nep-int New Economics Papers
on International Trade
Issue of 2015‒06‒13
twenty-one papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Trade Liberalisation and Economic Growth in Developing Countries: Does Stage of Development Matter? By Ramesh Paudel
  2. Does foreign direct investment synchronise business cycles? Results from a panel approach By Fries, Claudia; Kappler, Marcus
  3. Foreign direct investment and firm performance: an empirical analysis of Italian firms By Alessandro Borin; Michele Mancini
  4. Trade, Technologies, and the Evolution of Corporate Governance By Schymik, Jan Simon
  5. Will Economic Partnership Agreements increase poverty? The case of Uganda By Ole Boysen; Alan Matthews
  6. Networks and the dynamics of firms’ export portfolio By Juan de Lucio; Raúl Mínguez; Asier Minondo; Francisco Requena
  7. Are Armington elasticities different across countries and sectors? A European study By Olekseyuk, Zoryana; Schürenberg-Frosch, Hannah
  8. Toward an Enabling Set of Rules of Origin for the Regional Comprehensive Economic Partnertship By Medalla, Erlinda M.
  9. Capital Market Imperfections and Trade Liberalization in General Equilibrium By Irlacher, Michael; Unger, Florian
  10. Child Mortality in the LDCs: The Role of Trade, Institutions and Environmental Quality By Faqin Lin; Nicholas C.S. Sim; Ngoc Pham
  11. Domestic Trade Frictions and Agriculture By Sebastian Sotelo
  12. Testing the Heckscher-Ohlin-Vanek Theory with a Natural Experiment By Assaf Zimring
  13. Determinants of R&D offshoring By Gavin Murphy; Iulia Siedschlag
  14. Business Cycles, Technology and Exports By Dario Guarascio; Mario Pianta; Matteo Pugliese; Francesco Bogliacino
  15. Multinationality, R&D and Productivity Evidence from the top R&D investors worldwide By Davide Castellani; Sandro Montresor; Torben Schubert; Antonio Vezzani
  16. Credit constraints, endogenous innovations, and price setting in international trade By Eckel, Carsten; Unger, Florian
  17. How Important Are Terms Of Trade Shocks? By Stephanie Schmitt-Grohé; Martín Uribe
  18. In the short run, energy efficiency concerns and trade protection hurt each other and growth, but in the long run, not necessarily so: 1980-2010 Latin American Evidence By Alexandra Tsiotras; Antonio Estache
  19. Cross-border Acquisitions and Labor Regulations By Ross Levine; Chen Lin; Beibei Shen
  20. Business Cycles, Technology and Exports By Francesco Bogliacino; Dario Guarascio; Mario Pianta; Matteo Lucchese
  21. Economic Analysis of the Effects of Eastern Australia's LNG Exports in Asia-Pacific on Domestic Gas Users By Nhu Che; Tom Kompas

  1. By: Ramesh Paudel (Crawford School of Public Policy, The Australian National University)
    Abstract: This paper surveys the available literature on liberalisation and growth, updates the widely used Sachs and Warner (1995) index of trade liberalisation for 193 countries up to 2010, and then investigates the impacts of trade liberalisation in economic growth using a dynamic growth model for a large set of panel data covering the period of 1985-2010. The results show that the impact of trade liberalisation on economic growth differs across countries depending on the stage of economic development. Lower-middle income countries, on average, benefit at least 3% more compared to other developing countries from the trade liberalisation. This finding makes a strong case for taking into account the stage of economic development in making policy recommendations for trade policy reforms, departing from the standard ÒWashington ConsensusÓ approach.
    Keywords: liberalisation; economic reform; economic development; economic growth
    JEL: F14 P26 N10 O40
    Date: 2014–12
  2. By: Fries, Claudia; Kappler, Marcus
    Abstract: This study readdresses the determinants of business cycle synchronisation. We test, on the one hand, whether FDI promoting policies may have consequences for the business cycle comovement between countries, and on the other hand, whether more plausible identification strategies change previous results. Our results suggest that linkages through foreign direct investment contribute in most cases positively to the synchronisation between country pairs. In contrast, the beneficial effects of trade integration for the similarity of business cycles are less robust and thus less important for the transmission of idiosyncratic shocks between countries than previously thought. Finally, we find that larger differences in the sector structure between two economies result in a bigger gap between their business cycles.
