nep-int New Economics Papers
on International Trade
Issue of 2014‒11‒01
27 papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Too Small To Protect? The Role of Firm Size in Trade Agreements By Matthew T. Cole; Ben Zissimos
  2. Internal Trade, Productivity, and Interconnected Industries: A Quantitative Analysis By Trevor Tombe; Lukas Albrecht
  3. Evaluation of the EU-Turkey Customs Union By World Bank
  4. Cultural and Creative Industries as Determining Qualified International Flow Trade in Latin America, 2001-2011 By Jenny Cardenas-Ayala; Leandro Valiati
  5. Credit Constraints, Technology Choice and Exports - A Firm Level Study for Latin American Countries By Hasan, Syed; Sheldon, Ian
  6. Economic Implications of Deeper South Asian–Southeast Asian Integration : A CGE Approach By Ganeshan Wignaraja; Peter Morgan; Michael Plummer; Fan Zhai
  7. Deep Provisions in Regional Trade Agreements: How Multilateral-friendly?: An Overview of OECD Findings By Iza Lejárraga
  8. Environment and Regional Trade Agreements: Emerging Trends and Policy Drivers By Clive George
  9. The Border Effect and the Non-Linear Relationship between Trade and Distance By Gallego, Nuria; Llano, Carlos
  10. Offshoring and the Shortening of the Quality Ladder: Evidence from Danish Apparel By Valeria SMEETS; Sharon TRAIBERMAN; Frederic WARZYNSKI
  11. Tariffs and Intra-Industry Trade Creation Date: 1996 By G. Nesdale
  12. Benefits of Foreign Ownership: Evidence from Foreign Direct Investment in China By Wang, Jian; Wang, Xiao
  13. Specific Inputs, International Trade and Tax-Incidence Creation Date: 1996 By K. Bhatia
  14. Japan’s foreign economic policy strategies and economic performance By Peter Drysdale and Shiro Armstrong
  16. Green subsidies and the WTO By Charnovitz, Steve
  17. Foreign Technology Acquisition and Changes in the Real Exchange Rate By Roberto Alvarez; Ricardo A. Lopez
  18. Global value trees By Zhen Zhu; Michelangelo Puliga; Federica Cerina; Alessandro Chessa; Massimo Riccaboni
  20. Productivity Evolution of Chinese Large and Small Firms in the Era of Globalisation By Yifan ZHANG
  21. Offshoring, Mismatch, and Labor Market Outcomes By Arseneau, David M.; Epstein, Brendan
  22. Exploring price and non-price determinants of trade flows in the largest euro-area countries By Claire Giordano; Francesco Zollino
  23. Exports, R&D and Productivity: A test of the Bustos-model with enterprise data from France, Italy and Spain By Joachim Wagner
  24. Forest Policy and Trade: The New Zealand experience Creation Date: 1991 By K. Jackson
  25. The Theory of Competition and the Analysis of Trade Unions: The influence of Alfred Marshall Creation Date: 1982 By A. Petridis
  26. Foreign direct investment in Latin America and the Caribbean, 2012 By NU. CEPAL. Unidad de Inversiones y Estrategias Empresariales
  27. Foreign Direct Investment in Latin America and the Caribbean, 2013 report. Briefing paper By NU. CEPAL. División de Desarrollo Productivo y Empresarial

  1. By: Matthew T. Cole (Department of Economics, Florida International University); Ben Zissimos (Department of Economics, University of Exeter)
    Abstract: This paper develops a model of a trade agreement that puts at centre stage the competing interests between ?rms within a sector: Larger ?rms tend to be pro-trade liberalization whereas smaller ?rms favor protection. This set-up contrasts with the prior literature in economics that has tended to focus on competing interests between sectors, and further develops a literature in political science. The paper determines the set of circumstances under which a trade agreement will be reached, and the extent of trade liberalization, in an environment where ?rms can lobby the government for or against a proposed agreement. Lobbying is modelled as an all-pay auction, incorporating the feature that binding contracts over contributions for policies cannot be written. This approach gives rise to the possibility that a trade agreement may not go ahead even if it would increase efficiency. In this set-up, if a proposed agreement is over non-tariff barriers and if it goes ahead then it always entails free trade. On the other hand, if a proposed agreement is over tariffs and if it goes ahead then it either entails free trade or the tariff revenue maximizing tariff.
