nep-int New Economics Papers
on International Trade
Issue of 2014‒05‒04
nineteen papers chosen by
Luca Salvatici
Universita' di Roma 3

  1. Liberalisation reform and export performance of India By Ramesh C. Paudel
  2. The rise of China in the international trade network: a community core detection approach By Zhen Zhu; Federica Cerina; Alessandro Chessa; Guido Caldarelli; Massimo Riccaboni
  3. Network Effects on Trade in Intermediate Goods: Evidence from the Automobile Industry By Shuhei Nishitateno
  4. Globalization and Local Profiles of Economic Growth and Industrial Change By Dauth, Wolfgang; Suedekum, Jens
  5. Canadian Non-Energy Exports: Past Performance and Future Prospects By André Binette; Daniel de Munnik; Émilien Gouin-Bonenfant
  6. Climate change and balance of trade By Hochman, Gal; Zilberman, David
  7. Implications for Indonesia of Asia's Rise in the Global Economy By Kym Anderson; Anna Strutt
  8. Agglomeration effects of inter-firm backward and forward linkages: evidence from Japanese manufacturing investment in China By Nobuaki Yamashita; Toshiyuki Matsuura; Kentaro Nakajima
  9. External Balances, Trade Flows and Financial Conditions By Evans, Martin
  10. The Impact of Chinese Import Penetration on Danish Firms and Workers By Damoun Ashournia; Jakob Munch; Daniel Nguyen
  11. Financing Higher Education when Students and Graduates are Internationally Mobile By Marcel GERARD; Silke UEBELMESSER
  12. Trade Misinvoicing and Macroeconomic Outcomes in India By Raghbendra Jha; Truong Duc Nguyen
  13. Throwing the Spanner in the Works: The Mixed Blessing of FDI By Jakob Schwab
  14. Impact of FDI on GDP: An Analysis of Global Economy on Production Function By Khan, Shiraz; Mehboob, Farhan
  15. On the R&D giants' shoulders: Do FDI help to stand on them? By Antonio Vezzani; Sandro Montresor
  16. La agricultura colombiana de cara a los pactos bilaterales de comercio By Carlos Gustavo Cano
  17. What drives the German current account? And how does it affect other EU member states? By Robert Kollmann; Marco Ratto; Werner Roeger; Jan in’t Veld; Lukas Vogel
  18. FDI and Long-term Economic Growth in Russia By TAGANOV, BORIS
  19. Support to Agriculture in India in 1995-2013 and the Rules of the WTO By Brink, Lars

  1. By: Ramesh C. Paudel
    Abstract: This paper examines the impact of liberalisation reform on export performance of India. The empirical analysis involves estimating an export demand-supply model for manufacturing and merchandised exports, applying ARDL approach to cointegration using annual data for the period 1975-2008. The main advantage of this approach is that, apart from providing robust estimations in small sample sizes, it needs no prior knowledge of the integration properties of the variables. The results suggest that manufacturing and merchandise export demand are mainly determined by world demand, while manufacturing export supply is determined by domestic manufacturing output, FDI and overall liberalisation- initiated in the early 1990s. Contrary to the received view, this study failed to detect a significant negative impact of trade protection on export performance; however, overall liberalisations reforms seem to have positive impact in India’s manufacturing export performance but this is not true in the context of merchandised export performance.
    Keywords: Exports, Liberalization, Trade, International Trade, India
    JEL: F1 F3 F10 P33 O53
    Date: 2014
  2. By: Zhen Zhu (IMT Lucca Institute for Advanced Studies); Federica Cerina (IMT Lucca Institute for Advanced Studies); Alessandro Chessa (IMT Lucca Institute for Advanced Studies); Guido Caldarelli (IMT Lucca Institute for Advanced Studies); Massimo Riccaboni (IMT Lucca Institute for Advanced Studies)
    Abstract: Theory of complex networks proved successful in the description of a variety of static networks ranging from biology to computer and social sciences to economics and finance. Here we use network models to describe the evolution of a particular economic system, namely the International Trade Network (ITN). Previous studies often assume that globalization and regionalization in international trade are contradictory to each other. We re-examine the relationship between globalization and regionalization by viewing the international trade system as an interdependent complex network. We use the modularity optimization method to detect communities and community cores in the ITN during the years 1995-2011. We find rich dynamics over time both inter- and intra-communities. Most importantly, we have a multilevel description of the evolution where the global dynamics (i.e., communities disappear or reemerge) tend to be correlated with the regional dynamics (i.e., community core changes between community members). In particular, the Asia-Oceania community disappeared and reemerged over time along with a switch in leadership from Japan to China. Moreover, simulation results show that the global dynamics can be generated by a preferential attachment mechanism both inter- and intra- communities.