    Keywords: Business Cycle Synchronisation,FDI,Trade,Sectoral Differences,Panel
    JEL: F21 F41 F44 F49
    Date: 2015
  3. By: Alessandro Borin (Bank of Italy); Michele Mancini (Bank of Italy)
    Abstract: Both empirical and theoretical literature show that multinational firms exhibit a competitive advantage before investing abroad. However, there are no clear empirical results regarding the ex-post effects of foreign direct investment (FDI) on firm performance, partially due to the inadequacy of available firm-level data. We build a brand new firm-level dataset able both to represent the extent of Italian firms' foreign activity and to provide reliable measures of key performance indicators, especially total factor productivity (TFP) and employment. We then use a propensity score matching procedure to analyze the causal relationship between FDI and firm performance. Firms investing abroad for the very first time, especially in advanced economies, show higher productivity and employment dynamics in the years following the investment: the average positive effect on TFP is driven by new multinationals operating in specialized and high-tech sectors, while the positive employment gains are explained by an increase of the white collar component. On average there are no negative effects on the parent firm's blue collar component.
    Keywords: multinational firms, FDI, productivity, propensity score matching
    JEL: F23 C25 D24
    Date: 2015–06
  4. By: Schymik, Jan Simon
    Abstract: Do international trade and technological change influence how firms create incentives for human capital? I present a model that incorporates agency problems into a framework with firm heterogeneity and human capital. My model indicates that trade liberalizations and skill-biased technological change alter the way how the largest firms in an economy incentivize their managers. Increases in managerial reservation wages lead to a reduction in corporate governance investments and a rise in performance compensation since monitoring managers becomes less efficient. Using data on CEO compensation and entrenchment opportunities in public industrial firms in the U.S., I document strong empirical regularities in support of the model predictions. Firms allow for more managerial entrenchment and offer larger CEO compensation when their industries become more open to trade or when production becomes more I.T. intensive.
    Keywords: international trade and firm organization; agency problems in international trade; endogenous managerial entrenchment; corporate governance and CEO compensation
    JEL: F1 F16 G34 J33 L22 O33
    Date: 2015–06
  5. By: Ole Boysen (Agricultural and Food Policy, University of Hohenheim; Institute for International Integration Studies, Trinity College Dublin); Alan Matthews (Department of Economics, Trinity College Dublin; Institute for International Integration Studies, Trinity College Dublin)
    Abstract: Economic Partnership Agreements (EPAs) between the EU and ACP countries are frequently criticized because of fears about negative implications for economic development. Using Uganda as a case study, this paper employs an integrated macro-micro framework rich in household-level detail to assess the consequences of the East African Community EPA for economic output and poverty. Simulations of the agreement's tariff liberalization provisions indicate very minor negative economic and poverty impacts mostly affecting the rural poor. The poverty results depend in size and direction on the way the government addresses tariff revenue losses and on labor market assumptions.
    Keywords: Economic Partnership Agreements; Uganda; poverty; trade liberalization; computable general equilibrium; microsimulation
    JEL: D58 F14 O10 O55
    Date: 2015–05
  6. By: Juan de Lucio (Banco de España); Raúl Mínguez (Cámara de España); Asier Minondo (Deusto Business School); Francisco Requena (University of Sheffield)
    Abstract: We use network-analysis tools to identify communities in the web of exporters' destinations. Our network-based community measure is purely outcome-based; it captures multilateral rather than bilateral dependence across countries; and it can be calculated at the industry level. We next use our network-based community measure as a predictor of additional countries chosen by firms expanding their export destinations portfolios. Using data on new Mexican exporters, the probability of choosing a new export destination doubles if it belongs to the same community of any of the firm’s previous destinations. The introduction of the network-based community variable improves the accuracy of the model by up to 19% relative to a model that only includes gravity variables. Industry-specific communities and general communities play similar roles in determining the dynamics of Mexican exporters' country portfolios.
    Keywords: export market, network analysis, modularity, extended gravity, Mexico.