    Keywords: All-pay auction, firm heterogeneity, non-tariff barriers, tariffs, trade agreement
    JEL: F02 F12 F13 D44
    Date: 2014–10
  2. By: Trevor Tombe (University of Calgary); Lukas Albrecht
    Abstract: Trade costs within Canada are large, and vary substantially across industries and regions. When policy aimed at liberalizing internal trade (an area of interest in many countries) is done at the industry-level, knowledge of industry-specific costs and input-output linkages between sectors is critical. In this paper, we exploit unique Canadian data to measure the magnitude of internal trade costs between provinces for a variety of industries. Building on recent multisector international trade models, we quantify the effect of these costs on welfare and productivity. Our results highlight the importance of an industry-level analysis, especially incorporating inter-sectoral input-output linkages. We further estimate the gains from liberalizing specific industries, which provides a guide to policy makers intent on a sector-by-sector approach to internal trade reform. Gains are substantially larger in highly interconnected industries.
    Keywords: Internal Trade, Gains from Trade, Input-Output Linkages
    JEL: F1 F4 R1
    Date: 2014–09–23
  3. By: World Bank
    Keywords: International Economics and Trade - Trade Policy International Economics and Trade - Free Trade Economic Theory and Research Transport Economics Policy and Planning Law and Development - Trade Law Macroeconomics and Economic Growth Transport
    Date: 2014–03
  4. By: Jenny Cardenas-Ayala (Universidad Federal Rio Grande do Sul, Brasil); Leandro Valiati (Universidad Federal Rio Grande do Sul, Brasil)
    Abstract: The growing internationalization process and the desire to be competitive in a globalized world, has recently sparked interest in the symbolic dimension, cultural identity, creative development, communications and knowledge as a source of economic development. This research aims to analyze how cultural and creative industries have a positive impact on international trade flows of the countries of South America. It is used the panel data methodology for the period 2002-2011 and it is considered that trade flows are determined by the inclusion of cultural indicators, technological innovation factors and socioeconomic characteristics.
    Keywords: creative industries, cultural industries, qualified international trade flows, panel data
    JEL: C33 F14 O31 O54 Z1
    Date: 2014–10
  5. By: Hasan, Syed; Sheldon, Ian
    Keywords: International Relations/Trade, Research and Development/Tech Change/Emerging Technologies,
    Date: 2013–12
  6. By: Ganeshan Wignaraja (Asian Development Bank Institute (ADBI)); Peter Morgan; Michael Plummer; Fan Zhai
    Abstract: South and Southeast Asian economic integration via increased trade flows has been increasing significantly over the past 2 decades, but the level of trade continues to be relatively low. This underperformance has been due to both policy-related variables—relatively high tariff and non-tariff barriers—and high trade costs due to inefficient “hard†and “soft†infrastructure (costly transport links and problems related to trade facilitation). The goal of this study is to estimate the potential gains from South Asian–Southeast Asian economic integration using an advanced computable general equilibrium (CGE) model. The paper estimates the potential gains to be large, particularly for South Asia, assuming that the policy- and infrastructure-related variables that increase trade costs are reduced via economic cooperation and investment in connectivity. As Myanmar is a key inter-regional bridge and has recently launched ambitious, outward-oriented policy reforms, the prospects for making progress in these areas are strong. If the two regions succeed in dropping inter-regional tariffs, reducing non-tariff barriers by 50%, and decreasing South Asian–Southeast Asian trade costs by 15%—which this paper suggests is ambitious but attainable—welfare in South Asia and Southeast Asia would rise by 8.9% and 6.4% of gross domestic product, respectively, by 2030 relative to the baseline. These gains would be driven by rising exports and competitiveness, particularly for South Asia, whose exports would rise by two thirds (64% relative to the baseline). Hence, the paper concludes that improvements in connectivity would justify a high level of investment. Moreover, it supports a two-track approach to integration in South Asia, i.e., deepening intra-regional cooperation together with building links to Southeast Asia.
