nep-int New Economics Papers
on International Trade
Issue of 2015‒09‒05
eighteen papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. The Tradability of Services: Geographic Concentration and Trade Costs By Antoine Gervais; J. Bradford Jensen
  2. NTMs, Preferential Trade Agreements, and Prices: New evidence By Cadot, Olivier; Gourdon, Julien
  3. The Gains from Input Trade in Firm-Based Models of Importing By Joaquin Blaum; Claire LeLarge; Michael Peters
  4. Diversification through Trade By Francesco Caselli; Miklós Koren; Milan Lisicky; Silvana Tenreyro
  5. Trade in Value Added: The Case of Malaysia By THAM Siew Yean; Andrew KAM Jia Yi
  6. Development Accounting and International Trade By Hirokazu Ishise
  7. FDI, Aid, Terrorism: Conditional Threshold Evidence from Developing Countries By Asongu, Simplice; Efobi, Uchenna; Beecroft, Ibukun
  8. Former Foreign Affiliates: Cast Out and Outperformed? By Beata Smarzynska Javorcik; Steven Poelhekke
  9. International Import Competition and the Decision to Migrate: Evidence from Mexico By Majlesi, Kaveh; Narciso, Gaia
  10. Measuring Competitiveness of Agro-Food Industries: The Swiss Case By OECD
  11. The Home Market Effect and Patterns of Trade Between Rich and Poor Countries By Kiminori Matsuyama
  12. Country Size and Corporate Tax Rate: Rationale and Empirics By Azémar, Céline; Desbordes, Rodolphe; Wooton, Ian
  13. Dispersion in macroeconomic volatility between the core and periphery of the international trade network By Chakrabarti, Anindya S.
  14. Impacts of Japan's FTAs on Trade: The cases of FTAs with Malaysia, Thailand, and Indonesia By ANDO Mitsuyo; URATA Shujiro
  15. Services Productivity and Trade Openness: Case of ASEAN By Shandre Mugan THANGAVELU; Lili Yan ING; Shujiro URATA
  16. The Competitiveness Impacts of Climate Change Mitigation Policies By Aldy, Joseph E.; Pizer, William A.
  17. Brands in Motion: How frictions shape multinational production By Head, Keith; Mayer, Thierry
  18. Korea and the TPP: The Inevitable Partnership By Jeffrey J. Schott

  1. By: Antoine Gervais (University of Notre Dame); J. Bradford Jensen (University of Notre Dame)
    Abstract: In this paper, we use a unique dataset on the distribution of output and demand across regions of the United States to estimate trade costs for 969 service and manufacturing industries. Our estimation method is a natural extension of the gravity model of trade and identifies trade costs in the absence of trade data. The estimated trade costs are higher on average for service industries, but there is considerable variation across industries within sectors. Using the trade cost estimates, we classify industries into tradable and nontradable categories. We find that accounting for tradable service industries nearly doubles the international exposure of the US economy, tradable services value added is unevenly distributed across geographical regions, labor productivity and wages are higher on average for tradable industries, and potential welfare gains from trade liberalization in the service sector are sizable.
    Keywords: Service sector, international trade, trade costs, monopolistic competition
    JEL: F1
    Date: 2015–08
  2. By: Cadot, Olivier; Gourdon, Julien
    Abstract: This paper combines price data from the CEPII bilateral Unit Values with a new database on non-tariff measures (NTMs) to estimate their effect on consumer prices for selected 4500 products in 60 countries. Results based on panel regressions on 270,000 country-product pairs suggest that, after controlling for tariffs, systematic cross-country cost-of-living and factor endowment differences, origin country-specific and product-specific unobservables, NTMs increase trade unit values in two thirds of the product lines. However, we also find that, in Preferential Trade Agreements (PTA) with deep-integration clauses, harmonization and mutual recognition of standards or conformity assessment substantially reduce the this price-raising effect, suggesting that the compliance-cost component of the price rise is reduced by “deep integration” clauses in PTAs.
