nep-int New Economics Papers
on International Trade
Issue of 2015‒10‒04
forty-one papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. The Political Economy of FDI Flow into Developing Countries: Does the Depth of International Trade Agreements Matter? By Arslan Tariq Rana; Mazen Kebewar
  2. Offshoring and Skill-upgrading in French Manufacturing: A Heckscher-Ohlin-Melitz View By Carluccio, Juan; Cun͂at, Alejandro; Fadinger, Harald; Fons-Rosen, Christian
  3. Regional Effect of Trade Liberalization on the Firm-level Exports By Tan, Yong; An, Liwei
  4. Do free trade agreements affect tariffs of non-member countries? A theoretical and empirical investigation By Halis Murat Yildiz; Kamal Saggi; Andrey Stoyanov
  5. EC – Seal Products: The Tension between Public Morals and International Trade Agreements By Conconi, Paola; Voon, Tania
  6. Do South-South Preferential Trade Agreements Undermine the Prospects for Multilateral Free Trade? By Paul Missios; Halis Murat Yildiz
  7. The ladder of foreign sales: Internationalization modes of European firms By Gabor Bekes; Balázs Murakozy
  8. How do exporters react to the prices of their competitors? By Balázs Murakozy
  9. Gearing the Philippines for ASEAN Economic Community By Florian A. Alburo
  10. Markup and productivity of exporters and importers By Balázs Murakozy; Cecilia Hornok
  11. Merger Policy in a Quantitative Model of International Trade By Breinlich, Holger; Nocke, Volker; Schulz, Nicolas
  12. Preferential versus Multilateral Trade Liberalization and the Role of Political Economy By Halis Murat Yildiz; Andrey Stoyanov
  13. A Computable General Equilibrium Analysis of Transatlantic Trade and Investment Partnership and Trans-Pacific Partnership on Chinese Economy By Buhara Aslan; Merve Mavus Kutuk; Arif Oduncu
  14. Worth its Weight in Gold: Product Weight, International Shipping, and Patterns of Trade By Ahmad Lashkaripour
  15. Competition with Multinational Firms: Theory and Evidence By Balázs Murakozy; Katheryn Niles Russ
  16. Vertical Specialization, Global Value Chains and the changing Geography of Trade: the Portuguese Rubber and Plastics Industry Case By João Lopes; Ana Santos
  17. Knocking on Tax Haven’s Door: Multinational Firms and Transfer Pricing By Davies, Ronald; Martin, Julien; Parenti, Mathieu; Toubal, Farid
  18. Measuring smile curves in global value chains By Ye, Ming; Meng, Bo; Wei, Shang-jin
  19. Opportunities for Cooperation in Removing Prohibitive Trade Barriers By David R. DeRemer
  20. International Trade and Investment by State Enterprises By Przemyslaw Kowalski; Kateryna Perepechay
  21. The Effects of the Tripartite Free Trade Area: Towards a New Economic Geography in Southern, Eastern and Northern Africa? By Andrew Mold; Rodgers Mukwaya
  22. Internalizing Global Value Chains: A Firm-Level Analysis By Laura Alfaro; Pol Antràs; Davin Chor; Paola Conconi
  23. The geography, variety and dynamics of service exports in Spain: a firm-level analysis By Minondo, Asier
  24. External Trade Diversion, Exclusion Incentives and the Nature of Preferential Trade Agreements By Paul Missios; Kamal Saggi; Halis Murat Yildiz
  25. Mega-deals: What Consequences for sub-Saharan Africa? By H. Guimbard; M. Le Goff
  26. Factor intensities and factor substitution in general equilibrium: A Comment By Nakada, Yoshiaki
  27. Trade Shocks and Mexican Local Labor Markets in the Great Recession By Oscar Mendez
  28. Export Behavior of the Turkish Manufacturing Firms By Aslihan Atabek Demirhan
  29. Micro-founded measurement of regional competitiveness in Europe By Gabor Bekes; Gianmarco I.P. Ottaviano
  30. Trade and Environment: Further Empirical Evidence from Heterogeneous Panels Using Aggregate Data By Thomas Jobert; Fatih Karanfil; Anna Tykhonenko
  31. On the different geographic characteristics of Free Trade Agreements and Customs Unions By Halis Murat Yildiz; James Lake
  32. Comment on Suzuki’s rebuttal of Batra and Casas By Nakada, Yoshiaki
  33. Evolution of trade patterns and economic performance:the case of France and Switzerland during the nineteenth century By Léo CHARLES
