nep-int New Economics Papers
on International Trade
Issue of 2014‒06‒22
twenty papers chosen by
Luca Salvatici
Universita' di Roma 3

  1. Do Export Promotion Agencies Promote New Exporters? By Marcio Cruz
  2. A Note on the Link between Firm Size and Exports By Hernandez, Pedro J.
  3. Exports and Skills: The impact of destination in a middle income country By Adriana Peluffo
  4. Free Trade Agreements and Firm-Product Markups in Chilean Manufacturing By A. R. Lamorgese; A. Linarello; Frederic Warzynski
  5. Tariffs that may fail to protect: A model of trade and public goods By Biswas, Rajit
  6. North-South Standards Harmonization and International Trade By Anne-Célia Disdier; Lionel Fontagné; Olivier Cadot
  7. Export destinations and input prices By Bastos, Paulo; Silva, Joana; Verhoogen, Eric
  8. Deconstructing the Gains from Trade: Selection of Industries vs. Reallocation of Workers By Bolatto, Stefano; Sbracia, Massimo
  9. Trade Performance of India in Livestock Products under WTO Regime By Shah, Deepak
  10. The Surprisingly Swift Decline of U.S. Manufacturing Employment By Pierce, Justin R.; Schott, Peter K.
  11. Liberalization and Agricultural Exports of India By Shah, Deepak
  12. Do export price elasticities support tensions in currency markets? Evidence from China and six OECD countries By Aiello, Francesco; Bonanno, Graziella; Via, Alessia
  13. Export Sophistication and Exchange Rate Elasticities: The Case of Switzerland By THORBECKE, Willem; KATO Atsuyuki
  14. Foreign Direct Investment in Japan: A review of the empirical literature (Japanese) By KIYOTA Kozo
  15. Brain Drain or Brain Gain? The case of Moroccan Students in France By Bouoiyour, Jamal; Miftah, Amal; Selmi, Refk
  16. International division of labour and countries’ competitiveness: the case of Italy and Germany By Garbellini, Nadia
  17. Menu Costs, Trade Flows, and Exchange Rate Volatility By Lewis, Logan T.
  18. Networks of Military Alliances, Wars, and International Trade By Matthew O. Jackson; Stephen Nei
  19. Money and Foreign Trade in Ricardo (1809-1811) and in Ricardo (1817) By de Boyer des Roches, Jérôme
  20. Unilateral Climate Policy and Foreign Direct Investment with Firm and Country Heterogeneity By Francesca Sanna-Randaccio; Roberta Sestini; Ornella Tarola

  1. By: Marcio Cruz
    Abstract: Do export promotion agencies (EPAs) impact the probability of non-exporting firms to export? In the last decade many countries have introduced EPAs to support their firrms in order to deal with asymmetric information problems and make feasible additional gains from trade. Some recent studies have found that the support of EPAs has been effective with respect to the intensive and extensive margins of trade. Nevertheless, due to the lack of information on non-exporting firms, few of them analyze their impact on the probability of promoting new exporters. This paper evaluates the impact of the Brazilian Trade and Investment Promotion Agency (Apex-Brasil) on firms' export status using a unique firm-level dataset which covers the full manufacturing sector in Brazil. In order to identify the impact of Apex's assistance on firms' export propensity this paper relies on a procedure of matching difference-in-difference estimators. The empirical results show evidence of the program's positive impact on the probability of promoting new exporters. Also, the effect is heterogeneous according to firms' size categories and sectors. Although the evidence of positive effect is robust, the low propensity to export for both the treated and the control groups reinforces the importance of other firms' determinants (e.g. productivity) widely emphasized by trade literature.
