nep-int New Economics Papers
on International Trade
Issue of 2015‒09‒11
nineteen papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Atlantic versus Pacific Agreement in Agri-food Sectors: Does the Winner Take it All? By Anne-Célia Disdier; Charlotte Emlinger; Jean Fouré
  2. Trade Integration, Welfare, and Horizontal Multinationals: A three-country model By Fabio CERINA; MORITA Tadashi; YAMAMOTO Kazuhiro
  3. The Gains from Economic Integration By Jose Rodriguez Mora; David Comerford
  4. Like Me, Buy Me: The Effect of Soft Power on Exports By Andrew K. Rose
  5. Make in India: Which Exports Can Drive the Next Wave of Growth? By Rahul Anand; Kalpana Kochhar; Saurabh Mishra
  6. Trading Costs in East Asia’s Global Value Chains By Lord, Montague; Artuso, Fabio; Record, Richard; Clarke, Julian
  7. Regional Economic Integration in Central Asia and South Asia By Lord, Montague
  8. The Transatlantic Trade and Investment Partnership (TTIP): a controversial agreement and dangerous for workers By Claude Serfati (IRES)
  9. Currency Unions and Trade: A Post-EMU Mea Culpa By Reuven Glick; Andrew K. Rose
  10. Will Belarus fully benefit from the Eurasian Economic Union? By Sierz Naurodski; Uladzimir Valetka
  11. A Coasian Model of International Production Chains By Thibault Fally; Russell Hillberry
  12. Measuring economic complexity of countries and products: which metric to use? By Manuel Sebastian Mariani; Alexandre Vidmer; Matus Medo; Yi-Cheng Zhang
  13. Exports in a Tariff-Free Environment: What Structural Reforms Matter? Evidence from the European Union Single Market By Jesmin Rahman; Ara Stepanyan; Jessie Yang; Li Zeng
  14. Price and Income Elasticity of Indian Exports—The Role of Supply-Side Bottlenecks By Mehdi Raissi; Volodymyr Tulin
  15. Should We Worry About the Great Trade Slowdown? By Uri Dadush
  16. Export diversification and exchange-rate regimes: Evidences from 72 developing countries By Liu, Xiaohui; Zhang, Jing
  17. Does A Regional Trade Agreement Lessen or Exacerbate Growth Volatility? An Empirical Investigation By Kangni Kpodar; Patrick A. Imam
  18. Initiative for Infrastructure Integration in South America: Way toward Regional Convergence By Andrea Bonilla
  19. Pollution Havens and the Trade in Toxic Chemicals: Evidence from U.S. Trade Flows By John P. Tang

  1. By: Anne-Célia Disdier (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, PSE - Paris-Jourdan Sciences Economiques - CNRS - Institut national de la recherche agronomique (INRA) - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC)); Charlotte Emlinger (Centre d'Etudes Prospectives et d'Informations Internationales); Jean Fouré (Centre d'Etudes Prospectives et d'Informations Internationales)
    Abstract: Trade liberalization of the agri-food sector is a sensitive topic in both Transatlantic Trade and Investment Partnership (TTIP) and Trans-Pacific Partnership (TPP) discussions. This paper provides an overview of current trade ows and trade barriers. Then, using a general equilibrium model of international trade (the MIRAGE model), it assesses the potential impact of these two agreements on agri-food trade and value added. The results suggest that the US agri-food sectors would gain from both agreements while almost all their partners and third countries would benefit less, and might register losses in some sectors. However, the two agreements are not competing, since all the contracting parties' defensive and offensive interests are complementary. Finally, we show that the Atlantic trade may be impacted by the inclusion of harmonized standards within the Pacific agreement but not by its extension to additional members (e.g. China or India).
    Date: 2015–09
  2. By: Fabio CERINA; MORITA Tadashi; YAMAMOTO Kazuhiro
    Abstract: In this paper, we construct a three-country model with national and multinational (multi-plant) firms, in which oligopolistic firms in each country export their goods to other countries. We investigate the effects of trade liberalization between two countries on the third country. When the fixed costs of foreign direct investment (FDI) are sufficiently large, the firm does not conduct FDI, and trade liberalization always reduces the welfare level of the third country. When the fixed costs of FDI are small, trade liberalization may improve the welfare level of the third country. In addition, we observe cases under which trade liberalization between two of the countries improves the welfare of all three countries. In those cases, the two countries have incentives to join a free trade agreement (FTA), while the third country has no incentive to do so.
