nep-int New Economics Papers
on International Trade
Issue of 2014‒07‒05
twenty-one papers chosen by
Luca Salvatici
Universita' di Roma 3

  1. Do multinational retailers affect the export competitveness of host countries? By Angela Cheptea
  2. The Puzzle of the Missing Greek Exports By Uwe Boewer; Vasiliki Michou; Christoph Ungerer
  3. Productivity, Exporting and Financial Constraints of Chinese SMEs By Johannes Van Biesebroeck
  4. The Effect of Credit on the Export Performance of Colombian Exporters By Danielken Molina; Mónica Roa
  7. Export Mix Changes and Firm Performance: Evidence from Chile By Roberto Álvarez; Andrés Zahler
  8. The Critical Mass Approach to Achieve a Deal on Green Goods and Services: What is on the Table? How Much to Expect? By Jaime de MELO; Mariana VIJIL
  9. Closing the Gap: An Empirical Evidence on Firm’s Innovation, Productivity, and Exports By Tavassoli, Sam; Jienwatcharamongkhol, Viroj
  10. Latin American Growth in the 21st Century: The 'Commodities Boom' That Wasn't By David Rosnick; Mark Weisbrot
  11. Growth Effect of FDI in Developing Economies: the Role of Institutional Quality By Cristina Jude; Grégory Levieuge
  12. Foreign Direct Investment, Institutional Quality, Economic Freedom and Entrepreneurship in Emerging Markets By Hernan Herrera Echeverry; Jerry Haar; Juan Benavides Estévez-Bretón§
  13. FDI and Economic Growth: The Role of Natural Resources By Hayat, Arshad
  14. Hierarchical Structure of the Foreign Trade: The Case of the United State By Ersin Kantar
  15. Renewable Energy, Subsidies, and the WTO: Where has the 'Green' Gone? By Patrice Bougette; Christophe Charlier
  16. The Real Exchange Rate in the Long Run: Balassa-Samuelson Effects Reconsidered By Michael D. Bordo; Ehsan U. Choudhri; Giorgio Fazio; Ronald MacDonald
  17. Horse trading? EU-African Economic Partnership Agreements (EPAs) By Kohnert, Dirk
  18. Southern Innovation and Foreign Direct Investment By Suzuki, Keishun
  19. Preferential Market Access into the Chinese Market: How Good is it for Africa? By Catherine Yap Co; Ralitza Dimova
  20. World Input-Output Network By Federica Cerina; Zhen Zhu; Alessandro Chessa; Massimo Riccaboni
  21. Breaking the Unbreakable Union: Nationalism, Trade Disintegration and the Soviet Economic Collapse By Marvin Suesse

  1. By: Angela Cheptea
    Abstract: The accelerated overseas expansion of multinational retailers (MRs) over the last decade transformed these companies into major regional and global actors. In this paper we question how MRs arriving in foreign markets affect the export performance of local firms. We develop a theoretical framework that explains the mechanisms by which multinational retailers establishing outlets abroad impact the export performance of local firms and test its predictions empirically for the agri-food sector. The adopted approach draws on recent empirical evidence of the effects of foreign direct investment (FDI) in the retail sector and recent developments in the literature on international trade with heterogeneous firms and on trade and intermediaries. First, incoming multinational retailers may increase the overall export capacity of local firms to any foreign market via an increase in their productivity. The growing competitive pressure in the upstream sector, induced by global retail chains, drives least productive firms out of the market and the average productivity of the sector increases. In addition, retail sector FDI generates productivity gains at the firm level: local suppliers of multinational retailers benefit from the retailers’ financial and technological support and become more productive in time. Thus, although the productivity threshold for exporting remains unchanged, some firms reach this threshold and start exporting, while firms above this threshold that experience productivity gains increase their volume of exports. Second, we consider the role of multinational retailers in matching foreign sellers and buyers. With their wide transnational networks of outlets and contacts, multinational retailers can become natural intermediaries between suppliers and consumers in countries where they operate. The local suppliers of a foreign retailer may sell more easily their products in retailer’s outlets situated in other countries, or, with the retailer’s help, identify at a lower cost potential buyers in these markets. Lower export sunk costs for retailer’s supplying firms determines the latter to export larger amounts to destination markets served by this retailer. For other destination markets these suppliers face the same export costs as other host country firms. These effects were first discussed empirically by Head, Jing and Swenson (2010), but only from an empirical point of view. They find evidence of the capability effect, but not for the linkage effect for the exports of Chinese cities. Unlike Head et al. (2010), we use a large panel of countries and data on the world’s top one hundred food retailers. We find evidence of both capability and linkage effects, but the latter does not apply to a country’s exports to the origin country of the foreign retailers it hosts.