    JEL: F1
    Date: 2015–06
  7. By: Olekseyuk, Zoryana; Schürenberg-Frosch, Hannah
    Abstract: CGE models are widely used for policy evaluation and impact analysis especially with respect to trade reforms, tax reforms, energy sector reform and development policy analysis. However, the results of such models are often argued to be sensitive to the choice of exogenous parameters such as trade elasticities. Several authors show that the choice of the so-called Armington elasticities in the import demand function has a strong influence on the simulation results. Most existing estimates of Armington elasticities are only for the US. The few studies for other countries find substantially differing results. Nevertheless, many CGE modelers simply adopt the elasticities from the literature. This paper aims at providing estimated elasticities based on recent data for a larger group of European countries. Using cointegration and panel fixed effects analyses we estimate the first order condition resulting from cost minimization or utility maximization subject to the CES subutility or cost function in imports and domestic goods. The results show a rather large variation across sectors and countries and the magnitude is only partly comparable to the US elasticities. Moreover, in a small CGE application we are able to show that changing the elasticity set has a quantitative and even qualitative impact on CGE model results, which confirms the concern that one might end up with biased results due to a misspecification of the elasticities.
    Abstract: Berechenbare allgemeine Gleichgewichtsmodelle (engl CGE) finden weit verbreitet in der Politikberatung und Politikfolgenabschätzung Anwendung. Sie werden insbesondere zur Analyse von Handelspolitik, Steuerpolitik, Klimafolgenabschätzung und Entwicklungspolitik eingesetzt. Die Ergebnisse der Modelle gelten aber als anfällig bzgl. der Wahl exogener Modellparameter, im Besonderen der Wahl von Elastizitäten. In verschiedenen Studien konnte gezeigt werden, dass insbesondere die Wahl der Handelselastizitäten entscheidenden Einfluss auf Simulationsergebnisse haben kann. Aufgrund des erheblichen Aufwands, der zur Schätzung dieser sog. Armingtonelastizitäten notwendig ist, übernehmen dennoch viele Modelle die Elastizitätensätze anderer Länder (meist australische oder US-amerikanische Elastizitätensätze), ohne ihre Modellergebnisse auf Robustheit gegenüber der Parameterwahl zu schätzen. Der vorliegende Beitrag versucht diesen Kritikpunkt anzugehen, indem Elastizitäten für ein Panel von europäischen Staaten geschätzt werden. Die Autorinnen finden eine relativ breite Streuung der Ergebnisse und insb. erhebliche Unterschiede über die Länder und nur in manchen Fällen Ergebnisse der Größenordnung der am weitesten verbreiteten Elastizitäten. In einer beispielhaften Modellanwendung werden die geschätzten Elastizitäten alternativ in einem etablierten Modell verwandt, statt der dort enthaltenen. Im Ergebnis zeigt sich, dass es nicht nur einen quantitativen, sondern sogar z.T. einen qualitativen Einfluss auf die Simulation hat, welcher Elastizitätensatz Verwendung findet. Somit kann geschlussfolgert werden, dass die Gefahr einer Missspezifikation bei nicht ausreichend fundierten Parametern groß ist.
    Keywords: Armington,trade elasticities,computable general equilibrium,Europe
    JEL: F14 C68 F17
    Date: 2014
  8. By: Medalla, Erlinda M.
    Abstract: With overlapping, multiple free trade agreements (FTAs), such as the case of the Association of Southeast Asian Nations (ASEAN) and the various ASEAN+1 FTAs, complications that run counter to the economic integration objectives of the East Asian region could arise. Forging the Regional Comprehensive Economic Partnership (RCEP) among ASEAN and its FTA partners is a next logical step. How facilitative the rules of origin (ROO) provisions are could prove crucial in maximizing the potential benefits. This paper revisits the nature of ROOs in ASEAN and the various ASEAN+1 FTAs to examine the surrounding constraints and issues, as well as to provide recommendations on the beneficial set of ROOs for the RCEP and serve as inputs for policymakers and negotiators.
    Keywords: rules of origin, free trade agreements (FTAs), Regional Comprehensive Economic Partnership, ASEAN+1
    Date: 2015
  9. By: Irlacher, Michael; Unger, Florian
    Abstract: This paper develops a new international trade model with capital market imperfections and endogenous borrowing costs in general equilibrium. Our theoretical model is motivated by new empirical patterns from enterprise survey data of the World Bank. Observing that a substantial fraction of the variation in financial constraints is across firms within industries, we allow for firm-specific exposure to financial constraints. This leads to credit rationing and divides producers into financially constrained and unconstrained ones. We show that endogenous adjustments of capital costs represent a new channel that reduces common gains from globalization. Trade liberalization increases the demand for capital and thus the borrowing rate. This leads to a reallocation of market shares towards financially unconstrained producers and a larger fraction of credit-rationed firms. Both effects increase the within-industry variance of firm outcomes and reduce welfare gains as consumers dislike heterogeneity in prices.
