nep-int New Economics Papers
on International Trade
Issue of 2015‒05‒30
24 papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Immigration, Trade and Productivity in Services: Evidence from U.K. Firms By Gianmarco I.P. Ottaviano; Giovanni Peri; Greg C. Wright
  2. Liberalization of trade flows under TTIP from a small country perspective. The case of Poland By Jan Hagemejer
  3. The Great Collapse in Value Added Trade By Arne J. Nagengast; Robert Stehrer
  4. Culture and Global Sourcing By Yuriy Gorodnichenko; Bohdan Kukharskyy; Gerard Roland
  5. Quantifying the Value of Preferential Trade in Russia and CIS By Taganov, Boris
  6. Border effects without borders: What divides Japan's internal trade? By Wrona, Jens
  7. Global Value Chains and China's Exports to High Income Countries By Yuqing Xing; Yothin Jinjarak
  8. FDI Restrictiveness Index for ASEAN: Implementation of AEC Blueprint Measures By Shandre Mugan THANGAVELU
  9. Open Economy, Global Value Chain and Corporate Social Responsibility in China By Peng, Fei; Huang, Wei; Kang, Lili
  10. Retail Globalization and Household Welfare: Evidence from Mexico By David Atkin; Benjamin Faber; Marco Gonzalez-Navarro
  11. Organizing the Global Value Chain: a firm-level test By Davide Del Prete; Armando Rungi
  12. Export Sophistication and Export-Led Growth: An Analysis of the Export Basket of Selected East Asian Economies By Bayudan-Dacuycuy, Connie; Lim, Joseph Anthony
  13. The Effect of Technology Choice on Specialization and Welfare in a Two-Country Model By Yukiko Sawada
  14. International Trade and Structural Change: a Dynamic Model of Weak Sustainability By Louis Dupuy
  15. The impact of exchange rate volatility on international trade between South Africa, China and USA: The case of the manufacturing sector By Muteba Mwamba, John; Dube, Sandile
  16. Multi-dimensional skills and matching: implication for international trade and wage inequality By Chihiro Inaba
  17. Trade Credit and Cross-country Predictable Firm Returns By Rui Albuquerque; Tarun Ramadorai; Sumudu W. Watugala
  18. Capacity Constrained Exporters: Identifying Increasing Marginal Cost By Alexander F. McQuoid; JaeBin Ahn
  19. The export-productivity link for Brazilian manufacturing firms By Xavier Cirera; Daniel Lederman; Juan A. Mañez; María E. Rochina
  20. How Does Foreign Aid Affect the Relationship between IFRS Adoption and Foreign Direct Investment? By EFOBI Uchenna; NNADI Matthias
  21. AEC Blueprint Implementation Performance and Challenges: Standards and Conformance By Rully PRASSETYA; Ponciano INTAL Jr
  22. Developing Countries in the World Economy By Jaime de MELO
  23. Import Dependency in Turkey: an Input-Output Analysis By Osman Aydogus; Cagacan Deger; Elif Tunali Caliskan; Gulcin Gurel Gunal
  24. Parallel Imports and Repair Services By ISHIKAWA Jota; MORITA Hodaka; MUKUNOKI Hiroshi

  1. By: Gianmarco I.P. Ottaviano; Giovanni Peri; Greg C. Wright
    Abstract: This paper explores the impact of immigrants on the imports, exports and productivity of service-producing firms in the U.K. Immigrants may substitute for imported intermediate inputs (offshore production) and they may impact the productivity of the firm as well as its export behavior. The first effect can be understood as the re-assignment of offshore productive tasks to immigrant workers. The second can be seen as a productivity or cost cutting effect due to immigration, and the third as the effect of immigrants on specific bilateral trade costs. We test the predictions of our model using differences in immigrant inflows across U.K. labor markets, instrumented with an enclave-based instrument that distinguishes between aggregate and bilateral immigration, as well as immigrant diversity. We find that immigrants increase overall productivity in service-producing firms, revealing a cost cutting impact on these firms. Immigrants also reduce the extent of country-specific offshoring, consistent with a reallocation of tasks and, finally, they increase country-specific exports, implying an important role in reducing communication and trade costs for services.