    Keywords: Complex Networks, International Trade, Community Detection
    JEL: F10 F15
    Date: 2014–04
  3. By: Shuhei Nishitateno
    Abstract: Growing production fragmentation makes analysis of network effects on trade in parts and components more important than ever. This study examines network effects on auto parts exports from six major auto producing countries using a panel dataset covering 49 destinations and 31 products over the period from 2002 to 2008. Unlike previous research, this study finds that, in the case of Japanese automakers, overseas production by subsidiary plants is less important in determining auto parts exports from Japan than it is for the other major auto producing countries. Japanese auto parts suppliers, unlike their counterparts in other countries, have a tendency to follow the Japanese auto makers in internationalizing their operations. This practice of meeting the need of automakers from overseas production plants weakens the network effects on auto parts exports from Japan.
    Keywords: Network effect, International trade, production fragmentation, keiretsu, automobile industry, Japan
    JEL: F14 L23
    Date: 2014
  4. By: Dauth, Wolfgang (Institute for Employment Research (IAB), Nuremberg); Suedekum, Jens (Heinrich Heine University Düsseldorf)
    Abstract: We analyze how globalization has affected the sectoral anatomy of regional growth in Germany over the period 1978-2008. The aggregate German economy is characterized by a secular decline of manufacturing and a rise of modern service industries. This trend– also known as Petty's law – is not uniform across space, however. Some regions exhibit it at an even accelerated pace, while other regions have reinforced their manufacturing specializations. We first categorize all German regions into one of three groups, with "protrend", "anti-trend" or "featureless" growth. Afterwards we propose an explanation why a particular region ended up in one of those groups: We argue that the regional profiles of growth and change are systematically related to the initial sizes, and the import and export exposures of the local manufacturing sectors.
    Keywords: structural change, local industry compositions, trade exposure, local employment growth
    JEL: R11 O14 F16
    Date: 2014–04
  5. By: André Binette; Daniel de Munnik; Émilien Gouin-Bonenfant
    Abstract: Canada has continued to lose market share in the United States since the Great Recession, beyond what our bilateral competitiveness measures (relative unit labour costs) would suggest. In this context, we have studied 31 non?energy export categories to assess their individual performance against a category-specific foreign activity measure or benchmark, and to identify which export subaggregates will likely be supported by the recent depreciation of the Canadian dollar. Our main findings are: (i) among the 31 subsectors of non-energy exports, about half (in value terms) have either been performing as expected or outperforming their benchmarks; (ii) the remaining subsectors have lagged their benchmarks, mainly owing to longer-term structural declines; (iii) around half of the subsectors appear to be quite sensitive to persistent movements in the exchange rate; and (iv) about half of the non-energy export subaggregates are anticipated to lead the recovery, including those likely to benefit from robust growth in U.S. construction, U.S. investment in machinery and equipment, and/or the recent depreciation of the Canadian dollar.
    Keywords: Balance of payments and components, Exchange rates
    JEL: F10 F14 F43
    Date: 2014
  6. By: Hochman, Gal; Zilberman, David
    Abstract: In the absence of a global climate agreement, countries employ local policies to curb pollution and introduce clean energy. These policies limit domestic consumption of a traded energy source but increase exports thus improving a country’s energy balance and its balance of trade. While focusing on US energy policy, we show this phenomenon for both petroleum products and for coal.
    Keywords: Social and Behavioral Sciences, energy sources, international trade, technological change, climate change, balance of trade, green paradox
    Date: 2014–03–01
  7. By: Kym Anderson; Anna Strutt
    Abstract: This paper projects Indonesia's production and trade patterns to 2020 and 2030 in the course of global economic development under various growth and policy scenarios. We employ the GTAP model and Version 8.1 of the GTAP database, along with supplementary data from a range of sources to support projections of the global economy. The baseline projection assumes trade-related policies do not change in each region but that endowments and real GDP do change, at exogenously selected rates. This enables us to analyse how potential global changes may impact the Indonesian economy over this and the next decade. We then consider the impacts of three potential policy reforms by 2020: an increase in global rice exports, as might be associated with the opening of Myanmar; Indonesia's recently-imposed export taxes on unprocessed primary products; and implementation of Indonesia's new Food Law.
