nep-int New Economics Papers
on International Trade
Issue of 2015‒09‒18
thirty papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Export, Import and Total Trade Potential of Pakistan: A Gravity Model Approach By Sultan, Maryam; Munir, Kashif
  2. Do free trade agreements affect tariffs of non-member countries? A theoretical and empirical investigation By Kamal Saggi; Halis Murat Yildiz; Andrey Stoyanov
  3. The impact of host-country environment and home-host country distance on the configuration of international service activities By Julien Gooris
  4. Preferential versus Multilateral Trade Liberalization and the Role of Political Economy By Andrey Stoyanov; Halis Murat Yildiz
  5. Simultaneity between export and import flows and the Marshall–Lerner condition: the Turkish case (1998–2013) By Durmus Ozdemir; Mustafa Kemal Gundogdu
  6. Crisis-proof services : Why trade in services did not suffer during the 2008-2009 collapse By Andrea Ariu
  7. Vertical ownership and export performance: firm-level evidence from France By Carl Gaigné; Karine Latouche; Stéphane Turolla
  8. Economic integration in ASEAN + 3: A network analysis By Thi Nguyet Anh Nguyen; Thi Hong Hanh Pham; Thomas Vallée
  9. Intrafirm Trade and Vertical Fragmentation in U.S. Multinational Corporations By Natalia Ramondo; Veronica Rappoport; Kim J. Ruhl
  10. Virtual proximity and audiovisual services trade By Schmitz, Martin; Hellmanzik, Christiane
  11. The Exchange Rate Uncertaınty On Foreıgn Trade: Evıdence From Panel Coıntegratıon Analysıs For Turkey By dogru, bulent
  12. Non-tariff Measures and Harmonisation: Issues for the RCEP By Olivier CADOT; Lili Yan ING
  13. No Guarantees, No Trade: How Banks Affect Export Patterns By Tim Schmidt-Eisenlohr; Friederike Niepmann
  14. A Survey of Theory and Empirics of Foreign Direct Investment By Toshiyuki Matsuura
  15. The great collapse in value added trade By Nagengast, Arne J.; Stehrer, Robert
  16. Job Creation and Trade in Manufactures: Industry Level Analysis Across Countries By Admasu Shiferaw; Måns Söderbom; Eyersusalem Siba; Getnet Alemu
  17. Learning and the Value of Relationships in International Trade By Tim Schmidt-Eisenlohr; Ryan Monarch
  18. Scoping Study for the Special Border Economic Zone (SBEZ) in the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT) By Lord, Montague; Tangtrongjita, Pawat
  19. Unprecedented Changes in the Terms of Trade By Mariano Kulish; Daniel Rees
  20. The Philippines in the Electronics Global Value Chain: Upgrading Opportunities and Challenges By Rafaelita M. ALDABA
  21. Misallocation, Productivity, and Trade Liberalization: The Case of Vietnamese Manufacturing@ By Doan Thi Thanh Ha; Kozo Kiyota
  22. Costs of Adjustment and Exporter Behavior: Rationalizing the International Elasticity Puzzle By Yaniv Yedid-Levi; Stefanie Haller; Doireann Fitzgerald
  23. Is the evolution of India’s Outward FDI consistent with Dunning’s Investment Development Path sequence? By Swati Virmani; Edmund Amann
  24. Does Foreign Entry Spur Innovation? By Yuriy Gorodnichenko; Jan Svejnar; Katherine Terrell
  25. An Investigation of the Determinants of US FDI in Developed Countries, 1982-2010 By Duong, Nguyen Minh Huy
  26. The role of geographical proximity in the international knowledge flows of European firms: an overview of different knowledge transfer mechanisms By Chaminade , Cristina; Plechero , Monica
  27. Dark Costs, Missing Data: Shedding Some Light on Services Trade By James E. Anderson; Ingo Borchert; Aaditya Mattoo; Yoto V. Yotov
  28. International Import Competition and the Decision to Migrate: Evidence from Mexico By Kaveh Majlesi; Gaia Narciso
  29. The law of one price revisited: How do goods market frictions generate large and volatile price deviations? By Lee, Inkoo; Park, Sang Soo
  30. Revisiting the Effect of FDI on Economic Growth using Quantile Regression By Lijuan Huo; Tae-Hwan Kim; Yunmi Kim

  1. By: Sultan, Maryam; Munir, Kashif
    Abstract: This paper aims to find export, import and total trade determinants and potential of Pakistan by using augmented gravity model. Panel data for the period ranging from 2000 to 2013 across 38 countries has been used for analysis. The results obtained from gravity model confirms that export and import determinants are different from total trade determinants. Similarly, export and import potentials of Pakistan are different from total trade determinants. Pakistan has highest trade potential with Norway and Hungry while for exports the highest potential exist with Switzerland and Hungry and in case of imports Pakistan has highest potential with Norway followed by Philippines, Portugal and Greece. Border sharing countries offer lower transportation cost due to minimum distance as compared to non-border sharing countries. China and India are two major border sharing countries but only with China, Pakistan has exhausted its trade potential (both export and import potential).