    Keywords: ad-valorem equivalents; economic integration agreement; free-trade agreements; harmonization; non-tariff measures; regionalism; trade
    JEL: F13 F15 O19
    Date: 2015–08
  3. By: Joaquin Blaum; Claire LeLarge; Michael Peters
    Abstract: Trade in intermediate inputs allows firms to lower their costs of production by using better, cheaper, or novel inputs from abroad. Quantifying the aggregate impact of input trade, however, is challenging. As importing firms differ markedly in how much they buy in foreign markets, results based on aggregate models do not apply. We develop a methodology to quantify the gains from input trade for a class of firm-based models of importing. We derive a sufficiency result: the change in consumer prices induced by input trade is fully determined from the joint distribution of value added and domestic expenditure shares in material spending across firms. We provide a simple formula that can be readily evaluated given the micro-data. In an application to French data, we find that consumer prices of manufacturing products would be 27% higher in the absence of input trade.
    JEL: D21 D22 F11 F12 F14
    Date: 2015–08
  4. By: Francesco Caselli (Economics Department London School of Economics (LSE); Centre for Macroeconomics (CFM)); Miklós Koren (Department of Economics Central European University; Centre for Economic Policy Research (CEPR)); Milan Lisicky (European Comission); Silvana Tenreyro (Economics Department London School of Economics (LSE); Centre for Macroeconomics (CFM))
    Abstract: A widely held view is that openness to international trade leads to higher GDP volatility, as trade increases specialization and hence exposure to sector-specific shocks. We revisit the common wisdom and argue that when country-wide shocks are important, openness to international trade can lower GDP volatility by reducing exposure to domestic shocks and allowing countries to diversify the sources of demand and supply across countries. using a quantative model of trade, we assess the importance of the two mechanisms (sectoral specialization and cross-country diversification) and provide a new answer to the question of how international trade affects economic volatility.
    Date: 2015–08
  5. By: THAM Siew Yean (Institute of Malaysian and International Studies (IKMAS), Universiti Kebangsaan Malaysia); Andrew KAM Jia Yi (Institute of Malaysian and International Studies (IKMAS), Universiti Kebangsaan Malaysia)
    Abstract: The paper examines the imported content of Malaysia’s manufacturing sector by using Hummel’s vertical specialisation method and ICT manufacturing as a case study. The main findings indicate an increase in the domestic value added content of Malaysia from 2000 to 2010. When disaggregated within manufacturing, some sub-sectors within the ICT showed a decrease in their imported content whilst others showed an increase. The compressed input–output table showed a decrease in the ICT sector’s use of imported inputs. Using a more detailed classification of the electronics sector, two main shifts can be observed in electronics exports from 2000–2013. First, there was a shift towards finished goods in terms of number of products, but not in terms of export values. Second, there was a shift from Electronics Manufacturing Service (EMS) into Semiconductor Manufacturing Service (SMS) activities. The contraction in the ICT and electronics sector has led to a greater focus on semiconductor manufacturing.
    Keywords: : Vertical specialization, Input-Output table, ICT, Malaysia, Trade in Value Added
    JEL: C67 D57 F1 F14 L63
    Date: 2015–09
  6. By: Hirokazu Ishise
    Abstract: Development accounting shows that a significant part of cross-country income differences is attributed to differences in total factor productivity (TFP), but the sources of TFP differences are not well understood. This paper considers the role of international trade to explain cross-country income differences in TFP. By using a multi-country Ricardian trade model, I distinguish trade costs and trade policy factors from a pure technology factor in TFP. Under the baseline parameterization, my model shows that conventional TFP measures overestimate fundamental productivity differences by 30%. I then show that trade costs significantly influence welfare: small European countries enjoy 10-15% higher welfare through their proximity to larger and more productive neighboring countries, while Oceanian and countries in southern Africa suffer from 10-20% lower welfare due to their remoteness. Trade policy also has impacts: tariffs decrease welfare by 1-10%, while free-trade agreements increase welfare by 1-5%. These gains from trade are considerably smaller if general equilibrium effects are not considered.