    Keywords: multinational retailers, export competitiveness, productivity gains, transnational networks, intermediaries
    JEL: F12 F14 Q17 F23
  2. By: Uwe Boewer; Vasiliki Michou; Christoph Ungerer
    Abstract: Why is Greece such a surprisingly closed economy? We employ a gravity model of trade to explain the appallingly poor export performance of Greece and argue that weak institutional quality accounts for a large part of this shortfall. Using a rich dataset of bilateral value-added exports of goods and services of 39 exporters and 56 importers for 18 sectors, we first estimate that Greece exports ? less than what regular international trade patterns would predict on basis of Greek GDP, the size of its trading partners and geographical distance. This ranks Greece at the 31st position out of 39 export countries in the competitiveness ranking we construct based on our regressions. The most affected sectors include electrical equipment and machinery while transport, tourism and agriculture perform relatively favourable. We then augment our model with various measures of institutional quality and find that weak institutions can explain much of the missing Greek exports puzzle. We estimate that structural reforms improving the Greek institutional framework to the EU/OECD average level would close between ½ and ¾ of the Greek export gap. These findings suggest that, while Greece has already achieved major improvements in cost competitiveness since the start of the Greek adjustment programme, structural reforms must also address non-cost competitiveness factors, such as the underlying institutional deficits, to unlock Greece's export growth potential.
    JEL: C23 E02 F14
    Date: 2014–06
  3. By: Johannes Van Biesebroeck
    Abstract: While many studies explain the correlation between firm-level productivity and export status entirely by better firms self-selecting into exporting, a few studies find evidence of reverse causation. Especially in developing or ransition economies, exporters seem to improve performance after they start selling internationally. We provide evidence that the realization of scale conomies is one possible explanation for such a learning-by-exporting effect. Exporting enables small firms to expand output and exploit all scale economies that the production technology allows. With access to finance problems and weak contract enforcement at home, domestic expansion of SMEs is constrained by the necessity of awarding trade credit to new clients. We show that small firms with a lot of outstanding trade credit expand sales the most following export market entry. This is especially true if they operate in industries with higher scale economies or if they are located in provinces with weaker institutions. The same type of firms also enjoy the largest productivity gains immediately following export market entry.
    Keywords: Integration & Trade, SME, Productivity, Investment, SMEs, Export market entry, Small firms, Export market, New exporters, Trade credit
    Date: 2014–04
  4. By: Danielken Molina; Mónica Roa
    Abstract: In this paper we use Colombian manufacturing data on exports and external financing for the period 1998 - 2006 to estimate the credit elasticity of exports. We use bank-firm linked data to construct a supply side instrument for a manufacturer's demand of credit, which we use to address the reverse causality between a manufacturer's export revenue and its demand for credit. We find that access to credit produces a significant increase on a manufacturer's export revenue explained by the positive effect of credit on an exporter's market reach - number of destinations -. Across manufacturers the effect of credit on a manufacturer's export revenue varies by size. While medium sized manufacturers use credit to increase their market reach, market penetration and product mix, large manufacturers only use credit to increase their market reach. Small manufacturers do not seem to benefit from bank credit.
