nep-int New Economics Papers
on International Trade
Issue of 2014‒07‒21
twenty papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. The impact of product quality on the pro-trade elasticity of immigrants By Giorgia Giovannetti; Mauro Lonati
  2. Clustering Value-Added Trade: Structural and Policy Dimensions By Escaith, Hubert; Gaudin, Hadrien
  3. The Wind of Change: Maritime Technology, Trade and Economic Development By Luigi Pascali
  4. Export and the Labor Market: a Dynamic Model with on-the-job Search By Davide Suverato
  5. Trade Hallucination: Risks of Trade Facilitation and Suggestions for Implementation By Jeronim Capaldo
  6. Fricciones en el comercio interregional: una aproximación basada en datos municipales By Jorge Díaz Lanchas y Carlos Llano Verduras
  7. Multiproduct Firms, Income Distribution, and Trade By Marcia M Schafgans; Joachim Stibora
  8. Trade linkages and the globalisation of inflation in Asia and the Pacific By Raphael A Auer; Aaron Mehrotra
  9. Health Care Quality vs Health Care Quantity: A General Equilibrium Analysis By Chatterjee, Tonmoy; Gupta, Kausik
  10. Trade Policies, Health Care and Social Welfare: A General Equilibrium Analysis By Chatterjee, Tonmoy; Gupta, Kausik
  11. International fragmentation of production. Local vulnerabilities and capitalization of heritage values in Romania By Georgescu, George
  12. Political and Economic Determinants of Free Trade Agreements in the Presence of Foreign Lobbying By Gu, ZhenHua
  13. What explains India s surge in outward direct investment? By Alicia Garcia-Herrero; Sumedh Deorukhkar
  14. Renewable Energy, Subsidies, and the WTO: Where has the ‘Green’ Gone? By Patrice Bougette; Christophe Charlier
  15. Learning to Export from Neighbors By Ana Fernandes; Heiwai Tang
  16. Does Export Yield Productivity and Markup Premiums? Evidence from the Japanese manufacturing industry By KATO Atsuyuki
  17. Wage Differentials: Trade Openness and Wage Bargaining By Gustavo Gonzaga; Beatriz Muriel; Cristina Terra
  18. Railroads and Economic Growth: A Trade Policy Approach By Pérez-Cervantes Fernando
  19. The Effects of Phytosanitary Regulations on U.S. Imports of Fresh Fruits and Vegetables By Ferrier, Peyton
  20. Regional Public Goods in Finance, Trade and Infrastructure By Guillermo Perry

  1. By: Giorgia Giovannetti; Mauro Lonati
    Abstract: This paper investigates the links between product quality and the pro-trade effect of ethnic networks using a large panel on trade flows and bilateral stocks of immigrants with information for 19 OECD destination countries and 177 origin countries. In line with the approach of Rauch and Trindade (2002) we classify traded goods according to their quality level and separately estimate pro-trade elasticity of ethnic networks for each subgroup. We allow for heterogeneity of immigrants according to both the level of per capita income of their country of origin and their education level. The pro-trade effect of immigrants increases with the quality of traded goods. We show that this trend does not depend on the relatively high concentration of differentiated products in top quality subgroups. By comparing the trend of elasticities across samples, it emerges that immigrants from highly industrialized economies are relatively more likely to be part of networks which create more business opportunities for top-quality products. In addition, given their lower liquidity constraints and advantages in human capital, we find a greater impact of high-skilled migrants consistent across all quality levels. Finally, contrary to the recent findings of Ehrhart et al. (2014) and Bratti et al. (2014), regardless the quality of traded goods as we enlarge the sample by adding immigrants from low and middle income economies we find lower pro-trade elasticities.
    Keywords: F10, F11, F14, F22
    Date: 2014
  2. By: Escaith, Hubert; Gaudin, Hadrien
    Abstract: The paper uses exploratory data analysis to propose a typology of exporters according to the value-added content of their exports as well as other economic and trade policy characteristics. In the process, it defines clusters of countries according to the multi-dimensional criteria defined by value-added, economic and trade policy indicators. Results show that natural resources and services orientation are among the most determinant variables. The level of economic development remains a crucial determinant of the Trade in Value-Added profile, more than the sheer size of the economy. Pro-active value-chain up-grading strategies foster a higher foreign content in exports, compensating the lower domestic margin by higher volumes. Protectionist policies are not particularly successful in increasing higher share of domestic content, except in services exports; but in this case, volumes remain marginal.