    Date: 2015–08
  7. By: Asongu, Simplice; Efobi, Uchenna; Beecroft, Ibukun
    Abstract: We investigate how foreign aid dampens the effects of terrorism on FDI using interactive quantile regressions. The empirical evidence is based on 78 developing countries for the period 1984-2008. Bilateral and multilateral aid variables are used, while terrorism dynamics entail: domestic, unclear, transnational and total number of terrorist attacks. The following findings are established. First, while the effects of multilateral aid are consistently significant with positive threshold evidence, bilateral aid is only positively significant in bottom quantiles. Second, with the slight exception of transnational terrorism in bilateral aid regressions, the impacts of terrorism dynamics are unexpectedly positive, in: (i) bottoms quantiles with domestic terrorism and the 0.25th quantile with total terrorism, for bilateral aid regressions, and (ii) the 0.25th quantile with domestic terrorism and bottom quantiles of transnational terrorism, for multilateral aid regressions. Third, interactions between terrorism and foreign aid dynamics unexpectedly yield negative effects in: (i) bilateral aid and domestic terrorism in bottom quantiles and (ii) multilateral aid and domestic (transnational) terrorism in the 0.25th(bottom) quantile(s). The modifying threshold value of bilateral aid is higher than that of multilateral aid. Fourth, there is positive threshold evidence from GDP growth, infrastructural development and trade openness. Policy implications are discussed.
    Keywords: FDI,Foreign aid,Terrorism,Quantile regression
    JEL: C52 D74 F23 F35 O40
    Date: 2015–05
  8. By: Beata Smarzynska Javorcik; Steven Poelhekke
    Abstract: The literature has documented a positive effect of foreign ownership on firm performance. But is this effect due to a one-time knowledge transfer or does it rely on continuous injections of knowledge? To shed light on this question we focus on divestments, that is, foreign affiliates that are sold to local owners. To establish a causal effect of the ownership change we combine a difference-in-differences approach with propensity score matching. We use plant-level panel data from the Indonesian Census of Manufacturing covering the period 1990-2009. We consider 157 cases of divestment, where a large set of plant characteristics is available two years before and three years after the ownership change and for which observationally similar control plants exist. The results indicate that divestment is associated with a drop in total factor productivity accompanied by a decline in output, markups as well as export and import intensity. The findings are consistent with the benefits of foreign ownership being driven by continuous supply of headquarter services from the foreign parent.
    Keywords: divestment, foreign direct investment, Indonesia and productivity
    JEL: F23
    Date: 2014
  9. By: Majlesi, Kaveh (Department of Economics, Lund University); Narciso, Gaia (Department of Economics, Trinity College Dublin)
    Abstract: We analyze the effects of the increase in China’s import competition on Mexican domestic and international migration. We exploit the variation in exposure to competition from China, following its accession to the WTO in 2001, across Mexican municipalities and estimate the effect of international competition on the individual decision to migrate. Controlling for individual and municipality features, we find that individuals living in municipalities more exposed to Chinese import competition are more likely to migrate to other municipalities within Mexico, while a negative effect is found on the decision to migrate to the US. In particular, we find that Chinese import competition reduces migrants’ negative self-selection: the rising international competition lowers the likelihood of low-educated, low-income people to migrate to the US, by making them more financially constrained.
    Keywords: Import competition; Migration; Trade; Mexico; WTO; China
    JEL: F14 F16 F22 O15 R12 R23
    Date: 2015–08–17
  10. By: OECD
    Abstract: This paper presents an assessment of the competiveness performance of Swiss food industries. The approach taken here is to measure revealed performance, relying on indicators such as market performance, trade success and revealed comparative advantage indicators. The analysis of competitiveness examines the ex post performance of the industry in Switzerland compared to the same industry in benchmark countries in the European Union.
