nep-int New Economics Papers
on International Trade
Issue of 2014‒10‒03
nineteen papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. International Trade and Firm-Level Markups when Location and Quality Matter By Flora Bellone; Patrick Musso; Lionel Nesta; Frederic Warzynski
  2. The Dynamic Adjustment of Firms and Workers to Foreign Trade By Oleg Itskhoki; Elhanan Helpman
  3. Technical Barriers to Trade Notifications and Dispute Settlement of the WTO By Mohammad Mahdi Ghodsi; Jan J. Michałek
  4. Estimating Food Quality from Trade Data: An Empirical Assessment By Curzi, Daniele; Pacca, Lucia
  5. International Competition and Inequality: A Generalized Ricardian Model By Adolfo Figueroa
  6. Outward FDI and Domestic Job Creation in the Service Sector By Kenichi Sakura; Takashi Kondo
  7. Aid for Trade: An Investment-Benefit Road Map from South Asia By Asian Development Bank (ADB); ; ;
  8. Chinese foreign direct investment in Africa in corporate social responsibility context By Olga Timokhina
  9. TRADE OPENNESS AND INCOME: A TALE OF TWO REGIONS By Mariam Camarero; Inmaculada Martínez-Zarzoso; Felicitas Nowak-Lehmann D.; Cecilio Tamarit
  10. Foreign Rivals are Coming to Town: Responding to the Threat of Foreign Multinational Entry By Cathy Ge Bao; Maggie
  11. Export performance and product market regulation By Bruno Amable; Ivan Ledezma
  12. Are tax incentives attracting more foreign direct investments in Asia and the Pacific? By Steve Gui-Diby
  13. Self-enforcing international environmental agreements and trade: taxes versus caps By Thomas Eichner; Rüdiger Pethig
  14. Reinvigorating the EU Single Market By Jean-Marc Fournier
  15. Economic Openness and Fiscal Multipliers By Marco Riguzzi
  16. Trade and Shared Prosperity in the Caribbean Region By World Bank
  17. Demand for Imported Meat in Greece: A Source-Differentiated Almost Idea Demand System Approach By Stathis Klonaris
  18. Trade, investment, and capital flows:Mexico's macroeconomic adjustment to the Great Recession By Carlos A. Ibarra
  19. Manufacturing Fetishism: The Neo-Mercantilist Preoccupation with Protecting Manufacturing By Alecia Waite Cassidy; Edward Tower; Xiaolu Wang

  1. By: Flora Bellone; Patrick Musso; Lionel Nesta; Frederic Warzynski
    Abstract: In this paper, we estimate firm-level markups and test some micro-level predictions of a model of international trade with heterogeneous firms and endogenous markups. Our theoretical framework is an extended version of the Melitz and Ottaviano (2008) (MO) model that features both quality and spatial differentiation across firms. In line with our model, we find that firm markups are positively related to firm productivity and negatively related to the toughness of local competition. Considering the relationship between firm markups and exports, we find evidence that markups are higher for exporters, what appears to indicate that the quality-enhancing channel overbalances the price-depressing channel of global competition.
    Keywords: Mark-ups;International Trade;Productivity
    JEL: F14 D24
    Date: 2014–09
  2. By: Oleg Itskhoki; Elhanan Helpman
  3. By: Mohammad Mahdi Ghodsi (Faculty of Economic Sciences, University of Warsaw; Department of Economic Sciences of Catholic University of Milan); Jan J. Michałek (Faculty of Economic Sciences, University of Warsaw)
    Abstract: The aim of this paper is to verify to which extent and in which circumstances the TBT notifications can serve as a system of early warning for future disputes in the areas of TBTs. During 1995-2011 there have been 45 requests for consultations under the Dispute Settlement (DS) Body of the World Trade Organization (WTO) in order to identify the violations in technical barriers to trade (TBT) agreement. The DS Body decisions regarding violations of TBT agreement are discussed in this paper. The WTO members, in order to increase transparency of trade policy, made efforts to compile data on notified TBTs. WTO provides a TBT dataset that covers Specific Trade Concerns (STC) raised by its members. This paper attempts to find the linkages between DS cases citing TBT agreement and the STC data. We analyze descriptively and econometrically, the relationship between raising TBT STCs and DS cases on TBT.