    Keywords: Integration & Trade, Propensity-score matching, Productivity, Apex-Brasil, New exporters, Export status, Export propensity
    Date: 2014–04
  2. By: Hernandez, Pedro J.
    Abstract: This paper re-examines the link between firm size and exports in order to study the proposal that consists of increasing the firm size to raise exports as a way out of the current economic crisis. The elasticity of export propensity (percentage of exported sales) with respect to firm size depends on several firm characteristics. The new theories of international trade emphasize the firm heterogeneity as the theoretical basis of this behaviour. In the context of such heterogeneity, this paper uses the quantile regression methodology to analyze the effect of firm size on export propensity of the firms, confirming the existence of a positive relationship that becomes less important as export propensity increases. The traditional estimate of this elasticity on the average of the export propensities distribution underestimates the effect in the bottom of the distribution and overestimates the effect on most of it.
    Keywords: Exports, Firm Size
    JEL: F14 L25
    Date: 2013–11–19
  3. By: Adriana Peluffo (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: In this work we analyse the links between exports and its destination to high income countries on the demand for skilled labour. The theoretical literature argues that exporting to high-income countries leads to quality upgrading that is skill intensive, and which requires additional skill intensive services. We test this theory using a panel of Uruguayan manufacturing firms for the period 1997-2006 using data from the Encuesta de Actividad Economica from the Instituto Nacional de Estadisticas, which was merged with export data from the Direccion Nacional de Aduanas. Firstly, we analyse associations by means of OLS estimations. Then we use IV-GMM models to analyse causality. Our preliminary results seem to indicate that contrary to previous studies for developed and other middle income economies such as Mexico (Verhoogen 2008) and Argentina (Brambilla et al. 2012), exports to high income countries do not translate into a higher demand for skills for the Uruguayan case, while exports in general do. The explanation for these results may lie in the productive specialization of the country, characterised by sectors of low technological content, low value added and low sophistication, or as Hausmann et al. (2005) argue “what we export matters”.
    Keywords: exports, skills, wages, destinations
    JEL: F13 F14
    Date: 2014–04
  4. By: A. R. Lamorgese (Bank of Italy); A. Linarello (Bank of Italy and UPF); Frederic Warzynski (Department of Economics and Business, Aarhus University, Denmark)
    Abstract: In this paper, we use detailed information about firms’ product portfolio to study how trade liberalization affects prices, markups and productivity. We document these effects using firm product level data in Chilean manufacturing following two major trade agreements with the EU and the US. The dataset provides information about the value and quantity of each good produced by the firm, as well as the amount of exports. One additional and unique characteristic of our dataset is that it provides a firm-product level measure of the unit average cost. We use this information to compute a firm-product level measure of the profit margin that a firm can generate. We find that new products start being sold on foreign markets as export tariff fall. Moreover, for those products, we observe a fall in both prices and unit average costs. Those effects are mainly driven by an increase in productivity at the firm-product level. On average, adjustment on the profit margin does not appear to play a role. However, for more differentiated products, we find some evidence of an increase in markups, suggesting that firms do not fully pass-through increases in productivity on prices whenever they have enough bargaining power.
    Keywords: markups, physical productivity, free trade agreements
    JEL: F13 F14 L11
    Date: 2014–06–10
  5. By: Biswas, Rajit
    Abstract: This paper develops a model of small open economy, with a differentiated goods sector and voluntary provisioning of public good. It is shown that trade policy can alter the quantity of public good provided in the equilibrium. Interestingly, tariffs may fail to protect, leading to a Metzler Paradox like situation. This is because the income effect generated due to the imposition of tariff can lead to an increase in the contribution to the public good. An expanding public sector crowds out the import competing sector. This result holds unambiguously in the neighbourhood of free trade.
    Keywords: trade, monopolistic competition, tariffs, public goods
    JEL: F12 F13
    Date: 2014–06–17
  6. By: Anne-Célia Disdier (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA)); Lionel Fontagné (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, Department of Economics - European University Institute); Olivier Cadot (UNIL - Université de Lausanne - Université de Lausanne)
    Abstract: Recent years have seen a surge in economic integration agreements (EIAs) and the development of non-tariff measures (NTMs). As a consequence, a growing number of EIAs include provisions on NTMs. However, little attention has been given in the literature to the effects of NTM liberalization in the context of EIAs. In this paper, we focus on provisions for technical regulations and analyze whether the North-South harmonization of technical barriers affects international trade. Using a gravity equation, we test whether, as a result of the deep integration associated with standards provisions included in the EIA, the Southern partners' trade expands with the North, but at the expense of their trade with non-bloc Southern partners. Empirical results provide strong support for this conjecture. Moreover, harmonization on the basis of regional standards negatively impacts the exports of developing countries to the North.