    Keywords: Export, Import, Trade, Determinants, Potential, Gravity Model
    JEL: F1 F14 F15
    Date: 2015–09–14
  2. By: Kamal Saggi (Vanderbilt University); Halis Murat Yildiz (Ryerson University); Andrey Stoyanov (York University)
    Abstract: In this paper, we investigate both theoretically and empirically the effects of free trade agreements (FTAs) on the tariffs of non-member countries. Our theoretical framework draws on the comparative advantage based trade model of Horn, Maggi, and Staiger (2010). In this model, since marginal costs of production are increasing with output, if a few countries form an FTA and start trading more with each other, they simultaneously become less willing to export to rest of the world -- a phenomenon we call external trade diversion. Such diversion reduces the ability and the incentive of non-member countries to manipulate their terms of trade, a mechanism that induces them to lower their tariffs on FTA members. We provide an empirical confirmation of this insight using industry-level bilateral trade data for 192 importing and 253 exporting countries, along with the information on all FTAs formed in the world during 1989-2011. Our analysis provides a rather convincing verification of the terms of trade theory since the formation of an FTA between a few countries can be reasonably interpreted as an exogenous event from the perspective of the rest of the world.
    Keywords: Free Trade Agreement, Terms of Trade, Optimal Tariffs
    JEL: F1
    Date: 2015–09–12
  3. By: Julien Gooris
    Abstract: In the realm of globalization, international sourcing of services contributes to reshape firm’s value chains as the physical dispersion of these activities increases. This reorganization does not simply lead to the replication of domestic activities in a destination providing resource advantages, but, in most cases, it implies profound modifications of the flows of activities, including the reconsideration of the boundaries of the firm. Global sourcing strategies, also called offshoring, seek to increase firm’s efficiency by combining the exploitation of foreign locational advantages with process redesign. When aggregated, these firm-level strategies translate into considerable international exchanges to a point that flows of intermediate services represent about 73% of the total of international trade in services for 2005 (OECD, 2009). These activities present a high degree of heterogeneity in terms of functions concerned, the related domestic industries, motivations, destinations, organizational structure or scope. This wave of internationalization, because of its relative novelty, growth and rapid diversification, draws the interest from the public, political and academic spheres but the comprehension of the determinants shaping the configuration and organization of these activities still remain largely unknown. Based on four essays, this PhD thesis addresses the impact of host-country characteristics and distance factors on the configuration of international sourcing activities in the dimensions of location, governance model and scope of activities.<p><p>The first paper studies the country-specific determinants of the interdependent choices of destination and governance model in the global sourcing of services. I explore the simultaneity of these decisions and I jointly estimate their determinants using implementation-level data. Derived from comparative advantages, host-country uncertainty and the global dispersion of tasks, I present three classes of factors driving global sourcing configurations: resource arbitrages, host-country risk and communication barriers. Empirical results confirm that locations with resource or capabilities advantages specific to services – low labour cost, education and labour supply – attract more offshoring activities. However the pursued resource advantages differ depending on the governance model. Country attractiveness for captive implementations presents a higher positive sensitivity to the education-intensive resources, while outsourcing strategies have a greater cost-cutting orientation coming from labour cost arbitrages. Furthermore, the risks inherent to the host-country, in the form of weak formal institutions and inexperience in the destination, have the dual effect of deterring location attractiveness, while they foster the adoption of the outsourcing model compared to the captive one. Communication barriers coming from geographic distance, cultural and linguistic differences have the simultaneous effect of discouraging global sourcing in those locations while, to overcome these constraints, firms favor higher integration with the use of captive models. <p><p>This second paper further explores the mechanisms through which home-host country distances affect the choice of governance mode in service offshoring. Using a Transaction Cost Economics approach, I explore the comparative costs of the hierarchical and contractual models to show that different dimensions of distance (geographic, cultural and institutional), because they generate different types of uncertainties, impact offshore governance choices in different ways. Empirical results confirm that, on the one hand, firms are more likely to respond to internal uncertainties resulting from geographic and cultural distance by leveraging the internal controls and collaboration mechanisms of a captive offshore service center. On the other hand, they tend to respond to external uncertainties resulting from institutional distance by limiting their foreign commitment and leveraging the resources and local experience of third party service providers. Finally, I find that the temporal distance component (time zone difference) of geographical dispersion between onshore and offshore countries plays a dominant role over the spatial distance component.