    Keywords: South Asian–Southeast Asian Integration, CGE approach, intra-regional cooperation, South Asia, Southeast Asia
    JEL: C68 F12 F13 F15 F17
    Date: 2014–08
  7. By: Iza Lejárraga
    Abstract: Over the past decade, an increasing number of economies have resorted to regional trade agreements (RTAs) as a means to further the market-opening and rule-making agenda. In this context, this paper addresses the question as to whether and how selected elements of RTAs could be used as ‘stepping stones’ for multilateralisation in the future. The report synthesizes the OECD work on RTAs by examining regional provisions that deepen (WTO-plus) and expand (WTO-beyond) multilateral commitments across a broad range of policy areas. It finds that WTO-plus measures are becoming more widespread and similar over time, suggesting that there may be growing receptivity and preparedness to endorse higher levels of commitments. The report distils a set of attributes that may be able to render WTO-plus provisions more amenable to multilateralisation, either through a bottom-up (RTA-driven) or top-down (WTO-driven) approach. It considers the degree of convergence, homogeneity, discrimination, enforceability and economic impact of selected measures in RTAs, with a view to moving towards a shared understanding of multilateral-friendly practices that can be promoted in regional negotiations.
    Keywords: multilateral trading system, WTO, multilateralising regionalism, RTAs, World Trade Organization, PTAs, preferential trade agreements, regional trade agreements
    JEL: F1 F10 F13 F14 F15
    Date: 2014–10–17
  8. By: Clive George
    Abstract: This report examines trends in the use of environmental provisions in Regional Trade Agreements and identifies factors which may explain the presence or absence of these provisions. The report builds on work of the OECD Joint Working Party on Trade and Environment (JWPTE) and includes results of an informal survey of delegates. Analysis of the environmental provisions in RTAs reveals an encouraging upward trend. While basic provisions remain the most common types found in RTAs, the incidence of more substantive provisions has increased significantly in recent years. Among these, environmental co-operation has been the most common type. Several factors may have contributed to this evolution. These include countries extending their political mandates for RTAs, for example to include provisions for compliance with multilateral environmental agreements (MEAs), as well as a general accumulation of experience with the use of environmental provisions.
    Keywords: trade policy, trade and environment, free trade agreements, environmental provisions, regional trade agreements
    JEL: F13 F18 N50 Q56
    Date: 2014–07–25
  9. By: Gallego, Nuria (Departamento de Análisis Económico (Teoría e Historia Económica), Universidad Autónoma de Madrid.); Llano, Carlos (Departamento de Análisis Económico (Teoría e Historia Económica), Universidad Autónoma de Madrid.)
    Abstract: After the seminal paper by McCallum, various authors have estimated the effect of regional and national borders on trade. This paper digs deeper into the matter, estimating how the internal and external border effect is affected by the non-linear relation between trade and distance at different spatial levels, and the econometric procedure used to control for it. Our paper uses a novel dataset that captures intra- and inter-national truck shipments between Spanish regions and regions in eight European countries. To deal with this non-linearity, we use three alternative strategies —segmented distance, piecewise regressions and semi-parametric approaches— that achieve similar results.
    Keywords: border effect; gravity equation; interregional trade; non-linearity; European integration.
