–25
  19. By: G. F. Gori; L. Lambertini
    Abstract: This paper investigates the relationship between trade liberalisation, consumers' environmental awareness and a negative environmental externality in consumption. We adopt an international Hotelling duopoly setup, where firms are located in two asymmetric countries. We find that, if the intensity of environmental externality is common knowledge for country governments, this setup delivers no need of accompanying trade policies in order to enforce trade liberalisation. In the opposite case, in which information is asymmetric, i.e., the small country's Government cannot observe the positive enviromental effects of its firm's exports to foreign consumers, we find that: (i) the Pareto optimum is always enforced, since the brown country always relaxes the distortionary trade policy, and (ii) cheating on the environmental externality allows the brown country's government to extract extra surplus from the green country. Allowing for trade in green technology delivers opposite conclusions: the externality is minimised and welfare is maximised in equilibrium if information is symmetric while trade liberalisation with asymmetric information always entails a second best outcome.
    JEL: F12 L13 H23
    Date: 2014–03
  20. By: Liu, Haiyang
    Abstract: The goods produced in developed nations are often of higher quality, advanced technology and better design, hence goods even with little physical mass have higher value than goods produced in developing nations. This means that if the payment is balanced between developed and developing nations, the physical mass must be unbalanced. As a result, developed nations will become increasingly heavier, and the northern hemisphere where developed nations are clustered will also become more and more heavy. The earth will be reshaped like a ice-cream. Using customs data we confirm this conjecture.
    Keywords: Balance of Payment, Imbalance of Physical Movement, International Trade
    JEL: F14 F18 F20
    Date: 2014–01–02
  21. By: Costa, Stefano; Pappalardo, Carmine; Vicarelli, Claudio
    Abstract: In this paper we focus on the relationship between internationalization choices and survival of Italian firms during the financial crisis. Making use of a new database matching four firm-level datasets provided by the Italian National Statistical Institute (ISTAT), we build a detailed taxonomy of internationalization activities of Italian firms in 2007 and 2010, before and after the financial crisis. Descriptive analyses confirms that firms showing a more complex form of internationalization have higher levels of efficiency, as well as higher diversification of production, measured in terms of the variety of exported goods. Indeed, over the period 2007-2010 Italian firms have moved (on average) towards more complex forms of internationalization. These upwards changes have determined positive effects on employment dynamics and value added growth. For each class of internationalization we estimate a conditional Probit of survival according to the level of productivity and controlling for firm and industry specific variables. Our results show that multinational firms (at the top of our taxonomy) show a lower resilience during the crisis with respect “global” or “two-way traders”, playing a minor role of stabilizers with respect to domestic owner firms. These findings put more emphasis on issue of the diversification of products and markets as a goal to be pursued by firms, even in times of crisis such as the current ones, to remain competitive, make profits and survive.
    Keywords: heterogeneous firms, internationalization, survival premia, financial crisis.
    JEL: F10 F14 F23
    Date: 2014–03–04
  22. By: Joseph P. Byrne (Department of Economics, Heriot-Watt University, UK); Dimitris Korobilis (Department of Economics, Adam Smith Business School, University of Glasgow, UK); Pinho J. Ribeiro (Department of Economics, Adam Smith Business School, University of Glasgow, UK)
    Abstract: An expanding literature articulates the view that Taylor rules are helpful in predicting exchange rates. In a changing world however, Taylor rule parameters may be subject to structural instabilities, for example during the Global Financial Crisis. This paper forecasts exchange rates using such Taylor rules with Time Varying arameters (TVP) estimated by Bayesian methods. In core out-of-sample results, we improve upon a random walk benchmark for at least half, and for as many as eight out of ten, of the currencies considered. This contrasts with a constant parameter Taylor rule model that yields a more limited improvement upon the benchmark. In further results, Purchasing Power Parity and Uncovered Interest Rate Parity TVP models beat a random walk benchmark, implying our methods have some generality in exchange rate prediction.
    Keywords: Exchange Rate Forecasting; Taylor Rules; Time-Varying Parameters; Bayesian Methods
    JEL: C53 E52 F31 F37 G17
    Date: 2014–02
  23. By: Suparna Karmakar
    Abstract: The faltering Doha round has led to a renewed focus on large regional trade agreements. There are two super-RTAs in the making in the Asia-Pacific and one in the Atlantic, all with rather ambitious negotiation targets, and presented as alternate means to reset global trade rules and take the multilateral trade liberalisation agenda forward. So what does this development mean for large emerging markets such as China and India that are on the fringes of these regional trade negotiations? Can these agreements become alternate means of pressuring these Asian economies to follow new trade rules set by industrialised countries, especially given the progressive erosion of the policy dominance of industrialised countries and the strong dissenting voice of developing countries in the Doha Round? This paper examines how super-RTAs may emerge as game changers in the multilateral trading system as promulgated by the WTO, and the implications for China and India. The paper analyses the new economic governance system that is likely to emerge given the renewed interest in regionalism, and argues that while the super-RTAs will not be entirely benign in their impact on China and India, rather than forcing these economies to accept the higher new regulatory standards enshrined in the super-RTAs, a distinct possibility in the medium-term is the emergence and entrenchment of a dual regulatory regime in these economies.
