nep-int New Economics Papers
on International Trade
Issue of 2014‒03‒22
33 papers chosen by
Luca Salvatici
Universita' di Roma 3

  1. On the impact of competition on trade and firm location By Toshihiro Okubo; Pierre Picard; Jacques-François Thisse
  2. Trade Liberalization, Intermediate Inputs and Firm Efficiency: Direct versus Indirect Modes of Import By Michele Imbruno
  3. The propensity to exports and the membership in the Economic and Monetary Union of Central and Eastern European Countries: the micro-econometric firm level analysis By Andrzej Cieślik; Jan Jakub Michałek
  4. What makes a high-quality exporter? Evidence from Germany By Wagner, Joachim
  5. Sizing Up the Impact of Embassies on Exports By Fer, Shon; Forslid, Rikard
  6. Exporters and Shocks: Dissecting the International Elasticity Puzzle By Doireann Fitzgerald; Stefanie Haller
  7. Intellectual Property Rights, Product Complexity, and the Organization By Alireza Naghavi; Julia Spies; Farid Toubal
  8. The Development of EU and EU Member States' External Competitiveness By Angela Cheptea; Charlotte Emlinger; Lionel Fontagné; Gianluca Orefice; Olga Pindyuk
  9. Openness and Optimal Monetary Policy By Giovanni Lombardo; Federico Ravenna
  10. Introducing Melitz-Style Firm Heterogeneity in CGE Models: Technical Aspects and Implications By Roberto Roson; Kazuhiko Oyamada
  11. Globalization and Wage Convergence: Mexico and the United States By Davide Gandolfi; Timothy Halliday; Raymond Robertson
  12. Value added trade and structure of high-technology exports in China By Kuroiwa, Ikuo
  13. The labor market effects of trade unions - Layard meets Melitz By Jochen Michaelis; Marco de Pinto
  14. Global Value Chains and the Productivity of Canadian Manufacturing Firms By Baldwin, John R. Yan, Beiling
  16. Domestic Trade in Services in Regional Input-Output Models By Ledia Guci; Charles Ian Mead
  17. Firm Dynamics and Residual Inequality in Open Economies By Gabriel Felbermayr; Giammario Impullitti; Julien Prat
  18. Trade Liberalization, Democratization and Technology Adoption By Matteo Cervellati; Alireza Naghavi; Farid Toubal
  19. The Impact of Quarantine Policies on the Quality of Imports By Daniel Bunting; Kevin J. Fox
  20. How to Persistently Finance Innovation: A Panel-Data Study on Exporting Firms in Sweden By Lööf, Hans; Nabavi , Pardis
  21. Import Switching and the Impact of a Large Devaluation By Dan Lu
  22. The agricultural invasion and the political economy of agricultural trade policy in Belgium, 1875-1900 By VAN DIJCK, Maarten; TRUYTS, Tom
  23. Micro-based evidence of EU competitiveness: The CompNet database By CompNet Task Force
  24. Did Japanese direct investment in Korea suppress indigenous industrialization in the 1930s? : evidence from country-level factory entry patterns By Arimoto, Yutaka; Lee, Changmin
  25. Oil price shocks and global imbalances: Lessons from a model with trade and financial interdependencies By Jean-Pierre Allegret; Valérie Mignon; Audrey Sallenave
  26. Grooming Classifications: Exchange Rate Regimes and Growth in Transition Economies By Petreski, Marjan
  27. Linkages, Transmission, and the Evolution of International Business Cycles By Lance Kent
  28. The Role of Renewable Energy Consumption and Trade: Environmental Kuznets Curve Analysis for Sub-Saharan Africa Countries By Ben Jebli, Mehdi; Ben Youssef, Slim; Ozturk, Ilhan
  29. Optimal environmental border adjustments under the General Agreement on Tariffs and Trade By Edward J. Balistreri; Daniel T. Kaffine; Hidemichi Yonezawa
  30. Real Exchange Rates and Skills By Vincent Bodart; Jean-François Carpantier
  31. Tax Principles and Tariff-Tax Reforms under International Oligopoly By Kenji Fujiwara
  32. Pareto optima and exchange rates under risk neutrality: A note By Stefano Bosi; Patrice Fontaine; Cuong Le Van
  33. Migration as an adjustment mechanism in the crisis? A comparison of Europe and the United States. By Julia Jauer; Thomas Liebig; John P. Martin; Patrick A. Puhani

  1. By: Toshihiro Okubo (Keio University, Japan); Pierre Picard (CREA, Université de Luxembourg); Jacques-François Thisse (Université catholique de Louvain)
    Abstract: We study how the level of trade costs and the intensity of competition interact to explain the nature and intensity of trade within a given industry and the location of firms across countries. As trade costs decrease from very high to very low values, the global economy moves from autarky to two-way trade, through one-way trade from the larger to the smaller region. By exploring the intensive and extensive margins of exports, we investigate how the intensity of trade reacts to the degree of competitiveness. Furthermore, when firms are free to change location, they flow from the small to the large country, and the larger country is always a net exported on the manufactured good. Firms located in the big country have a bigger size than those located in the small one. Under one-way trade, the relocation of firms changes their attitude toward export.