    JEL: F14 F15
    Date: 2014–10
  10. By: Valeria SMEETS (Aarhus University); Sharon TRAIBERMAN (Princeton University); Frederic WARZYNSKI (Aarhus University)
    Abstract: Recently a small and growing empirical literature has attempted to analyze the role that quality plays in our understanding of trade. In particular, the recent work of Khandelwal (2010) has brought the insights of structural IO models of demand to bear into trade data. Our work builds on this new structural literature; we use similar demand estimation techniques on a panel of Danish apparel firms from 1997 to 2010 in order to analyze how firms responded to China’s entry to the WTO and the dismantling of the Multi-Fibre Agreement. We explore the implications of offshoring and import competition on the distribution of apparel quality within Denmark, and demonstrate the firm-level mechanisms that induced the observed aggregate changes. In particular, we show that the quality ladder tightens in response to trade shocks as initially low quality firms upgrade their quality relative to other firms while initially middle and high quality downgrade their output quality. An important qualification is that the quality of exports from the source country is a key determinant in both the uptake of offshoring and resultant decisions regarding quality. Finally, import competition appears to spur entry of higher quality firms and exit of lower quality producers. Nevertheless, the reallocation pattern is imperfect, suggesting that two sources of heterogeneity – the productivity and the quality margin – are key to understanding these patterns.
    Date: 2014–12
  11. By: G. Nesdale
  12. By: Wang, Jian (Federal Reserve Bank of Dallas); Wang, Xiao (University of North Dakota)
    Abstract: To examine the effect of foreign direct investment, this paper compares the post-acquisition performance changes of foreign- and domestic-acquired firms in China. Unlike previous studies, we investigate the purified effect of foreign ownership by using domestic-acquired firms as the control group. After controlling for the acquisition effect that also exists in domestic acquisitions, we find no evidence in the data that foreign ownership can bring productivity gains to target firms. In contrast, a strong and robust finding is that foreign ownership significantly improves target firms' financial conditions and exports relative to domestic-acquired firms. Foreign acquisition is also found to improve output, employment and wage for target firms. These findings highlight the financial channel through which FDI benefits income and economic growth of host countries.
    JEL: F15 F21 F23 F36
    Date: 2014–09–01
  13. By: K. Bhatia
  14. By: Peter Drysdale and Shiro Armstrong (East Asian Bureau of Economic Research)
    Abstract: The economic rise of Japan in the 1980s was underpinned by commitment to catching up through domestic reform and accommodated externally within the framework of the postwar multilateral institutions like the GATT/WTO. Regional cooperative processes like APEC later complemented that framework, encouraging unilateral reform across the region. Following the bursting of the asset bubble in the early 1990s and the onset of the Asian Financial Crisis, Japan turned from reliance on the multilateral system to policies based on preferential bilateralism in trade policy to secure its regional trading interests. Japan’s bilateral trade agreements have been largely ineffective in supporting the kind of deep-seated reform to regulatory institutions and competition policies needed to sustain long-term productivity growth. The evidence suggests that Japanese productivity has underperformed against its peers in the industrial world and Asia. Instead of using foreign economic policy as an instrument of domestic reform and productivity enhancement Japan has used bilateral deals largely as political and strategic tools. Re-establishing a link between Japan’s domestic reform agenda and its economic diplomacy is important for structural reform and national economic success, as is a more sure-footed engagement with China.
    JEL: F14 F15 F55
    Date: 2014–10
  15. By: Nikolas J. Zolas
    Abstract: This paper analyzes how firms decide where to patent in a heterogeneous firm model of trade with endogenous rival entry. In the model, innovating firms compete with rival firms on price, where rivals force the innovating firm to reduce markups and lower the innovating firm's probability of obtaining monopolistic profits. Patenting allows the innovating firm to reduce the number of rival rms by increasing their fixed overhead costs, thereby providing higher expected profits and increased markups from reduced competition. Countries with higher states of technology, more competition and better patent protection have a greater proportion of entrants who patent. Industries tend to follow a U-shaped pattern of patenting where industries with high heterogeneity in production and low substitution, along with industries with low heterogeneity in production and high substitution patent more frequently. Using a generalized framework of the model, I estimate market-based measures of country-level patent protection, which when compared with other IP indices, suggests that not enough international patenting is taking place. Finally, I test the predictions of the model using a newly available technology-to-industry concordance on bilateral patent flows and show that firms are increasingly sensitive to foreign IP protection. Countries that choose to maximize their IP protection can increase the number of foreign patents by almost 10%.
