nep-int New Economics Papers
on International Trade
Issue of 2014‒04‒29
sixteen papers chosen by
Luca Salvatici
Universita' di Roma 3

  1. How do Multiproduct Exporters React to a Change in Trade Costs By Antoine Berthou; Lionel Fontagné
  2. The Impact of Diplomatic Representation Abroad on Canada’s Exports By Dan Ciuriak
  3. Substituting or Complementing?---The Influence of Chinese Overseas Direct Investment on Domestic Exports By Lin, Chih-Fan; Yü, Mei-Chen
  4. Asian Fragmentation in the Global Financial Crisis By Toshihiro OKUBO; Fukunari KIMURA; Nozomu TESHIMA
  5. Does Finance Really Matter for the Participation of SMEs in International Trade? Evidence from 8,080 East Asian Firms By Yothin Jinjarak; Paulo Jose Mutuc; Ganeshan Wignaraja
  6. A Short-Run Analysis of Exchange Rates and International Trade with an Application to Australia, New Zealand, and Japan By José Anson; Mauro Boffa; Matthias Helble
  7. Competitiveness in the Latin American manufacturing sector. Trends and determinants By Alicia Garcia-Herrero; Enestor dos Santos; Pablo Urbiola; Marcos dal Bianco; Fernando Soto; Mauricio Hernandez; Arnulfo Rodríguez; Rosario Sanchez
  8. Why liquidity matters to the export decision of the firm By Chan, Rosanna
  9. Abenomics, Yen Depreciation, Trade Deficit and Export Competitiveness (Japanese) By SHIMIZU Junko; SATO Kiyotaka
  10. Access to Banking Finance and Exporting By Roberto Alvarez; Ricardo A. Lopez
  11. The influence of network relationships on the internationalization process of SMEs: A multiple case-study of Ethiopian SMEs By Luuk Rietveldt; Robert Goedegebuure
  12. Beyond national economy-wide rebound effects: An applied general equilibrium analysis incorporating international spillover effects By Koesler, Simon; Swales, Kim; Turner, Karen
  13. Income Inequality, Trade and Financial Openness By G. C. Lim; Paul D. McNelis
  14. Economic and household impacts of policy interventions in the Irish agri-food sector until 2020 By Ole Boysen; Ana Corina Miller; Alan Matthews
  15. The euro and the geography of international debt flows By Hale, Galina; Obstfeld, Maurice
  16. Global Implications of the Renminbi’s Ascendance By Eswar Prasad

  1. By: Antoine Berthou (Banque de France - -); Lionel Fontagné (Banque de France - -, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: We use data on individual French exporters to document how a change in trade costs following the introduction of the euro affected firms' export margins in relation to export decisions, the number of products exported and average sales per product. Our results confirm two effects predicted by the theory: firms increase the range of products they export as well as their intensive margin. This effect is most evident in markets with moderate monetary policy coordination before 1999. General equilibrium competition effects reduce the initial positive impact on each of these margins. We find no evidence of firms' increased export participation
    Keywords: International trade, firm heterogeneity, multi-product exporters
    Date: 2013–04–10
  2. By: Dan Ciuriak
    Abstract: “Government-to-government” relations, underpinned by high-level Canadian representation in foreign nations, such as an embassy, significantly boost the level of Canadian exports to those countries, according to a new C. D. Howe Institute report. In the study, entitled “The Impact of Diplomatic Representation Abroad on Canada’s Exports,” author Dan Ciuriak provides new insights into where, why and how economic diplomacy works best, and shows that an embassy or equivalent has in the past added more to trade than have additional consulates or trade offices in the same destination.