    Keywords: Microbusinesses & Microfinance, Integration & Trade, Export revenue, Bank credit, Product mix, Export performance
    Date: 2014–05
  5. By: Francesco Aiello; Graziella Bonanno; Alessia Via (Dipartimento di Economia, Statistica e Finanza, Università della Calabria)
    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
  6. By: Rosario Crinò (CEMFI, Centro de Estudios Monetarios y Financieros); Laura Ogliari (Bocconi University)
    Abstract: Product quality plays a key role in economics, but differs markedly across countries and industries. What are the determinants and implications of this pattern? In this paper, we test an explanation for the large heterogeneity in product quality that rests on the interplay between cross-country differences in financial frictions and cross-industry differences in financial vulnerability. To guide the empirical analysis, we rely on a simple trade model featuring heterogeneous firms, endogenous output quality, country heterogeneity in financial frictions, and industry heterogeneity in financial vulnerability. The model clearly illustrates how the interaction of financial frictions and financial vulnerability shapes the geographical and sectoral variation in product quality. We estimate the model using a novel data set, which contains proxies for export quality, financial development, and financial vulnerability for virtually all manufacturing industries and countries in the world, over a period that spans the last three decades. Our results show that the interplay between financial frictions and financial vulnerability is a main driver of the observed variation in product quality across countries and industries. The model also suggests that quality adjustments are an important mechanism through which financial development affects international trade and shapes countries’ export structure. We find strong evidence consistent with this implication.
    Keywords: Credit market imperfections, financial vulnerability, product quality, export structure.
    JEL: F14 F36 G20
    Date: 2014–06
  7. By: Roberto Álvarez; Andrés Zahler
    Abstract: In this paper we analyze changes in the export mix of Chilean firms, looking particularly at differences between large firms and SMEs. To do that, we use detailed information of exported products by firms during the period 1995-2005. Our econometric results, which look at the impact of export product churning on firm performance, are heterogeneous by type of change in export mix and by firm size. In general, export mix changes are associated with improvements on productivity, although our results suggest that this positive effect is only for SMEs. In terms of employment and sales, we find that export product churning has positive effect on large firms and lower - and in some case negative - on SMEs. It seems that changes in export mix are more important for firm growth in large firms, but not in terms of productivity. In contrast, SMEs can have a higher potential for productivity improvement through export product churning but this does not translate necessarily in significant increase in sales and employment.
    Keywords: Integration & Trade, Productivity, SME, Small and Medium Size Enterprises (SMEs), Firm performance, Export mix, Large firms, New products, Product mix
    Date: 2014–04
  8. By: Jaime de MELO (Ferdi); Mariana VIJIL (FERDI)
    Abstract: At the Davos forum of January 2014, a group of 14 countries pledged to launch negotiations on liberalising trade in ‘green goods’ (also known as`environmental goods’(EGs)), focussing on the elimination of tariffs for an ‘APEC list’ of 54 products. The paper shows that the ‘Davos group’, with an average tariff of 1.8%, has little to offer as countries have avoided submitting products with tariffs peaks for tariff reductions. Even if the list were extended to the 411 products on the ‘WTO list’, taking into account tariff dispersion, their tariff structure on EGs would be equivalent to a uniform tariff of 3.4%, about half the uniform tariff-equivalent for non EG products. Enlarging the number of participants to low-income countries might be possible as, on average, their imports would not increase by more than 8 percent. However, because of the strong complementarities between trade in Environmental Goods and trade in Environmental Services, these should also be brought to the negotiation table even though difficulties in reaching agreement on their scope are likely to be great.
    JEL: F18 Q56
    Date: 2014–06
  9. By: Tavassoli, Sam (CSIR, Blekinge Inst of Technology); Jienwatcharamongkhol, Viroj (Department of Economics, Lund University, Sweden)
    Abstract: It is well known that exporters are productive firms. But the source of their productivity is left unexplained. This paper aims to endogenize the productivity heterogeneity of exporting firms by incorporating innovation in a structural model framework. In doing so, we close the gap between the innovation-productivity and productivity-export literature. Two waves of Swedish Community Innovation Survey (CIS) are merged. This allows for a setup that takes into account the links from innovation input to innovation output and also from innovation output to productivity and exports. The main findings highlight that exporters are productive firms with innovation output in the past, which in turn was driven by prior R&D and other innovation activity investments.