    Keywords: Patents, international trade, heterogeneous rms, endogenous markups, intellectual property, imperfect competition
    JEL: F12 F29 O34 L11
    Date: 2014–09
  16. By: Charnovitz, Steve
    Abstract: This paper provides a detailed explanation how the law of the World Trade Organization regulates environmental subsidies with a focus on renewable energy subsidies. The paper begins by discussing the economic justifications for such subsidies and the criticisms of them and then gives examples of categories of subsidies. The paper provides an overview of the relevant World Trade Organization rules and case law, including the recent Canada-Renewable Energy case. The paper also makes specific recommendations for how World Trade Organization law can be improved and discusses the literature on reform proposals. The study finds that because of a lack of clarity in World Trade Organizaion rules, for some clean energy subsidies, a government will not know in advance whether the subsidy is World Trade Organization-legal.
    Keywords: Environmental Economics&Policies,Economic Theory&Research,Taxation&Subsidies,Emerging Markets,Trade Law
    Date: 2014–10–01
  17. By: Roberto Alvarez (University of Chile); Ricardo A. Lopez (International Business School, Brandeis University)
    Abstract: This paper uses plant-level data from the manufacturing sector of Chile to investigate how changes in the real exchange rate affect the decision to purchase foreign technologies through licensing. Theoretically, a real depreciation has an ambiguous effect on foreign technology adoption. On the one hand, a real depreciation makes exports more competitive, and since exporters tend to adopt and use more advanced technologies, we should observe a higher propensity to import technologies among them. On the other hand, a real depreciation can also make imports of technology relatively more expensive. Thus, this question must be examined empirically. The empirical analysis shows that a real depreciation significantly increases the probability of using foreign technology licenses for plants that export and for plants in the intermediate range of the size and productivity distribution.
    Date: 2014–10
  18. By: Zhen Zhu (IMT Lucca Institute for Advanced Studies); Michelangelo Puliga (IMT Lucca Institute for Advanced Studies); Federica Cerina (Department of Physics, University of Cagliari); Alessandro Chessa (IMT Lucca Institute for Advanced Studies); Massimo Riccaboni (IMT Lucca Institute for Advanced Studies)
    Abstract: The fragmentation of production across countries has become an important feature of the globalization in recent decades and is often conceptualized by the term, global value chains (GVCs). When empirically investigating the GVCs, previous studies are mainly interested in knowing how global the GVCs are rather than how the GVCs look like. From a complex networks perspective, we use the World Input-Output Database (WIOD) to study the global production system. We find that the industry-level GVCs are indeed not chain-like but are better characterized by the tree topology. Hence, we compute the global value trees (GVTs) for all the industries available in the WIOD. Moreover, we compute an industry importance measure based on the GVTs and compare it with other network centrality measures. Finally, we discuss some future applications of the GVTs.
    Keywords: Complex Networks; Tree; Input-Output; Value-Added; Globalization
    JEL: C67 F10 F15
    Date: 2014–10
  19. By: Aleksandra Parteka (Gdansk University of Technology, Gdansk, Poland); Joanna Wolszczak-Derlacz (Gdansk University of Technology, Gdansk, Poland)
    Abstract: This paper assesses the impact of international outsourcing/offshoring practices on the process of wage equalization across manufacturing sectors in a sample of EU27 economies (1995-2009). We discriminate between heterogeneous wage effects on different skill categories of workers (low, medium and high skill). The main focus is on the labour market outcomes of vertical integration, so we augment a model of conditional wage convergence through the inclusion of sector-specific broad and narrow outsourcing/offshoring indices based on input-output data (World Input Output Database, April 2012 release). Two-way relations between trade and wages are addressed through the use of a gravity-based sector-level instrument. We find no evidence supporting unconditional skill-specific wage convergence in EU sectors. In a conditional setting, (slow) wage convergence takes place, but international outsourcing plays a negligible role in wage equalization. Moreover, even though regression results indicate that offshoring reduces the wage growth of domestic medium- and low-skilled workers, we show that this negative effect is economically small.