    Keywords: International and Trade Policy
    JEL: F12 F13
  3. By: Lin, Chih-Fan; Yü, Mei-Chen
    Abstract: The aim of this paper is to verify whether overseas direct investment activities of China can substitute or complement domestic exports. Using panel data of 85 host countries from 2003 to 2011 we conduct detailed empirical examinations within the framework of the gravity model. After correcting for bias caused by synchronism between trade flow and investment flow and also for econometrical misspecifications we discover that, contrary to all existing studies, Chinese overseas direct investment has a very weak substituting relationship with domestic exports. Sub-sample regressions show that Chinese overseas direct investment substitutes exports to developed countries but complements exports to developing countries. Panel threshold model further confirms the role of host country’s economic developmental stage (measured by per capita GDP) in determining the influence of overseas direct investment on exports and detects two thresholds. Thus the sample is divided into three regimes: (1) in the first regime where per capita GDP is lower than 1150.39 dollars, overseas direct investment complements exports to the host country; (2) in the second regime where per capita GDP falls between 1150.39 and 11601.63 dollars, the “gray zone”, overseas direct investment has very weak influence on domestic exports; (3) in the third regime where per capita GDP exceeds 11601.63 dollars, overseas direct investment substitutes exports to the host country. This paper concludes with possible explanations to the empirical results and the threshold phenomenon.
    Keywords: Overseas Direct Investment; Domestic Exports; Gravity Model; Panel Threshold Model
    JEL: F14 F21
    Date: 2013–09–01
  4. By: Toshihiro OKUBO (Keio University); Fukunari KIMURA (Keio University and ERIA); Nozomu TESHIMA (House of Councillors, The National Diet of Japan)
    Abstract: This paper studies the impact of the Global Financial Crisis of 2008 on Japanese exports, focusing on international production networks in machinery sectors. For our survival analysis, we estimate a Cox proportional hazards model. Consequently, we find that Japanese exports to Asian countries, parts and components trade in particular, were less likely to stop during the crisis. Even if they stopped, such trade is more likely to be revived. Therefore, regardless of the worldwide economic crisis, Japan maintained trade relationships in parts and components in the machinery sectors.
    Keywords: financial crisis, ASEAN trade, parts and components, exit-entry diagram, survival analysis
    JEL: F14
    Date: 2013–12
  5. By: Yothin Jinjarak (Asian Development Bank Institute (ADBI)); Paulo Jose Mutuc; Ganeshan Wignaraja
    Abstract: This paper studies factors associated with firm participation in export markets, focusing primarily on firm size and access to credit, based on a survey sample comprising observations of 8,080 small and medium enterprises (SMEs) (with fewer than 100 employees) and non-SME firms in developing East Asian countries across sectors. The main findings suggest the interdependent relationships between export participation, firm size, and access to credit. SMEs participating in export markets tend to gain more access to credit, while potential scale economies (firm sizes) of SMEs are positively associated with participation in export markets. The estimation results also point to the supportive influences of foreign ownership, worker education, and production certification on export participation, and the positive effects of financial certification, managerial experience, and collateral/loan value on access to credit for SMEs.
    Keywords: SMEs, East Asian firms, export markets, export participation, firm size, access to credit
    JEL: D22 E44 F14 L16 O14
    Date: 2014–03
  6. By: José Anson (Asian Development Bank Institute (ADBI)); Mauro Boffa; Matthias Helble
    Abstract: The information and communication technology (ICT) revolution of the past 3 decades has transformed the world into an integrated marketplace. Today, producers and consumers alike are able to compare the prices of local businesses and worldwide sellers. For an increasing number of tradable goods, they can take advantage of arbitrage opportunities between online and offline transactions. One of the key exogenous elements behind this arbitrage is exchange rate movements. The existing literature on exchange rates has concluded that nominal prices can be assumed to be rigid, which thus opens the door to short-term international arbitrage. However, empirical evidence of international short-term arbitrage has so far been lacking due to data constraints. In this paper, we first present a new dataset that holds records on daily international exchanges of goods, namely those sent through the international postal logistics network. We then combine this data set with daily data on international exchange rate movements to test the hypothesis of international arbitrage. Applying different econometric techniques, we show that in an environment of floating exchange rates, almost instantaneous short-term international arbitrage is indeed occurring and that it has a persistent effect. The effect seems to be particularly pronounced in the developed countries of Asia and the Pacific.