    Keywords: trade, competition, firm location, capital mobility
    JEL: F12 H22 H87 R12
    Date: 2014
  2. By: Michele Imbruno
    Abstract: This paper studies the impact of input trade liberalization on firm efficiency, aggregate productivity and welfare. We extend the Melitz (2003)’s framework to incorporate: a) trade in both intermediate inputs and final goods between similar countries, b) firm’s decision to import intermediate inputs in addition to the decision to export its final output. This model shows different effects from reducing input tariffs, according to whether intermediates are assumed to be imported directly by final good firms or indirectly through an efficient wholesale system.
    Keywords: Heterogeneous firms, Trade liberalization, Intermediate inputs, Productivity, Import-Export behaviour
    Date: 2014
  3. By: Andrzej Cieślik (Faculty of Economic Sciences University of Warsaw); Jan Jakub Michałek (Faculty of Economic Sciences University of Warsaw)
    Abstract: There are many studies aiming at estimation of aggregate trade effects of the euro adoption by the old EU countries, which are based on the gravity model. In contrast to the existing literature we investigate whether the adoption of the common currency increases the export activity of individual firms. In particular, we refer to the new strand in the trade theory, based on the Melitz (2003) model, in which propensity to export depends on productivity and costs of exporting. There are many empirical studies, based on firm level data, showing the relevance of the Melitz (2003) model. Most of those studies demonstrate that export performance positively depends on firms’ characteristics, but they do not take into account the impact of the common currency on the cost of exporting. There are only few studies analyzing implications of euro adoption for firms’ exports of “old EU” members. In our empirical paper we use the firm level data basis set up by the EBRD and the World Bank. Using the probit model we analyze whether the accession of Slovenia and Slovakia to the Eurozone did increase the firms’ propensity to export in those countries.
    JEL: F12 F14 F33
    Date: 2014
  4. By: Wagner, Joachim (Leuphana University Lueneburg and CESIS, Stockholm)
    Abstract: This paper uses a tailor-made newly available data set to investigate for the first time the links between the quality of input factors and the quality of exports in enterprises from manufacturing industries in Germany, one of the leading actors on the world market for goods. The paper demonstrates that in German manufacturing industries exporters of high-quality goods tend to use high-quality inputs, while the firm size is not related at all to export quality.
    Keywords: Exports; export quality; Germany
    JEL: F14
    Date: 2014–03–12
  5. By: Fer, Shon (Research Institute of Industrial Economics (IFN)); Forslid, Rikard (Stockholm University)
    Abstract: The purpose of this study is to test for the effects of trade promotion via the foreign service. We develop a Melitz-based model where firms are heterogeneous with respect to productivity and must pay a beachhead cost to enter a foreign market, which can be reduced by government spending on trade promotion. The model predicts that unilateral trade promotion allows medium-sized firms to export. We test this prediction using Swedish firm-level data and information on the opening and closing of Swedish embassies abroad using Norwegian firms as control group. Our results lend support to the predictions of the model, with large and medium-sized firms responding most strongly to the opening of embassies.
    Keywords: Heterogeneous firms; Trade promotion
    JEL: D21 D22 F12 F15
    Date: 2014–03–04
  6. By: Doireann Fitzgerald; Stefanie Haller
    Abstract: Aggregate exports are not very responsive to real exchange rates, though they respond strongly to trade liberalizations, a fact sometimes referred to as the International Elasticity Puzzle. We use micro data on firms and exports for Ireland to dissect the puzzle. Our identification strategy uses within-firm-year cross-market variation in real exchange rates and tariffs to identify the responses of export participation, export revenue and the product dimension of exporting to these variables. We show that (i) the weak response of export revenue of long-time market participants to real exchange rates is key to the behavior of aggregate exports, (ii) export participation also responds less to real exchange rates than to tariffs, but this alone cannot explain the puzzle; and (iii) the revenue response of long-time market participants cannot be accounted for by product entry responses. Hence any model that can successfully account for the puzzle needs to match the intensive margin responses of exporting firms.