    Keywords: Trade in value-added; global value chains; trade policy; input-output analysis; effective protection rate; exploratory data analysis
    JEL: D57 F13 F14 F15 F23 O19 O24
    Date: 2014–07–10
  3. By: Luigi Pascali
    Abstract: The 1870-1913 period marked the birth of the first era of trade globalization. How did this tremendous increase in trade affect economic development? This work isolates a causality channel by exploiting the fact that the steamship produced an asymmetric change in trade distances among countries. Before the invention of the steamship, trade routes depended on wind patterns. The introduction of the steamship in the shipping industry reduced shipping costs and time in a disproportionate manner across countries and trade routes. Using this source of variation and a completely novel set of data on shipping times, trade, and development that spans the great majority of the world between 1850 and 1900, I find that 1) the adoption of the steamship was the major reason for the first wave of trade globalization, 2) only a small number of countries that were characterized by more inclusive institutions benefited from globalization, and 3) globalization exerted a negative effect on both urbanization rates and economic development in most other countries.
    Keywords: steamship, gravity, globalization
    JEL: F1 F15 F43 O43
    Date: 2014–06
  4. By: Davide Suverato (LMU University of Munich)
    Abstract: This paper develops a two-sector, two-factor trade model with labor market frictions in which workers search for a job also when they are employed. On the job search (OJS) is a key ingredient to explain the response to trade liberalization of sectoral employment, unemployment and wage i equality. OJS generates wage dispersion and it leads to a reallocation of workers from less productive firms that pay lower wages to more productive ones. Following a trade liberalization the traditional selection effects are more severe than without OJS and the tradable sector experiences a loss of employment, while the opposite is true for the non tradable sector. Starting from autarky, the opening to trade has a positive effect on employment but it increases wage inequality. For an already open economy, a further increase of trade openness can, however, lead to an increase of unemployment. The dynamics of labor market variables is obtained in closed form. The model predicts overshooting at the time of implementation of a trade liberalization, then the paths of adjustment follow a stable transitional dynamics.
    Keywords: International Trade, Unemployment, Wage Inequality, Firm Dynamics
    JEL: F12 F16 E24
    Date: 2014–06–26
  5. By: Jeronim Capaldo
    Abstract: Official estimates tend to overstate the benefits of trade facilitation and ignore its costs. When all underlying assumptions are brought to light, expecting large gains appears unreasonable. At the same time, estimated employment benefits may easily turn into net losses. With fundamental uncertainty surrounding its effects, implementing trade facilitation without enhancing systems of social protection would be ill advised. Indeed, the net effect of trade facilitation may depend on the social policies it is complemented with. While trade facilitation may bring extra business to import-export firms, it is not a feasible or sustainable growth strategy for all countries and it cannot be expected to deliver growth to the global economy.
    Date: 2014–06
  6. By: Jorge Díaz Lanchas y Carlos Llano Verduras (Universidad Autónoma de Madrid)
    Abstract: The border effect literature emphasizes the negative effect of distance on the international trade flows in favor of a greater proportion of trade within the national countries. However, recent works have shown that the border effect arises from a methodological error in measuring the distances within the international trade, having practically no effect when it is measured with the highest level of disaggregation. In this context, and using a micro-dataset about shipments by road within Spain during the period 2003-2007, we decompose the municipal trade flows into the intensive and extensive margin using different measures of transport costs, geographical distance and time, defined at the highest level of detail. Thus we see that, considering very detailed flows, the extensive margin increased a lot along the time, although the number of shipments (extensive margin) drops more sharply with increasing distance and time than the average value of such shipments (intensive margin). In contrast with previous studies, we find that the difference between the intensive and extensive margin is minimal when we consider time instead of distance. Furthermore, the total value of trade within the same municipality is much more important when we consider the time evolution (years). Finally, we find that regional borders have different effects on both margins, indeed provinces and autonomous regions don’t have a strong impact on trade, especially on the intensive margin. These findings provide more evidence about the “illusory” border effects problems that arise if statistical distance is measured in the aggregate rather than considering more detailed measures.
