nep-int New Economics Papers
on International Trade
Issue of 2015‒07‒11
eighteen papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Variable Trade Costs, Composition Effects, and the Intensive Margin of Trade By Lionel Fontagné; Antoine Berthou
  2. The Role of Foreign Networks for Firm Export of Services By Hatzigeorgiou, Andreas; Lodefalk, Magnus
  3. Do Regional Trade Agreements Really Boost Trade? Estimates for Agricultural Products By Sébastien Jean; Jean-Christophe Bureau
  4. Effectively Opening Labor and Capital Markets: The interplay among foreign direct investment, trade, and immigration By TOMOHARA Akinori
  5. From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity By Maria Bas; Thierry Mayer; Mathias Thoenig
  6. Human Capital and the Dynamic Effects of Trade By Auer, Raphael
  7. Innovation trade and the size of exporting firms By Letizia Montinari; Massimo Riccabonii; Stefano Schiavo
  8. Evolving patterns of payment methods in Turkish foreign trade By Turkcan, Kemal
  9. R&D activities and extensive margins of exports in manufacturing enterprises: First evidence for Germany By Joachim Wagner
  10. Strategic Decisions of Heterogeneous European Firms in a Multicountry Framework By Marti, Josep; Alguacil, Maite; Orts, Vicente
  11. Trade and frictional unemployment in the global economy By Carrère, Céline; Grujovic, Anja; Robert-Nicoud, Frédéric
  12. Trade, Aid and Terror By Simplice Asongu; Oasis Kodila-Tedika
  13. Coercive Trade Policy By Anesi, Vincent; Facchini, Giovanni
  14. Exchange rate fluctuations and the margins of exports By Richard Fabling; Lynda Sanderson
  15. Globalization: a woman’s best friend? Exporters and the gender wage gap By Esther Ann Bøler; Beata Javorcik; Karen Helene Ulltveit-Moe
  16. Universal Gravity By Costas Arkolakis; Treb Allen
  17. The implications for trade and FDI flows from liberalisation of China's capital account By George Verikios
  18. The TTIP’s impact: bringing in the missing issue By Martin Myant; Ronan O’Brien

  1. By: Lionel Fontagné; Antoine Berthou
    Abstract: We estimate the elasticity of extra-EU French firm-level exports with respect to applied tariffs -- a variable trade cost. We propose a methodology controlling for unobserved firm characteristics driving selection in exports market and for the resistance terms. Results confirm a significant negative impact of tariffs on firm-level exports, with one fifth of this impact falling on the induced adjustment in the exporters' product mix. When controlling for this adjustment and focusing on the core exported products, the elasticity of the product-destination firm-level exports with respect to applied tariffs is estimated at about -2.5.
    Keywords: international trade;firm heterogeneity;multi-product exporters;trade elasticity
    JEL: F12 F15
    Date: 2015–06
  2. By: Hatzigeorgiou, Andreas (The Ratio Institute); Lodefalk, Magnus (Örebro University School of Business)
    Abstract: This study formalizes the idea that that the world can become ‘smaller’ through firms’ strategic trade-related decisions. We investigate whether firm investment in obtaining access to foreign networks impacts exports of services by estimating a fixed effects panel model on a comprehensive firm-level dataset for Sweden. In particular, we examine investment in links through the hiring of immigrants. Because trade barriers are higher for services than for goods, and because trade in services is more sensitive to informal trade barriers, firm investment in access to foreign networks could especially help to increase services exports. However, investment in foreign links could benefit overall access within the same cluster of firms, which reduces the incentive for an individual firm to invest in such linkages itself. The novel results suggest a positive and significant influence of firm investment in foreign networks – through the hiring of foreign-born workers – on both the propensity to export services as well as the intensity of exports. Instrumental variable estimation mitigates endogeneity concerns. Weaker export experience enhances the role of investment in foreign networks in terms of the propensity to export. The skill level of foreignborn workers and the time that has elapsed since immigration also impact the degree to which firms can utilize investment in foreign-born personnel to gain access to networks abroad. Our findings provide a new understanding of how firms can overcome trade barriers that specifically impede services by investing in foreign networks, such as through hiring foreign-born personnel, and emphasize the role of foreign-born population to promote services exports.