    Date: 2014–03
  24. By: Per G. Fredriksson; Xenia Matschke
    Abstract: The literature on trade liberalization and environment has not considered federal structures. This paper shows how the design of environmental policy in a federal system has implications for the effects of trade reform. Trade liberalization leads to a decline in pollution taxes regardless of whether pollution taxes are set at the federal (centralized) or local (decentralized) level, and it increases social welfare. The effect under a decentralized system is smaller than if these taxes are set by the federal government, and pollution emissions therefore decline in this case. Moreover, majority bias interacts with trade liberalization if federal taxes are used.
    Keywords: trade and environment, environmental policy, trade liberalization, environmental federalism, political economy, majority bias, social welfare
    JEL: F1 H2 H7 Q2
    Date: 2014
  25. By: Changyong Rhee (Asian Development Bank Institute (ADBI)); Lea Sumulong
    Abstract: The squeeze in United States dollar liquidity that emerged with the global financial crisis highlighted the risks inherent in the current global financial system. Asia was adversely affected by the crisis not only because of its dependence on trade, but also because of its heavy reliance on the US dollar for regional and international transactions. As Asia’s role in the global economy continues to expand, its dependence on the US dollar is bound to increase, raising further its vulnerability to future liquidity shocks. The use of regional currencies for bilateral trade settlement could reduce such vulnerability. As demonstrated by the renminbi trade settlement scheme piloted between the People’s Republic of China; Hong Kong, China; and Macao, China, the existence of appropriate financial infrastructure could reduce the relatively larger costs of bilateral currency transactions compared with triangular transactions through the United States dollar. As most central banks are securities depositories of government bonds, combining trade settlement with government bond securities settlement could also have large synergy effects without substantial extra costs. This proposal does not require full liberalization of the capital account or full deregulation of capital markets, and is more politically feasible in transition. As such, extending the trade settlement scheme to the rest of Asia and appending a government bond payment and securities settlement system could be a practical solution to international monetary system reform and the diversification of settlement currencies.
    Keywords: global financial system, global financial crisis, Currency Internationalization, Asia, Remminbi, financial infrastructure, caputal account liberalization
    JEL: F33 F34 F42
    Date: 2014–02
  26. By: Naohisa Hirakata (Asian Development Bank Institute (ADBI)); Yuto Iwasaki; Masahiro Kawai
    Abstract: This paper examines the international transmission effects that a positive supply shock in emerging economies may have on inflation in developed economies. We construct a dynamic stochastic general equilibrium (DSGE) model for three countries and analyze the impact of a supply shock in an emerging economy, the People’s Republic of China (PRC), on inflation rates in two developed economies, the United States (US) and Japan. We demonstrate that the assumed asymmetric trade structures among the three countries and the PRC’s choice of exchange rate regime influence the international transmission of a supply shock in the PRC. Specifically, Japan is under a greater deflationary pressure than the US because of its vertical trade specialization vis-à-vis the PRC and the PRC’s USdollar- pegged regime. This outcome suggests that, even though Japan and the US may face common positive supply shocks from emerging economies, the deflationary impact of the shock is greater for Japan.
    Keywords: emerging economies, supply shock, price deflation, dynamic stochastic general equilibrium (DSGE) model, PRC, China, Japan, US, international transmission effects, exchange rate regime
    JEL: F32 F41 F44 F47
    Date: 2014–02
  27. By: Janda, Karel
    Abstract: We describe the export credit agencies in the Czech Republic and the export promotion strategy of the Czech government. The policy part of the paper is focused on the interac- tion of government owned and supported Czech Export Bank with the Czech commercial banks. We argue that the major market share of Czech Export Bank in export credit market may be explained by a number of factors in addition to the competitive advantage provided by lower pro�t margins of Czech Export Bank. These factors may be grouped into strategic factors related to competition among commercial banks and into factors based on Czech Export Bank being state owned specialized export bank as opposed to private general banks.