    Keywords: wage, convergence, international outsourcing, offshoring, input-output
    JEL: F14 F16 C67
    Date: 2014–10
  20. By: Yifan ZHANG (Lingan University, Hong Kong)
    Abstract: Using a large firm-level dataset from the Chinese manufacturing industry, this paper studies the productivity gap and productivity convergence between large and small firms in China. We find that small firms are less productive relative to large firms, but the productivity gap became smaller over the sample period 1999–2007. Based on static and dynamic Blinder-Oaxaca decompositions, we distinguish the endowment effect from the return effect, and quantify the impacts of exports and FDI on the productivity gap and productivity convergence.
    Keywords: China, Small firms, Productivity, Globalisation
    JEL: F11 L22 O53
    Date: 2014
  21. By: Arseneau, David M. (Board of Governors of the Federal Reserve System (U.S.)); Epstein, Brendan (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: We study the role of labor market mismatch in the adjustment to a trade liberalization that results in the offshoring of high-tech production. Our model features two-sided heterogeneity in the labor market: high- and low-skilled workers are matched in a frictional labor market with high- and low-tech firms. Mismatch employment occurs when high-skilled workers choose to accept a less desirable job in the low-tech industry. The main result is that--perhaps counter-intuitively--this type of job displacement is actually beneficial for the labor market in the country doing the offshoring. Mismatch allows the economy to reallocate domestic high-skilled labor across both high- and low-tech industries. In doing so, mismatch dampens both the increase in the aggregate unemployment rate and the decline in aggregate wages that come as a consequence of shifting domestic production abroad.
    Keywords: Labor market frictions; globalization; trade liberalization; heterogeneous workers; search and matching
    Date: 2014–09–08
  22. By: Claire Giordano (Banca d'Italia); Francesco Zollino (Banca d'Italia)
    Abstract: Since the mid-2000s standard price-competitiveness indicators for some European countries have been providing conflicting signals, particularly in Italy. Against a broad stability of the producer price (PPI)-based measure, the manufacturing unit labour cost (ULCM)-deflated indicator points to a major cumulated loss of competitiveness in Italy. We find that this discrepancy mostly reflects the divergence of ULCM and PPI trends in competitor countries while in Italy they have actually progressed hand in hand. Owing to the internationalization of production processes and to the subsequent fading representativeness of labour in respect of overall costs, seen to a different degree across countries, price-based indicators are arguably more appropriate than those based on ULCMs to assess external competitiveness and external performance. We provide empirical evidence that points in the same direction. In Italy ULC-based indicators play a less important role relative to price-deflated measures in explaining both export and import trends; this result does not hold for Germany and France. Moreover, a proxy for non-price competitiveness proves important in explaining Italian, German and, in particular, Spanish exports.
    Keywords: price competitiveness, non-price competitiveness, unit labour costs, producer prices
    JEL: F14
    Date: 2014–09
  23. By: Joachim Wagner (Leuphana University Lueneburg, Germany)
    Abstract: This paper uses comparable firm level data from France, Italy and Spain to test a hypothesis derived by Bustos (AER 2011) in a model that explains the decision of heterogeneous firms to export and to engage in R&D. Using a non-parametric test for first order stochastic dominance it is shown that, in line with this hypothesis, the productivity distribution of firms with exports and R&D dominates that of exporters without R&D, which in turn dominates that of firms that neither export nor engage in R&D. These results are in line with findings for Argentina reported by Bustos, and with findings for Germany and Denmark. The model, therefore, seems to be useful to guide empirical work on the relation between exports, R&D and productivity.
    Keywords: Exports, R&D, productivity, EFIGE data, France, Italy, Spain
    JEL: F14
    Date: 2014–10
  24. By: K. Jackson
  25. By: A. Petridis
  26. By: NU. CEPAL. Unidad de Inversiones y Estrategias Empresariales
    Date: 2013
  27. By: NU. CEPAL. División de Desarrollo Productivo y Empresarial
    Date: 2014–05

This nep-int issue is ©2014 by Luca Salvatici. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.