    JEL: F14 F41
    Date: 2014–03
  7. By: Alireza Naghavi; Julia Spies; Farid Toubal
    Abstract: This paper studies how the Intellectual Property Right (IPR) regime in destination countries influences the way multinationals structure the international organization of their production. In particular, we explore how multinationals divide tasks of different complexities across countries with different levels of IPR protection. The analysis studies the decision of firms between procurement from related parties and from independents suppliers at the product level. It also breaks down outsourcing into two types by distinguishing whether or not they involve technology sharing between the two parties. We combine data from a French firm-level survey on the mode choice for each transaction with a newly developed complexity measure at the product level. Our results confirm that firms are generally reluctant to source highly complex goods from outside firm boundaries. By studying the interaction between product complexity and the IPR protection, we obtain that (i) for technology-sharing-outsourcing IPRs promote outsourcing of more complex goods to a destination country by guaranteeing the protection of their technology, (ii) for non-technology-related-outsourcing IPRs attract the outsourcing of less complex products that are more prone to reverse engineering and simpler to decodify and imitate.
    Keywords: Outsourcing;Product complexity;Intellectual Property Rights;Technology Sharing
    JEL: F12 F23 O34
    Date: 2014–03
  8. By: Angela Cheptea; Charlotte Emlinger; Lionel Fontagné; Gianluca Orefice; Olga Pindyuk
    Abstract: We revisit competitiveness issues using recent data and show that the global financial crisis has taken a toll on European producers that before 2007 were maintaining their market positions. The EU competitiveness in goods has recently deteriorated, even in the upper and high-tech segments of the world market. The decline recorded by European exporters is attributable purely to performance and not to adverse orientation of their exports. However, European exports are predominantly "Made in Europe" and include an increasing share of services. The within Europe advantages in manufacturing seem to have been exhausted and further gains imply moves outside the EU with an enhanced focus on the competitiveness in services as an important determinant of future European industry.
    Keywords: Competitiveness;trade in value added
    JEL: F14 F15
    Date: 2014–03
  9. By: Giovanni Lombardo; Federico Ravenna
    Abstract: We show that the composition of international trade has important implications for the optimal volatility of the exchange rate, above and beyond the size of trade flows. Using an analytically tractable small open economy model, we characterize the impact of the trade composition on the policy trade-off and on the role played by the exchange rate in correcting for price misalignments. Contrary to models where openness can be summarized by the degree of home bias, we find that openness can be a poor proxy of the welfare impact of alternative monetary policies. Using input-output data for 25 countries we document substantial differences in the import and non-tradable content of final demand components, and in the role played by imported inputs in domestic production. The estimates are used in a richer small-open-economy DSGE model to quantify the loss from an exchange rate peg relative to the Ramsey policy conditional on the composition of imports. We find that the main determinant of the losses is the share of non-traded goods in final demand.
    Keywords: International Trade, Exchange Rate Regimes, Non-tradable Goods, Optimal Policy
    JEL: E3 E42 E52 F41
    Date: 2014
  10. By: Roberto Roson (Department of Economics, University Of Venice Cà Foscari); Kazuhiko Oyamada (Institute of Developing Economies, Japan External Trade Organization)
    Abstract: This paper discusses which changes in the architecture of a standard CGE model are needed in order to introduce effects of trade and firm het- erogeneity à la Melitz. Starting from a simple specification with partial equilibrium, one primary production factor and one industry, the framework is progressively enriched by including multiple factors, intermedi- ate inputs, multiple industries (with a mixture of differentiated and non-differentiated products), and a real general equilibrium closure. Therefore, the model structure is gradually made similar to a full-fledged CGE. Calibration techniques are discussed, and a number of changes from the original Melitz’s assumptions are also proposed. It is argued that the inclusion of industries with heterogeneous firms in a CGE framework does not simply make the Melitz model “operational”, but allows accounting for structural effects that may significantly affect the nature, meaning and implications of the model results.
    Keywords: Computable General Equilibrium Models, Melitz, Firm Heterogeneity, International Trade.