    Keywords: Global economy-wide model projections; Indonesian economic growth and structural change; Food policy; Export taxes
    JEL: D58 F13 F15 F17 Q17
    Date: 2014
  8. By: Nobuaki Yamashita; Toshiyuki Matsuura; Kentaro Nakajima
    Abstract: This paper examines the agglomeration effects of multinational firms on the location decisions of first-time Japanese manufacturing investors in China for the period 1995–2007. This is accomplished by exploiting newly constructed measures of inter-firm backward and forward linkages formed in a home country. The conditional and mixed logit estimates reveal that agglomeration by first-tier suppliers and customers draws subsequent investment into a location. However, such agglomeration effects are not pervasive and do not extend to the second and third tiers. Instead, we find that agglomeration by third-tier suppliers generates a countervailing force, making a location relatively unattractive.
    Keywords: Agglomeration, Backward and forward linkages, Location choice of multinational enterprises
    JEL: F23 L22 R3
    Date: 2014
  9. By: Evans, Martin
    Abstract: This paper studies how changing expectations concerning future trade and financial con- ditions are reflected in international external positions. In the absence of Ponzi schemes and arbitrage opportunities, the net foreign asset position of any country must, as a matter of theory, equal the expected present discounted value of future trade deficits, discounted at the cumulated world stochastic discount factor (SDF) that prices all freely traded financial assets. I study the forecasting implications of this theoretical link in 12 countries (Australia, Canada, China, France, Germany, India, Italy, Japan, South Korea, Thailand, The United States and The United Kingdom) between 1970 and 2011. I find that variations in the ex- ternal positions of most countries reflect changing expectations about trade conditions far into the future. I also find the changing forecasts for the future path of the world SDF is reflected in the dynamics of the U.S. external position.
    Keywords: Global Imbalances, Foreign Asset Positions, Current Accounts, Trade Flows, International Asset Pricing
    JEL: F3 F31 F32 F34
    Date: 2014–05–01
  10. By: Damoun Ashournia; Jakob Munch; Daniel Nguyen
    Abstract: The impact of imports from low-wage countries on domestic labor market outcomes has been a hotly debated issue for decades.� The recent surge in imports from China has reignited this debate.� Since the 1980s several developed economies have experienced contemporaneous increases in the volume of imports and in the wage gap between high- and low-skilled workers.� However, the literature has not been able to document a strong causal relationship between imports and the wage gap.� Instead, past studies have attributed the widening wage gap to skill biased technological change.� This paper finds evidence for the direct impact of low wage imports on the wage gap.� Using detailed Danish panel data for firms and workers, it measures the effects of Chinese import penetration at the firm level on wages within job-spells and over the longer term taking transitions in the labor market into account.� We find that greater exposure to Chinese imports corresponds to a negative firm-level demand shock, which is biased towards low-skill intensive products.� Consistent with this an increase in Chinese import penetration results in lower wages for low skilled employees.
    Keywords: Chinese import penetration, wage inequality, firm heterogeneity
    JEL: F16
    Date: 2014–04–30
  11. By: Marcel GERARD (UNIVERSITE CATHOLIQUE DE LOUVAIN, Louvain School of Management Research Institute (ILSM) and Institut de Recherches économiques et sociales (IRES)); Silke UEBELMESSER (University of Jena, Germany)
    Abstract: This paper aims at linking cross border mobility of students and graduates with the financing of higher education. Against the background of institutional features and empirical evidence of the European Union and Northern America, a theoretical framework is developed. This allows analyzing the optimal financing regimes for different migration scenarios, comparing them with the regimes in place and discussing possible remedies. In particular, the (optimal) sharing of education costs between students / graduates and tax-payers is studied as well as the (optimal) sharing of the tax-payers’ part between the various countries involved: the country which provides higher education (the host country), the country of previous education (the origin country) and possibly the countries which benefit from the improved skills of the workers. Alternative designs exhibiting potentially desirable properties are developed and policy recommendations derived.