    Keywords: exchange rate, international trade, Australia, New Zealand, Japan, international arbitrage
    JEL: F14 F31
    Date: 2014–04
  7. By: Alicia Garcia-Herrero; Enestor dos Santos; Pablo Urbiola; Marcos dal Bianco; Fernando Soto; Mauricio Hernandez; Arnulfo Rodríguez; Rosario Sanchez
    Abstract: After analysing the evolution of exports from the large Latin American countries over the last decade, and examining on a case by case basis the determinants for each country’s performance, this study concludes that competitiveness in the manufacturing sectors of most countries in the region went down from 2007 to 2012, after relatively favourable progress in the previous five-year period between 2002 and 2007. This recent deterioration, which has been more noticeable in countries such as Brazil and Colombia, is related to the real exchange rate appreciation, high labour costs and insufficient progress in labour productivity. The main exception to these regional trends is Mexico, where gains in the manufacturing sector’s competitiveness continued beyond 2007, partly because the exchange rate stayed relatively depreciated and labour costs, as well as work productivity, performed better than in the South American countries. However, from 2011 onwards, the reversal of these trends has been making it difficult for the Mexican manufacturing sector to gain competitiveness. Case studies of each of the region’s main countries show that in general the exchange rate, labour costs and work productivity were the main determinants in the evolution of manufacturing competitiveness in the last decade. In fact, the countries and periods where these variables performed poorly coincide with losses of market share in international trade and deteriorating competitiveness. Nevertheless, the impact of the remaining variables affecting the manufacturing sector’s competitiveness is not insignificant either. In fact, gains in competitiveness have been greater (and losses in competitiveness smaller) in Chile and Peru, where the institutional framework has improved and logistics and energy costs reduced or kept under control.
    Keywords: competitiveness, Latin America, manufacturing, exports
    JEL: F10 L60 O14 O54
    Date: 2014–03
  8. By: Chan, Rosanna
    Abstract: Under financial constraints, exporting may have less to do with productivity and more to do with financial resources. The established relationship between exporting and productivity would differ when examined through the lens of the working capital needs of the firm. The hypothesis that working capital matters in the firm's exporting decision is explored in two ways: first, by articulating a dynamic working capital model of the firm that incorporates the firm's export decision. Secondly, by testing the hypothesis empirically using a unique firm level dataset from Bangladesh, where issues of financial constraints are particularly acute. The model shows that productivity determines export status of the firm as long as it is not under financial constraints. However, under financial constraints, export status is less dependent on productivity and more dependent on the availability of working capital. Empirical results support the model's prediction. The relationship between exporting time and the need for greater liquidity is also borne out empirically as shown by a positive and significant correlation between the amount of working capital and the distance of export destination. An important policy implication from the analysis is that short term liquidity is critical in allowing productive firms to export and that access to finance may prevent the benefits of trade liberalization within a country to be fully realized.
    Keywords: Economic Theory&Research,Banks&Banking Reform,Access to Finance,Debt Markets,Labor Policies
    Date: 2014–04–01
  9. By: SHIMIZU Junko; SATO Kiyotaka
    Abstract: The sharp depreciation of the yen from the end of 2012 was expected to have a positive impact on the Japanese trade balance, since Japan had recorded large trade deficits since the Great East Japan Earthquake in March 2011. Trade balance tends to deteriorate at the beginning due to the J-curve effect. However, the Japanese trade balance has not shown any signs of improvement, even though one year has passed since the start of the yen depreciation. There is a growing concern that Japanese firms might lose export competitiveness in the global market. This paper empirically shows that Japanese firms expanded overseas production after the sharp appreciation of the yen from 2008 to 2012, which resulted in the increase in Japanese imports of intermediate inputs as well as finished products. The empirical result of an auto-regressive distributed lag (ARDL) model also indicates that the long-run impact of yen depreciation has weakened in recent years. It is demonstrated that Japanese manufacturing export prices in terms of the contract (invoice) currency have not changed in response to the large exchange rate fluctuations of the yen, which is empirically confirmed by the exchange rate pass-through analysis. Finally, a comparative analysis of the industry-specific exchange rate between Japan and Korea shows that the recent depreciation of the yen has improved the export price competitiveness of the Japanese manufacturing sectors.