    Keywords: networks; firms; trade; services; immigration
    JEL: D80 F10 F22 J61 L14
    Date: 2015–06–29
  3. By: Sébastien Jean; Jean-Christophe Bureau
    Abstract: The trade effects of tariff preferences are assessed using difference-in-differences panel estimations, whereby exports to third destinations and imports from third origins are used as benchmarks. The method is applied at a detailed product level for 74 agreements, over the period 1998-2009, for the agricultural and food sector. We estimate the mean elasticity of substitution across imports at the product level to be slightly below 4, with significant but limited differences across types of agreements and level of preferential margin. Counterfactual simulations suggest that RTAs have increased bilateral agricultural and food exports between partners by 30% to 40% on average, with a marked heterogeneity across agreements. RTAs are also found to increase the probability to export a given a product to a partner country, but this impact is estimated to be lesser than one percentage point on average.
    Keywords: regional trade agreement;international trade;agricultural products;tariff protection
    JEL: F13 Q17
    Date: 2015–06
  4. By: TOMOHARA Akinori
    Abstract: This paper presents a study of the dynamic interactions of two policies—inward foreign direct investment (FDI) promotion and immigration enhancement—together with choices of trade or FDI. Despite growing concern about FDI-migration relationships, the literature has not explored the dynamic interactions among FDI, trade, and immigration. Our analysis distinguishes the different effects of immigration from short-run and long-run perspectives and shows that larger immigration stocks induce FDI inflows, although immigration flows are substitutable for FDI inflows. Additionally, skilled (unskilled) immigration flows are complementary to (substitutable for) FDI inflows. Furthermore, the relative importance of FDI inflows increases compared to imports when skilled immigration flows increase. While the two policies are often suggested to resolve shortages of domestic savings and labor, our results have implications on how to tackle the increasingly daunting policy issue of population aging.
    Date: 2015–07
  5. By: Maria Bas; Thierry Mayer; Mathias Thoenig
    Abstract: Models of heterogeneous firms with selection into export market participation generically exhibit aggregate trade elasticities that vary across country-pairs. Only when heterogeneity is assumed Pareto-distributed do all elasticities collapse into an unique elasticity, estimable with a gravity equation. This paper provides a theory-based method for quantifying country-pair specific elasticities when moving away from Pareto, i.e. when gravity does not hold. Combining two firm-level customs datasets for which we observe French and Chinese individual sales on the same destination market over the 2000-2006 period, we are able to estimate all the components of the dyadic elasticity: i) the demand-side parameter that governs the intensive margin and ii) the supply side parameters that drive the extensive margin. These components are then assembled under theoretical guidance to calculate bilateral aggregate elasticities over the whole set of destinations, and their decomposition into different margins. Our predictions fit well with econometric estimates, supporting our view that micro-data is a key element in the quantification of non-constant macro trade elasticities.
    Keywords: trade elasticity;firm-level data;heterogeneity;gravity;Pareto;log-normal
    JEL: F21
    Date: 2015–06
  6. By: Auer, Raphael
    Abstract: This paper examines the cross-country income and welfare consequences of trade-induced human capital (dis-)accumulation. The model is based on heterogeneous workers who make educational decisions in the presence of complete markets. When such heterogeneous workers invest in schooling, high type agents earn a surplus from their investment. In the presence of cross-country differences in skill-augmenting technology, trade shifts this surplus to rich countries that can use skills more efficiently. Thus, while the static gains from trade may lead to convergence, the dynamic gains from trade occur to initially rich countries, thus leading to cross-country divergence of income and welfare. The second part of the paper endogenizes world prices, documenting that as trade liberalization concentrates skills in countries with a high level of skill augmenting technology, it thereby increases the effective global supply of skilled labor. Despite the resulting decline in the price of skill-intensive goods, trade is shown to be skill-biased.