    Keywords: Mobility of students; Mobility of graduates; Financing of higher education
    JEL: F22 H52 I23
    Date: 2014–04–23
  12. By: Raghbendra Jha; Truong Duc Nguyen
    Abstract: This paper has two main objectives. First, it computes capital flight (CF) through trade misinvoicing from India using data from UNCOMTRADE, MIT Observatory of Economic Complexity and IMF E-library. India's trade with 17 countries over the period 1988-2012 is considered. We find that CF has accelerated since 2004 and particularly sharply since 2007. It peaked at nearly $40 billion in 2008 with the total outflow between 1988-2012 exceeding $186 billion. Second, we model the mutual dependence of GDP growth, CF, and various risk factors in a VAR framework. We find that the VAR models chosen fit the data well. We conduct impulse response function analysis, forecast the key variables until 2020 and forecast error variance decomposition. Broadly we find that, if left undisturbed, CF through trade misinvoicing will continue to be high and play a significant macroeconomic role. Thus, CF needs to be checked urgently not only because it is a drain of the country's resources but also because it continues to have a significant and, by its very nature, uncontrollable effect on the economy. At least some of the failures of current macroeconomic policy in India could be attributed to CF.
    Keywords: Trade Misinvocing, VAR, Impulse Response, Forecasting, India
    JEL: E17 F32 F47 K42
    Date: 2014–04
  13. By: Jakob Schwab (Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany)
    Abstract: FDI is generally attributed to have positive impact for developing countries. In contrast, this paper shows that foreign capital inflows may cause an economy to be stuck in a middle-income trap. Introducing a simple capital market imperfection into a standard neoclassical (open-economy) model of growth, I show that FDI crowds out domestic investment when countries are still growing. If profitable investments are pursued by foreign capital owners, this does reduce chances for domestic entrepreneurs that they would have otherwise been able to take, by means of economy-wide savings. The long term losses due to the crowding-out effect occur despite the short-term gains that sudden capital inflows entail, as in static models. At the same time, savings that are not invested leave the country in turn, generating reverse capital flows.
    Keywords: FDI, financial market globalization, welfare effects, open-economy growth, middle income trap, two-way capital flows
    JEL: F21 F43 F54 O16
    Date: 2014–02–21
  14. By: Khan, Shiraz; Mehboob, Farhan
    Abstract: This study examines the effects of Foreign Direct Investment Inflows on Gross Domestic Product on the production function theory by balanced panel data of World Development Indicators from 1992 to 2010 of 59 countries representing the global economy. The empirical analysis on basis of generalized least squares estimator with random effects suggests that there is a significant positive relationship between all the variables of Production Function including Gross Domestic Product and Foreign Direct Investment Inflows. The unit root test confirms the model’s predictive validity and all the three variables significantly explain variation in the Gross Domestic Product, Co-integration test confirms the long-run relationship and Granger causality test finally identifies the presence of unidirectional causality among Gross Domestic Product and Foreign Direct Investment Inflows and Bidirectional causality between the all variables of the original production function. It is recommended for the host nations to emphasize on pro-capital polices to attract and maximize foreign direct investment inflows which will ultimately increase Gross Domestic Product of the host nations.
    Keywords: Foreign Direct Investment, Gross Domestic Product, Production Function.
    JEL: F02 F3 F4 F40 F41 F43 Z00
    Date: 2014–01–15
  15. By: Antonio Vezzani (JRC-IPTS); Sandro Montresor (University of Bologna)
    Abstract: The paper investigates the extent to which outward FDI affect the MNC's capacity of entering (and remaining in) the club of top R&D world investors, benefiting from performance gains in both financial and economic markets. By merging the European Industrial Research and Innovation Scoreboard with the fDi Markets dataset, we find supporting evidence. Increasing the number of FDI projects helps firms overcome the discontinuities that, in the distribution of R&D expenditures, separate the largest R&D investors from those below them. The same is true for the number of FDI projects in R&D, which are also more important than greater FDI portfolios in becoming a top R&D spender. Furthermore, unlike FDI in general, more FDI in R&D guarantee firms to remain in this top club of firms as it increases their capacity of competing among the top R&D spenders. Results at the extensive margin (i.e. the number of FDI projects) are confirmed with respect to the scale of FDI projects (i.e. at the intensive margin). However, increasing their size is not enough to become one of the highest ranking R&D firms. Policy implications about the support to R&D internationalisation are drawn accordingly.