    Date: 2014–04
  10. By: Roberto Alvarez (University of Chile); Ricardo A. Lopez (International Business School, Brandeis University)
    Abstract: This paper uses firm-level data for the period 1995-2002 to examine whether access to finance increases the probability of exporting of Chilean manufacturing plants. We exploit information on firms´ access to banking debt and changes in the real exchange rate ??RER?? to identify the causal effect of finance on exporting. This is an interesting case to study. The Chilean economy experienced a sustained RER depreciation since 1999, which increased export profitability. We use these changes in RER as a quasi-experiment to study the impact of access to banking finance. Our results show that RER depreciations increase the probability of exporting for firms with access to banking finance and especially for firms in industries with higher financial needs. These results are robust to controlling for other firm characteristics affecting the probability of exporting and also for time varying industry-specific shocks that may affect export performance and banking finance.
    Keywords: Exporting, Banking Finance, Credit Constraints, Firm-Level Data, Chile
    JEL: F14 O16 O54
    Date: 2014–03
  11. By: Luuk Rietveldt (Lecturer at Utrecht University); Robert Goedegebuure (Associate Professor at the Maastricht School of Management)
    Abstract: The role of network relationships has become topical in research on the internationalization process of firms. Research has focused on the internationalization process of firms in developed nations. This research adds to the literature by looking at the use of network relationships in Ethiopian small and medium sized enterprises (SMEs2) exporting spices, meat and shoes. Propositions are formulated from findings in the literature. Using a multiple case study of three Ethiopian firms, the influence of different networks on the foreign market entry process (FME) was researched. The focus was on the effect of network relations on the foreign market choice (FMC) and market entry mode choice (MEMC). The outcomes show that network relations play an important role in the internationalization. Contrary to expectations, the internationalization of the Ethiopian case firms depended completely on foreign firms initiating contacts and therewith the entrance into foreign markets. The foreign firms also influenced market entry mode choices of the firms under study. None of the firms did market research or had a strategic plan to enter the market, reflecting a reactive approach to internationalization. The vertical network, based on strong formal relations with the foreign product buyers, played a significant role in the foreign market and market entry mode choice. An important finding from the research is the notion that horizontal networks, especially the intermediary role played by foreign country governments and foreign and Ethiopian export organizations, had a big influence in the early stages on the contact relations between the foreign buyer and the Ethiopian exporter.
    Keywords: Network relations, internationalization, sme's (small and medium sized enterprises), foreign market entry, foreign market choice
    JEL: F23 L14
    Date: 2014–04
  12. By: Koesler, Simon; Swales, Kim; Turner, Karen
    Abstract: This paper proposes that the national focus of energy 'rebound' studies should be extended to an international context in the presence of supra-national agreements such as EU 20-20-20. The potential for energy efficiency improvements in one nation to impact energy use in others means that national targets and actions cannot be considered independently. This paper develops a general equilibrium analysis of increased efficiency in productive energy use, identifying a range of channels through which spillover effects may be transmitted as a result of trade in goods and services. The results show that energy efficiency in one nation does impact energy use in others. However, the sectoral and spatial distribution of positive and negative effects depends on the nature of the efficiency improvement and factor supply conditions. In particular, changes in relative competitiveness and energy supply conditions act to dampen economy-wide rebound as the boundaries of the economy are expanded. --
    Keywords: energy supply,energy demand,rebound effects,energy efficiency,general equilibrium,trade spillover
    JEL: D58 Q41 Q43 F18 Q56
    Date: 2014
  13. By: G. C. Lim (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Paul D. McNelis (Department of Finance, Graduate School of Business Administration, Fordham University)
    Abstract: This paper examines the relationships between the Gini coefficient, trade-openness, foreign aid and foreign direct investment flows. Panel data estimates show that trade openness can be effective for changing income inequality, but its effectiveness depends on the stage of development. Simulation results show that the Gini and openness can be negatively or positively correlated — it depends on the capital intensity and on the degree of openness. Overall, the results suggest that trade and financial openness can be effective policies for reducing inequality in low income countries, if they significantly increase the marginal productivity of labour through capital intensive methods of production.