<p><p>The third section then concentrates on the impact of the institutional environment (regulative) on international sourcing activities. To exploit country-specific advantages, firms that source activities from abroad are forced to integrate the institutional environment into the choice not only of host-country, but also of governance model for their offshore activities. Considering inefficient institutions as drivers of transaction costs, this conceptual paper explores the impact of the host-country regulative environment in the interdependent decisions of country selection and governance model (captive or outsourcing) in firms’ global sourcing strategies. I consider two classes of assets: transferred assets for knowledge/information flows, and local assets sourced from the host location. I show that each class involves specific institutional risks for offshoring practices. In turn, because of the different institutional exposures of the captive model and the outsourced one, the institutional risks associated with transferred and local assets have different implications for the choice of governance model. Firms react to institutional risks relative to transferred assets by internalizing their activity, but they bypass inefficient institutions for local assets using outsourcing. Based on the interaction of the institutional risks relative to each class of assets, I then obtain sufficient conditions that give the firm-optimal combinations of country selection and governance model.<p><p>The last section studies how firm-level and country-level risks affect the scope of the process operated in the foreign unit. To prevent appropriation hazard for proprietary content, firms choose a particular disaggregation of the value chain. We argue that, in response to the lack of control offered by internalization and the lack of protection provided by host-country institutions for protecting proprietary content, firms reduce the scope of their activities. In other words, they exploit existing complementarities between the tasks of their value chain using a higher disaggregation of their process and therefore reducing appropriation value for outsiders. Based on a sample of 750 international sourcing projects, regression results on the scope of offshore activities confirm that firms prefer to source discrete tasks rather than entire processes when they lack the protection of internalization and external institutions. In addition, experience modifies these relationships. On the one hand, inexperienced firms do not rely on this slicing mechanism to prevent the loss of control implied by an outsourcing model. On the other hand, the effect of weak institutional protection is perceived as more stringent for inexperienced firms. When host-country institutions are deficient, these firms, compared to the experienced ones, have a higher propensity to operate discrete tasks rather than entire processes.<p>
    Keywords: Offshore outsourcing; Business relocation; Impartition à l'étranger; Délocalisations (Economie); cultural distance; institutions; distance; governance mode; location; Service; offshoring; outsourcing; internationalization
    Date: 2013–09–24
  4. By: Andrey Stoyanov (York University, Department of Economics, Faculty of Liberal Arts and Professional Studies); Halis Murat Yildiz (Ryerson University, Department of Economics)
    Abstract: In this paper we analyze the e¤ect of the freedom to pursue preferential trade liberalization, permitted by Article XXIV of the GATT, on country.s incentives to participate in multilateral negotiations and on the feasibility of the global free trade. We present a model in which countries choose whether to participate in preferen-tial or multilateral trade agreements under political pressures from domestic special interest groups. We show that heterogeneity in political preferences across coun-tries plays an important role for the relative merits of preferential and multilateral approaches to trade liberalization. On one hand, the opportunity to liberalize pref-erentially may be necessary to induce countries with strong political motivations to participate in multilateral free trade negotiations. On the other hand, when countries share similar political preferences, multilateral free trade that would have been politically supported otherwise becomes unattainable if countries can pursue preferential liberalization.
    Keywords: Free Trade Agreements, Multilateralism, Political Economy, Coalition-proof Nash Equilibrium
    JEL: F12 F13 C72
    Date: 2015–09–10
  5. By: Durmus Ozdemir (Department of Economics, Yasar University); Mustafa Kemal Gundogdu (Department of Economics, Istanbul Bilgi University)
    Abstract: This paper examines the Marshall–Lerner condition under the simultaneity of exports and import flows in the Turkish economy. Due to the high interdependence between ratios of export and import flows to GDP, the traditional version of the Marshall–Lerner condition is not sustained. In the case of Turkey, the long-term estimations of the price elasticities of exports and imports, and the respective cross elasticities, lead us to conclude that currency devaluation would, in the long run, improve the balance of trade.
    Keywords: Marshall–Lerner condition, price elasticity, Turkey, export and import flow simultaneity.
    JEL: F14 F11 F44
    Date: 2015–08
  6. By: Andrea Ariu (McDonough Business School, Georgetown University, USA, University of Geneva, Switzerland and CRENOS, Italy)
    Abstract: During the 2008-2009 crisis, trade in goods fell by almost 30%. In contrast, trade in business, telecommunication and financial services continued growing at their pre-crisis rates and only services related to transport declined. Using trade data at the firm-product-destination level for Belgium, I show that during the crisis the elasticity of services exports with respect to GDP growth in destination countries was significantly different from that of goods exports. In particular, the negative income shock in partner countries affected exports of goods but not exports of services. This difference is economically sizable: if goods exports had had the same elasticity to GDP growth as services exports, their fall during the 2008-2009 collapse would have been only half what was observed.