  34. Global Value Chains in Africa By Foster-McGregor N.; Kaulich F.; Stehrer R.
  35. What Drives Home Market Advantage? By A. Kerem Cosar; Paul L. E. Grieco; Shengyu Li; Felix Tintelnot
  36. An Empirical Analysis on the Export/Import Coverage Ratio in Turkey By Mustafa Faruk Aydin; Yusuf Soner Baskaya; Ufuk Demiroglu
  37. Offshoring and the Geography of Jobs in Great Britain By Gagliardi, Luisa; Iammarino, Simona; Rodriguez-Pose, Andres
  38. International trade and the occupational mix in manufacturing: Evidence from german micro data By Boddin, Dominik; Henze, Philipp
  39. Growth and Trade: A Structural Estimation Framework By Yoto Yotov; Mario Larch; James Anderson
  40. Production fragmentation, upstreamness, and value-added : evidence from factory Asia 1990-2005 By Ito, Tadashi; Vezina, Pierre-Louis
  41. The Global Agglomeration of Multinational Firms By Laura Alfaro; Maggie Chen

  1. By: Arslan Tariq Rana (LEO - Laboratoire d'économie d'Orleans - CNRS - UO - Université d'Orléans); Mazen Kebewar (Laboratoire d'Economie d'Orléans - LEO - Laboratoire d'économie d'Orleans - CNRS - UO - Université d'Orléans)
    Abstract: There is considerable debate whether the domestic political institutions (specifically, the country’s level of democracy) of the host developing country toward foreign investors are effective in establishing the credibility of commitments are still underway, researchers have also analyzed the effect of international institutions such as (GATT-WTO) membership and Bilateral Investment treaties (BIT) in their role of establishing the credibility of commitment to attract foreign investments. In addition, most recent studies have examined the effect of International Trade Agreements (TAs) on FDI flows as they contain separate investment chapters and dispute settlement mechanism, thus providing confidence to investor regarding the security of their investments. We argue that there are qualitative differences among various types of trade agreements. Full-fledged trade agreements (FTAs-CUs) provide credibility of commitments to foreign investors whereas the partial scope agreements (PSA) are not sufficient in providing credibility. Moreover, the level of democracy in the host country conditions the effect of FTAs-CUs and not in the case of PSAs. This paper analyses the impact of heterogeneous TAs, and their interaction with domestic institutions, on FDI inflows. Statistical analyses for 122 developing countries from 1970 to 2005 support this argument. The method adopted relies on fixed effects estimator which is robust to control endogeneity on a large panel dataset. The strict exogeneity of results by using a method suggested by Baier and Bergstrand (2007) and no feedback effect found in sample. The results state that (1) The conclusion of FTAs-CUs attract FDI inflows into the developing countries significantly whereas PSAs are insignificant (2) FTAs-CUs are complementary to democratic regime whereas the conditional effect of PSA with democracy on levels of FDI inflows is insignificant.
    Keywords: Foreign direct investment, free trade agreements, partial scope agreements, domestic institutions.
    Date: 2014
  2. By: Carluccio, Juan; Cun͂at, Alejandro; Fadinger, Harald; Fons-Rosen, Christian
    Abstract: We present a factor-proportions trade model in which heterogeneous firms can offshore intermediate inputs subject to fixed offshoring costs. In the skill-abundant country, high-productivity firms offshore a larger range of labor-intensive inputs to the labor-abundant countries than low-productivity firms. Differently from the traditional versions of factor- proportions trade theory, Heckscher-Ohlin forces operate at the within-industry level, leading to endogenous variation in skill intensity across firms that is positively correlated with firm productivity. Using French firm-level data for the years 1996 to 2007, we provide empirical support for the factor proportions channel through which offshoring to labor-abundantcountries affects the firm-level skill intensities of French manufacturers
    Keywords: offshoring , heterogeneous firms , firm-level factor intensities , Heckscher-Ohlin
    JEL: F11 F12 F14
    Date: 2015
  3. By: Tan, Yong; An, Liwei
    Abstract: This paper extends the model of Melitz (2003) to decompose the tariff and wage effect of trade liberalization on the firm-level intensive margin of exports. The tariff effect of trade liberalization is associated with the reduction in exporting firms' variable trade costs, on the contrast, the wage effect manifests itself through increasing regional wages caused by rising local labor demand. The model shows that the two types of effects have opposite influence on the firm-level exports. The wage effect varies across regions due to the different regional industrial composition, which leads to different regional response to trade liberalization.
    Keywords: Trade Liberalization, Regional Wage, Tariff Effect, Wage Effect, Regional Effect
    JEL: D21 F10 L10
    Date: 2015–09–21
  4. By: Halis Murat Yildiz (Department of Economics, Ryerson University, Toronto, Canada); Kamal Saggi (Department of Economics, Venderbilt University, Nashville, TN, USA); Andrey Stoyanov (Department of Economics, York University, Toronto, Canada)
    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: F13 F14
    Date: 2015–09
  5. By: Conconi, Paola; Voon, Tania
    Abstract: The dispute in EC – Seal Products raises fundamental questions about the relationship between public morals and international trade. Can WTO members impose trade restrictions based on moral or ethical concerns? Under what conditions can these concerns trump existing trade liberalization commitments? The dispute was filed in 2009 by Canada and Norway against the EU, which in the same year had banned seal products from being imported and placed on its market. According to the EU, the policy was introduced in response to European moral outrage at the inhumane killing of seals. The EU seal regime included a series of exceptions. In particular, it allowed imports of seal products hunted by Inuit or other indigenous communities, as well as imports of seal products processed and re-exported by EU producers. This article discusses the Appellate Body’s ruling in EC – Seal Products and some of the key legal and economic issues raised by this dispute.
    Keywords: moral concerns; protection; trade disputes
    JEL: F13
    Date: 2015–09
  6. By: Paul Missios (Department of Economics, Ryerson University, Toronto, Canada); Halis Murat Yildiz (Department of Economics, Ryerson University, Toronto, Canada)
    Abstract: Due to trade diversion, there has been concerns expressed over the proliferation of preferential trade agreements (PTAs) between South countries. In this paper, we compare welfare across the various forms of bilateral free trade agreements (FTAs) and customs unions (CUs) and examine their implications for the stability of multilateral free trade. While North-North PTAs tend to yield higher welfare, we fi?nd certain cases where South-South agreements are more likely to lead to global free trade than North-North or North-South agreements, but other cases where multilateral cooperation over free trade is the least likely under South-South agreements. We also examine how the expansion of existing agreements, or the combination of separate agreements, affects the potential for free trade.
