nep-int New Economics Papers
on International Trade
Issue of 2014‒08‒09
nineteen papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Fixed Export Costs and Export Behavior By Luis Castro; Ben Li; Keith Maskus; Yiqing Xie
  2. South-South Trade: A Quantitative Assessment By Raihan, Selim
  3. Why Do Homogeneous Firms Export Differently ? A Density Externality Approach of Trade By Vincent Boitier; Antoine Vatan
  4. Trade Negotiations and Regional Economic Integration in the Pacific Islands Forum By Wesley Morgan
  5. Incomplete VAT rebates to exporters : how do they affect China's export performance? By Gourdon, Julien; Monjon, Stéphanie; Poncet, Sandra
  6. How the Movement of Natural Persons Agreement Could Fuel FTAs By KOMORIYA Yoshimasa
  7. The Wind of Change: Maritime Technology, Trade and Economic Development By Pascali, Luigi
  8. Increased Export Performance and Competitiveness of Developing Countries: Mainly a China Story? By Francis Ng
  9. Energy Consumption, Trade and GDP: A Case Study of South Asian Countries By Shakeel, Muhammad; Iqbal, Mazhar; Majeed, Muhammad Tariq
  10. Firm-Level Evidence for the Language Investment Effect on SME Exporters By Foreman-Peck, James; Zhou, Peng
  11. Exit from Exporting: Does Engagement in Transnational Networks Matter? By Díaz-Mora, Carmen; Córcoles, David; Gandoy, Rosario
  12. Policies to Enhance Trade Facilitation in South Asia and Southeast Asia By Anthony Bayley
  13. Ex-ante versus ex-post assessments of the economic benefits of Free Trade Agreements: Lessons from the North American Free Trade Agreement (NAFTA) By Grumiller, Jan-Augustin
  14. Australian–Indonesian Live Cattle Trade—What Future? By Ray Trewin
  15. Regionalism, end markets and ownership matter: Shifting dynamics in the apparel export industry in Sub Saharan Africa By Morris, Mike; Staritz, Cornelia; Plank, Leonhard
  16. ASSESS_TTIP: Assessing the claimed benefits of the Transatlantic Trade and Investment Partnership By Raza, Werner; Grumiller, Jan; Taylor, Lance; Tröster, Bernhard; von Arnim, Rudi
  17. Effect of distance on trade under slope heterogeneity and cross-correlated effects By Lugovskyy, Oleksandr; Skiba, Alexandre
  18. The Economics of Nationalism By Xiaohuan Lan; Ben Li
  19. The Economics of Fair Trade By Raluca E. Dragusanu; Daniele Giovannucci; Nathan Nunn

  1. By: Luis Castro (Universidad Privada Boliviana, LaPaz, Boliviana); Ben Li (Boston College); Keith Maskus (University of Colorado at Boulder); Yiqing Xie (Fudan University, Shanghai, China)
    Abstract: This paper provides a direct test of how fixed export costs and productivity jointly determine firm-level export behavior. Using Chilean data, we construct indices of fixed export costs for each industry-region-year triplet and match them to domestic firms. Our empirical results show that firms facing higher fixed export costs are less likely to export, while those with higher productivity export more. These outcomes are the foundation of the widely-used sorting mechanism in trade models with firm heterogeneity. A particularly novel finding is that high-productivity nonexporters face greater fixed export costs than low-productivity exporters. We also find that the substitution between fixed export costs and productivity in determining export decisions is weaker for firms with higher productivity. Finally, both larger fixed export costs and greater within-triplet productivity dispersion raise the export volume of the average exporter.