    Keywords: economic growth; employment; factor content of trade; human capital; import competition
    JEL: E24 F11 F14 F16 J24 O11 O4
    Date: 2015–07
  7. By: Letizia Montinari (Institute for Prospective Technological Studies (JRC-IPTS)); Massimo Riccabonii (Insititute for advanced studies Lucca); Stefano Schiavo (Department of Economic Geography)
    Abstract: This paper contributes to the literature explaining firm-level heterogenenity in the extensive margin of trade, defined as the number of products exported by each firm. We develop a model where firms must invest in R&D to maintain and increase their portfolio of goods: the process of product innovation by new and incumbent firms is such that the probability to capture new products is a function of the number of varieties already exported. This mechanism, together with the entry/exit dynamics that characterize the economy, gives rise to a Pareto distribution for the number of products exported by each firm. On the other hand, we model export sales as depending on exogenous preference shocks on the demand side, which leads to a lognormal distribution for the intensive margin of trade. Both predictions are consistent with a number of empirical findings recently emerged in the literature; this paper provides additional evidence based on a large dataset of French firms. Finally, a simple extension to the model allows us to derive some interesting insights on the behavior of multi-products firms: sales of different products across destinations are not uncorrelated, but show a rather strict hierarchy.
    Keywords: International trade; Extensive margin; Innovation; Preferential attachment; Multi-product firms
    JEL: F14 F43 L11 O3
    Date: 2013–09
  8. By: Turkcan, Kemal
    Abstract: Serving the global marketplace brings many risks to the firm that they may not have on the domestic side. Apart from financing, trade finance mechanisms assist exporters and importers to mitigate or reduce their risks associated with doing business internationally. The present paper sheds lights on the structure and evaluation of payment methods in international trade as well as their changing composition due to 2008-2009 global financial crisis using a unique bilateral trade finance data from Turkey with 206 countries over the period 2002-2012 at the 2-digit level of ISIC Revision 3. Three key results emerge. First, Turkey’s exports are mainly financed via open account method while the majority of its imports were executed via cash-in advance method. Second, the shares of inter-firm trade finance (open account and cash-in advance) in Turkey’s foreign trade dramatically increased over the period 2002-2012, while the shares of the intermediate trade finance (cash against documents and letter of credit) decreased substantially. Finally, the evidence show that both exporters and importers started to use cash-in advance method, the safest method of payment, more intensively than other methods shortly after the global recession in 2008. Overall, the patterns presented in this paper highlight the fact that Turkish traders are not able to set payment terms that are highly favorable to themselves and bear all risks associated with international trade transactions.
    Keywords: Method of payments; Trade finance; Trade credit; Financial crisis; Turkey
    JEL: F10 F14 F30
    Date: 2015–07–03
  9. By: Joachim Wagner (Leuphana University Lueneburg, Germany)
    Abstract: This paper uses a new tailor-made data set to investigate for the first time the links between innovation activities (measured by employees active in research and development) and the extensive margins of exports (number of destination countries; number of goods exported) for manufacturing enterprises in Germany, the third largest exporter of goods on the world market. It documents that more innovative firms outperform less innovative firms at both margins of exports – they export more goods and they export to a larger number of countries. All these differences are statistically highly significant and large from an economic point of view.