    Keywords: innovation; productivity; export; firm-level; structural model; community innovation survey
    JEL: C31 L60 O31
    Date: 2014–06–01
  10. By: David Rosnick; Mark Weisbrot
    Abstract: Latin America's economic growth rebound in the 2000s is often attributed to a “commodities boom,” which implies that the region’s growth was stimulated by sizable increases in the price of commodity exports. This paper looks at whether the data support such a conclusion. It finds that there is no statistically significant relationship between the increase in the terms of trade (TOT) for Latin American countries and their GDP growth. There is, however, a positive relationship between the TOT increase and an improvement in the current account balance. It may be that this allowed countries to avoid balance of payments crises or constraints.
    Keywords: latin america, terms of trade, commodities boom
    JEL: E E0 F F1 F13 F17
    Date: 2014–05
  11. By: Cristina Jude (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR7322 - Université d'Orléans, Facultatea de Litere - Faculté des lettres - Universitatea Babeş-Bolyai, Cluj-Napoca); Grégory Levieuge (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR7322 - Université d'Orléans)
    Abstract: This paper investigates the effect of FDI on economic growth conditional on the institutional quality of host countries. We consider institutional heterogeneity to be an explanation for the mixed results of previous empirical studies and we develop several arguments to show that institutional quality modulates the intensity of FDI impact on growth. Using a comprehensive data set for institutional quality, we test this hypothesis on a sample of 94 developing countries over the period 1984-2009. The use of Panel Smooth Transition Regression (PSTR) allows us to identify both the heterogeneity and the threshold of institutional quality that influence the FDI growth effect. These results have significant implications for policy sequencing in developing countries. In order to benefit from FDI-led growth, the improvement of the institutional framework should precede FDI attraction policies. While some features of institutional quality have an immediate effect on fostering FDI-led growth, others need a consistent accumulation of efforts, therefore challenging the effectiveness of institutional reforms in developing countries.
    Keywords: FDI ; growth ; heterogeneity ; institutional quality ; PSTR ; Developing economies
    Date: 2014–06–25
  12. By: Hernan Herrera Echeverry; Jerry Haar; Juan Benavides Estévez-Bretón§
    Abstract: This study investigates the relationship between foreign direct investment, institutional quality, economic freedom, and entrepreneurship in emerging markets. The research compares the capacity and appetite for business creation among high-income, low-income and emerging countries. The results are based on a panel study of data, from 2004 to 2009 for 87 countries, using as its source “The World Bank Entrepreneurship Snapshots” to look at the connection between business creation, institutional quality, market freedom and foreign direct investment (FDI). The findings reveal a strong positive relationship between institutional quality and business generation in all three of the above categories. Meanwhile, institutional quality and how this develops remains significant to business creation at least two years after a business is incubated, underscoring its importance as a contributory factor for creating an environment conducive to entrepreneurship. The freedom to create businesses and invest has a marked impact on business generation in emerging countries, while the influence of international trade appears more important as a spur to the genesis of business in low-income countries. Results also show that regulation of the free market has a short-term effect on business creation. Finally, there is a direct and significant relationship between FDI and business development in emerging countries. The effect of FDI is also felt for at least two years after the foreign investment. This result is consistent with “the spillover theory of entrepreneurship” (Acs et al, 2009; Görg and Strobl, 2002; Ayyagari et al, 2010).
    Keywords: Foreign Direct Investment, Institutional Quality, Economic Freedom, Entrepreneurship
    JEL: G18
    Date: 2013–05–01
  13. By: Hayat, Arshad
    Abstract: In the paper, I explored links between inflow of FDI, natural resource abundance and economic growth. Natural resource abundance is considered to slow down the economic growth. The paper explores if the natural resource abundance reduce the FDI induced growth in the host country. Using panel data for a sample of 106 countries for the period 1993-2012, the paper conclude FDI inflow accelerates economic growth of the host country. However, the presence of natural resources slows down the FDI induced growth.