    Keywords: Trade Collapse, Service Resilience, Trade in Services and Goods
    JEL: F10 F14 L80
    Date: 2015–07
  7. By: Carl Gaigné; Karine Latouche; Stéphane Turolla
    Abstract: This paper examines whether ownership arrangements between manufacturers and intermediaries improve the export performance of the former. We develop a theoretical model of trade with vertically linked industries whereby upstream manufacturers compete in export markets and may decide to acquire ownership stakes in an intermediary. The model highlights how more productive firms succeed in managing the double marginalization problem and in reducing the costs of exporting through forward acquisition. On the flip side, we find that vertical ownership creates a market externality among manufacturers due to the reallocation of market shares from small firms to large firms, forcing some low-productivity firms to exit foreign markets. Predictions from the model are tested using firm-level data on the French agri-food sector. The results confirm the model predictions and reveal that the benefits from forward acquisitions could be quite large.
    Keywords: forward integration,trade intermediation,export decision,heterogeneous firms,markups
    JEL: F12 L22
    Date: 2015
  8. By: Thi Nguyet Anh Nguyen (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - UN - Université de Nantes); Thi Hong Hanh Pham (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - UN - Université de Nantes); Thomas Vallée (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - UN - Université de Nantes)
    Abstract: This paper aims to analytically and graphically explore the characteristics of ASEAN+3’s trade and FDI integration over the period 1990-2012 by applying the tools of network analysis. Our results first find evidence that the degree of trade and FDI integration varies among ASEAN+3 member states over the observation period. Second, ASEAN+3’s intra-regional trade network seems to be more densely connected than its intra-regional FDI network. Third, we reveal that large and/or advanced countries tend to be better linked and to form a sub-regional bloc of tightly connected economies. Therefore, ASEAN+3 has been experiencing a widening gap in the trend and patterns of intra-regional trade and FDI among country members at different levels of economic development.
    Keywords: ASEAN+3,Trade, FDI, network analysis
    Date: 2015–09–08
  9. By: Natalia Ramondo; Veronica Rappoport; Kim J. Ruhl
    Abstract: Using firm-level data, we document two new facts regarding intrafirm trade and the activities of the foreign affiliates of U.S. multinational corporations. First, intrafirm trade is concentrated among a small number of large affiliates within large multinational corporations; the median affiliate ships nothing to the rest of the corporation. Second, we find that the input-output coefficient linking the parent's and affiliate's industries of operation—a characteristic commonly associated with production fragmentation— is not related to a corresponding intrafirm low of goods.
    Keywords: Intrafirm trade, multinational corporations, international value chains
    JEL: F12 F14 L11 L25
    Date: 2015–09
  10. By: Schmitz, Martin; Hellmanzik, Christiane
    Abstract: Audiovisual services such as music and movies in digital formats have gained substantial importance over the last decade. This paper analyses audiovisual services in a gravity model framework. In particular, we explore the role of virtual proximity - a new proxy for cultural proximity based on bilateral hyperlinks and bilateral website visits between countries - and find that ‘virtually-proximate’ countries trade significantly larger amounts of audiovisual services. Our results show that virtual proximity also has a larger impact on trade in audiovisual services than on total services trade. Moreover, in line with Hanson and Xiang (2011), our analysis indicates that in the audiovisual services sector, global fixed export costs dominate bilateral fixed export costs for most countries in our sample. JEL Classification: F12, F15, Z10
    Keywords: audiovisual services, cultural proximity, hyperlinks, International trade, internet
    Date: 2015–07
  11. By: dogru, bulent
    Abstract: This study examines the impact of exchange rate uncertainty on bilateral trade between Turkey and 10 major trading partners, using FMOLS panel cointegration analysis and recently developed Westerlund panel cointegration test with multiple structural break for the annual data between 1985 and 2011. Empirical results suggest that the exchange rate uncertainty is an important determinant of foreign trade behavior, the exchange rate uncertainty generally deteriorates Turkish exports to many countries with the exception of the France and Germany, the depreciation in Turkish Lira stimulates export and discourage import, and an increment in domestic income stimulates the household and firm’s import demand. These findings will shed light in understanding the economic result of sudden increase and decrease in exchange rate.
    Keywords: : FMOLS, Westerlund panel cointegration test, foreign trade, uncertainty, EGARCH
    JEL: C33 F14 F31
    Date: 2015
  12. By: Olivier CADOT (University of Lausanne, CEPR and FERDI); Lili Yan ING (Economic Research Institute for ASEAN and East Asia (ERIA) and University of Indonesia)
    Abstract: The upcoming Regional Comprehensive Economic Partnership (RCEP) is a critical element of regional integration in East Asia and the Pacific. While tariffs are already low in this region, non-tariff measures (NTMs) remain a key issue in trade in goods. NTMs may bring consequences on sourcing and enforcement costs and may affect the structure of an industry. ASEAN countries have similar patterns of NTM imposition at the product level. International experience shows that regional trade agreements could reduce regulatory distance by 41 percent. The RCEP could bring East Asian countries to improve transparency of their NTMs and encourage mutual recognition.