    Date: 2015–09
  3. By: Jose Rodriguez Mora (University of Edinburgh); David Comerford (University of Stirling)
    Abstract: This paper measures the effect of sharing a national state on the degree of trade integration. We call the causal effect of this political integration the economic integration - this is the additional trade integration gained by entities which come together to form a country rather being independent countries. The existence of very large border effects, even within the European Union, is well known, and is a consequence of this aforementioned economic integration achieved within national states. Nevertheless, these border effects are bound to overestimate the gains from sharing a state. This is because places which share larger affinities are more likely to both trade with each other and to select into sharing a state. This endogeneity therefore means that estimates of the average border effect overstate the reductions in trade frictions achieved by sharing a state. In this paper, we propose an alternative approach. We identify marginal regions (regions which could conceivably be independent countries by themselves) and marginal countries (countries that are the closest trading partner in the data to the country to which that marginal regions belong). We propose that the gap in trade frictions between these marginal regions and marginal countries is a much better estimate to the causal impact of state sharing. Despite controlling for selection bias, we find that the gains from economic integration are still substantial: it is about one third of the total gains from trade.
    Date: 2015
  4. By: Andrew K. Rose
    Abstract: In this paper I quantify a gain that a country receives when its global influence is considered to be admirable by others. I use a standard gravity model of bilateral exports, a panel of data from 2006 through 2013, and an annual survey conducted for the BBC by GlobeScan which asks people in up to 46 countries about whether each of up to 17 countries were perceived to have “a mainly positive or negative influence in the world.” Holding other things constant, a country’s exports are higher if it is perceived by the importer to be exerting more positive global influence. This effect is statistically and economically significant; a one percent net increase in perceived positive influence raises exports by around .8 percent. Succinctly, countries receive a commercial return on their soft power.
    JEL: F14 F59
    Date: 2015–09
  5. By: Rahul Anand; Kalpana Kochhar; Saurabh Mishra
    Abstract: Structural transformation depends not only on how much countries export but also on what they export and with whom they trade. This paper breaks new ground in analyzing India’s exports by the technological content, quality, sophistication, and complexity of the export basket. We identify five priority areas for policies: (1) reduction of trade costs, at and behind the border; (2) further liberalization of FDI including through simplification of regulations and procedures; (3) improving infrastructure including in urban areas to enhance manufacturing and services in cities; (4) preparing labor resources (skills) and markets (flexibility) for the technological progress that will shape jobs in the years ahead; and (5) creating an enabling environment for innovation and entrepreneurship to draw the economy into higher productivity activities.
    Keywords: Exports;Services;Manufacturing;India;Trade;Growth, Innovations, transport, travel, vehicles, transportation, infrastructure, Country and Industry Studies of Trade, Comparative Studies of Countries,
    Date: 2015–05–29
  6. By: Lord, Montague; Artuso, Fabio; Record, Richard; Clarke, Julian
    Abstract: The World Trade Organization’s new Agreement on Trade Facilitation has the potential to significantly reduce East Asia’s trade costs along the entire supply chain, increasing regional gross domestic product (GDP) by 2.7 percent and employment by 1.2 percent. At present, the region’s developing economies suffer from trade costs well above those of the newly industrialized countries and of developed economies, owing to the large number of inefficient border and behind-the-border procedures. Countries have been adding to their stock of nontariff measures, which now account for as much as 90 percent of (non-transportation) trade costs. The ATF defines a new reform agenda for East Asia with potentially far-reaching effects on private sector development, especially for small businesses that need greater transparency and simplification of procedures to enable them to readily access regional and global value chains.