    Date: 2014
  7. By: Bastos, Paulo; Silva, Joana; Verhoogen, Eric
    Abstract: This paper examines the extent to which the destination of exports matters for the input prices paid by firms, using detailed customs and firm-product-level data from Portugal. The authors use exchange rate movements as a source of variation in export destinations and find that exporting to richer countries leads firms to charge more for outputs and pay higher prices for inputs, other things equal. The results are supportive of the hypothesis that an exogenous increase in average destination income leads firms to raise the average quality of goods they produce and to purchase higher-quality inputs.
    Keywords: Markets and Market Access,Economic Theory&Research,Emerging Markets,Access to Markets,Debt Markets
    Date: 2014–06–01
  8. By: Bolatto, Stefano; Sbracia, Massimo
    Abstract: In a Ricardian model with CES preferences and general distributions of industry efficiencies, the sources of the welfare gains from trade can be precisely decomposed into a selection and a reallocation effect. The former is the change in average efficiency due to the selection of industries that survive international competition. The latter is the rise in the weight of exporting industries in domestic production, due the reallocation of workers away from less-efficient non-exporting industries. This decomposition, which is hard to calculate in the general case, simplifies dramatically if industry efficiencies are Fréchet distributed, providing easy-to-quantify model-based measures of these two effects. Under this assumption, we also show that when the gains from trade are small, it is the selection effect that matters most; as the gains from trade rise and the size of the export sector grows, so does the importance of the reallocation effect.
    Keywords: comparative advantage; selection effect; reallocation effect
    JEL: F1 F10 F11 F40
    Date: 2014–06–13
  9. By: Shah, Deepak
    Abstract: The study shows that in spite of India’s dependence on import trade of butter, ghee from cow milk, cheese and curd animal fats, etc. has come down sharply over the past two decades in the face of rise in export trade in the same, the trade balance of India in these products remains negative due to higher value associated with imports as against export. India, therefore, faces significant threat in the case of import trade of some of the dairy products like butter, ghee, cheese and curd, animal fats and some other livestock based products like hides and skins. Further, consequent upon cheap imports and absence of adequate protection measures, safeguarding income and livelihood of poor farmers have emerged issues that need to be addressed by policy makers. As for scope for the expansion of Indian dairy industry in new liberalized trade regime is concerned, Indian dairy sector would be competitive only if the export subsidies on dairy products are abolished. In more relaxed market environment, the real challenge posed before Indian livestock sector would be in terms of Sanitary and Phytosanitary Measures (SPS), Agreement on Technical Barriers to Trade (TBT) and animal welfare related issues. With a view to meet these requirements - both domestically and in the world markets - modernization of supply chain encompassing producer as well as consumer is the need of the hour. India is already price competitive in the world market and when subsidies from competitive producers like USA and EU countries are removed, the situation will make India more price competitive.
    Keywords: Trade India Livestock Products WTO
    JEL: Q17
    Date: 2014–06–13
  10. By: Pierce, Justin R. (Board of Governors of the Federal Reserve System (U.S.)); Schott, Peter K. (Yale School of Management & NBER)
    Abstract: This paper finds a link between the sharp drop in U.S. manufacturing employment beginning in 2001 and a change in U.S. trade policy that eliminated potential tariff increases on Chinese imports. Industries where the threat of tariff hikes declines the most experience more severe employment losses along with larger increases in the value of imports from China and the number of firms engaged in China-U.S. trade. These results are robust to other potential explanations of the employment loss, and we show that the U.S. employment trends differ from those in the E.U., where there was no change in policy.