    Keywords: international trade, state promotion, export credit agencies, Czech Republic
    JEL: F14 G21 G28
    Date: 2014–03–04
  28. By: Joseph Mai (Department of Economics, York University, Toronto, Canada); Andrey Stoyanov (York University)
    Abstract: Are judges concerned with the effect of their decisions on national welfare in the same way as policy-makers do? In this paper we analyze this question by examining the outcomes of intellectual property rights (IPR) litigations between domestic and foreign .rms. We develop a simple model of oligopoly where foreign .rms have access to more efficient production technology and show that weak protection of foreign-owned IPR always leads to welfare gains at home. We also show that the positive welfare e¤ect increases with the size of the foreign innovator, as well as in the size of the domestic imitator. We test predictions of the model using the data on all Canadian IPR cases over a four-year period. We find that domestic firms are substantially more likely, by 17 percentage points, to succeed in litigations with foreign firms than with other Canadian firms. We also find evidence supporting the hypothesis of the home bias in the legal system. Specifically, we establish that courts' decisions are aligned with welfare maximization principles so that foreign firms are less likely to win in those cases when the implied welfare gains from not protecting foreign IPR are greater.
    Date: 2014–02–03
  29. By: Hillberry, Russell; McCalman, Phillip
    Abstract: What kinds of changes in foreign competition lead domestic industries to seek import protection? To address this question this paper uses detailed monthly U.S. import data to investigate changes in import composition during a 24-month window immediately preceding the filing of a petition for protection. A decomposition methodology allows a comparison of imports from two groups of countries supplying the same product: those that are named in the petition and those that are not. The same decomposition can be applied to products quite similar to the imports in question, but not subject to a petition. The results suggest that industries typically seek protection when faced with a specific pattern of shocks. First, a persistent positive relative supply shock favors imports from named countries. Second, a negative demand shock hits imports from all sources just prior to domestic industries'petition for protection. The relative supply shock is a broad one; it applies both to named commodities and to the comparison product group. The import demand shock, by contrast, is narrow, hitting only named products. The latter shock is also large: import growth over the two-year window is 15 percentage points lower in named products than in reference products, with most of this gap arising in the final two quarters before the petition. The negative import demand shock appears to be a key event in the run-up to the filing of a petition. It has been missed by previous studies using more aggregated data.
    Keywords: Markets and Market Access,Trade Policy,Water and Industry,Access to Markets,Economic Theory&Research
    Date: 2014–03–01
  30. By: Yu Yongding (Asian Development Bank Institute (ADBI))
    Abstract: Since the formal launch of the renminbi trade settlement scheme in 2009, renminbi internationalization has made impressive inroads. The progress in renminbi trade settlement is especially impressive. However, Hong Kong, China’s offshore renminbi deposits failed to make significant progress as expected. The question of how far renminbi internationalization can go has become a common concern in the international financial community. This paper argues that while a contributing factor is the sheer size of the People’s Republic of China’s (PRC) trade and the convenience of using the renminbi for transaction settlements, exchange rate arbitrage and interest rate arbitrage matter also. Profits from arbitrages are the major driving forces of, but do not constitute a sustainable basis for, internationalization. A fundamental constraint for renminbi internationalization is the PRC’s capital controls. Before fully opening up its capital account and making the renminbi freely convertible, however, the PRC needs first to put its own house in order. Macroeconomic stability has to be achieved; the high ratio of financial leverage should be reduced; a rational and flexible interest rate structure must be created; and risk management capacity across industries should be established. Most importantly, the PRC must make the renminbi exchange rate flexible to reflect demand for and supply of foreign exchange in the market. The renminbi can and will become a major international currency eventually, but the road to internationalization is bound to be long and bumpy.
    Keywords: renminbi internationalization, renminbi trade settlement scheme, renminbi trade settlement, exchange rate and interest rate arbitrage
    JEL: F31 F33
    Date: 2014–02
  31. By: Vito Amendolagine; Nicola D. Coniglio
    Abstract: This paper examines the main determinants of linkages between foreign and domestic firms in developing countries. Based on existing evidence, we highlight the relevance of linkages generated by MNEs in developing countries and then we discuss the factors which boost or hamper the interactions between foreign and domestic firms and draw some policy implications. A particular attention is given to diaspora investments – i.e. investments carried out by members of the diaspora or return migrants – that represent a potentially powerful engine of growth and structural change in poor countries.