    Keywords: : ASEAN, RCEP, non-tariff measure, regional integration, mutual recognition
    Date: 2015–09
  13. By: Tim Schmidt-Eisenlohr (University of Illinois at Urbana-Champaign); Friederike Niepmann (Federal Reserve Bank of New York)
    Abstract: How relevant are financial instruments to manage risk in international trade for exporting? Employing a unique dataset of U.S. banks' trade finance claims by country, this paper estimates the effect of shocks to the supply of letters of credit on U.S. exports. Our identification strategy relies on two observations. First, banks vary in their importance as providers of letters of credit across countries. Second, a reduction in the supply of letters of credit by a bank should have a larger effect on exports to those destinations where the bank takes a larger share of the trade finance market. We show that a one-standard deviation negative shock to a country's supply of letters of credit reduces U.S. exports by 1.5 percentage points. This effect is stronger for smaller and poorer destinations. It more than doubles during crisis times, suggesting a non-negligible role for finance in explaining the Great Trade Collapse.
    Date: 2015
  14. By: Toshiyuki Matsuura (Keio Economic Observatory, Keio University)
    Abstract: This paper surveys recent development of theoretical and empirical studies on foreign direct investment (FDI). We first introduce the trends in foreign direct investment especially focusing on outward and inward Japanese FDI. Secondly, after summarizing traditional FDI theory and empirical evidences, we survey studies that focus on the issue of firm heterogeneity or that uses three country framework. Third, we introduce recent empirical analysis that investigates the impact of FDI both on host country and home country using firm-level or plant-level data. Finally, based on the recent trends in the research on FDI, we provide future research agenda.
    Keywords: Multinational Firms, Firm Heterogeneity, Three country model, Micro data analysis
    JEL: F2 L2
    Date: 2014–07
  15. By: Nagengast, Arne J.; Stehrer, Robert
    Abstract: This paper studies the great collapse in value added trade using a structural decomposition analysis. We show that changes in vertical specialisation accounted for almost half of the great trade collapse, while the previous literature on gross trade has mainly focused on final expenditure, inventory adjustment and adverse credit supply conditions. The decline in international production sharing during the crisis may partially account for the observed decrease in global trade elasticities in recent years. Second, we find that the drop in the overall level of demand accounted for roughly a quarter of the decline in value added exports while just under one third was due to compositional changes in final demand. Finally, we demonstrate that the dichotomy between services and manufacturing sectors observed in gross exports during the great trade collapse is not apparent in value added trade data. JEL Classification: F1, F2, C67, R15
    Keywords: Great trade collapse, Input-output tables, Structural decomposition analysis, Trade in value added, Vertical specialization
    Date: 2015–07
  16. By: Admasu Shiferaw (Department of Economics, The College of William and Mary); Måns Söderbom (Economics Department, University of Gothenburg, Sweden); Eyersusalem Siba (Economics Department, University of Gothenburg, Sweden); Getnet Alemu (College of Development Studies, Addis Ababa University, Ethiopia)
    Abstract: This paper examines industry level responses of manufacturing employment in the context of globalization using a large sample of developed, developing and transition economies. We find that developing countries need atypically high rates of value added growth (about 10%) to increase manufacturing employment appreciably (about 4%). The employment benefits of export-orientation are also modest even in “comparative advantage” industries of developing countries. However, diversifying the export basket contributes significantly to employment growth, particularly in the medium- and high-technology industries. Import-competition does not undermine employment growth in low-technology industries of developing countries while it displaces jobs in the same industries in OECD and transition economies. For developing countries, import-induced job losses are higher in the more capital-intensive medium-technology industries. Jobs in high-technology industries are less sensitive to imports with positive relationships observed in the OECD. Investment also complements job creation in lowtechnology industries of developing countries that have yet to industrialize.
    Keywords: Labor Demand; Employment Elasticity; Manufacturing; Export Orientation; Import Competition
    JEL: J21 L60 O14 O25
    Date: 2015–09–02
  17. By: Tim Schmidt-Eisenlohr (University of Illinois at Urbana-Champaign); Ryan Monarch (Federal Reserve Board)
    Abstract: We use U.S. import data to explore the characteristics of importer-exporter relationships. While many relationships split up after only one period, others are very persistent. Even when a relationship breakup occurs, importers overwhelmingly replace imports from that partner by buying from a supplier familiar to them. Furthermore, 43% of new product purchases come from firms that the importer interacted with in an earlier year. These results indicate the presence of large matching frictions in international trade. We develop a model to study and quantify the role of reputation and learning in explaining the observed patterns of importer-exporter relationships. Predictions of the model regarding the correlation between switching behavior and source country institutions, the number of export partners, and the number of products purchased are borne out in the data.