    Keywords: border effect, interregional trade, transport costs, intensive and extensive margin
    JEL: F10 F14 R40
    Date: 2014–07–17
  7. By: Marcia M Schafgans; Joachim Stibora
    Abstract: We develop a general equilibrium model of multiproduct fi�rms with quality differentiated goods. Households are characterized by an heterogeneous taste for the differentiated good and their income level. The use of non-homothetic preferences and vertical product differentiation (product quality) enables us to analyze how distributional changes in income affect the number of vertically differentiated �firms, their product range and prices in the presence of strategic interaction across �rms. The implications of lowering the barriers to trade within this setting are considered as well.
    Keywords: Multiproduct Firms, Endogenous Product Scope, Product Quality, Income Distribution, Discrete Choice , Trade Liberalization, Oligopoly,
    JEL: F12
    Date: 2014–04
  8. By: Raphael A Auer; Aaron Mehrotra
    Abstract: Some observers argue that increased real integration has led to greater comovement of prices internationally. We examine the evidence for cross-border price spillovers among economies participating in the pan-Asian cross-border production networks. Starting with country-level data, we find that both producer price and consumer price inflation rates move more closely together between those Asian economies that trade more with one another, ie that share a higher degree of trade intensity. Next, using a novel data set based on the World Input-Output Database (WIOD), we examine the importance of the supply chain for cross-border price spillovers at the sectoral level. We document the increasing importance of imported intermediate inputs for economies in the Asia-Pacific region and examine the impact on domestic producer prices of changes in costs of imported intermediate inputs. Our results suggest that real integration through the supply chain matters for domestic price dynamics in the Asia-Pacific region.
    Keywords: globalisation, inflation, Asian manufacturing supply chain, price spillovers
    Date: 2014–04
  9. By: Chatterjee, Tonmoy; Gupta, Kausik
    Abstract: This paper attempts to relate the issues of health care quality with international trade. For this purpose we have mixed both flavours of Heckscher-Ohlin-Samuelson and Neo- Heckscher-Ohlin frameworks and developed a hybrid type of trade theoretic general equilibrium model. In such a set up we have shown that a movement from a regime of international health capital immobility to a regime of international health capital mobility may lead to an expansion of the health quality exporting sector. Apart from quality aspect of health services, the quantity aspect of health care has been also considered in this study. Moreover, from that hybrid model we have illustrated that the sizes of health care and composite export sector expand, where as import sector of our small open economy contracts.
    Keywords: Health Care quality, International trade, International health capital mobility and General equilibrium.
    JEL: F11 F21 I11 I15
    Date: 2014–06–01
  10. By: Chatterjee, Tonmoy; Gupta, Kausik
    Abstract: This paper attempts to cater the impact of changes in trade policies on the volume of a non-traded health care of a developing economy. In this article we have framed a hybrid type of three sector general equilibrium trade model, where first two sectors form a Heckscher-Ohlin nugget and the third one is a non-traded health service producing sector. Overall, we find little harm from trade, and potential gains from welfare aspects.
    Keywords: Health sector, Trade Policy, Welfare and General equilibrium.
    JEL: D58 F11 F21 I10 I11
    Date: 2014–03–10
  11. By: Georgescu, George
    Abstract: Due to the extent of markets globalization and of cross-border fragmentation of world production, the international value-added chains development brought about new challenges for emerging countries, many from SEE area, including Romania. The benefits for host countries arising from global production relocating on their territory could be significant in terms of employment, but maintaining active and even enriching the local work skills and cultural heritage. At the same time, these international transactions (through processing trade and/or FDI inflows) create vulnerabilities at the local level. The risks for host countries associated to other areas relocation of production could be mitigated by developing innovative and entrepreneurship heritage as drivers of sustainable growth and post-crisis economic recovery.
    Keywords: international fragmentation of production; processing trade; FDI; entrepreneurship heritage; innovative heritage
    JEL: A13 F21 L26 Z10
    Date: 2014–04–04
  12. By: Gu, ZhenHua
    Abstract: Will a free trade agreements (FTAs) between nations be politically viable?Under political lobby what incentives determine whether FTAs will be signed or not? Will FTAs include steadily more countries until we reach worldwide free trade? The paper addresses these questions using a theoretical analysis model of free trade agreement under imperfect competition, with Grossman and Helpman’s “protection for sale” model as the foundation. The validity of theoretical results is tested by econometric analysis with a panel probit model. The data spans 25 key trade nations and covers the period of 2007, 2010 and 2013. It is shown that: the FTA will be endorsed if and only if the aggregate welfare under FTA, combing lobby contributions with social welfare of both pair nations, is higher than the counterpart without FTA. Otherwise, the agreement is rejected. The possibility of concluding a FTA by a pair of nations has significant positive correlation with both of their market sizes and the number of countries with which they have both previously concluded FTAs; the possibility has significant negative correlation with the distance between pair nations; If both of the pair nations’ market sizes are enough large, the possibility has positive correlation with government’s sensitivity to social welfare; Otherwise, the correlation is negative. Although FTAs are characterized by the regionalism, they will contribute to multilateral free trade in the long run.