    Keywords: Foreign Direct Investment, local sourcing, diaspora, developing countries
    Date: 2014–01
  32. By: Delis, Manthos D; Kokas, Sotiris
    Abstract: Using a novel global data set with bank-year estimates of market power, we examine the impact of (i) the ownership status (foreign or domestic) of individual banks and (ii) the country-level trends in foreign bank presence on our market power estimates. We find that the ownership status of individual banks does not explain banks’ market power. In contrast, the country-level trends in foreign bank ownership have a positive and significant effect on banks’ market power that is primarily due to the fact that most foreign bank entry occurs through mergers and acquisitions and not through de novo penetration. We also find that the positive nexus between foreign bank presence and market power is considerably weaker in countries with well-capitalized banks.
    Keywords: Bank market power; competition; foreign banks; world sample
    JEL: D4 F23 G21
    Date: 2014–02–26
  33. By: Mthuli Ncube; Zuzana Brixiova; Meng Qingwei
    Abstract: The global financial crisis hasreiterated the need for Africa tobuild resilience to global outputshocks. In this paper we examineempirically the role of intra-regionaland intra-African trade linkages inbeing an absorber of the globaloutput shocks in two Africanregional economic communities. Wefind that deeper intra-regional andintra-African tradeties have helpedthe East African Community (EAC)absorb the global output shocks. Incontrast, the Southern AfricaCustom Union (SACU) region hasbeen less able to cope with globaloutput shocks partly due to weakerregional integration. Intra-regionaland intra-African trade with fast-growing economies, together withgeographically diversified tradelinkages, can strengthen thecapacity to absorb global shocks.
    Date: 2014–03–05
  34. By: Gehringer, Agnieszka; Krenz, Astrid
    Abstract: The paper analyses empirically the determinants of firms´ localization in Poland. We use regional data of the sixteen Polish administrative regions over the period 2003 to 2010 to examine which role agglomeration forces and other factors played in explaining the choice to operate in a certain location. Our results suggest that agglomeration economies stemming in particular from the R&D sector, as well as human capital and the infrastructure positively influence the regional localization of firms. Poland´s accession to the European Union had a positive impact for the location decision of new firms in the Polish economy. --
    Keywords: localization,agglomeration economies,knowledge externalities,Polish regions,European integration
    JEL: F14 F15 F23 R11 R12
    Date: 2014
  35. By: ITO Keiko; TANAKA Ayumu
    Abstract: This paper focuses on non-internationalized supplier firms and investigates how the expansion of overseas activities by their main customer firms affects their employment, utilizing a unique dataset that includes information on buyer-supplier transaction relationships for Japanese manufacturing firms for the period 1998-2007. We do not find any negative effects of top buyers' overseas expansion on domestic suppliers' employment. Instead, we find a significant positive effect. Our result implies that, contrary to fears of a potential hollowing out of domestic supporting industries, the expansion of overseas activities of customer firms has a positive impact on suppliers' employment. Expansion of overseas production by downstream firms may increase purchases from upstream firms in Japan, and this would be the case if downstream firms can increase their worldwide sales by expanding overseas production. Therefore, our result suggests that having a transaction relationship with successful downstream multinational firms that expand their global sales through overseas production is important for non-internationalized suppliers in Japan.
    Date: 2014–03
  36. By: OECD
    Abstract: This report focuses on the development of backhaul and cross-border networks, which enable local networks to connect to the wider Internet. These local networks may cover a city, a region or even a country. To connect their networks to other networks around the world, operators need access to regional and international high-speed networks. The level of investment required in these networks varies and can be very different from region to region. In some parts of the world, the investment made around the turn of the century was characterised by a “boom and bust”, which fuelled an expansion in backhaul links and data centres. Since that time, investment has taken place at a more measured pace, reflecting growing demand from liberalised markets and leading to further expansion in areas such as mobile and broadband Internet access.
    Date: 2014–02–18
  37. By: Sudtasan, Tatcha; Suriya, Komsan
    Abstract: This paper investigates the impact of skilled labor movements in ASEAN Economic Community (AEC) on nationwide economy of Thailand using Computable General Equilibrium model. The paper mainly focuses on the labor movement in telecommunication industry. The model consists of three steps. First, it simulates the impact of raising minimum wage to THB300 and raising salary of bachelor graduates to THB15,000 across-the-board and over the country according to the Raising Income Policy (RIP) of the Thai government. Second, it figures out the impact of the skilled labor movement in telecommunication sector among AEC member countries. Last, it includes the impact of skilled labor movements in 8 occupations that are allowed by the AEC agreement. The results reveal that the RIP causes negative impact to the Thai economy due to the rising costs of production that cannot be compensated by the increasing consumption. Inward skilled labor movement to Thailand in the telecommunication sector leads to the increasing income of engineers and related skilled workers in the country. This yields the positive impact to the economy due to the increasing income of the middle-class people while costs of production do not increase much. The inward skilled labor movements in all 8 occupations will even yield more positive impacts to the Thai economy. However, the positive impacts of the skilled labor movements in AEC cannot compensate the negative impacts of the RIP applied earlier. Therefore, Thailand cannot expect that AEC will boost its economy up to the level before the implementation of RIP.