    Date: 2015
  18. By: Lord, Montague; Tangtrongjita, Pawat
    Abstract: Report Objective: This report provides a review and analysis of the findings from the scoping study on the proposed Malaysian–Thailand Special Border Economic Zone (SBEZ). The coverage of the study is guided by the recommendations of the IMT-GT Special Implementation Task Force on the Establishment of a Special Border Economic Zone (hereafter TF-SBEZ) at its meeting in Penang, Malaysia on 22 November 2013. At that time, the TF-SBEZ determined that that present study should be a stand-alone study, comprehensive in nature and cover in-depth all the SBEZ components for each of the eight border crossing areas in the Thai-Malaysian border, including linkages to Indonesia. Based on those findings, the TF-SBEZ requested that the present study make recommendations to the Task Force on the possible location(s) of the SBEZ. The study is part of a broader project that intends to support the establishment of an SBEZ that will help to attract investors in productive activities that promote subregional value chains in order to stimulate cross-border trade and investment, serve as a catalyst to commerce along the IMT-GT corridors and help to substantially improve the social and economic welfare of the population along the border provinces. Implementation: The present consultancy has been carried out between 10 February 2014 and the end of April 2014 under technical assistance provided by the Asian Development Bank. The first field visit of the study team to the Thai side of the border took place on 2-7 March 2014. That fieldwork was preceded by a visit to the border area on the part of the National Economic and Social Development Board (NESDB) on 16-24 February 2014 that included two consultant associates from the present team. The second field visit of the study team covered the Malaysian side of the border and took place between 29 March and 4 April 2014. SBEZ Components and Roadmap: Each border crossing has been being assessed on the basis of the following components, details of which are presented in the main body of this report: (a) special economic zone (SEZ) potential; (b) cross-border value chains; (c) transport and logistics; (d) socio-economic development strategy for the area; (e) SME development and business development services: (f) linkages to Indonesia. The proposed SBEZ is best viewed as incremental levels of collaborative of Malaysia, Thailand and Indonesia. Level 1 would cover the establishment of SBEZ facilities and supporting activities on either or both sides of the border; Level 2 would involve development of cross-border value chains and hard and soft infrastructure supporting the SBEZ; and Level 3 would consist of collaboration in joint SBEZ facilities and supporting activities. This stepwise approach reflects international best practices for the development of cross-border SEZs in Europe, North America and Asia. It ensures that actions on either side of the border move from an informal to formal mechanisms of collaboration, thereby providing an effective mechanisms for achieving long-term goals for the operation of a joint SBEZ. Opportunities at Each Border Crossing Area: There are considerable differences among the bordering Thai provinces and Malaysian states in terms of geography, demographics, development levels, comparative advantages of industries, infrastructure, and potential sector- or industry-level collaboration. Figure S1 summarizes possible areas of collaboration at each border crossing and it reflects the detailed analysis of Part III in this report, where ratings are presented for each of the eight border crossings. Ratings: The ratings of the assessment are summarized visually in Figures S2 and S3. The results show that there are two border crossing areas with the highest ratings: The first is the Su-ngai Kolok – Rantau Panjang in Narathiwat Province of Thailand; the second is the Ban Prakob – Durian Burung border crossing area in Kedah State of Malaysia and Songkhla Province of Thailand. However, they reflect considerable differences in the valuation of parameters for each of the components. Ban Prakob – Durian Burung border crossing has new modern customs facility on both sides, a four lane highway that is currently being completed on the Thai side, and an excellent roadways on the Malaysian side of the border. The area around the border on the Thai side has been designated for farmland and natural preserves, and there could therefore be sensitivity on the part of the local population to the establishment of an SEZ in the border area. Development of part of the SBEZ could, however, be located farther inland, which might eliminate those possible drawbacks.
    Keywords: Special border economic zones, SBEZ, special economic zones, SEZ, Thailand, Malaysia, Indonesia-Malaysia-Thailand Growth Triangle, IMT-GT, border economic zones, BEZ
    JEL: F13 F14 Q0
    Date: 2014–04–22
  19. By: Mariano Kulish (School of Economics, University of New South Wales); Daniel Rees (Reserve Bank of Australia)
    Abstract: The ongoing development of Asia has led to unprecedented changes in the terms of trade of commodity-exporting economies. Using a small open economy model we estimate changes in the long-run level and variance of Australia's terms of trade and study the quantitative implications of these changes. We find that the long-run prices of commodities that Australia exports started to increase significantly in mid 2003 and that the volatility of shocks to commodity prices doubled soon after. The persistent increase in the level of commodity prices is smaller than single-equation estimates suggest, but our inferences rely on many observables that in general equilibrium also respond to shifts in the long-run level of the terms of trade.