    Keywords: Sorting, firm heterogeneity, fixed export costs
    JEL: F10 F12 F14
    Date: 2014–07–19
  2. By: Raihan, Selim
    Abstract: The share of North-North trade in global trade declined from 55.5 percent in 1990 to around 32 percent in 2010. Such fall in North-North trade had been accompanied by rising trade involving the South countries. The South-North trade share increased from 13.9 percent to 16.5 percent during the same time. However, the most spectacular phenomenon was the rise in South-South trade, which increased from only 6.4 percent to 19.4 percent during this period. Such rise in South-South trade has not been uniform across different South countries. During 1990 and 2010, though all categories of South countries (all South, LDCs, SVEs, advanced South and South excluding advanced South) experienced rises in their shares in global trade, trade involving the advanced South countries was the major contributor to the changing landscape in global trade, which resulted in remarkable rise in the South-South trade. When it comes to country-wise shares in South-South export, there are some gainers and losers. Out of the 135 South countries, 50 countries experienced rise in their shares in South-South export while 85 countries experienced fall in shares. The structures of the export of the South countries are not uniform. Many of the South countries’ export are agriculture based, many of them are extraction based and the rest are manufacturing oriented. The destinations of the export from South countries are primarily the developed countries. A comparison among the sizes of coefficients of different variables under the basic gravity models suggests that as far as intra-South trade is concerned, among the continuous variables, the largest positive effect stems from the per capita GDP of the home country, and largest negative effect comes from the distance. Among the dummy variables, the common border dummy has the largest positive effect, whereas the island dummy of the partner country has the largest negative effect. However, these variables have differential effects when it comes to trade between different groups of South countries. Gravity modeling results suggest that when considering South countries as the home, there are marked differences among different groups of countries as far as the impact of per capita GDP of home country (in this case the South countries) on exports from these groups of countries to the South countries are concerned. Per capita GDP of the South countries has the largest positive effect on the export from the North countries; and among different South countries such positive effect is the largest for the export from the Emerging South countries. For SVEs the effect is positive but is the smallest among all country groups. Now, while considering South as the source of export, the per capita GDP of the emerging South countries has the largest positive effect among all country groups on the export from South. Interesting, the per capita GDP of the North countries doesn’t have any significant effect. Also, though the per capita GDP of LDCs has a positive effect on the export from South that of the SVEs doesn’t have any statistically significant effect. Gravity modeling results also suggest that, considering South as the home, the distance factor has the largest negative effects on exports from the Emerging South countries and SVEs to South countries; and distance factor has the largest negative impact on South’s export to Emerging South among all country groups as destinations for South’s export. In the case of common language dummy, while considering exports to South from all country groups, this dummy has the largest positive effect on export from North countries, and while considering export from South, common language has the largest positive effect on the export to South Excluding Emerging South countries. In the case of land lock dummy for home country, considering South as the home, this dummy has mixed effects on exports from different country groups; for example, it has negative impacts on exports from LDCs and North, while it has a positive impact on export from South Excluding Emerging South. Also, this dummy has only negative effect on the export from South to North among all country groups as destinations for South’s export. In the case of land lock dummy for partner country, when South is the home, among all country groups, this dummy has the largest negative effect on the export from the South; however, when South is the export source, this dummy has the largest negative effect on South’s export to Emerging South countries. In the case of island dummy for home country, considering South as the home, the export from the island countries will be reduced, if those countries are either North or SVEs. Also, South’s export to Emerging South countries will be reduced most of the South countries are the island countries. In the case of island dummy for partner country, considering South as the home, the export from LDCs is mostly affected among exports from all country groups if LDCs are island countries. Also, if South countries are island countries, then their export is mostly affected in the Emerging South countries. When South is the export destination, common border dummy has the largest positive effect on the export from South countries in general, and among different groups of South countries, this dummy has the largest positive effect on the export from LDCs. However, this dummy has a negative effect on the export from North to South. Augmented gravity