    Keywords: Credit constraints; General equilibrium; Globalization; Imperfect capital markets; Welfare
    JEL: F10 F36 L11
    Date: 2015–05–18
  10. By: Faqin Lin (Central University of Finance and Economics (CUFE)); Nicholas C.S. Sim (School of Economics, University of Adelaide); Ngoc Pham (School of Economics, University of Adelaide)
    Abstract: Child mortality is a persistent problem for the worldÂ’s least developed countries (LDCs). Given that trade fosters economic development, one plausible solution is to raise the low levels oftrade in the LDCs, but how effective this approach might be could depend on the quality of institutions. In this paper, we use a novel instrumental variable approach to estimate the effect that trade might have on child mortality in the LDCs. We find that trade does not lead to lower levels of child mortality. In fact, in autocratic LDCs, trade could even cause child mortality to increase as we find that pollution, which adversely affects health, may rise with trade.
    Keywords: Child Mortality, Trade, Institutions, Environment, Least Developed Countries
    JEL: I3 O1 F18 P16
    Date: 2015–06
  11. By: Sebastian Sotelo (University of Michigan)
    Abstract: Trade costs are a major barrier to efficient farming in developing countries. I study land use patterns and input demand in Peru, a country where goods are traded at a high cost, both domestically and with the rest of the world. I then quantify the equilibrium effect of paving existing roads on productivity and real incomes. To do so, I develop a model of agricultural specialization and trade, and quantify it using a new dataset on Peruvian agriculture, which includes disaggregated information on crop prices, yields and land allocations. While typically raising productivity, paving roads on a large scale creates both winners and losers, depending on whether prices are set in domestic markets, or whether workers are net food buyers. In the simulations, an average farmer gains 14% in productivity and 5% in welfare.
    Keywords: assignment models, trade costs, equilibrium, agriculture, productivity
    JEL: F11 F14
  12. By: Assaf Zimring (University of Michigan)
    Abstract: This paper uses the historical episode of the near-elimination of commuting from the West Bank into Israel, which caused a large and rapid expansion of the local labor force in the West Bank, to test the predictions of the Heckscher-Ohlin-Vanek (HOV) model of trade. I use variation between districts in the West Bank to test these predictions, and find strong support for them: Wage changes were not correlated with the size of the shock to the district labor force (Factor Price Insensitivity); Districts that received larger influx of returning commuters shifted production more towards labor intensive industries (Rybczynski effect); and on the consumption side, the data are consistent with the assumption of identical homothetic preferences, which, combined with the production results, supports the Heckscher-Ohlin-Vanek theorem on the factor content of trade.
    Keywords: Heckscher-Ohlin-Vanek, Rybczynski, West Bank, Natural Experiment
    JEL: F11 F14 F16 F51
  13. By: Gavin Murphy (Economic and Social Research Institute); Iulia Siedschlag (European Commission JRC-IPTS)
    Abstract: We analyse determinants of an enterprise’s decision to offshore R&D activities using a novel data set for enterprises in Ireland over the period 2001-2006. Our results suggest that, on average, other things equal, enterprises integrated in international production and innovation networks, and enterprises which used information and communication technologies (ICT) more intensively were more likely to offshore R&D. Furthermore, characteristics of the import source region had an important influence on enterprise offshoring behaviour, with offshoring to regions outside of the advanced European Union’s economies being less likely.
    Keywords: Global production and innovation networks; International sourcing of R&D.