    JEL: F16 F22 F23
    Date: 2015–05
  2. By: Jan Hagemejer (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)
    Abstract: The empirical ex-ante evaluations of the Transatlantic Trade and Investment Partnership are similar on aggregate but suggest a large heterogeneity of the TTIP impact at the individual country level. We aim to provide a comprehensive evaluation of the possible TTIP effects for the economy of Poland using a computable general equilibrium model. In our simulation scenarios we use the estimates of NTBs that allow us to differentiate the impact of NTBs on trade of Poland, the remaining NMS aggregate, Germany, the largest trading partner of Poland and the rest of EU-15. We show that from a point of view of a small country, where most of international trade is concentrated on exchange with one or a few neighboring trading partners, such as Poland, simultaneous trade liberalization with a third partner will not bring sizeable gains to its economy. We observe US-EU15 trade expansion to be crowding out some of the trade in the most important Polish trading sectors, such as chemicals and motor vehicles. The unfavorable change in the terms of trade makes the gains from trade small while some sectors reduce output by a considerable amount.
    Keywords: TTIP, trade liberalization, computable general equilibrium, Poland
    JEL: F13 C68 D58
    Date: 2015
  3. By: Arne J. Nagengast; Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Abstract This paper studies the great collapse in value added trade using a structural decomposition analysis. We show that changes in vertical specialisation accounted for almost half of the great trade collapse, while the previous literature on gross trade has mainly focused on final expenditure, inventory adjustment and adverse credit supply conditions. The decline in international production sharing during the crisis may partially account for the observed decrease in global trade elasticities in recent years. Second, we find that the drop in the overall level of demand accounted for roughly a quarter of the decline in value added exports while just under one third was due to compositional changes in final demand. Finally, we demonstrate that the dichotomy between services and manufacturing sectors observed in gross exports during the great trade collapse is not apparent in value added trade data.
    Keywords: great trade collapse, vertical specialisation, trade in value added, input-output tables, structural decomposition analysis
    JEL: F1 F2 C67 R15
    Date: 2015–04
  4. By: Yuriy Gorodnichenko; Bohdan Kukharskyy; Gerard Roland
    Abstract: This paper develops a model of global sourcing with culturally dissimilar countries. Production of final goods requires the coordination of decisions between the headquarter of a multinational firm and managers of their component suppliers. Managers of both units are assumed to have strong beliefs about the right course of action and are reluctant to adjust their decisions. We characterize the optimal allocation of decision rights across firms when contracts are incomplete. Our theoretical model delivers two key predictions: the incentive of a firm to integrate (rather than outsource) its input supply is decreasing in the cultural distance between the home and the host country and decreasing in trade costs between the two countries. Combining data from the U.S. Census Bureau's Related Party Trade with various measures for cultural distance and trade cost, we find empirical evidence strongly supportive of these two predictions.
    JEL: F1 F14 F23 P14 P26 P48 Z1
    Date: 2015–05
  5. By: Taganov, Boris
    Abstract: In this paper, we assess the value of Russia’s preferential imports from all trade partners and CIS countries in particular. Total value of preferential imports in Russia (both duty free imports as well as imports subject to the discounted MFN duty under GSP) is equal to ca 12% (37.8 USD bln.) of the total imports, of which ca 7.4% accounted for imports of Russia from CIS countries. We should note that ca 2.5% of preferential imports of Russia under GSP treatment was not imported duty free, but was subject to a 25% discount to MFN duty.
    Keywords: trade preferences, preferential trade agreement, MFN, GSP
    JEL: F13 F15
    Date: 2015
  6. By: Wrona, Jens
    Abstract: Over the last 20 years the trade literature repeatedly documented the trade-reducing effects of inter- and intra-national borders. Thereby, the puzzling size and persistence of observed border effects from the beginning raised doubts on the role of underlying political borders. However, when observed border effects are not caused by political trade barriers, why should their spatial dimension then inevitably coincide with the geography of present or past political borders? This paper identifies a "border effect" in the absence of a border. Thereby, the finding that trade between East- and West-Japan is 23.1% - 51.3% lower than trade within both country parts, is established in the absence of an obvious east-west division due to historical borders, cultural differences or past civil wars. From a rich set of explanatory variables post-war agglomeration processes, reflected by the contemporaneous structure of Japan's business and social networks, rather than cultural differences, shaped by long-lasting historical shocks, are identified as an explanation for the east-west bias in intra-Japanese trade.