    Keywords: trade policy, technical barriers to trade, WTO, dispute settlement
    JEL: F13 F53
    Date: 2014
  4. By: Curzi, Daniele; Pacca, Lucia
    Abstract: Recent developments in international trade theory give growing emphasis to the quality of the exported products, showing that it affects both the direction of trade and the countries’ export performances. However, as quality is unobservable, a measurement problem clearly emerges. In this paper we measure product quality relying on a nested logit demand structure developed by Berry (1994) and then applied to trade data by Khandelwal (2010). Our main goal is to investigate the reliability and the properties of the estimated qualities, focusing on the EU food sector, where the growing attention on quality and safety issues is leading to an increase in the demand for high quality products. Main results give credence to the accuracy of the quality estimates, which display some interesting properties. Indeed, the quality rankings we draw are in line with the expectations, and quality growth proves to be strongly correlated with TFP growth. Moreover, results reveal that the competitive strategy of countries (high-quality vs. low-price) tends to change when moving from OECDs to non-OECDs. Finally, we provide evidence that the quality and price components of export unit values behave differently when testing their relationship with trade costs.
    Keywords: Quality estimates, Nested logit, Food products, International trade., International Relations/Trade, Research Methods/ Statistical Methods, C23, F14, L15, Q17,
    Date: 2014
  5. By: Adolfo Figueroa (Departamento de Economía de la PUC del Perú)
    Abstract: Why does the gap in real wage rates persist between the First World and the Third World after so many years of increasing globalization? The standard neoclassical trade model predicts that real wage rates will be equalized with international trade, whereas the standard Ricardian trade model does not. Facts are thus consistent with the Ricardian model. However, this model leaves undetermined income distribution. The objective of this paper is to fill this gap by developing a generalized Ricardian model, in which labor productivity levels across countries are endogenous and the initial inequality of countries is the exogenous variable. The model is able to explain the observed country differences in labor productivity levels, real wage rates, and patterns of trade. Thus, the model suggests that the initial inequality of countries plays a significant role in international competition. JEL Classification-JEL: F10, F16, F66
    Keywords: International competition, Labor productivity, Real wage rate, initial inequality, income distribution, Ricardian trade model.
    Date: 2014
  6. By: Kenichi Sakura (Bank of Japan); Takashi Kondo (Bank of Japan)
    Abstract: Japan's outward foreign direct investment (FDI) stock-to-GDP ratio, which has been relatively low by international comparison, has been rising steadily since the mid-2000s. A notable feature in this context is the rapid increase in FDI in the service sector. The impact of service sector firms' foreign activities on domestic employment is an important issue when considering the growth of the Japanese economy; yet, there are relatively few studies on the domestic employment impact of service sector FDI. In this paper, using a firm-level dataset of Japanese listed companies covering the period 2000-2011, we show that FDI by service sector firms has had positive effects on their domestic employment growth. These results are obtained controlling for spurious correlation arising from reverse causality such as the fact that firms that are successful in the domestic market are more likely to invest abroad. The positive effects are clearest in the retail, construction, and personal and business services industries. This is probably because FDI by firms in these industries does not substitute for their domestic business activities but requires that they strengthen administrative and other support functions in their domestic headquarters. A positive employment effect of outward FDI is also observed in the wholesale and transportation industries. This result may reflect the effect that firms' strengthening of their international networks helps to attract stronger demand. In contrast, in the information and communications technology industry, FDI appears to be associated with a reduction in domestic employment, possibly because IT workers at overseas affiliates substitute for domestic ones. Overall, our results suggest that for the service sector as a whole, outward FDI has been beneficial for Japan's economy from the viewpoint of domestic job creation.