    Keywords: Extensive margins of exports, Germany, innovation, research and development
    JEL: F14
    Date: 2015–07
  10. By: Marti, Josep; Alguacil, Maite; Orts, Vicente
    Abstract: This paper examines the relationship between firms’ heterogeneity and the internationalization decision regarding the number of markets served through both exports and FDI. Theoretically, we base on Helpman et al. (2004) and Yeaple (2009) as a basic framework for understanding this connection. For the empirical analysis, we use firm-level information of manufacturing firms from seven EU countries, as collected in the EFIGE dataset. Two different methodologies have been employed in this study: first, in order to evaluate how firms’ heterogeneity (related with productivity, size, R&D, years of establishment, centralized decision making, human and physical capital intensity), influences the decision to expand exports or foreign production beyond to a single foreign market, we estimate a multinomial logit model. The outcomes show that the increasing complexity in the internationalization strategies of multinationals is not independent of the different characteristics of the firms involved. Second, to determine the extent to which changes in firms’ characteristics influence the number of foreign markets to be attended through exports or foreign direct investment, we estimate a quantile regression model. Our estimates confirm the significant role of firm heterogeneity on the scope of international activities. However, different results across quantiles are obtained, suggesting the existence of heterogeneous effects and non-linearities among the whole distribution of the number of foreign markets served.
    Keywords: Firm heterogeneity; Internationalization strategy; Export; FDI
    JEL: D24 F14 F21 F23
    Date: 2015–07
  11. By: Carrère, Céline; Grujovic, Anja; Robert-Nicoud, Frédéric
    Abstract: We develop a multi-country, multi-sector trade model with labor market frictions and structural equilibrium unemployment. Trade opening leads to a reduction in unemployment if it raises real wages and reallocates labor towards sectors with lower-than-average labor market frictions. We estimate sector-specific labor market frictions from 25 OECD countries and the trade parameters of the model using worldwide trade data. We then quantify the potential unemployment and real wage effects of implementing the Transatlantic Trade and Investment Partnership (TTIP) or the Trans-Pacific Partnership (TPP), and of eliminating trade imbalances worldwide. The unemployment and real wage effects sometimes work in opposite directions for some countries, such as the US under TTIP. We introduce a welfare criterion that accounts for both effects and splits such ties. Accordingly, US welfare is predicted to decrease under TTIP.
    Keywords: labor market frictions; trade; unemployment
    JEL: F15 F16 F17
    Date: 2015–07
  12. By: Simplice Asongu (Yaoundé/Cameroun); Oasis Kodila-Tedika (Kinshasa, Democratic Republic of Congo)
    Abstract: This study assesses the role of foreign aid in reducing the hypothetically negative impact of terrorism on trade using a panel of 78 developing countries with data for the period 1984-2008. The empirical evidence is based on interactive GMM estimations with forward orthogonal deviations. Bilateral, multilateral and total aid dynamics are employed whereas terrorism entails: domestic, transnational, unclear and total terrorism dynamics. The following findings have been established. First, while bilateral aid has no significant effect on trade, multilateral and total aids have positive impacts. Second total terrorism, domestic terrorism and transnational terrorism increase trade with increasing order of magnitude. Third, corresponding negative marginal effects on the interaction between foreign aid (bilateral and total) and terrorism display thresholds that are within range. Unexpected signs are clarified and policy implications discussed.
    Keywords: Trade Openness, Foreign Aid; Terrorism; Development
    JEL: F40 F23 F35 O40
    Date: 2015–06
  13. By: Anesi, Vincent; Facchini, Giovanni
    Abstract: Empirical evidence suggests trade coercion exercised unilaterally is significantly less likely to induce concessions than coercion exercised through an international organization. In this paper we build a two-country model of coercion that can provide a rationale for this finding, and for how ``weak'' international institutions might be effective, even if their rulings cannot be directly enforced. In particular we show that if coercion is unilateral, the country requesting the policy change will demand a concession so substantial to make it unacceptable to its partner, and a trade war will ensue. If the parties can instead commit to an international organization (IO), compliance is more likely, because the potential IO ruling places a cap on the Foreign government's incentives to signal its resolve.