    Keywords: Border Effects,Gravity Equation,Intra-national Trade,Japan
    JEL: F14 F15 F12
    Date: 2015
  7. By: Yuqing Xing (National Graduate Institute for Policy Studies); Yothin Jinjarak (Victoria Business School)
    Abstract: In this paper we show that, global value chains (GVCs) have functioned as a vehicle for “Made in China” products to enter the international markets, in particular the markets of high income countries. We identify three major spillover effects of GVCs to Chinese firms participating GVCs: brands, distribution networks and lead firms’ technology innovations. By analyzing the tasks performed by Chinese firms and the domestic value added in processing high-tech exports and general processing exports, a subset of GVC activities, we argue that the competitiveness of “Made in China” products is largely due to foreign contents, which account for more than 50% value added of processing exports. GVC participation enables Chinese firms to bundle low skilled labor services with advanced technologies and globally recognized brands. Moreover, we investigate the cross-country pattern of processing exports and find the share of processing exports to high income countries is much higher than that to low-income countries. There exists a significantly positive correlation between the share of processing exports and the income of China’s trading partners, implying that processing trade is an effective means for “Made in China” products to enter high income countries. The cross-country heterogeneity of processing exports also indicates China captures relatively more value added in its exports to low income countries compared with exports to high income countries.
    Date: 2015–05
  8. By: Shandre Mugan THANGAVELU (Institute of International Trade University of Adelaide)
    Abstract: This paper is an extension of the FDI restrictiveness index created for the ASEAN Free Trade Agreement (AFTA) in Thangavelu and Lim (2011). It provides more detailed and updated information for the index for AFTA; a new FDI restrictiveness index is also created for the ASEAN Framework Agreement on Services Eighth Package (AFAS 8) and the ASEAN Comprehensive Investment Agreement (ACIA). The study highlights the differences between the 2010 and 2014 FDI restrictiveness indices.
    Keywords: FDI Restrictiveness Index, ASEAN
    JEL: F21 F23
    Date: 2015–05
  9. By: Peng, Fei; Huang, Wei; Kang, Lili
    Abstract: Using a survey of 1,266 firms in 12 cities in China, this paper investigates the effects of open economy on the corporate social responsibility (CSR) of Chinese domestic firms embedded in the global value chain (GVC). We argue that, under a compliance-based paradigm, foreign domestic investment (FDI) and export not necessarily improve the CSR performance of Chinese firms. The cascade with foreign owned enterprises in the local value chain and CSR pressure from the GVC have important intervening impact on Chinese domestic firms’ CSR performance. The CSR performance improves in the domestic firms with foreign clients in the local value chain and under labor and environmental standards pressure from the GVC. There is no prominent improvement of CSR performance in domestic firms only with foreign suppliers in the local value chain. Regressions using the structural equation models show that the FDI has significant direct effect on working overtime and the social security coverage, while the export has no significant direct effect on CSR performance. However, export has significant indirect effect on improvement of the green investment and environment training through the cascade with foreign owned enterprises in the local value chain and pressure from the GVC.
    Keywords: Labor; Environment; Global Value Chain; Corporate Social Responsibility
    JEL: F23 M14
    Date: 2015–05
  10. By: David Atkin; Benjamin Faber; Marco Gonzalez-Navarro
    Abstract: The arrival of global retail chains in developing countries is causing a radical transformation in the way that households source their consumption. This paper draws on a new collection of Mexican microdata to estimate the effect of foreign supermarket entry on household welfare. The richness of the microdata allows us to estimate a general expression for the gains from retail FDI, and to decompose these gains into several distinct channels. We find that foreign retail entry causes large and significant welfare gains for the average household that are mainly driven by a reduction in the cost of living. About one quarter of this price index effect is due to pro-competitive effects on the prices charged by domestic stores, with the remaining three quarters due to the direct consumer gains from shopping at the new foreign stores. We find little evidence of significant changes in average municipality-level incomes or employment. We do, however, find evidence of store exit, adverse effects on domestic store profits and reductions in the incomes of traditional retail sector workers. Finally, we show that the gains from retail FDI are on average positive for all income groups but regressive, and quantify the opposing forces that underlie this finding.