    Keywords: trade agreements; free trade; development; tariffs
    JEL: F12 F13 O19 O24
    Date: 2013–07
  7. By: Gabor Bekes (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and CEPR); Balázs Murakozy (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: This paper show evidence that firms choose from a much larger set of internationalization modes than usually assumed in the international trade literature and that this choice is governed by similar selection processes than the one proposed by Helpman, Melitz, Yeaple (2004 AER). We rely on a unique dataset of European firms which, besides balance sheet and many qualitative variables, includes direct information on indirect and direct exporting, outsourcing, service and manufacturing FDI and operating business groups. We generalize a model of self-selection based on two dimensional firm heterogeneity productivity and quality - to N trade modes. By estimating this model we find evidence supporting selection into many modes, and learn that both quality and productivity play a similarly important role. The model is also suitable to inform us about the relative cost structure of different modes: indirect exporting does not seem to require a high fixed cost, while the fixed cost of FDI is much larger than that of exporting or outsourcing. We also find that when we focus on independent firms that are not part of vertical investment strategies which are firms usually considered in selection models -, results hold, albeit with lower estimated premia.
    Keywords: Firm heterogeneity, export, FDI, international trade mode, multinomial logit
    JEL: F14 F23
    Date: 2015–06
  8. By: Balázs Murakozy (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: This paper uses firm-product-destination level trade data from Hungary linked to Eurostat data on unit values and quantities in production, imports and exports of products in EU member states to see how firms react following price and exchange rate changes in their export markets. The results show that exchange rate pass-through is similar to that found in other countries, but the elasticity with respect to changes in the market price is only about a precisely estimated 0.02, suggesting that firms adjust their markups very differently following exchange rate and price shocks. In addition, quantity reaction after a change in the market price is quite small, suggesting a very low residual demand elasticity. Regarding heterogeneity, the paper finds that exchange rate pass-through is more incomplete for larger firms, while reaction to price changes is stronger for products which Hungary competes with low price competitors. These results are not easy to explain in a flexible price model, but can be in line with multi-year contracts which handle different shocks differently.
    Keywords: exchange rate pass-through, reaction to price changes, trade microdata, Hungary
    JEL: F14 F31 F41
    Date: 2015–06
  9. By: Florian A. Alburo (School of Economics, University of the Philippines Diliman)
    Abstract: This paper argues that the way for the Philippines to the ASEAN Economic Community (AEC) is not through ASEAN but through the world. Being good neighbors will define the AEC and how the Philippines fits into it—not necessarily in the way it was planned. Of the 4 pillars underlying the AEC, the paper focuses on Pillar 1—Single Market and Production Base—and within this, trade in goods. During the period of AFTA implementation the Philippines did not only aggressively pursue a program of preferential tariff reduction but a concomitant reduction of MFN tariff rates. Between 1993 and 1999 the margins between Philippine AFTA rates and its MFN rates sharply declined, so that the initial preferential bias in terms of both exports to and imports from ASEAN diminished and trade shares with the region remained stable. In a sense the country’s readiness for AEC was already laid down at the start of AFTA and fortified when it unilaterally liberalized on an MFN basis. But this is only one, albeit critical, part, of the AEC package. The other pillars and the other parts of Pillar 1 are still beset by barriers to effective regional trade – mostly homegrown and putting the domestic house in order is necessary not only for the AEC but for firmer integration with the world economy. Even with the current progress in trade-in-goods, sustaining this requires a readiness that needs to be attended—with or without the AEC. Of the original 5 ASEAN members, most have successfully overcome barriers to integration into the regional and global trade and investment systems. Thus, for some of these countries, aggressive pursuit of the AEC is marginal and a by-product of global readiness. Their institutional machineries have been built around the global trading arena, their economic actors exploit their borders’ opportunities, their governments bold in forging agreements that open markets. The Philippines has yet to fully be ready for the global markets, its economic actors still have to appreciate borders and their potential for expanding markets, and its government carries out audacious reforms that realize its nearby neighbors can be exploited as part of the larger world economy.
    Keywords: AEC, Regional and World Trade
    JEL: F13 F15
    Date: 2015–09
  10. By: Balázs Murakozy (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Cecilia Hornok (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: This paper studies the relationship between firm markups and importing intermediate inputs and exporting using detailed firm-level data from Hungary in 1995-2003. We estimate production functions structurally to obtain firm-year-level productivity and markup estimates. We find that importing intermediate inputs is associated with large markup premium, while the exporter markup premium is nonexistent when we control for the importer status. We interpret our results in a simple theoretical framework, where firms lower their markup when exporting to more competitive foreign markets and where importing intermediate inputs leads to higher-quality products.
    Keywords: markups, exporting, importing, detailed trade data, Hungary
    JEL: D22 D24 F14 L11 L60
    Date: 2015–06
  11. By: Breinlich, Holger; Nocke, Volker; Schulz, Nicolas
    Abstract: In a two-country international trade model with oligopolistic competition, we studythe conditions on market structure and trade costs under which a merger policy designed to benefit domestic consumers is too tough or too lenient from the viewpoint of the foreign country. Calibrating the model to match industry-level data in the U.S. and Canada, we show that at present levels of trade costs merger policy is too tough in the vast majority of sectors. We also quantify the resulting externalities and study the impact of different regimes of coordinating merger policies at varying levels of trade costs.