    Keywords: Dispute Settlement; GATT; Political Economy; WTO
    JEL: F12 F16 L11
    Date: 2015–07
  14. By: Richard Fabling (Motu Economic and Public Policy Research); Lynda Sanderson (New Zealand Treasury)
    Abstract: This paper examines the relationship between exchange rate fluctuations and New Zealand export performance. To isolate the impact of the exchange rate, as opposed to contemporaneous (and related) fluctuations in New Zealand’s economic performance or overseas market characteristics, we focus on bilateral export relationships at the firm level and control for both time-invariant country characteristics and changes in aggregate economic conditions. We examine two key margins of export adjustment – the probability of exporting (the extensive margin) and the average value of exports per firm (the intensive margin) – and distinguish between impacts on market incumbents and new or potential entrants. Finally, we specifically take account of the potential for interaction between the level and volatility of the exchange rate to affect exporting, as implied by theories of exchange rate hysteresis.
    Keywords: Margins of exports, Hysteresis, Exchange rates
    JEL: D22 F14 F31
    Date: 2015–05
  15. By: Esther Ann Bøler; Beata Javorcik; Karen Helene Ulltveit-Moe
    Abstract: While the impact of globalization on income inequality has received a lot of attention, little is known about its effect on the gender wage gap (GWG). This study argues that there is a systematic difference in the GWG between exporting firms and non-exporters. By the virtue of being exposed to higher competition, exporters require greater commitment and flexibility from their employees. If commitment is not easily observable and women are perceived as less committed workers than men, exporters will statistically discriminate against female employees and will exhibit a higher GWG than non-exporters. We test this hypothesis using matched employer-employee data from the Norwegian manufacturing sector from 1996 to 2010. Our identification strategy relies on an exogenous shock, namely, the legislative changes that increased the length of the parental leave that is available only to fathers. We argue that these changes have narrowed the perceived commitment gap between the genders and show that the initially higher GWG observed in exporting firms relative to nonexporters has gone down after the changes took place.
    Keywords: Exporters; globalisation; gender wage gap
    JEL: F10 F14 F16 J16
    Date: 2015–06
  16. By: Costas Arkolakis (Yale University); Treb Allen (Northwestern University)
    Abstract: What is the best way to reduce trade frictions when resources are scarce? To answer this question, we develop a framework that nests previous general equilibrium gravity models and show that the macro-economic implications of these various models depend crucially on two key model parameters, which we term the "gravity constants." Based only on the value of the gravity constants, we derive sufficient conditions for the existence and uniqueness of the trade equilibrium and, given observed trade flows, completely characterize all comparative statics for any change in bilateral trade frictions. We then develop a methodology for estimating these gravity constants without needing to assume a particular micro-foundation of the gravity trade model. Finally, we use these results to derive the set of trade friction reductions that (to a first-order) maximize welfare gains given an arbitrary constraint.
    Date: 2015
  17. By: George Verikios
    Abstract: We model the partial liberalisation of the capital account by China using a dynamic CGE model of the world economy. Our results indicate that a reduced capital controls on FDI would lead to a significant increase in FDI capital in China and a significant reduction in the cost of capital in China relative to the rest of the world. Further, we observe an increase in capital stocks in all regions, which benefits all regions in terms of GDP and GNP. The economies of China (1.7%), East Asia (1.3%) and Australia/New Zealand (0.5%) grow most strongly. The rental price of capital falls significantly in these regions, which lowers domestic costs and they experience a real depreciation of the exchange rate and thus increased exports relative to other regions. We also observe an across-the-board increase in the saving rate driven by the rise in the price of consumption relative to investment (saving) in all regions.
    Keywords: capital controls, China, computable general equilibrium, FDI, multinational firms, trade
    JEL: C68 E22 F21 F23 F40
    Date: 2014–01
  18. By: Martin Myant; Ronan O’Brien
    Abstract: This working paper reviews the findings of the most prominent studies on the economic impact of the Transatlantic Trade and Investment Partnership (TTIP), focussing on those commissioned by the European Commission and by the German government.
    Date: 2015–01

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