    JEL: C63 C68 D51 D58 F12 L11
  11. By: Davide Gandolfi (Macalester College); Timothy Halliday (Department of Economics, University of Hawaii at Manoa); Raymond Robertson (Macalester College)
    Abstract: Neoclassical trade theory suggests that factor price convergence should follow increased commercial integration. Rising commercial integration and foreign direct investment followed the 1994 North American Free Trade Agreement between the United States and Mexico. This paper evaluates the degree of wage convergence between Mexico and the United States between 1988 and 2011. We apply a synthetic panel approach to employment survey data and a more descriptive approach to Census data from Mexico and the US. First, we find no evidence of long-run wage convergence among cohorts characterized by low migration propensities although this was, in part, due to large macroeconomic shocks. On the other hand, we do find some evidence of convergence for workers with high migration propensities. Finally, we find evidence of convergence in the border of Mexico vis-à-vis its interior in the 1990s but this was reversed in the 2000s.
    Keywords: Migration, Labor-market Integration, Factor Price Equalization
    JEL: F15 F16 J31 F22
    Date: 2014–03
  12. By: Kuroiwa, Ikuo
    Abstract: This study focuses on the technological intensity of China's exports. It first introduces the method of decomposing gross exports by using the Asian international input–output tables. The empirical results indicate that the technological intensity of Chinese exports has been significantly overestimated due to its high dependency on import content, especially in high-technology exports, an area highly dominated by the electronic and electrical equipment sector. Furthermore, a significant portion of value added embodied in China's high-technology exports comes from services and high-technology manufacturers in neighboring economies, such as Japan, South Korea, and Taiwan.
    Keywords: China, International trade, Exports, Industrial structure, Industrial technology, International economic integration, Input-output tables, Technology, Production networks, Value added trade
    JEL: C67 F13 F15 O39
    Date: 2014–03
  13. By: Jochen Michaelis (Department of Economics, University of Kassel); Marco de Pinto (Institute for Labour Law and Industrial Relations in the EU, University of Trier)
    Abstract: Trade unions are typically able to convert their industrial power into political power. We show that, depending on the parameter constellation, stronger trade unions may be welfare-improving in terms of an increase in aggregate employment and output, if they successfully lobby for lower trade barriers set by the government.
    Keywords: Trade unions, lobbying, trade liberalization
    JEL: F13 F16 J51
    Date: 2014–03
  14. By: Baldwin, John R. Yan, Beiling
    Abstract: The paper examines whether the integration of Canadian manufacturing firms into a global value chain (GVC) improves their productivity. To control for the self-selection effect (more productive firms self-select to join a GVC), propensity-score matching and difference-in-difference methods are used. Becoming part of a GVC can enhance firms' productivity, both immediately and over time. The magnitude and timing of the effects vary by industrial sector, internationalization process, and import source/export destination country in a way that suggests the most substantial advantages of GVC participation are derived from technological improvements.
    Keywords: Manufacturing, Labour, Economic accounts, Globalization and the labour market, Productivity accounts
    Date: 2014–03–17
  15. By: Cassi, Lorenzo; Morrison, Andrea; Rabellotti, Roberta
    Abstract: International collaboration among researchers is a far from linear and straightforward process. Scientometric studies provide a good way of understanding why and how international research collaboration occurs and what are its costs and benefits. Our study investigates patterns of international scientific collaboration in a specific field: wine related research. We test a gravity model that accounts for geographical, cultural, commercial, technological, structural and institutional differences among a group of Old World (OW) and New World (NW) producers and consumers. Our findings confirm the problems imposed by geographical and technological distance on international research collaboration. Furthermore, they show that similarity in trade patterns has a positive impact on international scientific collaboration. We also find that international research collaboration is more likely among peers, in other words, among wine producing countries that belong to the same group, e.g. OW producers or newcomers to the wine industry.
    Keywords: Proximity, International scientific collaboration, Wine industry, Gravity model, Scientometrics, Emerging countries, Community/Rural/Urban Development, Industrial Organization,
    Date: 2014–02
  16. By: Ledia Guci; Charles Ian Mead (Bureau of Economic Analysis)
    Date: 2014–03
  17. By: Gabriel Felbermayr; Giammario Impullitti; Julien Prat
    Abstract: Increasing wage inequality between similar workers plays an important role for overall inequality trends in industrialized societies. To analyse this pattern, we incorporate directed labour market search into a dynamic model of international trade with heterogeneous firms and homogeneous workers. Wage inequality across and within firms results from their different hiring needs along their life cycles and the convexity of their adjustment costs. The interaction between wage posting and firms' growth process allows us to explain some recent empirical regularities on firm and labour market dynamics. Fitting the model to capture key features obtained from German linked employer-employee data, we investigate how falling trade costs and institutional reforms interact in shaping firm dynamics and aggregate labor market outcomes. Focusing on the period 1996-2007, we find that neither trade nor key features of the Hartz labour market reforms account for the sharp increase in residual inequality observed in the data. By contrast, inequality is highly responsive to the increase in product market competition triggered by domestic deregulation reforms
    Keywords: Wage Inequality, International Trade, Directed Search, Firm Dynamics, Product and Labour Market Regulation.