    Keywords: Mergers and Acquisitions; Merger Policy; Trade Policy; Oligopoly; International Trade
    JEL: F12 F13 L13 L44
    Date: 2015–09–21
  12. By: Halis Murat Yildiz (Department of Economics, Ryerson University, Toronto, Canada); Andrey Stoyanov (Department of Economics, York University, Toronto, Canada)
    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 feasibility of global free trade. We present a model, in which countries choose whether to participate in preferential or multilateral trade agreements under political pressures from domestic special interest groups. We show that heterogeneity in political preferences across countries plays an important role in determining the relative merits of preferential and multilateral approaches to trade liberalization. On one hand, the opportunity to liberalize preferentially 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
  13. By: Buhara Aslan; Merve Mavus Kutuk; Arif Oduncu
    Abstract: As a result of deadlocked multilateral trade negotiations, many countries have commenced to establish bilateral and regional trade agreements. Among those agreements the Transatlantic Trade and Investment Partnership (TTIP) and Trans-Pacific Partnership (TPP) are agreements with members from across the Atlantic and the Pacific respectively. This study focuses on the impacts of these agreements on Chinese economy under three scenarios by using the Global Trade Analysis Project database and a computable general equilibrium model. The results suggest that when only the TTIP is realized, Chinese economic variables are negatively affected. When both the TTIP and TPP are realized and China is excluded, the combined damage in Chinese economy is higher than the damage of the TTIP alone. On the other hand, inclusion of China in the TPP results in positively affected economic variables. In other words, positive impacts of participation of China in the TPP compensate for the negative impacts of the TTIP.
    Keywords: Free trade agreements, Transatlantic Trade and Investment Partnership, Trans-Pacific Partnership, China
    JEL: F13 F14 F15
    Date: 2015
  14. By: Ahmad Lashkaripour (Indiana University)
    Abstract: Trade theory relies heavily on the classic iceberg trade cost assumption, but empirical studies have generally rejected it. These studies, however, overlook variations in product weight. Utilizing detailed trade data, I show that unit weight varies widely even within narrowly defined categories, and increases systematically with unit value. I develop and estimate a model of international transportation that accommodates these patterns. Two remarkable results emerge: First, I find strong empirical support for the iceberg assumption. Specifically, a 10% increase in the price of an item increases the shipping cost by 9.5%. More than 80% of this effect is driven by product-weight. Second, even when facing iceberg (ad-valorem) shipping costs, countries tend to export heavier and higher-priced items to faraway locations. This pattern cannot be explained with the classic Alchian-Allen conjecture. I show that, instead, it is driven by specialization across markups.
    Date: 2015–09
  15. By: Balázs Murakozy (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Katheryn Niles Russ (University of California, Davis and NBER)
    Abstract: Do multinational firms wield more market power than their domestic counterparts? Using Hungarian firm-level data between 1993 and 2007, we find that markups are 19 percent higher for foreign-owned firms than for domestically owned firms. Moreover, markups for domestically owned firms are significantly lower in industries where multinationals have a greater technological edge, suggesting that Ricardian differences in technology and endogenous markups constitute important dimensions for models of foreign direct investment. We innovate within a canonical Ricardian model of endogenous markups and heterogeneous firms to provide analytical distributions of market shares and markups when goods are imperfect substitutes to provide structure for our empirical analysis. Our model explains about half of the multinational markup premium identified in the empirical analysis.
    Keywords: multinational firm; heterogeneous firms; Bertrand competition
    JEL: F12 F13 F15 F23
    Date: 2015–06
  16. By: João Lopes (UECE, ISEG/University of Lisbon); Ana Santos (ISEG/University of Lisbon)
    Abstract: The growing fragmentation of production in the last decades has changed the geography, and dynamics, of trade. It is very important, especially for small and open economies, a good position in regional and global value chains (GVC). The necessary increase in imports, namely of intermediate inputs, that this positioning implies must be accompanied by an adequate increase of exports, generating a substantial amount of domestic value added. In this paper, an empirical analysis is made of the changes in the geography of imports and exports of Portuguese rubber and plastics industry, as well as the growing vertical specialization of this sector, both with direct and total measures, in the period 1995-2011. To put the main trends in perspective, a comparison will be made with some northern and southern EU countries, the main trade partners of Portugal in this industry, and in fact in all the others. The rubber and plastics industry is a good case study in the context of GVC analysis, given the strong proportion of intermediate inputs in its output and trade.
    Keywords: Vertical specialization; Global value chains; Rubber and plastics industry; Portugal
    JEL: F14 F23 L65
  17. By: Davies, Ronald; Martin, Julien; Parenti, Mathieu; Toubal, Farid
    Abstract: This paper analyzes the transfer pricing of multinational firms. Intra-firm prices may systematically deviate from arm’s length prices for two motives: pricing to market and tax avoidance. Using French firm-level data on arm’s length and intra-firm export prices, we find that the sensitivity of intra-firm prices to foreign taxes is reinforced once we control for pricing-to-market determinants. Most importantly, we find no evidence of tax avoidance if we disregard tax haven destinations. Tax avoidance through transfer pricing is economically sizable. The bulk of this loss is driven by the exports of 450 firms to ten tax havens.