    Keywords: FDI; Employment; Service sector
    JEL: F14 F21 F23
    Date: 2014–02–19
  7. By: Asian Development Bank (ADB); (Office of Regional Economic Integration, ADB); ;
    Abstract: Aid for Trade (AfT) came to prominence just over a decade ago at the launch of the World Trade Organization’s Doha Round. With its focus on helping least developed countries and economies escape the poverty trap, it aims to strengthen their capabilities to meet market demand and to reduce supply-side constraints such as a lack of trade infrastructure. In accordance with that objective, this report lays out an applied framework for prioritizing potential trade-related interventions and investments according to the expected strength of their combined economic impacts. Along the way, and for the first time, the economic geography of northeastern South Asia has been comprehensively mapped. Computer-driven modeling provides a dynamic portrayal of the economic geography that is a resource for decision makers (and investors). By bringing to light new avenues yielding very high economic benefits for investment and reforms, the framework can give guidance for undertaking trade improvements under AfT on pilot projects within a national setting, between neighbors or spread to partners further afield. In all cases, the endeavor is the same: expressed in the metaphor of hard investment, it is to build bridges to export markets so that people in the economic periphery have a better opportunity to take poverty off their own maps.
    Keywords: adb, asian development bank, asdb, asia, pacific, poverty asia, aid for trade, value chain, economic geography, bangladesh, bhutan, india, nepal, south asia, development assistance, trade, industry and trade, customs, import export, borders, aft, commercial exchange, import tax
    Date: 2013–09
  8. By: Olga Timokhina (St. Petersburg National Research University of Information Technologies, Mechanics and Optics)
    Abstract: In the paper we review Chinese foreign direct investment in Africa, which have increased significantly in the last decade. So-called BRICS countries (Brazil, Russia, India, China and South Africa) are actively investing abroad, becoming leading FDI exporters among emerging economies, and China is dominating in BRICS outward FDI (the share of Chinese outward FDI in world outward FDI was 6.05% in 2012). China has become a significant FDI exporter in the late 1990-s and by 2012 Chinese outward FDI stock reached 121080 ml. USD figure. Chinese investments are held both by private enterprises and state-owned companies. Chinese OFDI challenges the classic internationalization theories, which are based on the observation of traditional FDI from developed economies that are historically, economically and institutionally different from China. Undoubtedly the Chinese government plays a critical role in encouraging Chinese companies to invest in Africa, providing direct and indirect investment policy regulation, subsidizing and promotion of FDI. Africa is still perceived as a risky direction for investment, though China is actively investing in this region. Since resource-seeking motivation for investment is especially relevant for China, resource-rich African countries are attractive for Chinese state-owned companies. Bilateral trade between China and Africa in 2012 is rapidly growing and accounted for about 5 percent of China's total trade and about 16 percent of Africa's overall trade. China's FDI outflows to Africa are also increasing (from 500 mln. USD in 2003 to almost 15 bln. USD by 2012). The paper analyses Chinese OFDI in Africa and focuses on corporate social responsibility (CSR) of Chinese companies. In particular, we review regulatory documents for CSR in China and their application for Chinese investment in Africa. The strategic importance of CSR is not always acknowledged in by Chinese enterprises, thus resulting in shortage of capacity to incorporate CSR into corporate management. China clearly has an important economic role to play in Africa‟s development. The Chinese government has established China Africa Development Fund to support Chinese investors in African projects and has invested in creation of six special economic zones across the continent. All these measures influence the perception of China as an investor in African economies.
    Keywords: Foreign direct investment, corporate social responsibility, state regulation, BRICS, China, Africa, emerging markets, governmental policy, liberalization of investment
    Date: 2014–09
  9. By: Mariam Camarero (Departamento de Economía. Universidad Jaume I. Campus de Riu Sec. E-12071 Castellón, Spain.); Inmaculada Martínez-Zarzoso (Departamento de Economía. Universidad Jaume I. Campus de Riu Sec. E-12071 Castellón, Spain. & University of Goettingen , Ibero-America Institute for Economic Research, Platz der Goettinger Sieben 3, D-37073 Goettingen Germany .); Felicitas Nowak-Lehmann D. (University of Goettingen , Ibero-America Institute for Economic Research, Platz der Goettinger Sieben 3, D-37073 Goettingen Germany .); Cecilio Tamarit (Departamento de Economía Aplicada II. Universidad de Valencia. Avda. dels Tarongers s/n. E-46022 Valencia, Spain.)