    Keywords: Manufacturing; trade policy; uncertainty; offshoring; China; World Trade Organization; supply chains
    Date: 2013–11–01
  11. By: Shah, Deepak
    Abstract: The study shows that the agricultural exports of India have always been fraught with high fluctuations. In spite of significant production expansions in many agricultural commodities, India’s global agricultural trade has remained at lower ebb. A lack of vision and a directionless agricultural export planning on the part of our policy planners seem to be responsible for this not so-encouraging scenario. However, it is to be further noted that though India’s share for most of the selected commodities in the total Asian and world exports encompassing them fluctuated during the past two decades, a fillip received to their exports in the wake of liberalization of policies also meant encouraging trends. Notwithstanding the dwindling India’s share of world agricultural exports, it is hoped that a regime of liberal trade policy measures will propel this country’s international market share in these commodities in future, in general. And, adoption of such international trade friendly measures is likely to benefit India’s horticultural exports, in particular. Further, though the study shows horticultural exports of India to forge ahead even in the face of wide international price fluctuations and high burgeoning demand for these high value commodities, the development of horticultural products in the country still suffers from several constraints, which are not only general but also crop specific in nature.
    Keywords: Liberalization Agricultural Exports India
    JEL: Q17
    Date: 2014–06–13
  12. By: Aiello, Francesco; Bonanno, Graziella; Via, Alessia
    Abstract: The empirical literature on trade imbalances does not make currency tensions easy to understand, because tensions across traders originate from the assumption that export-price elasticity is high. This paper provides new evidence by analysing the export-behaviour of China, France, Germany, Italy, Japan, UK, and the USA from 1990 to 2012. Estimates of export-price elasticities have been made using panel data techniques for non-stationary data. Long run relationships are stable to any structural break and indicate that exports are heavily dependent on world income, with long run income elasticity significantly higher than unity in many cases (China, Japan, Germany, UK and USA). Conversely, exports are price inelastic for most of the countries in the sample, in both the long and short runs. The exception is France, whose exports in the long run would increase by 2 percent if the country experienced a 1 percent depreciation of its real exchange rate.
    Keywords: Export elasticity, competitive Devaluation, currency wars, panel data
    JEL: C23 F10 F17 F37 P33
    Date: 2014–06–18
  13. By: THORBECKE, Willem; KATO Atsuyuki
    Abstract: In 2011, Switzerland announced a floor for the Swiss franc, and it immediately depreciated by 10 percent. Many argue that depreciations should not matter for Switzerland's export basket because luxury brands and high value added products predominate, and these should compete on quality rather than price. We measure the sophistication of Swiss exports using Hausmann et al.'s (2007) and Kwan's (2002) measures and find them to be the most sophisticated in the world. We also estimate export equations and find price elasticities exceeding unity. These findings run counter to the claim that countries exporting high end goods should have low exchange rate elasticities.
    Date: 2014–06
  14. By: KIYOTA Kozo
    Abstract: This paper surveys the recent literature that empirically examines foreign direct investment (FDI) in Japan. This paper focuses on the quantitative evidence on the following questions: 1) Did FDI in Japan accelerate economic growth? 2) What are limiting factors for FDI in Japan? 3) Are there any differences between foreign-owned firms and Japanese-owned firms? 4) Why is the productivity of foreign-owned firms high? 5) Do foreign-owned firms undergo massive restructuring? 6) Does the entry of foreign-owned firms cause severe competition? 8) Are there any spillover effects from foreign-owned firms to domestic firms? This paper summarizes the facts and issues on FDI in Japan.
    Date: 2014–06
  15. By: Bouoiyour, Jamal; Miftah, Amal; Selmi, Refk
    Abstract: Brain drain has long been an important concern particularly for a developing country like Morocco where high-skilled emigration rates are highest. The aim of this paper is to highlight the causes of migration of Moroccan students to France, to offer then some implications. To this end, we apply an ARDL Bounds testing approach and VEC Granger causality test to annual data spanning the period between 1971 and 2011. We show that the quality of higher education measured by French research & development (proxy of French institutions) seem the main determinant of student mobility. The per-capita income differential between France and Morocco also plays an important role on explaining student migration. The uncertainty about future Moroccan inflation (proxy of Moroccan institutions) encourages the departure of students abroad, while the degree of openness via trade and foreign direct investments discourage. Academic exchange agreements and the creation of research centers accredited by the two countries have been recommended to enhance the French economic development from high-skilled migrants without depriving Morocco.