    Keywords: Gini coefficient, openness
    JEL: E10 F41
    Date: 2014–03
  14. By: Ole Boysen (Agricultural and Food Policy, University of Hohenheim; Institute for International Integration Studies, Trinity College Dublin); Ana Corina Miller (Department of Agriculture and Food Economics, Agri-Food and Bioscience Institute, Belfast; Institute for International Integration Studies, Trinity College Dublin); Alan Matthews (Professor Emeritus of European Agricultural Policy, Trinity College Dublin)
    Abstract: Over the period 2005-2020, the Irish agri-food sector is confronted with three major policy changes: the decoupling of the single farm payment, the elimination of the dairy quota and potential multilateral trade liberalisation as part of an agreement in the Doha Development Round. This paper studies these reforms and their impacts on the economy and income distribution using a CGE model particularly rich in detail on agri-food sectors, differentiated household groups, and agricultural policy instruments including their links to productive factors and households. This allows customising the model to appropriately represent the specific policy instruments and their actual or potential changes. The results suggest that the past and projected changes in the policy environment have, in sum, a small positive impact on GDP and household income. But, the gains and losses are unequally distributed across sectors and household groups due to the highly differentiated distribution of support and protection. While all households generally gain from the sequence of policy reforms in the long run, some experience strong adverse effects from particular reforms and in the medium run.
    Keywords: Single Farm Payment; Doha Round; milk quota; Ireland; income distribution; computable general equilibrium
    JEL: D58 F13 O52 Q18
    Date: 2014–04
  15. By: Hale, Galina (Federal Reserve Bank of San Francisco); Obstfeld, Maurice (University of California Berkeley,)
    Abstract: Greater financial integration between core and peripheral EMU members had an effect on both sets of countries. Lower interest rates allowed peripheral countries to run bigger deficits, which inflated their economies by allowing credit booms. Core EMU countries took on extra foreign leverage to expose themselves to the peripherals. The result has been asset-price bubbles and collapses in some of the peripheral countries, area-wide banking crisis, and sovereign debt problems. We analyze the geography of international debt flows using multiple data sources and provide evidence that after the euro’s introduction, Core EMU countries increased their borrowing from outside of EMU and their lending to the EMU periphery.
    Keywords: international debt; EMU; international banking; global imbalances; euro crisis
    JEL: F32 F34 F36
    Date: 2014–04–14
  16. By: Eswar Prasad (Asian Development Bank Institute (ADBI))
    Abstract: This paper evaluates the prospects for the renminbi’s role as an international currency and the implications for global financial markets. Although the People’s Republic of China (PRC) does not have either an open capital account or a flexible exchange rate, the renminbi has attained considerable traction as an international currency on account of the PRC’s rising shares of global trade and gross domestic product. Through bilateral swaps that the People’s Bank of China has established with other countries’ central banks, the renminbi is also becoming more prominent in international finance. However, the renminbi is unlikely to become a major reserve currency in the absence of capital account convertibility, a flexible exchange rate, and better-developed financial markets. The renminbi’s rising prominence—if it is accompanied by significant economic reforms within the PRC—could add to the stability of Asian and global financial systems.
    Keywords: renminbi, Capital account liberalization, the people's bank of China, global financial markets, International currency
    JEL: F3 F4 E5
    Date: 2014–03

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