    Abstract: In this article we present evidence of the long-run effect of trade openness on income per worker for two regions that have followed different liberalization strategies, namely Asia and Latin America. A model that re-examines these questions is estimated for two panels of Asian and Latin American countries over the 1980-2008 period using a novel empirical approach that accounts for endogeneity as well as for the time series properties of the variables involved. From an econometric point of view, we apply recent panel cointegration techniques based on factor models that account for two additional elements usually neglected in previous empirical literature: cross-dependence and structural breaks. The results point to a positive impact of trade openness in both Asia and Latin America although the size is smaller in the second region. We associate this finding with the degree to which trade was managed in both regions of the developing world.
    Keywords: GDP per worker, trade openness, panel cointegration, structural breaks, crosssection dependence, Asia, Latin America.
    JEL: F15 F43 C22 O40
    Date: 2014–09
  10. By: Cathy Ge Bao (Department of Economics/Institute for International Economic Policy, George Washington University); Maggie (Department of Economics/Institute for International Economic Policy, George Washington University)
    Abstract: How do domestic Örms respond to the threat of foreign competition? This paper quantifies the threat of competition from foreign multinational firms by exploring investment news that appear in over 35,000 newspapers, trade presses, magazines, newswires, and other forms of media in 200 countries. The analysis shows that, on average, domestic Örms respond to foreign multinational threats by increasing productivity, R&D, labor training, patent applications, and advertising expense and changing product composition. However, the response exhibits substantial heterogeneity oss industries and Örms: industries with "neck-to-neck" competition are more likely to upgrade productivity; within each industry, the right tail of the domestic productivity distribution responds by increasing innovation while the left tail escapes competition threats by dropping threatened products. Moreover, the degree of response increases significantly with the size of the threat, the influence of the news, the amount of information embedded in the news--on, for example, the credibility of the threat, and the number of news in downstream industries. The main findings are robust to placebo tests and IV analyses that explore detailed and unique characteristics--such as the publishing timing and location, the primary consumers, and the substance--of each news.
    Keywords: threat, foreign investment news, and domestic Örm responses
    JEL: F1 F2 L2 D2
    Date: 2014
  11. By: Bruno Amable (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CEPREMAP - Centre pour la recherche économique et ses applications, IUF - Institut Universitaire de France - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique); Ivan Ledezma (LEDa - Université Paris-Dauphine, IRD - DIAL - UMR 225)
    Abstract: This paper analyses the impact of product market regulation on the propensity to export at the industry level for 13 OECD countries and 13 industries over the 1977-2007 period. Recent economic policy and academic literature insists on the negative effects of product market regulation on productivity or innovation, and hence on "competitiveness", a term that we interpret as the ability to export. Similar to the conclusions of some contributions to a recent literature on competition and growth, the "common sense" is that product market regulation should be detrimantal to competitiveness. Testing through a two-step estimation the impact of upstream pressures of product market regulation on productivity and the effect of the latter on the propensity to export, this paper shows that upstream regulatory pressures have a significantly positive impact on productivity and thereby on the capability of an industry to attract resources and to sell its production in international markets.
    Keywords: Exports; product market regulation; competitiveness
    Date: 2013–02
  12. By: Steve Gui-Diby (Macroeconomic Policy and Development Division, United Nations Economic and Social Commission for Asia and the Pacific)
    Abstract: Tax rates are key tools for mobilizing domestic resources and addressing specific market failures. Countries often offer tax concessions or reduce corporate tax rates in order to boost private investment or to direct investment to “desired areasâ€. Corporate tax rates, especially for foreign investors, have been reduced significantly in many Asia-Pacific economies during the last seven years. However, this policy has had limited success in the region in terms of foreign direct investment (FDI) inflows, but at the same time has deprived governments from valuable resources required to support inclusive and sustainable development especially when government budget is in distress. Estimated tax losses due to the reduction of corporate tax rates, as well as alternative options for attractive FDI, including regional tax agreement on avoidance of tax competition, are analyzed in this policy brief.