    Keywords: Bayesian analysis; open economy macroeconomics; terms of trade
    JEL: C11 F41 Q33
    Date: 2015–08
  20. By: Rafaelita M. ALDABA (Philippine Department of Trade and Industry)
    Abstract: This paper examines the extent and depth of participation of the Philippines in the electronics global value chains (GVC) using Trade in Value Added (TiVA) and extensive margin indicators. While the Philippines remains strong in semiconductors, it is lagging behind other ASEAN countries. According to the TiVA database, the level of participation of the Philippines in the electronics GVC increased substantially between 1995 and 2009. The extensive margins show that the Philippines has been regaining its position in regional production networks as indicated by the rising number of exported products to the region. Attracting more electronic manufacturing services (EMS) companies would be crucial in sustaining the position of the Philippines in regional production networks. The gradually declining trend in the number of imported parts indicates the need to diversify and upgrade the industry’s GVC participation through market upgrading characterised by moving from semiconductors into EMS, particularly in areas with high growth potential such as auto electronics, power electronics, electronic data processing, and consumer electronics. Strengthening competitiveness in semiconductor devices and EMS is necessary to transform and deepen the industry position in the GVC. The upgrading process will require human resources development, establishing an innovation ecosystem, efficient logistics and infrastructure, and developing a parts, supplies, and materials sector to support the industry.
    Keywords: : global value chain, electronics, Philippines
    JEL: F10 L63
    Date: 2015–09
  21. By: Doan Thi Thanh Ha (Graduate School of International Social Sciences, Yokohama National University); Kozo Kiyota (Keio Economic Observatory, Keio University)
    Abstract: This paper attempts to measure the contribution of resource misallocation to aggregate manufacturing TFP, focusing on Vietnamese manufacturing firms for the period 2000-09. Our research questions are threefold. 1) To what extent are resources misallocated in Vietnam? 2) How large would the productivity gains have been in the absence of distortions? 3) Did the degree of misallocation decline after entry into the World Trade Organization (WTO)? The answers to these questions are as follows. First, misallocation in Vietnam is comparable to that in China and India. Second, there would have been substantial improvement in aggregate TFP in the absence of distortions. Finally, the accession to the WTO contributed to reducing the distortions in output markets. However, this positive effect was offset by increasing distortions in capital markets. These results together suggest that further reforms in capital markets could improve aggregate TFP in Vietnam through reduced misallocation.
    Keywords: Local Misallocation, Total factor productivity, Trade liberalization, WTO, Vietnam
    JEL: O47 F14 D22
    Date: 2015–05–29
  22. By: Yaniv Yedid-Levi (The University of British Columbia); Stefanie Haller (University College Dublin); Doireann Fitzgerald (Federal Reserve Bank of Minneapolis)
    Abstract: Exports are not very responsive to real exchange rates, though they respond strongly to trade liberalizations, a fact sometimes referred to as the International Elasticity Puzzle. We show that two dimensions of costs of adjustment can rationalize this fact. We present a partial equilibrium model of the firm with both costly customer base accumulation and sticky prices. We calibrate the model to match steady state firm and export dynamics and steady state facts about price stickiness. We simulate the responses of these firms to real exchange rate and tariff processes estimated from data. The simulated responses match actual micro-level responses of exports to tariffs estimated using data for Ireland, and go close to matching actual responses to exchange rates.
    Date: 2015
  23. By: Swati Virmani; Edmund Amann
    Abstract: This paper examines whether India’s Outward Foreign Direct Investment (OFDI) pattern is consistent with Dunning’s Investment Development Path (IDP) sequence using macro data over the period 1980-2010. We test whether the level of development - proxied by GDP per capita - is the main factor explaining OFDI, and augment the IDP by studying other major determinants such as Exports, Inward FDI (IFDI), Human Capital, and R&D using the Cointegration and Error Correction Model techniques. Our results support the main proposition of the IDP, but also highlight the importance of other factors. We also find that OFDI Granger-causes R&D, suggesting a possibility of reverse technology spillover.
    Keywords: Outward FDI, Investment Development Path, Error Correction Model, Granger Causality, Reverse Technology Spillovers
    JEL: F21 F23 O30
    Date: 2015
  24. By: Yuriy Gorodnichenko; Jan Svejnar; Katherine Terrell
    Abstract: Our estimates, based on large firm-level and industry-level data sets from eighteen countries, suggest that FDI and trade have strong positive spillover effects on product and technology innovation by domestic firms in emerging markets. The FDI effect is more pronounced for firms from advanced economies. Moreover, our results indicate that the spillover effects can be detected with micro data at the firm-level, but that using linkage variables computed from input-output tables at the industry level yields much weaker, and usually insignificant, estimated effects. These patterns are consistent with spillover effects being rather proximate and localized.