    Keywords: Trade costs, East Asia, global value chains, regional value chains, Agreement on Trade Facilitation, ATF, Nontariff measures, NTMs, trade facilitation,
    JEL: F13 F14
    Date: 2014–04–15
  7. By: Lord, Montague
    Abstract: The Central and South Asia regions have a long history of trade relations. There have nearly always been movements of goods and people between the regions, which in turn have linked their cultural and religious ties and impacted political relations. Yet today’s trade between the two regions remains low and significantly below regional trade in Africa, the Middle East, Latin America and Southeast Asia. Using different measures of trade, we estimate that inter-regional trade is only between 0.2 and 4 percent of total trade to all destinations. Even within the regions, trade among countries remains low. Intra-regional trade in Central Asia is less than 5 percent and that of South Asia is 1.5 percent of trade with all countries. The present study explores opportunities and challenges for intra- and inter-regional trade in the Central and South Asia areas by analyzing a wide range of channels impacting trade. Trade enhancing channels are divided into two broad categories. The first set refers to disaggregated or product-level characterizations of trade affecting competitiveness and complementarities between trading partners within and between the regions. The second refers to price, non-price and structural determinants that tend to affect all products traded between countries. The analysis also includes a gravity model to gauge the effect of economic growth, distance and price, non-price and structural determinants of regional trade. The empirical results indicate that, under existing trade patterns, the potential value of trade in the two regions is nearly twice as large as the actual level. The finding is not surprising. Opportunities for regional trade abound and there are numerous policy initiatives that could be taken to help spur trade and investment in and between the two regions. Among the possibilities are regional value chains that could create large gains in terms of higher value additions to exports, technologies transfers and employment generation. The analysis of different types of value chains in this study categorizes industries according to their value added contribution to trade, and it prioritizes industries according to interests ranging from the diversification of industries across resource-intensive, labor-intensive, and technology-intensive industries, as well as the potential participation of Afghanistan due to its comparative advantages in products exported by the industries or its geographic location for transit trade. Based on quantitative analyzes of actual and potential channels of trade, the study ranks the pattern of trade in terms of its adaptability to intra- and cross-regional commerce in the Central and South Asia regions and its predilection for regional value chains. The ranking uses an innovative methodology that takes account of difference preference orderings of stakeholders, such as governments and development partners that have interests in pro-poor trade, or large companies that favor cross-border fragmentation of production for regional and global value chains. Ratings are classified into the following categories: trade complementarities, export diversification, comparative advantages, structural factors, intra-industry trade, price competitiveness, trade costs, economic growth; and regional value chains. The baseline ratings suggest the following: First, the larger economies have higher ratings than the smaller, less developed ones, suggesting that size and level of development matter in the development of regional trade. Second, among the different channels of regional trade development, the most effective ones are (i) measures that promote price competitiveness; (ii) intra-industry trade; (iii) trade complementarities; and (iv) economic growth. Third, the effectiveness of country-specific measures differ, as for example in Afghanistan, where the trade enhancing channels that matter the most are structural factors, price competitiveness and trade complementarities with other countries in South Asia and with Central Asia in general. These findings have important implications for the ability of different trade-related policies, programs and institutional mechanisms to successfully promote greater commerce within and across the two regions. Each of these mechanisms has costs associated with them and different types of mechanisms can be programmed on the basis of their ease of implementation and impact potential. The material in this study is designed in such a way as to provide practical knowledge and methods for businesses to take advantage of Central and South Asia regional opportunities; analytical tools for policymakers and researchers; and policy and program recommendations for governments and development partners. It should be of interest to businesses, governments, international development partners, policymakers and researchers, and others concerned with Central and South Asia’s trade and the potential for developing value chains or so-called ‘trade in tasks’ across the two regions.
    Keywords: Central Asia, South Asia, CAREC, intra-regional trade, inter-regional trade, trade complementarities, export diversification, comparative advantages, structural factors, price competitiveness, trade costs, economic growth; regional value chains, product concentration, export survival rates, product sophistication, real exchange rates, two-way trade, trade facilitation, constant-market-shares analysis bilateral trade agreements, multilateral trade arrangements, modeling regional trade, gravity models, fragmentation of production, econometric modeling of trade
    JEL: F12 F14 F15
    Date: 2015–05–15
  8. By: Claude Serfati (IRES)
    Abstract: This Working Paper on the Transatlantic Trade and Investment Partnership (TTIP) highlights the controversial benefits of speeding up free trade and puts the negotiations between the EU and the US in the context of the fall-out of the financial crisis.
    Keywords: Economic policy, Employment, Globalisation
    Date: 2015–09
  9. By: Reuven Glick; Andrew K. Rose
    Abstract: In our European Economic Review (2002) paper, we used pre-1998 data on countries participating in and leaving currency unions to estimate the effect of currency unions on trade using (then-) conventional gravity models. In this paper, we use a variety of empirical gravity models to estimate the currency union effect on trade and exports, using recent data which includes the European Economic and Monetary Union (EMU). We have three findings. First, our assumption of symmetry between the effects of entering and leaving a currency union seems reasonable in the data but is uninteresting. Second, EMU typically has a smaller trade effect than other currency unions; it has a mildly stimulating effect at best. Third and most importantly, estimates of the currency union effect on trade are sensitive to the exact econometric methodology; the lack of consistent and robust evidence undermines confidence in our ability to reliably estimate the effect of currency union on trade.