    Keywords: new political economics, free trade agreements, international trade pattern
    JEL: D72 F02 F13
    Date: 2014–07–13
  13. By: Alicia Garcia-Herrero; Sumedh Deorukhkar
    Abstract: India s outward direct investment (ODI) has grown very fast, especially since the global financial crisis erupted. In this paper, we analyze empirically what are the factors behind the geographical destination of India s ODI. We estimate a gravity model using weighted EGLS into a panel data of 74 ODI destinations from India during 2008 to 2012. Given the sheer size of India’s ODI which is deviated to offshore financial centers awaiting their final destination, we go beyond using the official ODI data by destination and reassign the ODI directed to 5 major offshore financial centers into its most likely final destinations. Both sets of results (with raw data and rearranging India s ODI into offshore centers) suggest that India s direct investors are attracted towards richer countries and not so much proximity with India. Furthermore, countries having a high degree of trade openness are preferred destinations for India s ODI, especially those that export technology but also, to a much lesser extent, exporters of food and fuel. Also, bilateral and/or multilateral free trade agreements with host countries are found to strengthen ODI flows from India. Finally, an efficient governance system in host countries is found to attract higher ODI flows from India. However, when controlling for the existence of off-shore centers, the host country s ability to control corruption is not a significant determinant of India s ODI.
    Keywords: Indian outward direct investments, Host countries
    JEL: F21
    Date: 2014–06
  14. By: Patrice Bougette (University Nice Sophia Antipolis and GREDEG/CNRS); Christophe Charlier (University Nice Sophia Antipolis and 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
  15. By: Ana Fernandes (University of Exeter); Heiwai Tang (Johns Hopkins University, CESIfo and Centro Studi Luca d\'Agliano)
    Abstract: This paper studies how learning from neighboring firms affects new exporters\' performance. We develop a statistical decision model in which a firm updates its prior belief about demand in a foreign market based on several factors, including the number of neighbors currently selling there, the level and heterogeneity of their export sales, and the firm\'s own prior knowledge about the market. A positive signal about demand inferred from neighbors\' export performance raises the firm\'s probability of entry and initial sales in the market but, conditional on survival, lowers its post-entry growth. These learning effects are stronger when there are more neighbors to learn from or when the firm is less familiar with the market. We find supporting evidence for the main predictions of the model from transaction-level data for all Chinese exporters from 2000 to 2006. Our findings are robust to controlling for firms\' supply shocks, countries\' demand shocks, and city-country fixed effects.
    Keywords: learning to export, knowledge spillover, uncertainty, export dynamics
    JEL: F1 F2
    Date: 2014–06–26
  16. By: KATO Atsuyuki
    Abstract: This paper examines the relationship between productivity, markups, and development of foreign markets using a rich firm-level dataset of the Japanese manufacturing industry during the period 2000-2010. Using estimates of firm-specific productivity and markups, we investigate if the development of foreign markets through exports has a premium for their market performance. Our study confirmed that exports have significant productivity and markup premiums. In addition, export premiums vary across the destination markets. Exports to Asia show a significant productivity premium while other markets do not. For markups, exports to Asia and North America have a significant premium. These findings imply that both productivity and markups should be considered in assessing the development of foreign markets.