    JEL: F2 M16 O16 P23
    Date: 2015–09
  25. By: Duong, Nguyen Minh Huy
    Abstract: The paper uses macro panel data on US FDI in developed countries during 1982-2010 to empirically investigate the influence of host country characteristics on FDI. Differing from earlier panel data studies on FDI determinants which often impose the standard restrictions of the homogeneity of slope coefficients on the observed variables and the homogeneity of the factor loadings on the unobserved common factors in the empirical specification, this paper allows the effects of observed variables and unobserved common factors to vary across countries by using recently-introduced estimators. In this research, the data seem to support the empirical specification allowing for slope heterogeneity across countries rather more than the standard ones imposing the restrictions of slope homogeneity. Empirical results indicate that the stock of US FDI in a given FDI recipient is likely to be significantly determined by market size, lower relative tax rates, and risks in terms of the investment climate, corruption and the legal environment of the host country.
    Keywords: Foreign Direct Investment (FDI), Determinants of FDI, US FDI
    JEL: F21 F23
    Date: 2015–09–09
  26. By: Chaminade , Cristina (CIRCLE, Lund University); Plechero , Monica (DEAMS – University of Trieste, Italy & CIRCLE, Lund University)
    Abstract: The paper provides an overview of the international knowledge flows in Europe particularly looking at the drivers and consequences of such flows as well as the general trend. It distinguishes between different types of mechanisms for the acquisition and transfer of knowledge from trade to research and technological collaboration, mobility of human capital and FDI. The paper is empirical in nature and targeted to a wider audience. The analysis reveals that proximity matters significantly for the mobility of human capital as well as for the establishment of collaborative networks. In both cases, intra-Europe knowledge flows are more important that extra-Europe knowledge flows, thus pointing to the role of the European market facilitating these forms of exchange. The patterns of offshoring of R&D as well as trade networks are rather different- more global than intra-European. In other words, trade and investment networks are more dispersed globally than mobility of human capital and research and technological networks.
    Keywords: Exports of high tech products; international research collaboration; international mobility of researchers; offshoring of R&D; Europe
    JEL: F20 O30
    Date: 2015–09–08
  27. By: James E. Anderson; Ingo Borchert; Aaditya Mattoo; Yoto V. Yotov
    Abstract: A structural gravity model is used to estimate barriers to services trade across many sectors, countries and time. Since the disaggregated output data needed to flexibly infer border barriers are often missing for services, we derive a novel methodology for projecting output data. The empirical implementation sheds light on the role of institutions, geography, size and digital infrastructure as determinants of border barriers. We find that border barriers have generally fallen over time but there are differences across sectors and countries. Notably, border effects for the smallest economies have remained stable, giving rise to a divergent pattern across countries.
    JEL: F10 F14
    Date: 2015–09
  28. By: Kaveh Majlesi (Lund University); Gaia Narciso (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.
    Date: 2015–09
  29. By: Lee, Inkoo; Park, Sang Soo
    Abstract: This paper analyzes the role of goods market frictions in accounting for the large and volatile deviations from the Law of One Price in a framework of flexible prices. We draw a distinction between goods market frictions that are required to consume tradable goods (e.g., distribution costs) and those that are necessary for international transactions (e.g., trade costs). We find that trade costs generate LOP deviations by introducing a no-arbitrage band, while distribution costs cause the price to deviate from the LOP by affecting the probability that trade will occur, given the band. We then conduct a Monte Carlo simulation to show that real exchange rate volatility is positively associated with trade costs, but negatively related to distribution costs. This effect depends on the interplay of trade costs and distribution costs, as they work in opposite directions when creating arbitrage opportunities.
    Keywords: Distribution costs, trade costs, law of one price, real exchange rate volatility
    JEL: F31 F37
    Date: 2015–09–01
  30. By: Lijuan Huo (Beijing Institute of Technology); Tae-Hwan Kim (Yonsei University); Yunmi Kim (University of Seoul)
    Abstract: Numerous empirical studies preset strong evidence supporting the positive relationship between Foreign Direct Investment (FDI) and the host countries¡¯ economic growth. Unlike most papers investigating this relationship using least squares-based regression, we analyze the effect of FDI on economic growth using quantile regression (QR). In this paper, we attempt to (i) reduce the omitted variable bias, (ii) solve the potential endogeneity problem of FDI, and (iii) allow heterogeneity across countries, using instrumental variable QR for panel data with fixed effect. Our empirical results reinforce the view that FDI is positively related to economic growth in under-developed countries where the rate of growth is relatively low.
    Keywords: FDI, Quantile Regression, Panel Data, Endogeneity, Instrumental Variable
    Date: 2015–09

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