    JEL: F15 F33
    Date: 2015–09
  10. By: Sierz Naurodski; Uladzimir Valetka
    Abstract: Eurasian Economic Union, an ambitious project intended to benefit the countries in the post-soviet zone, evokes questions about its future. Is pulling together regional cooperation and tightening its relationship with Russia beneficial to Belarus in the long run? Having analyzed the recent trends in trade, labor and capital flows, Sierž Naurodski and Uladzimir Valetka shed light on the highly questionable nature of potential benefits the Union could bring to Belarussian economy within its current macroeconomic and institutional framework
    Keywords: Trade, economic integration and globalization, Eastern Europe, Caucasus and Central Asia
    JEL: F10 F15
    Date: 2015–06
  11. By: Thibault Fally; Russell Hillberry
    Abstract: International supply chains require coordination of numerous activities across multiple countries and firms. We develop a theoretical model of supply chains in which the measure of tasks completed within a firm is determined by parameters that define transaction costs and the cost of coordinating more activities within the firm. The structural parameters that govern these costs explain variation in supply chain length as well as cross-country variation in gross-output-to-value-added ratios. The structural parameters are linked to comparative advantage along and across supply chains. We provide an analytical treatment of trade and welfare responses to trade cost change in a simple two-country model. To explore the model's implications in a richer setting we calibrate the model to match key observables in East Asia, and evaluate implications of changes in model parameters for trade, welfare, the length of supply chains and countries' relative position within them.
    JEL: F10 L23
    Date: 2015–09
  12. By: Manuel Sebastian Mariani; Alexandre Vidmer; Matus Medo; Yi-Cheng Zhang
    Abstract: Evaluating the economies of countries and their relations with products in the global market is a central problem in economics, with far-reaching implications to our theoretical understanding of the international trade as well as to practical applications, such as policy making and financial investment planning. The recent Economic Complexity approach aims to quantify the competitiveness of countries and the quality of the exported products based on the empirical observation that the most competitive countries have diversified exports, whereas developing countries only export few low quality products -- typically those exported by many other countries. Two different metrics, Fitness-Complexity and the Method of Reflections, have been proposed to measure country and product score in the Economic Complexity framework. We use international trade data and a recent ranking evaluation measure to quantitatively compare the ability of the two metrics to rank countries and products according to their importance in the network. The results show that the Fitness-Complexity metric outperforms the Method of Reflections in both the ranking of products and the ranking of countries. We also investigate a Generalization of the Fitness-Complexity metric and show that it can produce improved rankings provided that the input data are reliable.
    Date: 2015–09
  13. By: Jesmin Rahman; Ara Stepanyan; Jessie Yang; Li Zeng
    Abstract: How do countries enhance their exports of goods in a largely tariff-free environment? Our investigation of export performance of new member states in the European Union single market, which provides a natural control for barrier-free environment, points to the importance of structural reforms, particularly in the areas of higher education, skills upgrade, wage structure’s ability to provide incentives to work and foreign investment environment. In addition, establishing links with supply chains, which in addition to the above-mentioned reforms also depend on better institutions and infrastructure, are important. The analysis in the paper shows that new member states are at varying levels of quality and integration, which highlights the need for country-specific policy priorities. Services trade, which is subject to significant non-tariff barriers in the EU market even after the implementation of the Services Directive, shows considerable room for growth given the comparative advantage of some of the new member states.
    Keywords: Economic integration;Fiscal reforms;European Economic and Monetary Union;European Union;Export performance;Exports;Trade integration;Comparative advantage;Export integration, structural reform, supply chain, new member states, environment, trade, incentives, Country and Industry Studies of Trade,
    Date: 2015–08–03
  14. By: Mehdi Raissi; Volodymyr Tulin
    Abstract: This paper estimates the short-term and long-run price and income elasticity of Indian exports, and investigates the role of supply-side bottlenecks in shaping India’s export demand relationship. We use disaggregated export volume data for 45 Indian industries over the period 1990-2013, as well as industry-specific international relative prices, for estimation. Our results indicate that Indian exports are sensitive to international relative-price competitiveness, world demand, and energy shortages. In addition, binding supply-side constraints (notably energy shortages) dampen price responsiveness in the short-term.