    Keywords: Brain drain; Brain gain; Moroccan students; France.
    JEL: F0 O1
    Date: 2014–05–20
  16. By: Garbellini, Nadia
    Abstract: The paper is going to use the WIOD to analyse the structure, extent and evolution of production processes outsourcing in Italy and Germany from 1995 to 2011 by means of global vertically integrated sectors, in order to single out and compare the different sources of gains/losses in competitiveness. Secondly, global vertically integrated sectors are going to be employed to get a measure of labour productivity changes in the two countries. By comparing the trends of these two sets of indicators, it is possible to shed light on the evolution of international competitiveness in the two countries, to assess the extent to which competitiveness gains/losses are associated to actual productivity increases/decreases and to what extent they are simply due to a different geographical allocation of production stages.
    Keywords: Labour productivity, International fragmentation of production, offshoring
    JEL: B51 F14 R15
    Date: 2014–06–09
  17. By: Lewis, Logan T. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: U.S. imports and exports respond little to exchange rate changes in the short run. Pricing behavior has long been thought central to explaining this response: if local prices do not respond to exchange rates, neither will trade flows. Sticky prices and strategic complementarities in price setting generate sluggish responses, and they are necessary to match newly available international micro price data. Using trade flow data, I test models capable of replicating these trade price data. Even with significant pricing frictions, the models still imply a trade response to exchange rates stronger than found in the data. Moreover, using significant cross-sector heterogeneity, comparative statics implied by the model find little to no support in the data. These results suggest that while complementarity in price setting and sticky prices can explain pricing patterns, some other short-run friction is needed to match actual trade flows. Furthermore, the muted response found for sectors with high long-run substitutability implies that simply assuming low elasticities may be inappropriate. Finally, there is evidence of an asymmetric response to exchange rate changes.
    Keywords: Trade prices; pass-through; trade elasticities
    Date: 2014–04–16
  18. By: Matthew O. Jackson (Department of Economics, Stanford University, Santa Fe Institute and CIFAR); Stephen Nei (Department of Economics, Stanford University)
    Abstract: We investigate the role of networks of military alliances in preventing or encouraging wars between groups of countries. A country is vulnerable to attack if there is some fully-allied group of countries that can defeat that country and its (remaining) allies based on a function of their collective military strengths. Even with such a demanding notion of vulnerability, we show that there do not exist any networks that are stable against the addition and deletion of alliances. We then show that economic benefits from international trade can provide incentives to form alliances in ways that restore stability and prevent wars. In closing, we briefly examine the historical data on interstate wars and trade, noting that a dramatic (more than ten-fold) drop in the rate of interstate wars since 1960 is paralleled by an unprecedented growth in trade over the same period.