  13. By: Thomas Eichner; Rüdiger Pethig
    Abstract: This paper studies within a multi-country model with international trade the stability of international environmental agreements (IEAs) when countries regulate carbon emissions either by taxes or caps. Regardless of whether coalitions play Nash or are Stackelberg leaders the principal message is that the choice of caps or taxes matters. International trade and tax regulation are necessary conditions for the existence of the encompassing self-enforcing IEA, and that the latter is attained the more likely, the less severe the climate damage. Hence, cap regulation is inferior to tax regulation insofar as in case of the former there exist no large and effective self-enforcing IEAs, in particular not the encompassing self-enforcing IEA. Further results are that for the formation of encompassing self-enforcing IEAs it does not matter whether climate coalitions play Nash or are Stackelberg leaders or whether fossil fuel is modeled as a consumer good or an intermediate good.
    Keywords: cap, tax, international trade, self-enforcing environmental agreements, Nash, Stackelberg
    JEL: C72 F02 Q50 Q58
    Date: 2014
  14. By: Jean-Marc Fournier
    Abstract: The EU Single Market remains fragmented by complex and heterogeneous rules at the EU and national levels affecting trade, capital, including foreign direct investment, and labour mobility. Further development of the Single Market and removing barriers to external trade would bring substantial growth and employment gains by enhancing resource allocation in Europe, by generating economies of scale and by strengthening competition and hence incentives to innovate. Reforming regulation and other implicit barriers can also yield a double dividend: it would stimulate cross-border activities and support the necessary reallocation process within countries. Such reallocation can cause hardships, especially for the less-skilled workers who may not be able to compete. To deal with such problems, it is important to enhance active labour market policies and training. The Single Market would also benefit from better networks between countries that can be supported by a well-targeted infrastructure policy. New digital networks can be promoted by an appropriate regulatory framework to strengthen confidence and to promote fair competition. Regarding external trade, the first-best solution is clearly multilateral trade negotiations, but short of that external trade and investment barriers can be reduced with Free Trade Agreement negotiations with the United States and other partners. This Working Paper relates to the 2014 OECD Economic Survey of the European Union ( Redynamiser le marché unique de l'UE Le marché unique de l’UE reste fragmenté en raison de règles complexes et hétérogènes, tant au niveau communautaire qu’au niveau national, touchant le commerce, le capital, y compris les investissements directs étrangers et la mobilité de la main-d’oeuvre. Une plus grande intégration du marché unique et la suppression des obstacles au commerce extérieur se traduiraient par d’importants gains de croissance et d’emploi en améliorant l’allocation des ressources en Europe, en favorisant des économies d’échelle et en renforçant la concurrence et, partant, les incitations à innover. La réforme de la réglementation et des autres obstacles implicites peut aussi générer un double dividende : elle stimulerait les activités transfrontalières et soutiendrait le nécessaire processus de redéploiement au sein des pays. Ce redéploiement peut entraîner des difficultés, en particulier pour les travailleurs moins qualifiés qui ne sont sans doute pas à même de soutenir la concurrence. Il importe donc, dans ce contexte, d’améliorer les politiques actives du marché du travail et la formation. Le marché unique bénéficierait aussi d’un renforcement des réseaux entre les pays, qu’une politique d’infrastructures bien ciblée pourrait faciliter. Les nouveaux réseaux numériques peuvent être encouragés par une approche réglementaire appropriée visant à rehausser la confiance et à favoriser une concurrence équitable. S’agissant du commerce extérieur, la solution la plus favorable est à l’évidence la négociation commerciale multilatérale, mais, à défaut, les obstacles au commerce extérieur et à l’investissement peuvent être réduits grâce à la négociation d’accords de libre-échange avec les États-Unis et les autres partenaires. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de l'Union européenne 2014 ( enne.htm).