    Keywords: Switzerland, agro-food industry
    JEL: L6 L66
    Date: 2015–08
  11. By: Kiminori Matsuyama (Department of Economics Northwestern University; Centre for Macroeconomics (CFM))
    Abstract: This paper propses a new theoretical framework for studying the patterns of trade between rich and poor countries by incorporating nonhomothetic preferences into the standard home market effect models of trade. It has a continuum of Dixit-Stiglitz monopolistic competetive sectors with iceberg trade costs. There are two countries, which may differ in their per capita labor endowment and the population size. Preferences across sectors are such that, as per capita income goes up, the households shift their expenditure towards higher-indexed sectors. In equilibrium, the Rich (Poor) country, whose households achieve higher standard-of-living, runs a trade surplus in higher (lower)-indexed sectors through the home maket effect, and hence becomes a net-exporter of high (low) income elastic goods. The framework is flexible enough to allow for a variety of comparative statistics. For example, a uniform productivity improvement causes the Rich to switch from a net exporter to a net importer in some middle sectors. The Rich gains relatively more (less) from such changes than the Poor when goods produced in different sectors are substitutes (complements). The effects of globalization, captured by a reduction in the trade cost, are similar to those of uniform productivity improvements, except that it has additional effects of the terms of trade change when the two countries are unequal in size.
    Keywords: Home market effect, Nonhomothetic preferences, Implicitly additively seperable CES, Log-supermodularity, Monotone likelihood ratio, Monotone comparative statics, Product cycles, Terms of trade effect, leapfrogging
    Date: 2015–08
  12. By: Azémar, Céline; Desbordes, Rodolphe; Wooton, Ian
    Abstract: This paper investigates whether the differences in corporate tax rates set by countries can be explained, in part, by the size of national home markets. We set up a simple model in which multinational firms within an industry choose where to invest, given the levels of corporation tax rates in each location. This model yields predictions with respect to the influences of the relative size of countries on the differences in corporate tax rates that should arise in equilibrium. We then test these predictions using data from 27 European Union member-states for the period 1981-2005. Consistent with our model, we find that large countries set higher corporate tax rates than their smaller competitors for FDI. Our rationale for the existence of this effect, the market access, withstands the test of alternative explanations.
    Keywords: corporate tax rate; country size; foreign direct investment; tax competition
    JEL: E62 F23 H25
    Date: 2015–08
  13. By: Chakrabarti, Anindya S.
    Abstract: At the country level, macroeconomic volatility tends to correlate with trade openness although the direction of correlation is not stable across samples. Here I consider trade networks as sum of all pairwise trade linkages to emphasize that different linkages contribute differently to the transmission or mitigation of shocks, and show that across the network volatility is inversely related to centrality, a summary measure of strength of the linkages specific to a country. I study a multi-country, multi-sector trade model subject to idiosyncratic productivity and liquidity shocks, and characterize volatility as an explicit function of centrality, diversification and the Herfindahl of the trade network in equilibrium. With sufficient skewness in trade linkages across countries, similar shocks generate different levels of repercussions across the network. The conventional effect of diversification holds true that countries with better diversified portfolio fluctuate less compared. Centrality directly contributes to better aggregation of shocks. Combined effect of these two channels dominates the opposite effect that a more central country is also more exposed to shocks. The model calibrated to the E.U. generates and closely replicates the negative relationship between centrality and volatility. The theoretical model is then extended to capture stochasticity and sparsity in the trade networks.