    Keywords: Supermarket revolution, foreign direct investment, gains from trade
    JEL: F15 F23 O24
    Date: 2015–05
  11. By: Davide Del Prete (Sapienza University of Rome); Armando Rungi (IMT Lucca Institute for Advanced Studies)
    Abstract: In the last two decades, technological progress and a decrease in trade barriers fostered the formation of global value chains, in which different sequences of production stages, previously performed in close proximity, can now be unbundled globally. In this contribution we test at the firm level the optimal allocation of ownership rights along a productive sequence, as in the framework set by Antras and Chor (2013). For this purpose we exploit an own-built dataset made of 4,214 parents which have acquired or established at least one affiliate in the period 2004-2012. Overall, they control 104,720 affiliates and operate in 185 countries. Assuming a technological orientation of the value chain from the final consumer upwards, we positively test that incentives to integrate suppliers vary systematically with: i) the relative upstream or downstream position of the affiliate with respect to the parent; ii) the elasticity of demand faced by the parent. Further, we find new insights for firm-level heterogeneity along supply chains, as more productive and bigger parent companies are more likely to choose affiliates next to the final consumer. Once controlling for the complexity of the internal supply chain at the moment the investment decisions occur, we find that bigger internal chains show a lower propensity to integrate at the margin, probably discounting increasing coordination costs. Results are robust after different specifications. However, we detect some non-linearities over firm-level distributions, when integrated affiliates approach the bottom of the supply chain, next to the final consumer, after the VIII decile of the affiliates' downstreamness. In this case we presume that a horizontal rather than a vertical integration strategy could prevail.
    Keywords: global value chains, vertical integration, property rights theory, multinational enterprises, downstreamness, business groups
    JEL: F14 F23 D23 G34 L20
    Date: 2015–05
  12. By: Bayudan-Dacuycuy, Connie; Lim, Joseph Anthony
    Abstract: This research aims to examine the sophistication of export portfolios of selected ASEAN and developed Asian economies. It aims to provide evidence on where exactly the ASEAN economies are in the context of exports sophistication and structural transformation. Results from the product space analysis indicate that although limited in product scope, there are prospects for ASEAN economies to converge to the level of the export sophistication of the developed Asian countries.
    Keywords: Keywords: product space; export diversification; economic development; Asian economies; ASEAN exports
    JEL: F14
    Date: 2014–12–04
  13. By: Yukiko Sawada (Graduate School of Economics, Osaka University)
    Abstract: This study presents a simple two-country model in which rms in the manufacturing sector can choose a technology level (high or low). We show how trade costs and productivity levels affect technology choices by the rms in each country, where the fixed cost of adopting high technology differs. This depends on the productivity level of the high technology. In particular, if productivity is medium and trade costs are not too low, then a technology gap between the countries arises. In this case, improving the productivity of the high-technology country reduces the welfare level of consumers in the country in which low technology is adopted. To compensate for the welfare loss of the country from the technological improvement, trade costs should be reduced.
    Keywords: Specialization, Technology Choice, Technology Gap
    JEL: F10 F12
    Date: 2015–05
  14. By: Louis Dupuy (Department of Geography and Sustainable Development, University of St. Andrews)
    Abstract: We present a dynamic Heckscher-Ohlin model to study structural change in a sustainability context. We show how resource rich economies maximising steady-state consumption should adopt different development strategies depending on the distribution of domestic wealth instruments (assets). Owing to the diversity of development strategies available to both natural resource rich and produced capital rich countries, trade liberalisation is not necessarily the best outcome for sustainability in both types of countries. We offer to amend Adjusted Net Savings (ANS) to include in the indicator trade-induced specialisation gains from trade to fund structural change and diversification, against economic incentives for specialisation.
    Keywords: Sustainability, International Trade, Heckscher-Ohlin models, Structural Change
    JEL: F11 F18 F17 Q01 Q32 Q37
    Date: 2015–05
  15. By: Muteba Mwamba, John; Dube, Sandile
    Abstract: The main objective of this paper is to examine the effect of exchange rate volatility on international trade. We show that the impact of exchange rate volatility on international trade could be either positive or negative depending on various reasons that are discussed in this study. We focus mainly on the manufacturing trade between the Republic of South Africa with the United States and China. Aggregated manufacturing industry data and disaggregated manufacturing data, disaggregated to the 4 digit level using the Harmonized System tariff 2009 is used to investigate the impact of exchange rate volatility on international trades. The finding of this paper represents a challenge for policy recommendations as it reflects the fact that various industries, sectors and subsectors of the economy of the Republic of South Africa are impacted differently by the volatility of the Rand/Yuan and Rand/Dollar exchange rates, respectively, therefore any policy that is drawn up to improve international trade needs to be done on an individual basis for each industry, sector and subsector respectively taking into account the various dynamics and characteristics of each.