    Date: 2014
  18. By: Matteo Cervellati; Alireza Naghavi; Farid Toubal
    Abstract: We study the role of trade liberalization, democratization and their interaction for technology adoption. A general equilibrium theory with heterogeneous skills predicts a complementarity between trade and political regimes. Openness should accelerate technology adoption if coupled with democratization but may lead to a slowdown if these regime changes are imbalanced. We use panel data on technology adoption at the sectoral level for the period 1980-2000. We exploit within country variation and the heterogenous timing of openness and democratization. The results document the existence of a positive interaction between these institutional changes for technology adoption.
    Keywords: Trade Openness; Democratization;Political Economy theory;Technology Adoption;Sector Level Data;Cross-Country Analysis
    JEL: F16 J24 O14 P51 F59
    Date: 2014–03
  19. By: Daniel Bunting (New South Wales Treasury); Kevin J. Fox (School of Economics, Australian School of Business, the University of New South Wales)
    Abstract: In a contribution to the sparse literature on the impacts on consumers of quarantine restrictions, an innovative approach to analysing the effects of these policies on the prices and quality of imported products is proposed. Specifically, various index num- ber decompositions at different aggregation levels are considered for extracting quality changes from changes in the value of an imported good. Consistent with theory, an empirical application to mango imports for Australia reveals an increase in the quality of the imported bundle after the introduction of a new quarantine restriction. We be- lieve this to the first empirical evidence of the quality impact of biosecurity restrictions on imports.
    Keywords: Quarantine, trade barriers, index numbers, quality change
    JEL: C43 Q18 Q57 F13 D40
    Date: 2014–01
  20. By: Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Nabavi , Pardis (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper provides estimates of negative binomial regressions for high-leveraged and non-high-leveraged exporting firms in Sweden over a business cycle that contains two boom periods and two recession periods. The contemporaneous cash flow coefficients are positive and statistically significantly associated with patent applications for non-high-equity firms in recession periods when all exporters are considered. No corresponding correlation is found among persistent exporters. Taking the firms’ geographical location into account, we find a significant difference in cash flow sensitivity between firms in metropolitan areas and firms located in other places.
    Keywords: Exporting; Innovation; Financing constraints; Firm level; Panel data
    JEL: C16 F14 G32 O31
    Date: 2014–03–12
  21. By: Dan Lu (the University of Rochester)
    Abstract: In Colombia, from 1998 to 1999, during a large external shock the RER depreciated by 26% and import value dropped 32%. Since imports became more expensive during the devaluation, we would expect increases in exit of firms from the import market as well as larger dropped varieties for continuing firms. However, using detailed firm level import transactions, we nd that compared to normal times the value from firms dropped varieties and exit falls. To be sure, we do nd that rms use less imported varieties, but its due to fewer adding of new imported varieties rather than more dropping of varieties. Regarding firms adjustment mechanisms, we find: 1) Most importers add and drop import varieties all the time. 2) Firms add and drop varieties with similar intensity. 3) Both the values of added and dropped products by continuing firms comove negatively with the exchange rate, as does entry and exit. Our findings suggest firms select their imported varieties, and reorganize their imported inputs and production over time. We introduce searching for imported inputs into a model with endogenous choice of import intermediate inputs. Firms search for imported inputs suppliers and reorganize their input usage. With an imported input cost shock, e.g., a devaluation, the benefit from searching new suppliers decreases, which leads to less adding and dropping in firms' imported inputs. Our model focuses on the dynamic aspects of import reorganization, and shows that a devaluation can slow down the import churning and lead to larger TFP declines beyond those previously found. The model predicts more productive firms use more imported inputs, and do more adding and dropping at the same time. During the devaluation, there are fewer firms add and drop import varieties, and if they do, the shares of adding and dropping among their total import decreases. In the data, firm level imports switching behavior is consistent with these predictions, and results are robust to controlling for export switching behavior.
    Date: 2013
  22. By: VAN DIJCK, Maarten (Flemish Heritage Agency, B-1210 Brussels; Faculty of Business Ecoomics, University of Hasselt); TRUYTS, Tom (CEREC, Saint Louis University; Université catholique de Louvain, CORE, Belgium)
    Abstract: After 1875, cheap grain from the United States and Russia flooded the European markets. Many countries like Germany, France, and Sweden turned to agricultural trade protection, while others, like the UK and Denmark, held on to a free trade position. Belgium adopted a middle position, leaving its grain markets open but protecting animal husbandry, dairy production, and the processing of foodstuffs. The econometric analysis of the votes of Belgian Members of Parliament on four proposals to install protectionist measures on agricultural trade seeks to identify which economic or political interests explain the Belgian policy option.