    Keywords: regulatory barriers, network interconnections, economic integration, labour mobility, EU single market, regulatory heterogeneity, interconnections de réseaux, marché unique de l’UE, hétérogénéité des régulations, barrières réglementaires, mobilité du travail, intégration économique
    JEL: F15 H73 J61 L14 L51
    Date: 2014–09–08
  15. By: Marco Riguzzi
    Abstract: This essay examines the implications of openness to trade, capital mobility, and exchange rate flexibility for the fiscal multiplier. It presents a New Open Economy Macroeconomics model which is extended with the formation of "deep habits" by individual households. Hereby, an inter-temporal substitution effect is constituted, which causes monopolistically competitive producers to move their markups counter-cyclically and generates a positive fiscal multiplier of private consumption. The main outcome is a mechanism elaborating that both openness to trade and exchange rate flexibility limit the fiscal multiplier in equilibrium, and that capital mobility increases the fiscal multiplier in the short run. This dynamic model differs in its implications from a static model, such as the Mundell-Fleming model, and it is consistent with recent empirical findings.
    Keywords: Fiscal Multiplier; openness to trade; capital mobility; exchange rate flexibility
    JEL: E12 E62 F4
    Date: 2014–09
  16. By: World Bank
    Keywords: Poverty Reduction - Rural Poverty Reduction Banks and Banking Reform Social Protections and Labor - Labor Markets Finance and Financial Sector Development - Debt Markets International Economics and Trade - Free Trade
    Date: 2014–06
  17. By: Stathis Klonaris (Dept. of Agricultural Economics and Rural Development, Agricultural University of Athens)
    Abstract: Greece is self-sufficient in crop production but it relies heavily on meat and dairy imports. The Greek balance of trade for agricultural products was steadily deficit due to the heavy imports of meat and dairy products. In this study the restricted source differentiated AIDS was employed in order to study the demand of imported meat. The results is indicted that Germany and France have the most to gain from a Greek exit from the financial crisis which it will lead to an expansion in beef and pork market. Moreover, the results indicate that in the pork market Germany and France has a comparative advantage to Denmark and Netherlands.
    Keywords: imported demand, Greek meat imports, AIDS model, source differentiation
    JEL: C51 D12 Q17
    Date: 2014
  18. By: Carlos A. Ibarra (Universidad de las Américas, Puebla (UDLAP))
    Abstract: After a two-year deceleration, in 2009 the Mexican economy suffered a contraction only matched, in its modern history, by the one recorded in 1995, in the wake of the peso crisis of December 1994. As in the latter crisis, the economy immediately bounced back, posting positive growth in 2010. Compared with the sharp rebound of exports, though, the overall recovery was weak, with GDP and industrial production surpassing (barely, in the latter case) their pre-crisis levels only in 2011. Motivated by these observations, the paper studies the transmission channels behind the 2009 recession in Mexico, the reasons for the weakness of the 2010?2011 recovery, and ?based on that analysis? some of the risks the country faces for sustaining stronger economic growth in the future.
    JEL: C22 E22 E58 F14 F21 F32 F41 O11 O54
    Date: 2014–08–24
  19. By: Alecia Waite Cassidy (University of Michigan); Edward Tower (Duke University); Xiaolu Wang (Cornell University)
    Abstract: Two common views are that a country cannot develop without a strong manufacturing base and that trade restrictions are essential to facilitate the development of that strong manufacturing base and thus spur economic growth. We ask: Does a strong manufacturing share of GDP facilitate economic growth? Do trade restrictions ensure the development of a strong manufacturing base? How can governance affect manufacturing share? And are the relationships we find robust across regions? We find the manufacturing share is not significantly correlated with a higher standard of living. Nor is it related significantly and consistently to economic growth. We also find that trade restrictions both at home and abroad shrink the manufacturing base and smother economic growth. A better way than protectionism and subsidies specific to industry to enhance economic growth is to improve governance effectiveness and the quality of regulation.
    Keywords: manufacturing share, economic growth, trade restrictions
    JEL: F13

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