    Keywords: pricing to market; tax havens; transfer pricing
    JEL: F23 H25 H32
    Date: 2015–09
  18. By: Ye, Ming; Meng, Bo; Wei, Shang-jin
    Abstract: The concept and logic of the "smile curve" in the context of global value chains has been widely used and discussed at the individual firm level, but rarely identified and investigated at the country and industry levels by using real data. This paper proposes an idea, based on an inter-country input-output model, to consistently measure both the strength and length of linkages between producers and consumers along global value chains. This idea allows for better identification and mapping of smile curves for countries and industries according to their positions and degrees of participation in a given conceptual value chain. Using the 1995-2011 World Input-Output Tables, several conceptual value chains are investigated, including exports of electrical and optical equipment from China and Mexico and exports of automobiles from Japan and Germany. The identified smile curves provide a very intuitive and visual image, which can significantly improve our understanding of the roles played by different countries and industries in global value chains. Further, the smile curves help identify the benefits gained by these countries and industries through their participation in global trade.
    Keywords: International trade, Exports, Globalization, Smile curve, Global value chains, APL, Fragmentation of production
    JEL: D57 F13 F15
    Date: 2015–08
  19. By: David R. DeRemer (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: Much potential for trade liberalization exists in industries and markets with trade barriers that are prohibitive for all or many firms. In standard political economic theories of trade policy, observed prohibitive barriers must be globally optimal according to static government preferences, leaving no possibility for a trade agreement. This paper shows that for prohibitive policies in imperfectly competitive markets, a trade agreement can still play a role even without any changes in governments' policy preferences. Theory can then further identify market characteristics for which liberalization is most likely to be feasible. To illustrate the simplest case, we consider a two-country model with firms engaged in Cournot competition in segmented markets. For plausible ranges of political weights on firm profits, there is a role for a trade agreement in eliminating prohibitive trade barriers. We then consider how the potential for cooperation varies with trade costs and competition. Industries with more firm heterogeneity have greater potential for cooperation, provided that the lower productivity firms are sufficiently competitive. The implications of these results are discussed for negotiations involving either developing country exporters or services trade, two areas in which prohibitive trade barriers remain important.
    Keywords: trade agreements, Cournot competition, political economy of trade policy
    JEL: F12 F13 F15
    Date: 2015–06
  20. By: Przemyslaw Kowalski; Kateryna Perepechay
    Abstract: The recent surge in competition between state and private firms in global markets calls for a reflection on how to minimise any potentially distortionary effects on international trade and investment created by state enterprises while at the same time restraining any undue protectionist policy responses directed at them. This paper provides an assessment of the extent and nature of existing and potential problems as well as a stocktaking of regulatory approaches that can be used to alleviate them. The new empirical evidence on the extent and nature of existing problems presented in this paper comes from the OECD Business Survey on State Influence on Competition in International Markets conducted on 157 firms in 2014. The characterisation of the regulatory landscape draws on the information contained in the OECD Database on National Practices and Regulations with Respect to State Enterprises which comprises 41 indicators covering relevant practices and regulations across 43 countries. In conclusion, cross-border effects of state enterprises remain an important policy issue but views on how to obtain a more level international playing field differ across countries. Further consideration of the definition of entities which should be the focus of guidance of potential international disciplines would be an important area for future exploration and, crucially, would require greater transparency both from the governments and the entities under their influence. These discussions should not be limited only to state-owned entities, but should be extended to a broader spectrum of state firms. In the meantime, it is important that governments neither use state enterprises to influence competition in international markets, nor unduly discriminate against foreign state enterprises that trade and invest according to market principles.
    Keywords: international trade, WTO, business surveys, international investment
    JEL: F02 F13 F21 F23 F5 G34 G38 H1 H2 H4 H57 H7 H8 K2 K33 L3 L44 L5
    Date: 2015–09–29
  21. By: Andrew Mold; Rodgers Mukwaya
    Abstract: This study evaluates the economic impact of the proposed COMESA-SADC-EAC Tripartite Free Trade Area (TFTA) on 26 African countries. It uses the global trade analysis project (GTAP) computable general equilibrium (CGE) model and database to measure the static effects of the establishment of the TFTA on industrial production, trade flows and consumption in the tripartite region. The results indicate a significant increase in intra-regional exports as a result of tariff elimination, boosting intra-regional trade by 29 percent. Particularly encouraging is the fact that the sectors benefiting most are manufacturing ones, such as light and heavy manufacturing, and processed food. Concerns have been raised that industrial production in the TFTA would concentrate in the countries with highest productivity levels - namely, Egypt and South Africa. Simulation results suggest that these fears are exaggerated, with little evidence of concentration of industries in the larger countries.
    Keywords: Tripartite free trade area, EAC, COMESA, SADC
  22. By: Laura Alfaro; Pol Antràs; Davin Chor; Paola Conconi
    Abstract: In recent decades, technological progress in information and communication technology and falling trade barriers have led firms to retain within their boundaries and in their domestic economies only a subset of their production stages. A key decision facing firms worldwide is the extent of control to exert over the different segments of their production processes. Building on Antràs and Chor (2013), we describe a property-rights model of firm boundary choices along the value chain. To assess the evidence, we construct firm-level measures of the upstreamness of integrated and non-integrated inputs by combining information on the production activities of firms operating in more than 100 countries with Input-Output tables. In line with the model's predictions, we find that whether a firm integrates upstream or downstream suppliers depends crucially on the elasticity of demand for its final product. Moreover, a firm's propensity to integrate a given stage of the value chain is shaped by the relative contractibility of the stages located upstream versus downstream from that stage. Our results suggest that contractual frictions play an important role in shaping the integration choices of firms around the world.