modeling results suggest that, in general, South’s tariff rate has the largest negative effect on the export from SVEs. North’s tariff is most restrictive on the export from South in general and South Excluding Emerging South in particular. LDCs’ tariff rate affects mostly the export from SVEs and LDCs. SVEs’ tariff rate affects mostly the export from South Excluding Emerging South counters. Tariff rates of Emerging South and South Excluding Emerging South have the largest negative effect on export from SVEs. As far as South is considered as the export destination, trade cost in South affect mostly the export from South. Trade cost in North has the largest negative effect on export from LDCs, and it seems that such negative effect is higher than the negative effect on export from North to LDCs due to trade cost in LDCs. While the trade costs between LDCs and Emerging South countries are compared, trade costs in Emerging South countries seem to be more restrictive on export from LDCs, as compared to the negative effect of trade cost in LDCs on the export from Emerging South. Similar observations are hold for SVEs, while comparing the restrictive effect of their trade cost with those of North and Emerging South. CGE modeling results suggest that a scenario of LDCs and SVEs receiving duty-free market access in emerging south countries would lead to some significant rise in welfare for all LDCs and SVEs, which would, for some countries, in terms of the percent of their GDPs, be quite high. For example, for Nepal such welfare gain would be 3.2 of its GDP. The least benefitted country in this regard would be Botswana and its welfare gain would be only 0.01 percent of its GDP. All LDCs and SVEs would also experience rise in exports. However, different LDCs and SVEs would experience rise in export by different magnitudes. The largest rise in export, in terms of percentage change, would be for Nepal followed by Rest of South Asia. The lowest rise in export would be for Botswana. . All LDCs and SVEs would experience some re-direction of their exports towards the Emerging South countries. Such as scenario would not lead to large rise in export from LDCs and SVEs, which indicates to the fact that tariff preferences in the Emerging South countries alone would not be enough to help LDCs and SVEs to increase their export to the Emerging South countries. Such a scenario would lead to marginal effects on the export from other developing countries, some countries would experience very small rise and some counties would experience very small fall. The CGE modeling results also suggest that the welfare effects of a scenario of FTA among Emerging South, LDCs and SVEs and other developing countries would lead to some large welfare gains, both in terms of volume and percent share of GDP, for most of the Emerging South countries. There would be mixed effects among the other developing countries. LDCs and SVEs would also see mixed effects. Such a scenario would lead to some significant rise in exports from most of the Emerging South, other developing countries and LDCs and SVEs. Such a scenario would enhance South-South trade significantly. Most of the South countries would experience rise in export to other South countries. The incremental rises in exports of these countries would be destined to other South countries.
    Keywords: South-South Trade, Gravity Model, CGE Model
    JEL: C5 C68 F14 F15 F17
    Date: 2014–05–27
  3. By: Vincent Boitier (Université paris 1 Panthéon Sorbonne et PSE); Antoine Vatan (CREST)
    Abstract: While the reason why the average exporting firm has a higher productivity than a purely domestic firm is now well understood, the theoretical literature has remained silent on why firms do not enter foreign markets according to an exact hierarchy, as predicted by models à la Mélitz. To this aim, this paper proposes a new model of export choice in which the interactions between firms are characterized by density externalities. This type of interaction is closely related to a Mean Field Game. After showing that such an interaction is included in standard monopolistic competition, in the short run, we show how homogeneous firms can export differently. Moreover in this model, it remains true that more productive firms export on average to less attractive countries. Thence, our model displays a non-exact hierarchy of trade, as the findings of Eaton et al. (2011) suggest
    Keywords: Export Choice, Dispersion in Strategies, Density Externalities, Trade Externalities, Sequential Exporting
    JEL: F1
    Date: 2014–02
  4. By: Wesley Morgan
    Abstract: When the Pacific Islands Forum was established in 1971, regional economic integration was high on the policy agenda. Over the four decades since, a political commitment to regional integration has waxed and waned. This paper explores past and present prospects for economic cooperation through the lens of regional trade negotiations. Into the new millennium, Pacific governments lobbied World Trade Organisation (WTO) members to recognise their trade-related challenges, and sought special treatment in trade negotiations with the EU and with Australia and New Zealand. Despite these efforts, current trade negotiations among all Forum members—to extend the Pacific Agreement on Closer Economic Relations (PACER-Plus)—look unlikely to result in unique measures intended to help Pacific states take advantage of international trade. In this context, consideration should be given to downscaling formal trade negotiations in favour of other regional trade policy initiatives.