    JEL: F14 F23 D22
    Date: 2015
  14. By: Dario Guarascio; Mario Pianta; Matteo Pugliese; Francesco Bogliacino
    Abstract: This article shows -on both conceptual and empirical grounds- the importance of business cycles in affecting key relationships between innovation and international performance. While periods of upswing are characterised by a well documented "virtuous circle" between innovation inputs, new products and export success, during downswings most of the positive relationships and feedbacks tend to break down. The findings of Guarascio et al. (2014) on the long-term relationships between R&D, new products and exports are confirmed and qualified with major novelties. But when the period of analysis is split between periods of upswing and downswing -following Lucchese and Pianta (2012)- significantly different relationships emerge. These results are obtained through an approach that combines several complementary perspectives. A Schumpeterian view on the diversity of technological change allows to disentangle the specificities and effects of innovation inputs and outputs, and of new products and new processes. A structural change perspective on the role of demand as a driver of innovation and on the importance of open economies allows to link industries' dynamics with international competitiveness. A business cycle perspective crossing the two previous appraoches sheds new light on the fragility of key economic relationships and on the long term damage that recessions may cause to the "virtuous circle" of innovation and performance. The model we propose links exports, R&D and innovation success in a system of three simultaneous equations allowing for the presence of feedbacks loops among key variables. The empirical test is carried out for the period 1995-2010 at the industry level, on 21 manufacturing and 17 service sectors; country coverage includes Germany, France, Italy, Spain, the Netherlands and the United Kingdom, representing a very large part of the European economy.
    Keywords: Business cycles, Innovation, Export, Three Stage Least Squares
    Date: 2015–03–06
  15. By: Davide Castellani (University of Perugia); Sandro Montresor (Kore University of Enna); Torben Schubert (Fraunhofer Institute); Antonio Vezzani (European Commission JRC-IPTS)
    Abstract: The paper investigates the impact that the multinational scope of firms' activities can have on their productivity. First, we argue that such an impact is both direct and indirect, and that the latter is channelled through higher incentives to invest in R&D. Second, we posit that the composition of these direct and indirect effects is different if multinationality is measured at the intensive margin (higher share of multinational on total activities) rather than at the extensive margin (greater geographical dispersion of multinational activities). Using a large sample of top R&D investors in the world, we propose an econometric model based on an R&D and a productivity equation, which are both allowed to depend on multinationality. With this model we can disentangle the direct and indirect effects of multinationality on productivity appropriately. We find: i) a positive direct impact of multinational intensity on productivity, while the geographical dispersion of multinationality is negatively correlated with productivity; ii) multinationality (along both dimensions) has a positive indirect impact through higher investments in R&D; iii) this positive indirect effect is however not large enough to compensate the negative direct one at the extensive margin. Results are largely consistent with a theoretical approach that combines transaction cost theory with an economic analysis of how incentives to invest in R&D depend on multinationality.
    Keywords: Multinationality; R&D; Productivity; Europe
    JEL: F23 O32
    Date: 2015
  16. By: Eckel, Carsten; Unger, Florian
    Abstract: We introduce credit frictions motivated by moral hazard in a general equilibrium model of international trade with two dimensions of heterogeneity and endogenous investments. Firms’ competitiveness consists of capabilities to conduct process and quality innovations at low costs, whereas investment outlays have to be financed by external capital. We show that the scope for vertical product differentiation in a sector determines how credit tightening affects investment and price setting. Consistent with recent empirical evidence, our model rationalizes positive as well as negative correlations of firm-level FOB prices with financial frictions and variable trade costs. Faced with an increase in the borrowing rate, producers reduce both types of innovation resulting in opposing effects on marginal production costs and prices. In general equilibrium, financial frictions intensify quality-based (cost-based) sorting of firms if the scope for vertical product differentiation is high (low). Consequently, credit tightening leads to firm exit, increased innovation activity among existing suppliers, and welfare losses that are larger in sectors with low investment intensity.
    Keywords: international trade; external finance; credit constraints; moral hazard; quality; innovation; product Prices.
    JEL: F12 G32 L11
    Date: 2015–05–21
  17. By: Stephanie Schmitt-Grohé; Martín Uribe
    Abstract: According to conventional wisdom, terms of trade shocks represent a major source of business cycles in emerging and poor countries. This view is largely based on the analysis of calibrated business-cycle models. We argue that the view that emerges from empirical SVAR models is strikingly different. We estimate country-specific SVARs using data from 38 poor and emerging countries and find that terms-of-trade shocks explain only 10 percent of movements in aggregate activity. We then build a fully-fledged, open economy model with three sectors, importables, exportables, and nontradables, and use data from each of the 38 countries to obtain country-specific estimates of key structural parameters, including those defining the terms-of-trade process. In the estimated theoretical business-cycle models terms-of-trade shocks explain on average 30 percent of the variance of key macroeconomic indicators, three times as much as in SVAR models.