  14. By: ANDO Mitsuyo; URATA Shujiro
    Abstract: This paper examines if Japan's free trade agreements (FTAs) with Malaysia, Thailand, and Indonesia contributed to an expansion of bilateral trade between Japan and its FTA partners, which is the expectation. The results of our analysis do not show significantly positive impacts when the analysis is conducted using aggregate/sectoral trade data. However, expected positive impacts are found for some products, whose tariffs are reduced under FTAs, when the analysis is conducted by using disaggregated trade data at the Harmonized System (HS) 4-digit level. There are also some cases, where expected positive impacts are not found, even where tariff reduction under FTAs was substantial. The authors argue that several factors such as a lack of knowledge of FTAs by traders, high cost of using FTAs, i.e., high cost of obtaining the certificate of origin, and existence of preferential tariff treatment as part of development policies such as investment incentive schemes may be responsible for the lack of positive response of FTAs on trade.
    Date: 2015–08
  15. By: Shandre Mugan THANGAVELU (University of Adelaide); Lili Yan ING (Economic Research Institute for ASEAN and East Asia (ERIA) and University of Indonesia); Shujiro URATA (Waseda University and Economic Research Institute for ASEAN and East Asia (ERIA))
    Abstract: Using fixed effect and Generalised Method of Moments (GMM) estimations, this paper analyses the impacts of trade on the labour productivity of the services sector (at the four key sub-services sector levels: (i) wholesale, retail, and hotel; (ii) transport, storage, and communications; (iii) finance, insurance, and real estate; and (iv) community, social, and personal sectors) for five ASEAN countries—Indonesia, Malaysia, the Philippines, Singapore, and Thailand—from 1990 to 2005. The results show that more exposure to exports will improve labour productivity in the services sector in these countries. Based on input–output relationships, services play an important role as inputs in the manufacturing sector, which is notable in Indonesia, Malaysia, Singapore, and Thailand.
    Keywords: : ASEAN, Services Sector, Labour productivity, Free Trade Agreement, InputOutput
    JEL: F14 F15 F16
    Date: 2015–08
  16. By: Aldy, Joseph E. (Harvard University and Resources for the Future); Pizer, William A. (Duke University and Resources for the Future)
    Abstract: We develop a precise definition of the competitiveness impacts of environmental regulation that can be estimated with available domestic production, trade, and energy price data. We use this definition and a 9-year panel of nearly 450 U.S. manufacturing industries to estimate and predict the effects of a U.S.-only $15 per ton CO2 price. We find competitiveness effects on the order of a 0.5 to 0.8 percent decline in production among energy-intensive manufacturing industries, representing about one-sixth of the policy's impacts on these firms' output.
    JEL: F18 Q52 Q54
    Date: 2014–05
  17. By: Head, Keith; Mayer, Thierry
    Abstract: We use disaggregated data on car assembly and trade to estimate a model of multinational production. Our framework delineates four theory-based specifications under which all frictions relevant to multinational production can be structurally estimated. In addition to the trade costs and multinational production frictions emphasized in past work, we incorporate a third friction: regardless of production origin, it is more difficult to make sales in markets that are geographically separated from the brand's headquarters. The estimation transparently recovers internally consistent estimates of each type of friction cost. With structural parameters in hand, we investigate the consequences of three trade integration experiments: TPP, TTIP, and Brexit. We show that each type of friction makes a qualitative and quantitative difference in the reallocation of production caused by economic integration.
    Keywords: cars; gravity; multinational production model; regional integration; structural estimation
    JEL: F1
    Date: 2015–08
  18. By: Jeffrey J. Schott (Peterson Institute for International Economics)
    Abstract: Korea's decision to delay joining the Trans-Pacific Partnership (TPP) talks was a tactical mistake. It is now left with primarily two options to participate: (1) ask to join the TPP, if possible between signature and entry into force, or (2) accede to the TPP after the agreement is ratified and goes into effect—either alone or as part of a group of countries seeking TPP membership. For Korea the cost of entry in the TPP—in terms of liberalization commitments—will probably be higher than had it joined as an original signatory. As a major trading nation, it stands to reap large gains from increased trade and investment with TPP countries and should opt to join the TPP as soon as the window for entry reopens.
    Date: 2015–08

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