    Keywords: regionalism; regional trade agreements; Pacific; Pacific Island Forum; PACER-Plus
  5. By: Gourdon, Julien; Monjon, Stéphanie; Poncet, Sandra
    Abstract: During the last decade, the Chinese government has frequently changed the value added tax (VAT) refund levels offered to exporters. Indeed, China’s VAT system is not neutral, in particular because the exporters may not receive complete refund of the domestic VAT paid on their inputs. This paper investigates how changes in the VAT rebates affect export performance in China. Our empirical analysis relies on export volume data at the HS6 product level over the 2003-12 period. To address potential endogeneity, we exploit an eligibility rule that disqualifies processing trade with supplied materials from the rebates. We find that the adjustments to the VAT rebates have signifi cant repercussions on the exported volume: a one percentage point increase in the VAT rebate can lead to a 7% increase in export volumes. This magnitude allows to better understand the strong resistance of China’s exports amid the global recession.
    Keywords: VAT system; Export tax; Export performance; China;
    JEL: F10 F14 O14
    Date: 2014–02
  6. By: KOMORIYA Yoshimasa
    Abstract: We use an international oligopoly model to explore the effects of reductions in trade cost (non-tariff barrier) and travel cost on the domestic and foreign economies, when the choice of the foreign direct investment (FDI) production level is endogenous. In the case where the home firm produces in both countries, consumers invariably gain from the cost reductions, but the effects on producers are very complex. Using these findings, we discuss the importance of the movement of natural persons (MNP) agreement and its great potential in creating a free trade agreement (FTA) between the two countries.
    Date: 2014–07
  7. By: Pascali, Luigi (The University of Warwick)
    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 firrst 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
    Date: 2014
  8. By: Francis Ng
    Abstract: In manufacturing, developing economies have gained significant market share in both industrial countries and in each other’s markets. This development have led many writers to argue that market share increases in industrial countries and expanding south-south trade could possibly drive future world trade. Analyzing the manufacturing import penetration in 5 industrial and 7 large developing countries, we show that during the 2000s, about three quarters of market share increases of all developing are due to China. The evidence also shows that market shares of all other developing countries in the Chinese market have decreased.
    Date: 2014–07–09
  9. By: Shakeel, Muhammad; Iqbal, Mazhar; Majeed, Muhammad Tariq
    Abstract: Using panel co-integration approach over the period 1980-2009 for South Asian economies, this study investigates the dynamic linkages between energy consumption, trade and GDP. The results show that, in the short run, feedback relationship holds between energy consumption and GDP and between energy consumption and exports. In the long run, the feedback relation holds between energy and GDP while unidirectional causality holds from export to energy. Thus, feedback hypothesis between energy and GDP holds in the short as well as in the long run. The feedback relationship between trade and energy consumption suggests that any shortage of energy supply will lessen the trade and this reductions in trade will lessen the benefits of trade in the region since results have also shown that reduction in export can impede GDP growth.
    Keywords: Energy Consumption; Growth; Trade; Panel Co-Integration
    JEL: F14 F21 Q40
    Date: 2013–12–12
  10. By: Foreman-Peck, James (Cardiff Business School); Zhou, Peng (Cardiff Business School)
    Abstract: Both analysis of international trade and the knowledge resource theory of the firm imply that language skills should play a vital role in exporting. This may be apparent to large multinationals with sites in many different linguistic locations, but we show it is less obvious to smaller companies. With data on the language used by each of a large sample of European small and medium sized enterprises in their export markets we test and estimate the effects of language assets on language performance in export markets and on export sales. Controlling for the possibility that language skills may be acquired by exporting, we find a very substantial export return to linguistic expertise, indicative of unexploited gains from investment in languages. There is also evidence of greater under-investment in language skills in English-speaking Europe, which we show can be a prediction of Konya’s (2006) trade model.