    Keywords: international trade, exchange rate, volatility
    JEL: E6 F2 F3 F4 F40 F42
    Date: 2014–04–25
  16. By: Chihiro Inaba (Department of Economics, Kobe University)
    Abstract: Individuals have various skills and abilities. The amount of each skill or ability is heterogeneous among individuals, and these individuals work in jobs by exerting these skills and abilities. Firms also have demands for various skill and abilities dependent on the characteristics of its industry. Considering these multi-dimensional skill sets, it can be difficult to accurately match a worker's skill set with a firm's demand. Consequently, a mismatch of the skill set between workers and firms can occur, and may reduce worker wage income and firm productivity. This mismatch generates both inter- and intra- industry wage inequalities. This study considers how this skill mismatch affects the structure of production, wage inequalities, and international trade. I assume a two-dimensional skill set that is distributed among the workers by a normal probability distribution. I also assume a two-country economy with two industries per country. Cross-country differences in skill distribution can create differences in the structure of production and can be a source of international trade. When international trade commences, a portion of the workers employed in an importing industry will move to an exporting industry since they can earn a higher wage income than by remaining in the importing industry. However, the moving workers who are matched with less appropriate firms may suffer from a lower wage income than under autarky conditions.
    Keywords: Multi-dimensional skills; International trade; Wage inequality
    Date: 2015–05
  17. By: Rui Albuquerque (Catolica-Lisbon School of Business and Economics, Boston University); Tarun Ramadorai (SaId Business School, Oxford University); Sumudu W. Watugala (Office of Financial Research)
    Abstract: We investigate the role of trade credit links in generating cross-border return predictability between international firms. Using data from 43 countries from 1993 to 2009, we find that firms with high trade credit located in producer countries have stock returns that are strongly predictable based on the returns of their associated customer countries. This behavior is especially prevalent among firms with high levels of foreign sales. To better understand this effect we develop an asset pricing model in which firms in different countries are connected by trade credit links. The model offers further predictions about this phenomenon, including stronger predictability during periods of high credit constraints and low uninformed trading volume. We find supportive empirical evidence for these predictions.
    Keywords: international equity markets, trade credit, information asymmetry, customer-supplier relations, predictability
    JEL: G12 G14 G15
    Date: 2014–11–06
  18. By: Alexander F. McQuoid (United States Naval Academy); JaeBin Ahn (International Monetary Fund)
    Abstract: This study revisits a central assumption of standard trade models: constant marginal cost technology. The presence of increasing marginal costs for exporters introduces significant market interdependence across borders missing from traditional models of international trade that rely on constant marginal cost technology. Such market interdependence represents an additional channel through which local shocks are transmitted globally. To identify increasing marginal cost at the level of the firm, we build in flexible production assumptions that nest increasing, decreasing, and constant marginal cost technology to an otherwise standard international trade model. We derive an estimating equation that can be taken directly to the data. Our structural equation explicitly guides our inference on the shape of marginal cost from estimated coe- cients. The results suggest that increasing marginal cost is predominant at the firm level, and that the degree of increasing marginal cost is significantly exacerbated by both physical and financial constraints. The evidence suggests that access to larger markets through greater international integration may not have the expected welfare gains typically predicted in standard models.
    Date: 2015–05
  19. By: Xavier Cirera (Economics Research World Bank Group); Daniel Lederman (Economics Research World Bank Group); Juan A. Mañez (University of Valencia and ERICES); María E. Rochina (University of Valencia and ERICES; University of Valencia and ERICES)
    Abstract: This paper explores the link between exports and total factor productivity (TFP) for Brazilian manufacturing firms over the period 2000-2008, both under the assumption of an exogenous or an endogenous law of motion for productivity. We first obtain TFP estimates under each alternative assumption following Wooldridge (2009) GMM procedure. Second, using stochastic dominance techniques we analyse whether the ex-ante most productive firms are those that start exporting (self-selection hypothesis). Finally, we test whether exporting boosts firms TFP growth (learning-by-exporting hypothesis) using matching techniques, to control for the possibility that selection into exports may not be a random process. Our results confirm the self-selection hypothesis and show that starting to export yields firms an extra TFP growth that emerges since the first year exporting but lasts only from this year to the next. Further, this extra TFP growth is much higher under the assumption of an endogenous law of motion for productivity, which reinforces the importance of accounting for firm export status to study the evolution of productivity.