    Date: 2014–07
  17. By: Gustavo Gonzaga; Beatriz Muriel; Cristina Terra (PUC Rio; PUC Rio; Université de Cergy-Pontoise, THEMA and CEPII)
    Abstract: We build a theoretical model that incorporates unionization in the labor market into a Heckscher-Ohlin-Samuelson (HOS) framework to in- vestigate the impact of unionization on the Stolper-Samuelson Theorem. To capture the American economy case, we assume that unskilled labor in the manufactured goods sector is unionized, and that sector is intensive in skilled labor, and that trade liberalization increases the relative price of manufactured goods. In the HOS model, trade liberalization induces a reallocation of production towards the sector that uses intensively the country's most abundant factor. The resulting change in relative labor de- mand impacts wage bargaining in the unionized sector, which, in turn, has a dampening eect on the Stolper-Samuelson eect. Moreover, wages of unionized workers are even less responsive to trade liberalization. Through traditional mandated-wages regressions, we show that skilled-wage dier- entials changes were less pronounced among more unionized sectors in the U.S. economy for the 1979-1990 period.
    Keywords: Stolper-Samuelson Theorem, wage bargaining,unionization
    JEL: F16 J31 J51
    Date: 2014
  18. By: Pérez-Cervantes Fernando
    Abstract: What was the impact of railroads in the output of the United States during the 19th century and how can a New Trade model help answer this question? In order to respond I follow three steps. First, I construct a new digital railroad data set and pair it with geographic and topographic features of the U.S. territory to estimate travel times between every pair of U.S. counties for every year between 1840 and 1900. Second, I use these results, together with a Ricardian model of trade and U.S. county output data from the 19th century, to estimate county gains from trade using a fixed-point algorithm. Third, I estimate ounterfactuals with the railroads built up to a certain year. My estimates suggest that there was a lot of migration anticipating railroad construction and not the other way around. However, leaving all factors of production fixed, if the railroads were made suddenly unavailable in 1890 there would have been a 9.6% reduction in output, but in 1900, after the financial crisis, the impact would have been less than 9 %.
    Keywords: Railroads, Trade, Gravity Models.
    JEL: F10 F14 N71
    Date: 2014–06
  19. By: Ferrier, Peyton
    Abstract: Since the late 1980s, multilateral and bilateral trade agreements have reduced tariff rates and worked to restrain the arbitrary use of nontariff measures, including sanitary and phytosanitary regulations. U.S. imports of fruits and vegetables have risen steadily during this period as more pathways (specific country-commodity combinations) for legal importation to the United States have gained approval, regulations for gaining import access have been streamlined, and treatment options for phytosanitary issues have been expanded. This report compares 2011 tariff rates with phytosanitary treatments for 29 fruits and vegetables. In general, both tariffs and nontariff phytosanitary measures are relatively small across high-volume import pathways, and there is little evidence to suggest that phytosanitary regulations have a large effect on trade.
    Keywords: phytosanitary, tariffs, nontariff measures, fruits and vegetables, imports, Agricultural and Food Policy, Crop Production/Industries, International Relations/Trade,
    Date: 2014–07
  20. By: Guillermo Perry
    Abstract: This paper analyzes the potential for regional collective action in Latin America in the areas of finance, trade and infrastructure. Seven priority areas emerge. First, regional cooperation within increasingly important global financial and trade institutions (the G20, the Financial Stability Board, the Basle Committees, the IMF, the WTO, etc) may enhance the influence of the region in the pursuit of its common interests. Second, regional harmonization of financial markets regulations and cooperation in supervision could play a key role in achieving a safer and more efficient financial integration into the global economy. Integration of regional securities and insurance markets and setting up regional catastrophic insurance facilities may also bring significant efficiency gains. Third, some degree of collective pooling of reserves (through a Regional Monetary Fund) would also contribute to a safer and more efficient financial integration. Fourth, completing missing links in the “spaghetti-bowl” of regional (and extra regional) free trade areas (FTA´s), deepening trade liberalization within them and, especially, harmonizing rules of origin and other trade practices under current overlapping FTA’s, could render major efficiency benefits. Fifth, given that at present high freight costs are limiting trade expansion (especially intra-regional trade), even more than remaining tariffs and quotas, selected regional transport infrastructure initiatives and harmonization of regulatory frameworks can lead to significant efficiency gains. Cooperation in logistics and in maritime and air transport negotiations can also deliver large benefits. Sixth, regional infrastructure and regulation in telecommunications and energy can also lead to significant efficiency gains. Regional development banks can contribute to set up or strengthen specialized regional institutions required to solve the complex coordination, cost-allocation, financing and conflict resolution problems that are at present limiting regional collective action in these areas.
    Keywords: regional public goods, regional institutions, collective action, regional cooperation.
    JEL: F02 D02 G28 H41
    Date: 2013–10–02

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