    Keywords: Internationalisation; language skills; SMEs
    JEL: D22 F13 H52 R42
    Date: 2014–06
  11. By: Díaz-Mora, Carmen; Córcoles, David; Gandoy, Rosario
    Abstract: The aim of this paper is to investigate whether the probability of ceasing exports is lower for firms that are integrated in transnational production chains, once other firm characteristics are controlled for. On the basis of the estimation of a random-effects probit model with panel data, we find that the superior characteristics of firms involved in global networks (in terms of productivity, foreign ownership and skilled labor) explain their greater resistance to losing their status as exporters. However, for small firms, even when these distinctive features are controlled for, integration in international networks plays an important role in continuing to export. Thus, it seems that small firms which participate in networks have an added advantage which enables them to confront the uncertainty of foreign markets in better conditions and translates to a lower likelihood that they will stop exporting.
    Keywords: Probability of ceasing to export, firms' characteristics, integration in global value networks.
    JEL: F14 L14
    Date: 2014–07
  12. By: Anthony Bayley (Asian Development Bank Institute (ADBI))
    Abstract: This paper discusses trade facilitation in the context of enhancing trading links between South and Southeast Asia, in a manner understandable to the non-specialist. Presently, these two Asian regions tend to trade preferentially with distant markets. One of the reasons cited for the limited trade between themselves is that trade facilitation with trade partners in developed countries is more user-friendly and stable. This suggests that enhancing trade facilitation within the two regions could promote intra- and inter-regional trade. The paper identifies the scope of trade facilitation and profiles the current overall situation in the two regions. It highlights the key issues and constraints, often referred to as non-trade barriers, in terms of both “soft†and “hard†infrastructure, and highlights ongoing initiatives designed to promote change, especially through the application of new approaches and procedures. Lastly, the paper concludes by discussing the key regional trade facilitation issues and proposing recommendations to eliminate the non-trade barriers that are adversely impacting on trade within and between the regions.
    Keywords: trade facilitation, trading links, South Asia, Southeast Asia, intra-regional and inter-regional trade, Infrastructure
    JEL: F15 F13
    Date: 2014–07
  13. By: Grumiller, Jan-Augustin
    Abstract: Much of the current discussion about the Transatlantic Trade and Investment Partnership (TTIP) is focused on the potential welfare and employment effects. Supporters of TTIP often support their argument by highlighting the optimistic results of computable general equilibrium (CGE) models. CGE-models are the methodological backbone of most ex-ante impact assessments of free-trade agreements, as for instance published by the European Commission. The objective of this paper is to assess the accurateness of ex-ante studies by scrutinizing the example of the North American Free Trade Agreement (NAFTA). The analysis suggests that a considerable gap exists between ex-ante projections and ex-post evaluations with regard to NAFTA's effects on welfare, wages and employment. Most exante models had a tendency to overestimate the benefits and underestimate the costs of free-trade. The experience of NAFTA reveals the weak credibility of ex-ante simulations. Policy makers should thus treat the formers' results with the appropriate skepticism. --
    Date: 2014
  14. By: Ray Trewin
    Abstract: Australian live cattle exports were a growing $1 billion trade from northern Australia to Indonesia for finishing and slaughter for Indonesian consumers. This all changed in recent years with the trade being disrupted by a series of constraints which have shrunk the trade and raised uncertainty. Will it ever get back on trend or continue to shrink and disappear? Greater integration between Australia's live cattle trade and Indonesia's cattle feeding and processing industries through investment and technological transfer offers the potential of not only better meeting Indonesia's beef security but also strong processed meat opportunities in rich neighbours to the benefit of both countries. A continuation of the recent volatile and uncertain trade will be detrimental to both countries, with Indonesia losing a food-secure, reliable livestock supply to which value was added, and Australia a significant industry for one more dependent on costlier markets.