    Date: 2014–02–12
  23. By: CompNet Task Force
    Abstract: Drawing from confidential firm-level balance sheets in 11 European countries, the paper presents a novel sectoral database of comparable productivity indicators built by members of the Competitiveness Research Network (CompNet) using a newly developed research infrastructure. Beyond aggregate information available from industry statistics of Eurostat or EU KLEMS, the paper provides information on the distribution of firms across several dimensions related to competitiveness, e.g. productivity and size. The database comprises so far 11 countries, with information for 58 sectors over the period 1995-2011. The paper documents the development of the new research infrastructure, the construction of the database, and shows some preliminary results. Among them, it shows that there is large heterogeneity in terms of firm productivity or size within narrowly defined industries in all countries. Productivity, and above all, size distribution are very skewed across countries, with a thick left-tail of low productive firms. Moreover, firms at both ends of the distribution show very different dynamics in terms of productivity and unit labour costs. Within-sector heterogeneity and productivity dispersion are positively correlated to aggregate productivity given the possibility of reallocating resources from less to more productive firms. To this extent, we show how allocative efficiency varies across countries, and more interestingly, over different periods of time. Finally, we apply the new database to illustrate the importance of productivity dispersion to explain aggregate trade results.
    Keywords: cross country analysis, firm-level data, competitiveness, productivity and size distribution, total factor productivity, allocative efficiency
    JEL: L11 L25 D24 O4 O57
    Date: 2014–03
  24. By: Arimoto, Yutaka; Lee, Changmin
    Abstract: Foreign direct investment (FDI) can deliver both positive and negative spillovers to the local economy. Negative effects such as crowding-out or entry-barrier effects might outweigh the positive ones when the technological gap between foreign and local firms is significant. This paper examines the impact of Japanese direct investment into Korea under colonization in the 1930s on the entry of Korean-owned factories. By using the census of manufacturing factories in Korea, we exploit variations in the share of Japanese factories and their entry rates across counties within the same subsectors. We find that within a subsector, entry rates of Korean factories were higher in counties with higher presence and entry of Japanese factories. Positive correlations are also found between subsectors. The results imply that Japanese direct investment did not suppress the entry of Korean factories and that FDI could exert positive entry spillovers on indigenous firms, even at a very early stage of industrialization.
    Keywords: Korean Peninsula, Japan, Foreign investments, Industrialization, Manufacturing industries, Foreign direct investment (FDI), Entry spillovers, Korean industrialization
    JEL: F21 F23 M13 N65 O14
    Date: 2014–03
  25. By: Jean-Pierre Allegret; Valérie Mignon; Audrey Sallenave
    Abstract: The aim of this paper is to investigate oil price shocks' effects and their associated transmission channels on global imbalances. To this end, we rely on a Global VAR approach that allows us to account for trade and Financial interdependencies between countries. Considering a sample of 30 oil-exporting and importing economies over the 1980-2011 period, we show that the nature of the shock-demand-driven or supply-driven matters in understanding the effects of oil price shocks on global imbalances. In addition, we evidence that the main adjustment mechanism to oil shocks is based on the trade channel, the valuation channel being at play only on the short run..
    Keywords: oil prices, global imbalances, global VAR
    JEL: C32 F32 Q43
    Date: 2014
  26. By: Petreski, Marjan
    Abstract: The objective of this paper is to test the exchange rate regime – growth nexus in transition economies by looking if and how some inherent characteristics of the transition process might have affected the de-facto classifications of exchange rate regimes. 28 transition countries of Central and Eastern Europe and the Commonwealth of Independent States are investigated over 1991-2007 and three de facto classifications of exchange rate regimes are considered. As usual in the empirical literature, initially, the exchange rate regime effect on growth differs across classifications. However, further investigation suggests that the three classifications usually disagree around some inherent characteristics of the transition process, like the higher trade openness of the countries, the episodes of high inflation and the bank system reform and interest rate liberalization. Results indicate that high inflation likely determined disagreement in early transition, while trade openness and interest rate liberalization in late transition. After classifications have been cleaned of the disagreeing points, the final results, corrected for the potential selectivity bias, suggest that both pegs and intermediate regimes of all three classifications significantly outperform floats in terms of economic growth, the average effect being slightly lower for pegs.