    JEL: E32 F41 F44
    Date: 2015–06
  18. By: Alexandra Tsiotras; Antonio Estache
    Abstract: The paper studies the 3-way causal relationships between energy consumption, output and trade for a sample of 15 Latin American countries over the period 1980 to 2010. The results of our panel cointegration and error-correction model based on GMM estimators highlight a unidirectional relationship running from energy use to real GDP (in the short and long run) and from energy use to exports (in the short run). This confirms earlier results for a smaller sample of countries in the region and shows that energy consumption cuts can have significant economic costs. In contrast to earlier results, we find that these conclusions are more robust in the short than in the long run, suggesting that if technological change (in particular energy efficiency improvements) is accounted for, the growth and trade costs of energy consumption cuts should be lower than often feared. Energy efficiency improvements appear to be happening. The case for energy efficiency improvements further increases with the finding that under current technologies, cutting energy consumption would hurt growth more than an import substitution policy.
    Date: 2014–08
  19. By: Ross Levine; Chen Lin; Beibei Shen
    Abstract: Do labor regulations influence the reaction of stock markets and firm profitability to cross-border acquisitions? We discover that acquiring firms enjoy smaller abnormal stock returns and profits when targets are in countries with stronger labor protection regulations, i.e., in countries where laws, regulations, and policies increase the costs to firms of adjusting their workforces. These effects are especially pronounced when the target is in a labor-intensive or high labor-volatility industry. Consistent with labor regulations shaping the success of cross-border deals, we find that firms make fewer and smaller cross-border acquisitions into countries with strong labor regulations.
    JEL: F2 G34 G38 J6 J8
    Date: 2015–06
  20. By: Francesco Bogliacino; Dario Guarascio; Mario Pianta; Matteo Lucchese
    Abstract: This article shows – on both conceptual and empirical grounds - the importance of business cycles in affecting key relationships between innovation and international performance. While periods of upswing are characterized by a well-documented 'virtuous circle' between innovation inputs, new products and export success, during downswings most of the positive relationships and feedbacks tend to break down. The findings of Guarascio et al. (2014) on the long-term relationships between R&D, new products and exports are confirmed and qualified with major novelties. But when the period of analysis is split between periods of upswing and downswing - following Lucchese and Pianta (2012) – significantly different relationships emerge. The empirical test is carried out for the period 1995-2010 at the industry level, on 21 manufacturing and 17 service sectors; country coverage includes Germany, France, Italy, Spain, the Netherlands and the United Kingdom, representing a very large part of the European economy.
    Keywords: Business cycles, Innovation, Export, Three Stage Least Squares.
    JEL: F41 F43 O31 O33 C3
    Date: 2015–05–31
  21. By: Nhu Che (Crawford School of Public Policy, The Australian National University); Tom Kompas (Crawford School of Public Policy, The Australian National University)
    Abstract: Rapid LNG trade in the eastern region will contribute a significant source of export revenue, or roughly A$20-30 billion per year over the next five years. However, along with a significant gain from LNG trade, major domestic gas users will also face higher gas prices, less security over long term contracts and more uncertainty over gas supplies generally. This paper develops a modelling approach and an applied analysis of the effect of LNG trade in Asia-Pacific region on major eastern Australian domestic gas users over the period 2015Ð30. During the study period, the average Net Present Value of consumer losses (at a discount rate of 5 per cent per year) is estimated to be from A$1.1 to A$1.4 billion per year. Among the major gas-using sectors, losses among the large industry sector are largest, accounting for half of total consumer loss or about A$450 to A$750 million per year. The electricity power sector is estimated to lose about A$194 to A$307 million per year. The losses from residential, commercial and other users is estimated to be about A$248 to A$405 million per year. The consumer loss in the eastern states is ranked (from top-to-bottom) by Queensland, Victoria, New South Wales and South Australia. Losses vary by different major domestic gas users by state.
    Keywords: natural gas; liquefied natural gas pricing; LNG trade; Asia and the Pacific; LNG export; domestic gas use; Australia
    Date: 2014–11

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