    Keywords: Foreign Direct Investment, Economic Growth, Natural Resources, Resource Curse, Hausman Test
    JEL: F23 F43 O4 Q0
    Date: 2014
  14. By: Ersin Kantar
    Abstract: This study uses hierarchical structure methods (minimal spanning tree, (MST) and hierarchical tree, (HT)) to examine the hierarchical structures of the United State (US) foreign trade by using the real prices of their commodity export and import move together over time. We obtain the topological properties among the countries based on US foreign trade over the periods of 1985-2011. We also perform the bootstrap techniques to investigate a value of the statistical reliability to the links of the MSTs. Finally, we use a clustering linkage procedure in order to observe the cluster structure much better. The results of the topologies structural of these trees are as follows: i) We identified different clusters of countries according to their geographical location and economic growth. ii) Our results show that the European Union and Asian countries are more important within the network, due to a tighter connection with other countries. The country's most important trading partners are the Canada, China, Mexico, Japan, Germany, United Kingdom, South Korea, France, Taiwan, India, Singapore and Netherlands iii) We have also found that these countries play a significance role for US foreign trade and have important implications for the design of portfolio and investment strategies.
    Date: 2014–06
  15. By: Patrice Bougette (University of Nice Sophia Antipolis, France; GREDEG CNRS); Christophe Charlier (University of Nice Sophia Antipolis, France; GREDEG CNRS)
    Abstract: Faced with the energy transition imperative, governments have to decide about public policy to promote renewable electrical energy production and to protect domestic power generation equipment industries. For example, the Canada - Renewable energy dispute is over Feed-in tariff (FIT) programs in Ontario that have a local content requirement (LCR). The EU and Japan claimed that FIT programs constitute subsidies that go against the SCM Agreement, and that the LCR is incompatible with the non-discrimination principle of the World Trade Organization (WTO). This paper investigates this issue using an international quality differentiated duopoly model in which power generation equipment producers compete on price. FIT programs including those with a LCR are compared for their impacts on trade, profits, amount of renewable electricity produced, and welfare. When 'quantities' are taken into account, the results confirm discrimination. However, introducing a difference in the quality of the power generation equipment produced on both sides of the border provides more mitigated results. Finally, the results enable discussion of the question of whether environmental protection can be put forward as a reason for subsidizing renewable energy producers in light of the SCM Agreement.
    Keywords: Feed-in tariffs, Subsidies, Local content requirement, Industrial policy, Canada - Renewable energy dispute, Trade policy
    JEL: F18 L52 Q42 Q48 Q56
    Date: 2014–06
  16. By: Michael D. Bordo; Ehsan U. Choudhri; Giorgio Fazio; Ronald MacDonald
    Abstract: Historical data for over hundred years and 14 countries is used to estimate the long-run effect of productivity on the real exchange rate. We find large variations in the productivity effect across four distinct monetary regimes in the sample period. Although the traditional Balassa-Samuelson model is not consistent with these results, we suggest an explanation of the results in terms of contemporary variants of the model that incorporate the terms of trade mechanism. Specifically we argue that changes in trade costs over time may affect the impact of productivity on the real exchange rate over time. We undertake simulations of the modern versions of the Balassa-Samuelson model to show that plausible parameter shifts consistent with the behavior of trade costs can explain the cross-regime variation of the productivity effect.
    JEL: F31 F41
    Date: 2014–06
  17. By: Kohnert, Dirk
    Abstract: EU- Africa Economic Partnership Agreements (EPAs) are on the brink. In February 2014 West African leaders agreed in principle to conclude an agreement. However, last-minute objections of the heavy-weight Nigeria which wants to protect its infant industries as well as promising trade relations with new global players are likely to prevent the deal. Whether the ECOWAS EPA in its current form would really create a win-win situation for both partners as asserted by the EU is open to question. Scholarly evaluation of the EPAs reveal double-talk and significant barriers to a sustainable development of African economies. The growing preparedness of African states to challenge EU mercantile interest has been effectively backed by agitation of civil society organisations.