    JEL: D23 F14 F23 L20
    Date: 2015–09
  23. By: Minondo, Asier
    Abstract: This paper uses Spanish firm-level data to analyze the difference in the destination and variety-portfolios among service exporters. As for manufacture exporters, there is heterogeneity in the value of exports, the number of destinations and the number of varieties supplied among service exporters. However, compared to manufacture exporters, service exporters have a higher number of destinations and the number and value of transactions play a major role in explaining the evolution of aggregate exports.
    Keywords: services, exports, firm-level data, heterogeneity
    JEL: F14 F19 F23
    Date: 2015–09–30
  24. By: Paul Missios (Department of Economics, Ryerson University, Toronto, Canada); Kamal Saggi (Department of Economics, Vanderbilt University, Nashville, TN); Halis Murat Yildiz (Department of Economics, Ryerson University, Toronto, Canada)
    Abstract: In a game of endogenous trade agreements between three countries, we show that while the pursuit of customs unions (CUs) prevents global free trade from emerging as a coalition-proof Nash equilibrium, the pursuit of free trade agreements (FTAs) does not. This result refl?ects the relatively ?exible nature of FTAs: whereas each FTA member can independently undertake further trade liberalization with respect to the non-member, CU members must do so as a group due to their common external tariff. By diverting members?exports away from the non-member, both types of trade agreements induce the non-member to voluntarily lower its import tariffs.
    Keywords: Free Trade Agreement, Customs Union, Hub and Spoke Agreements, Free Trade, Optimal Tariffs, PTA, FTA.
    JEL: F11 F12
    Date: 2014–09
  25. By: H. Guimbard; M. Le Goff
    Abstract: The sub-Saharan African (SSA) countries are excluded from the mega-deals, free trade agreements (FTA) currently under negotiations between several large economies (European Union – United States, European Union - Japan, China-Japan-South Korea…). As Sub-Saharan African exports remain dependent on these large markets, sub-Saharan African countries could undergo important economic impacts. Using a dynamic Computable General Equilibrium Model (CGEM), we find that mega-deals would have a negative impact on the welfare of SSA countries. Regional integration strengthening limited only to the implementation of a “Tripartite” FTA gathering 26 African countries, might limit these losses but could not overcome them. A continental regional trade agreement (RTA) involving all SSA countries would slightly counterbalance the negative impacts of the mega-deals. We also show that openness of SSA countries towards Asia could be a potential solution to avoid trade diversion.
    Keywords: International trade, Mega-deals, Africa.
    JEL: F13 F15 O55
    Date: 2015
  26. By: Nakada, Yoshiaki
    Abstract: Jones and Easton (1983) analyzed how commodity prices affect factor prices in the three-factor two-good general equilibrium trade model. These relationships determine whether ‘a strong Rybczynski result’ holds or not. In subsection 5.2.4., they found that the set of three equations holds for ‘the economy-wide substitution’ under the assumption of ‘perfect complementarity’. And they applied this to their analysis. In the following, I demonstrate that this is impossible, hence their proof is not plausible. In subsection 5.2.5., they analyzed similarly. But their proof is not plausible, either.
    Keywords: three-factor two-good model; general equilibrium; Rybczynski result; economy-wide substitution; perfect complementarity.
    JEL: C68 D58 F11
    Date: 2015–09–18
  27. By: Oscar Mendez (Alfred P. Sloan Foundation)
    Abstract: This paper studies the spread of the U.S. credit crisis to Mexican local labor markets, explicitly identifying the role that trade played in the transmission of the negative shock across the two countries. To identify the trade channel empirically, I exploit the variation in dependence on the U.S. market displayed by Mexican local labor markets. Differences in manufacturing industry structure caused by Mexico's opening process have made a subset of Mexican municipalities especially vulnerable to economic events in the U.S. Mexican municipalities that exported relatively more to the U.S. experienced large and significant differential effects when compared to municipalities more focused on the domestic market. Mexican regions with significant ties to the U.S. market experienced, during the crisis, a significantly larger decrease in employment and wages, and greater within local labor market adjustments than their less open counterparts.
    JEL: E24 F14 F16 J30 L60
    Date: 2015–09–24
  28. By: Aslihan Atabek Demirhan
    Abstract: Up to date, Turkey’s export performance has been analyzed from macro perspective extensively. However, far too little attention has been paid to firm-level analysis contrary to ongoing and growing empirical literature. Using firm-level data of manufacturing sector during the period 1989-2010, this paper explored the export behavior of Turkish firms. The preliminary analysis revealed the superiority of exporting firms over non-exporters. Both self-selection and learning-by-exporting are found to be valid explanation for the source of this observed export premium. Dynamic discrete choice model results show that Turkish manufacturing firms are facing with export market entry costs and those costs are important determinants of the firms’ export propensity. Besides, it is observed that crises lead to changes in those entry costs and consequently changes in the export behavior of the firms.