    Keywords: Foreign Direct Investments (FDI), Multinational Corporations (MNC), Research & Development (R&D)
    JEL: O32 F23 O33
    Date: 2014–01
  16. By: Carlos Gustavo Cano
    Abstract: The primary obstacle to genuine multilateral global trade liberalization has been the extreme protection of agriculture in the wealthiest economies. The route left open after the collapse of the Doha Round is that of bilateral free trade agreements, which are of limited scope. The agreement with US is the result of Colombia's priority interest in making permanent the concessions granted temporarily to a portion of its exports in compensation for the fight against illegal drugs, but at the expense of the Andean Price Band System, which was the only mechanism for border protection against the subsidies to agriculture in the United States. In the agreement with the European Union, the winning sector was fruits and vegetables, and the loser was milk and dairy products. However, both treaties may lose relevance once the US and the European Union sign the treaty known as the Transatlantic Trade and Investment Partnership (TTIP), given the huge trade diversion effect it would have. Depletion of the secular downward cycle in prices for agricultural products, and the onset of a new one characterized by an upward trend in the medium term could overwhelm the narrow spaces of such bilateral pacts with respect to the sector. To respond to these challenges and to seize new opportunities, Colombia should focus on the mass adoption of biotechnology and on resolving the conflict between current use of the land and its true agro-ecological vocation.
    Keywords: Agricultura, mercado, tratados de libre comercio
    JEL: F13 F14
    Date: 2013–08–23
  17. By: Robert Kollmann; Marco Ratto; Werner Roeger; Jan in’t Veld; Lukas Vogel
    Abstract: We estimate a three-country model using 1995-2013 data for Germany, the Rest of the Euro Area (REA) and the Rest of the World (ROW) to analyze the determinants of Germany’s current account surplus after the launch of the Euro. The most important factors driving the German surplus were positive shocks to the German saving rate and to ROW demand for German exports, as well as German labour market reforms and other positive German aggregate supply shocks. The convergence of REA interest rates to German rates due to the creation of the Euro only had a modest effect on the German current account and on German real activity. The key shocks that drove the rise in the German current account tended to worsen the REA trade balance, but had a weak effect on REA real activity. Our analysis suggests these driving factors are likely to be slowly eroded, leading to a very gradual reduction of the German current account surplus. An expansion in German government consumption and investment would raise German GDP and reduce the current account surplus, but the effects on the surplus are likely to be weak.
    JEL: F4 F3 F21 E3
    Date: 2014–04
    Abstract: In this paper we consider relationship between foreign direct investment (as one of the mechanisms of technological development) and long-term economic growth. In the beginning we discuss the role of FDI in the increase of total factor productivity from the viewpoint of endogenous growth theory. We then turn to the comparative analysis of FDI inflow to Russia and other countries broken down by economic industries. We find that Russian industries capable of increasing TFP and positively impacting the long-term economic growth are significantly underinvested relative to other countries. Since, in our opinion, pre-existing sources of Russia’s economic growth are almost completely exhausted, we suggest several economic policy measures aimed at attracting FDI in Russia and improve the absorptive capacity of the country.
    Keywords: FDI, TFP, economic growth, human capital, economic policy
    JEL: E66 F21 O15 O43
    Date: 2014–04
  19. By: Brink, Lars
    Abstract: India has submitted notifications to the World Trade Organization (WTO) on domestic support to agricultural producers in 1995-2003. This paper reviews India’s notifications and summarizes the related discussion in the WTO Committee on Agriculture of some key issues relating to the rules of the Agreement on Agriculture on domestic support. It calculates price gaps for rice, wheat, cotton and sugarcane in 1995 to 2013 under four scenarios regarding the external reference price and calculates the resulting market price support using total production and procurement quantities. It compares the associated Aggregate Measurements of Support (AMSs) to their limits based on value of production. The AMSs show large excesses above their limits over many years until 2013 for several crops under some readings of the Agreement but much less so if certain adjustments are made. This highlights the differences among alternative interpretations of the Agreement in determining compliance with a country’s obligations, in particular the understanding of the fixed external reference price and the production eligible to receive the applied administered price. The paper puts India’s administered pricing in the context of the 2013 decision of WTO ministers regarding protection under some conditions against challenge under the WTO dispute settlement mechanism.
    Keywords: India, WTO, agriculture, domestic support, Aggregate Measurement of Support, market price support, fixed external reference price, eligible production, Agricultural and Food Policy, International Relations/Trade, F13, Q17, Q18,
    Date: 2014–04–13

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