    Keywords: international trade, liberalization, West Africa, ECOWAS, EU, EPA, development, regional integration, civic agency
    JEL: F13 F53 F54 N17 N97 Z1
    Date: 2014–06–20
  18. By: Suzuki, Keishun
    Abstract: Many empirical studies have yielded mixed results about the impact of foreign direct investment (FDI) on domestic innovation in developing countries. This paper investigates the effect of FDI-promoting policy on innovation in the South in a general equilibrium model that incorporates both the knowledge spillover effect and the market stealing effect via FDI. Specifically, we conduct the analyses of both the short-run effect and the long-run effect. While FDI-promoting policy temporarily discourages Southern innovation in transitional dynamics through the market stealing effect, the accumulation of Southern knowledge via FDI helps domestic firms begin innovation again in the long-run. In the long-run, FDI-promoting policy may generate an inverted-U effect on innovation depending on whether the knowledge spillover is strong. This paper also examines the effect of FDI-restriction policy on Southern innovation, and the model shows that FDI protectionism has only a shortterm effect and may decrease the innovation rate in the long-run.
    Keywords: Southern Innovation, Foreign Direct Investment, Market Stealing Effect, Transitional Dynamics
    JEL: F21 O11 O31
    Date: 2014–06–10
  19. By: Catherine Yap Co; Ralitza Dimova
    Abstract: Abstract In 2005 China provided duty-free access to 190 items from 25 least developed sub-Saharan African (SSA) countries. Three years later duty-free access was extended to 454 items from 31 SSA LDCs. We find no evidence that China’s preferential market access program for the least developed sub-Saharan African countries has helped these countries gain competitive edge over other exporters into the Chinese market. While there is evidence of decreased export bundle concentration and movement up the value chain for SSA countries involved in the program, the effect differs significantly across countries.
    Date: 2014
  20. By: Federica Cerina (Department of Physics, University of Cagliari); Zhen Zhu (IMT Lucca Institute for Advanced Studies); Alessandro Chessa (IMT Lucca Institute for Advanced Studies); Massimo Riccaboni (IMT Lucca Institute for Advanced Studies)
    Abstract: Economic systems, traditionally analyzed as almost independent national systems, are increasingly connected on a global scale. Only recently becoming available, the World Input-Output Database (WIOD) is one of the first efforts to construct the multi-regional input-output (MRIO) tables at the global level. By viewing the world input-output system as an interdependent network where the nodes are the individual industries in different economies and the edges are the monetary goods ows between industries, we study the network properties of the so-called world input-output network (WION) and document its evolution over time. We are able to quantify not only some global network properties such as assortativity, clustering coeficient, and degree and strength distributions, but also its subgraph structure and dynamics by using community detection techniques. Over time, we detect a marked increase in cross-country connectivity of the production system, only temporarily interrupted by the 2008-2009 crisis. Moreover, we find a growing input-output regional community in Europe led by Germany and the rise of China in the global production system. Finally, we use the network-based PageRank centrality and community coreness measure to identify the key industries and economies in the WION and the results are different from the one obtained by the traditional final-demand-weighted backward linkage measure.
    Keywords: Complex Networks; Input-Output; PageRank Centrality; Community Detection
    JEL: C67 F10 F15
    Date: 2014–07
  21. By: Marvin Suesse (Humboldt-Universität zu Berlin)
    Abstract: The breakup of the Soviet Union provides evidence for the detrimental effects of secessionist conflict on domestic integration and economic growth. This paper shows that the increased likelihood of secessions by the Union’s member republics in the late 1980s strongly reduced internal Union trade. Economic disintegration thus proceeded along internal borders and preceded the Soviet Union’s official dissolution. This helps to explain the severity of the output fall in the late Soviet period. Methodologically, these results stem from an empirical gravity framework, which is derived from first principles by a game-theoretic modeling of Soviet internal trade. Exogenous variation in nationalist agendas, namely the desire to preserve national languages, is used to preclude endogeneity running from trade patterns to secession.
    Keywords: Nationalism; secession; economic disintegration; output fall; Soviet Union; transition economies
    JEL: F52 N14 P20
    Date: 2014–07

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