    Keywords: Export behavior, Firm heterogeneity, Firm-level analysis, Micro econometrics, Turkey
    JEL: C25 C22 F14
    Date: 2015
  29. By: Gabor Bekes (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and CEPR); Gianmarco I.P. Ottaviano (London School of Economics, University of Bologna, CEP and CEPR)
    Abstract: Enhancing competitiveness is a popular target in economic policy making – not only at the national, but at the regional level as well despite neither generally accepted definition nor any strong agreement on how to measure it. In this chapter we discuss the conceptual underpinnings of why it is interesting to unpack the economic performance of a country into the economic performance of its regions. We argue that as firms compete; measuring regional competitiveness should be also based on comparing firm performance across EU regions. Given available data, we propose a new way to gauge how firms fare is to look at their ability to access and penetrate world markets. The key index is export per worker from a region to non-EU destinations relative to the EU average – a ‘regional competitiveness’ index that captures the capacity of a region’s firms to outperform the firms of the average EU region in terms of exports.
    Keywords: export, regional competitiveness, measurement, granularity
    JEL: R11 F14 R58
    Date: 2015–06
  30. By: Thomas Jobert (University of Nice Sophia Antipolis, France; GREDEG CNRS); Fatih Karanfil (University of Paris Ouest, France; EconomiX - CNRS); Anna Tykhonenko (University of Nice Sophia Antipolis, France; GREDEG CNRS)
    Abstract: Despite the growing body of work devoted to the impacts of development and international trade flows on the environment, the current state of empirical research is still controversial. In this line of analysis, the empirical studies using panel data face two simultaneous challenges. One is associated with the potential presence of unobserved cross-country heterogeneity in the panel, and the other with the use of aggregate data on international trade. In this paper, we apply both the dynamic fixed effects and empirical iterative Bayes estimators to a global panel of annual data on 55 countries spanning the period 1970-2013, to show that when country heterogeneity is accurately accounted for in the estimation, it is possible to obtain significant impacts of trade variables on the environment, even with aggregate data. Based on the estimation results and further information on the stringency of environmental regulations in both developed and developing countries involved in the analysis, we identify different country groups having similar features with respect to the trade-environment relationship. Future multilateral actions and agreements on climate change should account for differences in countries' trade structures and development levels that determine their capabilities to mitigate and adapt to climate change.
    Keywords: FDI; trade openness, CO2 emissions, regulatory stringency, Bayesian shrinkage estimator
    JEL: C33 F18 Q56
    Date: 2015–09
  31. By: Halis Murat Yildiz (Department of Economics, Ryerson University, Toronto, Canada); James Lake (Department of Economics, Southern Methodist University, Dallas, TX)
    Abstract: A striking phenomenon emerges from casual observation of the geographical characteristics of Preferential Trade Agreements (PTAs): while Customs Unions (CUs) are only intra-regional, Free Trade Agreements (FTAs) are both inter and intra?regional. A second striking phenomenon is that FTAs dramatically outnumber CUs. We present a farsighted dynamic model that endogenizes the choice of PTA type and rationalizes the first phenomenon via an FTA flexibility benefit: FTAs are more flexible than CUs because an FTA member is free to form further PTAs with non-members whereas a CU member must engage in further PTAs jointly with all existing members. Our model also suggests that greater distance between countries increases the prevalence of FTAs relative to CUs. Finally, the model relates geography and market size to the order of PTA formation
    Keywords: Free Trade Agreement, Customs Union, flexibility, coordination, geography, networks, farsighted
    JEL: F12 F13 C71
    Date: 2015–09
  32. By: Nakada, Yoshiaki
    Abstract: Batra and Casas (1976) claimed that ‘a strong Rybczynski result’ arises in the three-factor two-good general equilibrium trade model. In subsequent comments, Suzuki (1983) contended that this could not be the case. Among his comments, Suzuki found that the set of three equations holds for the Allen-partial elasticity of substitution under the assumption of perfect complementarity, and he applied these to his analysis. In the following, I demonstrate that these are impossible, hence his dissenting proof is not plausible.
    Keywords: three-factor two-good model; Rybczynski result; perfect complementarity; Allen-partial elasticity of substitution; general equilibrium.
    JEL: C68 D58 F11
    Date: 2015–06–19
  33. By: Léo CHARLES
    Abstract: Using two original databases, built from external trade statistic of France and Switzerland, this article uses a highly disaggregated product-level to analyze the type, the nature and the dynamic of French and Swiss specialization. Despite of differences between France and Switzerland in terms of economic environment, this article underlines some common trends regarding the three aspects of specialization. For instance, the article shows that intra-industry trade flows were occurring between both countries and their partners. The articles also emphasizes that the skilled labor force as well as the choice of a ‘right’ economic policy allowed Switzerland to adapt its comparative advantage structure to the world demand, and to enjoy a fast economic growth.
    Keywords: Comparative advantages, economic growth, first globalization
    JEL: F13 N13 O2
    Date: 2015
  34. By: Foster-McGregor N.; Kaulich F.; Stehrer R. (UNU-MERIT)
    Abstract: This paper provides evidence on the extent of Global Value Chain GVC participation by Africa as a region and for individual African countries. We find that Africa as a whole is heavily involved in GVCs, being more engaged in GVCs than many developing country regions as well as developed countries such as the USA. This overall finding hides the fact that much of Africas participation in GVCs is in upstream production, with African firms providing primary inputs to firms in countries further down the value chain. The possibility of upgrading within GVCs in Africa is likely to be limited therefore, something which the current analysis suggests. Despite this, we observe a great deal of heterogeneity in terms of GVC participation and upgrading across African countries, with a number of African countries participating in GVCs to a relatively large extent.