    Keywords: Alliances, Conflict, War, Networks, International Trade, Treaties
    JEL: D74 D85 F10
    Date: 2014–04
  19. By: de Boyer des Roches, Jérôme
    Abstract: Over the past two centuries, the connection David Ricardo made between money and foreign trade was widely commented on the basis of the 1809-1811 writings, notably the High Price of Bullion, Proof of the Depreciation of Bank Notes, of the 1816 Proposals for an Economical and Secure Currency, proposals taken again in the chapter twenty seven “On Currency and Banks” of the 1817 Principles of Political economy an Taxation, and of the 1823 Plan for a National Bank. On the other hand, the chapter seven “On Foreign Trade” of the 1817 Principles was mostly ignored with the exception of J.W. Angell (1926), F.W. Taussig (1927), K. Kojima (1951), M. Blaug (1976), J. de Boyer (1992) et G. Faccarello (2013) who did pay attention to it. Yet, according to Ricardo, the concept of comparative advantage cannot be understood without studying the international distribution of precious metals, and the determination of the natural prices of wine and cloth. In other words, the determination of relative prices includes monetary mechanisms. However the chapter seven of the Principles did not simply resume the 1809-1811 Ricardo’s monetary ideas. Here, Ricardo used arguments he had criticized seven years before. Furthermore, he reconsidered the link between value of money and exchange rate. The aim of this paper is to present and compare Ricardo’s monetary and foreign exchange analysis in the writings of 1809-1811 on one side, and in the chapter seven of his 1817 book on the other side. By means of a numerical example, the second section recalls the main features of the 1809-1811 analysis. According to Ricardo, the value of money in two trading countries must be equal for the foreign exchange equilibrium to be reached. Several notions such as the price specie flow mechanism, the quantity theory and the criticism of Thornton’s gold point mechanism are emphasized in this section. The third section presents the theory of the comparative advantage developed in chapter seven of the Principles; more than half of this text is consecrated to monetary components. Emphasis is placed on the foreign exchange market, the price specie flow between countries, and also the dynamics of money prices and wages that led to international specialization. The fourth section studies first the disconnection established by Ricardo in chapter seven of the Principles between the values of currencies and exchange rates, and second then his comments relative to the bullionist controversy; these comments close the chapter. The fifth section provides some precisions on (1) the "magic numbers" – i.e. 80, 90, 120, 100 -, (2) on the assumptions made to obtain the money prices - i.e. £45, £50, £50, £45 -, so that the terms of trade/exchange are not indeterminate contrary to an opinion inherited from John Stuart Mill, (3) finally on the consequences of an “improvement in making” English wine. Our research provides the following conclusions. First, Ricardo’s statement of the comparative advantage theory involves the monetary theory, specifically it presupposes the validity of the quantity theory. The specie inflow (outflow) in one country drops (increases) the value of money in this country. Secondly, according to the comparative advantage theory, “England would give the produce of the labour of 100 (English) men, for the produce of the labour of 80 (Portuguese)” (Ricardo, 1817, p; 135). It entails that the money price of the produce of 80 Portuguese men is equal to the money price of the produce of 100 English. It means that the money price of the produce of a given quantity of labour is 25% higher in Portugal than in England; i.e. that the value of a given quantity of money is 20% lower in Portugal than in England. Third, the specie flow between countries is not described with Hume’s price specie flow mechanism, but with Thornton’s gold points mechanism. Fourth, fixed exchange rate under gold standard does not involve gold has the same value in various countries. The symmetrical changes, in two countries, in the quantities of money, that lead to symmetrical changes in the values of money, do not modify the market prices of gold in any of these countries. To conclude, the seventh chapter of the Principles does not support Ricardo’s monetary view at the time of the Bullion Committee.
    Keywords: Comparative advantage; Foreign Trade; Money; Specie flow mechanism; Gold points; Ricardo;
    JEL: B12 E4 F1
    Date: 2014–05
  20. By: Francesca Sanna-Randaccio (Department of Computer, Control & Management Engineering, Sapienza University of Rome); Roberta Sestini (Sapienza University of Rome. Department of Computer, Control & Management Engineering); Ornella Tarola (Sapienza University of Rome, DISSE)
    Abstract: We contribute to the debate on the impact of unilateral climate policy with a two-country two-firm international oligopoly model accounting for endogenous plant location and heterogeneity in both country size and firm’s emissions technology. Our results suggest that, if the carbon price differential is moderate as compared to unit transport costs and the relative size of the highly regulated country is big enough, a no relocation equilibrium may prevail also in the long run. A large market asymmetry coupled with a small technology gap emerges as the only configuration in which unilateral climate policy leads to a fall in world emissions irrespective of the optimal location choice. Thus for being effective and not leading to production relocation, unilateral climate policy should be moderate, implemented by a sufficiently large area and complemented by mechanisms for promoting the international transfer of clean technologies. Welfare implications are also discussed.
    Keywords: Foreign Direct Investment. Carbon leakage. Climate Policy, Emissions Technologies
    JEL: F12 F23 Q58
    Date: 2014–05

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