    Keywords: exchange rate regime classifications; economic growth; transition economies
    JEL: E42 F31
    Date: 2014
  27. By: Lance Kent (Department of Economics, College of William and Mary)
    Abstract: How do international business cycles change as countries mature and become more deeply linked with their partners? This paper answers that question by establishing new stylized facts on the systematic variation in the transmission of shocks within and between countries along low-frequency trends in income, industrial structure, openness, and trade and financial linkages. Namely, this paper estimates a global "linkage VAR" where the coefficients in the global autoregressive matrix vary as linear functions of these low-frequency trends. This regression finds that when a country imports more investment or intermediate goods from a given partner country, the response of its output to shocks from its partner is amplified. When a country holds more FDI assets in a given partner country, the response of its output to shocks from its partner is dampened. The paper then poses an international real business cycle model and derives a novel application of the perturbation method to compare the changes in propagation within this model to those implied by the linkage VAR. The model performs reasonably well for some of the principal components of the distribution of observed evolution in bilateral linkages but not others. The novel methodology of this paper achieves both the estimation of new stylized facts as well as a novel way to assess structural models in light of them.
    Keywords: Business Cycles, Global Panel VAR, Financial Integration, Stylized Facts.
    Date: 2014–03–15
  28. By: Ben Jebli, Mehdi; Ben Youssef, Slim; Ozturk, Ilhan
    Abstract: Based on the Environmental Kuznets Curve (EKC) hypothesis, this paper uses panel cointegration techniques to investigate the short and the long-run relationship between CO2 emissions, economic growth, renewable energy consumption and trade openness for a panel of 24 Sub-Saharan Africa countries over the period 1980-2010. The validity of the EKC hypothesis has not been supported for these countries. Short-run Granger causality results reveal that there is a bidirectional causality between emissions and economic growth; bidirectional causality between emissions and real exports; unidirectional causality from real imports to emissions; and unidirectional causality runs from trade (exports or imports) to renewable energy consumption. There is an indirect short-run causality running from emissions to renewable energy and an indirect short-run causality from GDP to renewable energy. In the long-run, the error correction term is statistically significant for emissions, renewable energy consumption and trade openness. The long-run estimates suggest that real GDP per capita and real imports per capita both have a negative and statistically significant impact on per capita CO2 emissions. The impact of the square of real GDP per capita and real exports per capita are both positive and statistically significant on per capita CO2 emissions. For the model with imports, renewable energy consumption per capita has a positive impact on per capita emissions. One policy recommendation is that Sub-Saharan countries should expand their trade exchanges particularly with developed countries and try to maximize their benefit from technology transfer generated by such trade relations as this increases their renewable energy consumption.
    Keywords: Environmental Kuznets Curve; Renewable electricity consumption; International trade; Panel cointegration; Sub-Sahara.
    JEL: C33 F14 O55 Q43
    Date: 2014–03–07
  29. By: Edward J. Balistreri (Division of Economics and Business, Colorado School of Mines); Daniel T. Kaffine (Department of Economics, University of Colorado, at Boulder); Hidemichi Yonezawa (Institute of the Environment, University of Ottawa)
    Abstract: We consider the legal and economic context for border adjustments that might be used to augment subglobal carbon abatement. Following Markusen (1975) we establish optimal border policy in the presence of cross-border environmental damages. The optimal border policy includes a strategic component that is inconsistent with legal commitments under the General Agreement on Tariffs and Trade (GATT). Incorporating GATT compliance into the theory indicates an optimal border adjustment that taxes the carbon content of trade below the domestic carbon price. This theoretic finding is in contrast to the standard advice to impose the domestic carbon price on the carbon content of trade. The wedge between the domestic carbon price and the optimal environmental border adjustment occurs in general equilibrium because border adjustments inadvertently drive up consumption of emissions intensive goods in unregulated regions. We conclude our analysis with numeric simulations of Annex-I carbon policy. We find an optimal import tariff on the carbon content of aluminum that is on the order of 50\% of the domestic carbon price. Countries that impose border carbon adjustments at the domestic carbon price will be extracting rents from unregulated regions at the expense of efficient environmental policy and consistency with international law.