    Keywords: live cattle trade; policy analysis; economic analysis
  15. By: Morris, Mike; Staritz, Cornelia; Plank, Leonhard
    Abstract: This paper shows the importance of ownership, end markets and regionalism within the global value chain (GVC) conceptual framework. This is done through unpacking the development trajectories of the major Sub Saharan African (SSA) apparel export industries (Mauritius, Madagascar, Kenya, Lesotho, Swaziland) against the backdrop of global and regional trade regime changes and the manner in which different supplier firms react to these opportunities and/or constraints. These trajectories demonstrate the emergence of a new regionalism centred around investment and differentiated end markets. Ownership characteristics of supplier firms shape the ability to shift between different end markets and respond to lead firm requirements; and the level of their local and regional embeddedness impacts on different forms of upgrading. More locally and regionally embedded firms in these SSA countries have been able to shift with uneven success to new, and in particular regional, markets. In contrast, Asian-owned transnational producers remain focused on the US market with limited market opportunities and upgrading potential. Different types of ownership and embeddedness dynamics are therefore important to explain the co-evolution of highly differentiated value chain dynamics creating a variety of apparel industrialization trajectories in the apparel export industry in SSA. --
    Keywords: global value chains,apparel,upgrading,ownership,Sub Saharan Africa,global value chains,apparel,upgrading,ownership,Sub Saharan Africa
    Date: 2014
  16. By: Raza, Werner; Grumiller, Jan; Taylor, Lance; Tröster, Bernhard; von Arnim, Rudi
    Abstract: The current negotiations on a transatlantic Free-Trade Agreement between the US and the EU (TTIP) have raised substantial public interest. Several studies have highlighted the positive economic effects of TTIP. A new ÖFSE report shows that these claims are overstated and neglect crucial adjustment costs and the social costs of regulatory change. --
    Date: 2014
  17. By: Lugovskyy, Oleksandr; Skiba, Alexandre
    Abstract: The authors argue that endogeneity of transportation costs needs to be taken into account when estimating the effect of distance on trade. Otherwise, the estimates of the distance effect may be biased and inconsistent. Endogenous transportation can introduce slope heterogeneity and spatial correlation. Both issues can be accommodated with the help of Pesaran's cross-correlated effects mean-group (CCEMG) estimator. After applying this methodology, the authors uncover significant compression of the distance effect on trade starting from the middle of the 1990s. The trade-reducing effect of long distances becomes statistically indistinguishable from the effect of moderate distances. This compression is not present in the traditional fixed effects estimates. The authors hypothesize that such pattern may be reconciled by changes in shipping technology that disproportionately reduce transportation costs over long distances. --
    JEL: F1 R4
    Date: 2014
  18. By: Xiaohuan Lan (Cheung Kong GSB); Ben Li (Boston College)
    Abstract: This paper provides an economic framework for examining how economic openness affects nationalism. Within a country, a region's level of nationalism varies according to its economic interests in its domestic market relative to its foreign market. A region's nationalism is strongest if the optimal size of its domestic market equals the size of its country. All else being equal, increasing a region's foreign trade reduces its economic interests in its domestic market and thus weakens its nationalism. This prediction holds both cross-sectionally and over time, as evidenced by our empirical study using the Chinese Political Compass data and the World Value Surveys. Our framework also applies to analysis of nationalism across countries and receives support from cross-country data.
    Keywords: Nationalism, Economic Openness, Country Size, Gains from Trade, China
    JEL: F52 P16
    Date: 2014–05–04
  19. By: Raluca E. Dragusanu; Daniele Giovannucci; Nathan Nunn
    Abstract: Fair Trade is a labeling initiative aimed at improving the lives of the poor in developing countries by offering better terms to producers and helping them to organize. In this survey, we provide a critical overview of the economic theory behind Fair Trade, describing the potential benefits and potential pitfalls. We also provide an assessment of the empirical evidence of the impacts of Fair Trade to date.
    JEL: F1 O1
    Date: 2014–07

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