    Keywords: India;Manufacturing;export demand, income and price elasticity, energy shortages, demand, supply, supply-side, price elasticity, income elasticity, Models with Panel Data, Country and Industry Studies of Trade,
    Date: 2015–07–17
  15. By: Uri Dadush
    Abstract: China’s recent decision to allow a very slight devaluation of the Yuan caused a momentary panic in stock markets around the world. Behind the extreme reaction are concerns about China’s slowing growth and the effect it will have on exports to China by the rest of the world. But these trade concerns are not limited to trade with China. In fact, world trade, the sum of exports and imports of goods and services, which used to grow much faster than world GDP, has barely matched it over the last four years. Based on historical relationships, an elasticity of world trade to GDP typically between 1.5 and 2, world trade should be growing about 1.5% to 2% faster than it actually is.
    Keywords: Trade slowdown, china, morocco, devaluation, policy-makers, financial crisis, global value chains, protectionism, debt crisis, free trade agreement, rules of origin, investment, developing countries, productivity,
    Date: 2015–08
  16. By: Liu, Xiaohui; Zhang, Jing
    Abstract: Drawing on a new dataset of diversification of export products, the paper makes the first attempt in the empirical literature to test the impact of product diversification on the choice of exchange-rate regimes in a sample of 72 developing countries (1974-2010). The paper finds that diversification of export products has a positive but insignificant effect on the choice of fixed exchange-rate regimes. When export diversification is decomposed into the extensive and intensive margins, evidences of the paper show that higher level of product diversification at the extensive margin has a statistically positive effect on exchange-rate regime choices while the intensive margin has a negative but insignificant impact on the choice.
    Keywords: Export Diversification, Extensive Margin, Intensive Margin, The Choice of Exchange-rate Regime, Developing Countries
    JEL: F30 F40
    Date: 2015–09–01
  17. By: Kangni Kpodar; Patrick A. Imam
    Abstract: This paper assesses how regional trade agreements (RTAs) impact growth volatility on a worldwide sample of 170 countries with data spanning the period 1978-2012. Notwithstanding concerns that trade openness through RTAs can heighten exposure to shocks, in particular when it leads to increased product specialization, RTAs through enhanced policy credibility, improved policy coordination, and reduced risk of conflicts can ease growth volatility. Empirical estimations suggest the benefits outweigh the costs as RTAs are consistently associated with lower growth volatility, after controlling for trade openness and other determinants of growth volatility. Furthermore, regression results also suggest that countries that are more prone to shocks are more likely to join a RTA, in particular with countries with relatively less volatile growth, additionally enhancing the stabilization effect.
    Keywords: Regional trade;Bilateral trade agreements;Economic growth;External shocks;Developed countries;Developing countries;Econometric models;Regional trade agreement, trade openness, growth volatility
    Date: 2015–07–28
  18. By: Andrea Bonilla (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - CNRS)
    Abstract: This paper studies how the public provision of transportation infrastructure impact output convergence and trade integration in a two-country dynamic general equilibrium model in which the transportation cost between countries is endogenously determined by the stock of public infrastructure in both countries. Because of its particular conception, the so-called « Initiative for the Integration of Regional Infrastructure in South America (IIRSA) » serves as the case study. Data from Argentina and Brazil is thus used to solve the model. Two main results emerge. First, increasing public investment in infrastructure provides an impetus to commercial integration but does not necessarily generate output convergence. Second, the model shows that the only way for the two countries to achieve output convergence (in a win-win economic growth scenario) is to coordinate their increments on public infrastructure, as proposed by IIRSA.
    Date: 2015
  19. By: John P. Tang
    Abstract: National registries of toxic chemical emissions and facilities are increasingly used to raise public awareness of potential health hazards in local areas, but an unintended consequence may be the offshoring of production to less regulated countries. Using disaggregated U.S. trade data, this study examines the impact of registry listing on subsequent bilateral trade flows. Estimates from a difference-in-differences model indicate a significant shift toward imports from poorer countries following registry listing. Assuming that environmental protection is a normal good, this result suggests the emergence of pollution havens due to more stringent U.S. environmental regulation.
    Keywords: pollution haven, environmental Kuznets curve, production offshoring, Toxics Release Inventory, pollution release and transfer register, Porter hypothesis
    Date: 2015–02

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