    Keywords: climate policy, border tax adjustments, carbon leakage, trade and carbon taxes
    JEL: F18 Q54 Q40 K33
    Date: 2014–02
  30. By: Vincent Bodart (Université catholique de Louvain); Jean-François Carpantier (CREA, Université de Luxembourg)
    Abstract: While most of the literature on the determination of real exchange rates is focused on the role of standard macroeconomic variables, there exists how- ever a few papers that are more concerned by the impact of factors which are usually considered to play a key role in the process of economic development, like demography or inequality. In the present paper, we extend this small branch of the literature by exploring the relationship between labor skills and real exchange rates over the long-run. Using panel regressions covering 22 countries over the period 1950-2010, we find that labor skills are indeed a structural determinant of real exchange rates, with a permanent increase of the skilled-unskilled labor ratio leading to a long-run appreciation of the real exchange rate. This findings is robust to the inclusion of several control variables, like those used in traditional analyses of real exchange rates.
    Keywords: Real exchange rate, human capital, skills, Balassa-Samuelson effect.
    JEL: C23 F31 F41 I25
    Date: 2014
  31. By: Kenji Fujiwara (School of Economics, Kwansei Gakuin University)
    Abstract: This paper, in a two-country duopoly model, compares destination- and origin-based commodity taxes in a context of a unilateral tariff-tax reform that fixes the world price and foreign welfare. We find that the proposed reform reduces domestic welfare, and hence is strictly Pareto-deteriorating under the destination principle while the opposite holds under the origin principle. Moreover, it is shown that this ranking is reversed if exports are taxed. In short, which is preferable between destination and origin taxation depends on the tax principle and which between imports and exports are taxed.
    Keywords: tax principles, tariff-tax reform, destination-based consumption tax, origin-based production tax
    JEL: F12 F13 H2
    Date: 2014–03
  32. By: Stefano Bosi; Patrice Fontaine; Cuong Le Van
    Abstract: In this note, we present a wealth model of a two-country economy where ffnancial assets and goods are traded. We consider the case where the agents are risk neutral, a very common assumption in ffnance in order to have explicit solutions for prices, and in particular in international ffnance for exchange rates using the Pareto optima. We show that the Pareto optima on the international good and capital markets are found to coincide with the net trade allocations. More notably, under a no- arbitrage condition on the international capital market, we can deffne an exchange rates system for which Purchasing Power Parity (PPP) holds. And if any Pareto optimum for the international capital market and its associated commodity prices clear the trade balance then the Uncovered Interest Rate Parity (UIRP) for the international capital market holds with this exchange rates system. When the international ffnancial market are complete, this condition is also sufficient for the trade balance with any Pareto allocation and its associated commodity prices. In this case, PPP on the international good market and UIRP for the international capital market are equivalent conditions. We show through an example of risk-neutral economy where a no-arbitrage condition for assets and PPP hold, but UIRP fails, that the only individually rational Pareto allocation clearing the international good market is no-trade. Finally, we recover Dumas [3] under risk aversion in a simpliffed two-country economy with a single ffnancial asset and no exchange of commodities and we prove that the only possible equilibrium (with transfers) is no-trade.
    Keywords: international asset pricing, returns on securities, exchange rates, no-arbitrage condition.
    JEL: C6 D5 D9 F3 G1
    Date: 2014–02–25
  33. By: Julia Jauer (OECD Paris); Thomas Liebig (OECD Paris); John P. Martin (OECD Paris); Patrick A. Puhani (Leibniz Universität Hannover)
    Abstract: The question of whether migration can be an equilibrating force in the labour market is an important criterion for an optimal currency area. It is of particular interest currently in the context of high and rising levels of labour market disparities, in particular within the Eurozone where there is no exchange-rate mechanism available to play this role. We shed some new light on this question by comparing pre- and post-crisis migration movements at the regional level in both Europe and the United States, and their association with asymmetric labour market shocks. We find that recent migration flows have reacted quite significantly to the EU enlargements in 2004 and 2007 and to changes in labour market conditions,particularly in Europe. Indeed, in contrast to the pre-crisis situation and the findings of previous empirical studies, there is tentative evidence that the migration response to the crisis has been considerable in Europe, in contrast to the United States where the crisis and subsequent sluggish recovery were not accompanied by greater interregional labour mobility in reaction to labour market shocks. Our estimates suggest that, if all measured population changes in Europe were due to migration for employment purposes – i.e. an upper-bound estimate – up to about a quarter of the asymmetric labour market shock would be absorbed by migration within a year. However, in the Eurozone the reaction mainly stems from migration of third-country nationals. Even within the group of Eurozone nationals, a significant part of the free mobility stems from immigrants from third countries who have taken on the nationality of their Eurozone host country.
    Keywords: Free mobility, migration, economic crisis, labour market adjustment, Eurozone, Europe, United States
    JEL: F15 F16 F22 J61
    Date: 2014–03

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