    Keywords: Computable general equilibrium model; telecommunication industry; ASEAN Economic Community; labor movement; wage policy
    JEL: C68 F15 L96
    Date: 2014–02–24
  38. By: Bargain, Olivier (University of Aix-Marseille II); Boutin, Delphine (EDHEC Business School)
    Abstract: This paper explores the effects of remittance receipt on child labour in an African context. We focus on Burkina Faso, a country with a high prevalence of child labour and a high rate of migration. Given the complex relationship between remittance receipt and child labour, our identification relies on different instruments capturing the employment conditions in remittance-sending countries. We first find that receiving remittances has no significant effect on child labour on average. However, when the disruptive effect from the absence of a family member is ruled out, remittances significantly reduce child labour. We provide an extensive robustness check and estimate heterogeneous effects. These show no gender difference but a significant age effect: remittances affect the labour market participation of younger children only, suggesting a progressive integration of children into work activities.
    Keywords: remittances, migration, child labour, Africa
    JEL: F24 I25 J22
    Date: 2014–02
  39. By: Pawel Kaczmarczyk
    Abstract: The twentieth century is commonly acknowledged as the 'age of migration'. During the last 100 years population movements have intensified and, more importantly, their structure changed significantly. In terms of the geographical distribution of immigrants the European Union and traditional immigration countries became the most important target regions. In these countries immigration is commonly presented as a threat to host economies and societies. Along with this the fiscal impact of immigration are ones of the most controversial topics in recent debates on migration. Against this background this paper aims at discussing and synthesizing both theoretical and empirical literature on the fiscal impact of immigration. We hypothesize that the fiscal impacts of immigration are complex and dynamic and thus a proper assessment demands a careful empirical strategy. There is no clear or coherent theoretical framework to explain the fiscal effects of migration. The outcomes of empirical studies are mixed and they are not unequivocal. Notwithstanding, they show that, generally speaking, the fiscal impact of immigration is small. Moreover, there is no clear impact of skill level on the fiscal position of foreigners. What really matters is, instead, the type of migration, labor market incorporation (absorption) and the institutional framework at destination (the structure of the welfare state). In terms of empirical strategies we would recommend dynamic approaches, which account for the effects resulting from demographic ageing.
    Date: 2013–11–04
  40. By: Masahiro Kawai (Asian Development Bank Institute (ADBI)); Peter J. Morgan
    Abstract: The Asian financial crisis (1997–1998) and the global financial crisis (2007–2009) highlighted the potential value of financial regionalism, i.e., regional-level cooperation in financial policy. This paper argues that there is a mediating role for regional-level institutions of financial regulation between national regulators in Asia and global-level institutions such as the International Monetary Fund and the Financial Stability Board. This potential role includes : (i) monitoring financial markets and capital flows to identify regional systemic risks such as capital flows; (ii) coordinating financial sector surveillance and regulation to promote regional financial stability; and (iii) cooperating with global-level institutions in rule formulation, surveillance and crisis management. This is particularly important in an environment of increasing financial integration and harmonization in the region. The paper considers experiences of the European Union (EU) and Asia in regional financial cooperation and regulation and draws lessons for Asia. The EU represents the most advanced stage of regional financial integration and regulation in the world today, and can provide valuable lessons for Asia. Asia’s greater diversity of financial development and openness requires a more nuanced approach to integration. Despite its shortcomings and slow pace, the Association of Southeast Asian Nations (ASEAN) Economic Community process probably provides the most feasible and relevant model for regulatory cooperation on a voluntary basis. It would be desirable to extend this framework further in Asia, say to the ASEAN+3 countries for a start. Asian economies can also strengthen existing surveillance processes; enhance and diversify the resources, functions and membership of the Chiang Mai Initiative Multilateralization and the Macroeconomic Research Office for surveillance and provision of a financial safety net; and create an Asian financial stability dialogue to monitor regional financial markets, facilitate policy dialogue and cooperation, and secure regional financial stability.
    Keywords: global financial crisis, Asian financial crisis, financial regionalism, financial regulation, regional financial integration, surveillance processe, financial safety net, Chiang Mai Initiative
    JEL: F33 F36 G15 G18 G28
    Date: 2014–02

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