    Keywords: TFP, export status, exogenous vs. endogenous Markov, semi-parametric approach, self-selection, stochastic dominance, learning-by exporting, matching techniques.
    Date: 2015–05
  20. By: EFOBI Uchenna (Covenant University, Nigeria); NNADI Matthias (Cranfield University, UK)
    Abstract: This paper constructs a theoretical model to explain the relationship between IFRS adoption, FDI and foreign aid. Using the SGMM estimation technique to check the issue of endogene-ity and reverse causality, this relationship was examined on 92 countries for the period 2003-2012. Overall, IFRS adoption attracts more aid when conditioned on foreign aid; however, when disaggregating foreign aid, the effect of foreign aid on the nexus was contradictory, while multilateral aid flow was positive. This result remained consistent despite the battery of checks.
    Keywords: Accounting Standards; Foreign Aid; Foreign Direct Investment; Globalisation; IFRS Adoption
    Date: 2015–05
  21. By: Rully PRASSETYA (Economic Research Institute for ASEAN and East Asia, Indonesia); Ponciano INTAL Jr (Economic Research Institute for ASEAN and East Asia, Indonesia)
    Abstract: ASEAN aims to reduce, if not eliminate, technical barriers to trade through standards and conformance (S&C) initiatives towards a highly integrated economy, or the so-called single market and production base. This paper aims to evaluate the progress and challenges of S&C initiatives implementation in three ASEAN priority integration sectors, namely, the automotive sector, the electrical and electronic equipment sector, and the health sector (cosmetics, medical devices, and pharmaceutical). The paper uses questionnaires and interviews with government officials and the private sector in 10 ASEAN members states (AMSs). The scoring method is similar to the one used in the ERIA Mid-Term Review study 2011, thus allowing for comparison across period. The result shows, in general, there have been many improvements in reducing technical barriers to trade through the S&C initiatives in ASEAN compared to the 2011 mid-term review; nonetheless, the progress varied across sectors and across member states. The main challenges include technical capacity, physical infrastructure, governance, and some countryspecific and sector-specific challenges. The paper concludes with recommendations for ASEAN S&C initiatives post-2015.
    Keywords: ASEAN Economic Community, standards and conformance, standards harmonization, mutual recognition arrangement, technical regulations.
    JEL: F13 F14 F15
    Date: 2015–05
  22. By: Jaime de MELO (Ferdi)
    Abstract: Preface & Acknowledgements, Introduction and Table of contents to Developing Countries in the World Economy by Jaime de MeloWorld Scientific Press : ooks/10.1142/8790
    Date: 2015–05
  23. By: Osman Aydogus (Department of Economics, Ege University); Cagacan Deger (Department of Economics, Ege University); Elif Tunali Caliskan (Department of Economics, Ege University); Gulcin Gurel Gunal (Department of Economics, Ege University)
    Abstract: Import dependency is important for the development process. High import dependency implies, among many items, a vulnerability to foreign exchange shocks. This study examines the intermediate inputs import dependency of Turkish economy. Main contribution is the construction of an import matrix for year 2008, whereas the most recent official one is from year 2002. The analysis reveals dependency of Turkish economy on especially raw material inputs obtained from abroad.
    Keywords: input-output models, import dependency, Turkey
    JEL: C67 F10 O50
    Date: 2015–05
  24. By: ISHIKAWA Jota; MORITA Hodaka; MUKUNOKI Hiroshi
    Abstract: This study investigates the effect of parallel imports when the producer of a durable good may refuse to provide repair and maintenance services for parallel imported units, or charge higher prices for those services. By doing so, the producer is able to weaken intra-brand competition and reduce the degree of market integration, thereby mitigating the negative effect of parallel imports on profits. Although the lower degree of market integration increases the producer's profit, it does not always mean that the producer wants to improve the durability of the product. If the producer invests in improving the durability of the good, the service discrimination against the parallel imported units could lower the durability of the product. In this case, consumers in the importing country may suffer by permitting parallel imports, and the negative effect is amplified by trade liberalization.
    Date: 2015–05

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