    Keywords: Economic Integration; Multinational Firms; International Business;
    JEL: F15 F23
    Date: 2015
  35. By: A. Kerem Cosar; Paul L. E. Grieco; Shengyu Li; Felix Tintelnot
    Abstract: In the automobile industry, as in many tradable goods markets, firms earn their highest market share within their domestic market. This home market advantage persists despite substantial integration of international markets during the past several decades. The goal of this paper is to quantify the supply- and demand-driven sources of the home market advantage and to understand their implications for international trade and investment. Building on the random coefficients demand model developed by Berry, Levinsohn, and Pakes (1995), we estimate demand and supply in the automobile industry for nine countries across three continents, allowing for unobserved taste and cost variation at the car model and market levels. While trade and foreign production costs as well as taste heterogeneity matter for market outcomes, we find that preference for domestic brands is the single most important driver of home market advantage - even after controlling for brand histories and dealer networks.
    JEL: F14 F23 L11 L16 L62
    Date: 2015–09
  36. By: Mustafa Faruk Aydin; Yusuf Soner Baskaya; Ufuk Demiroglu
    Abstract: Using Turkey’s bilateral trade data with its 91 major trading partners from the 1994-2012 period, this paper investigates the sensitivity of the Turkish export/import coverage ratio to trading partner exchange rate and Gross Domestic Product using panel regressions. Empirical findings indicate that a 1 percent growth in trading partners’ Gross Domestic Product is associated with a 1.6-1.7 percent increase in the coverage ratio, while a 1 percent appreciation in trading partner’s real exchange rate is associated with a 0.94-1.45 percent increase in the coverage ratio. Our estimates are in line with the existing empirical studies that estimate the exchange rate and income elasticities of Turkish imports and exports.
    Keywords: Turkish Economy, Coverage Ratio, Trade Elasticities, Trade Performance Measures and Indicators
    JEL: F14
    Date: 2015
  37. By: Gagliardi, Luisa; Iammarino, Simona; Rodriguez-Pose, Andres
    Abstract: This paper investigates the impact of the offshoring of production activities on domestic jobs in Great Britain. The paper considers both the spatial heterogeneity across local labour markets and variations in the intensity of outward flows of investments abroad (OFDI) across industries in order to shed new light on the job creation/destruction implications of offshoring. The results suggest that offshoring may generate significant job losses in routine occupations in areas that have been more exposed to the relocation of production abroad, regardless of whether the relocation has been to developed or developing/emerging countries. Offshoring to developing/emerging countries has, by contrast, a positive effect on the generation of non-routine jobs. Efficiency gains accruing from the international reorganization of production increase in the long-run, with compensation mechanisms operating through growth of employment in higher value added activities at home. Overall, our results uncover important spatial and interpersonal inequalities in job creation, which provide new challenges for public policy.
    Keywords: job creation and destruction; local labour markets; offshoring; routine and non-routine occupations
    JEL: F21 J23 J24 J42
    Date: 2015–09
  38. By: Boddin, Dominik; Henze, Philipp
    Abstract: We use the Establishment History Panel from 1975 to 2010 provided by the German Federal Employment Office to examine the impact of international trade on the occupational structure of the German manufacturing sector. To capture trade, we match the Establishment History Panel with UN Comtrade trade data. To do so, we develop a new matching approach that takes the input and output structure of the German manufacturing sector into account. We identify three different trade channels: import intensity, import competition, and export intensity. Using a fixed-effects Poisson regression model, we find diverse occupational effects from trade at the industry-level, while establishment-level estimations show only few significant effects.
    Keywords: International Trade,Occupational Mix,Firm Organization
    JEL: J21 F16 L23
    Date: 2015
  39. By: Yoto Yotov (Drexel University); Mario Larch (University of Bayreuth); James Anderson (Boston College)
    Abstract: We build and quantify a structural general equilibrium model of growth and trade. Trade affects growth through changes in consumer and producer prices that in turn stimulate or impede physical capital accumulation. At the same time, growth affects trade, directly through changes in country size and indirectly through altering the incidence of trade costs. The model combines structural gravity with a simple capital accumulation specification of the transition between steady states. An intuitive, self-sufficient econometric system results. Counterfactual experiments based on the estimated model give evidence for strong causal relationships between growth and trade.
    Date: 2015
  40. By: Ito, Tadashi; Vezina, Pierre-Louis
    Abstract: We exploit the recent release of the 2005 Asian Input-Output Matrix to dress a picture of the geographic fragmentation of value added in Factory Asia from 1990 to 2005. We document 3 stylized facts. The first is that the average share of foreign value added embedded in production rose by about 7 percentage points between 1990 and 2005, from 9% to 16%. The second is that, contrary to popular belief, China's production embeds a smaller share of foreign value added than other Factory Asia countries'. Between 1990 and 2005 among Factory Asia countries China grew most after Japan as a source of value added to other countries' production. Third, country-industries at the upstream and downstream extremities of the supply chain embed a smaller share of foreign value added than those with intermediate levels of upstreamness.
    Keywords: Asia, China, International economic relations, International trade, Industry, Factory Asia, Supply chains, Upstreamness
    JEL: F13 F15
    Date: 2015–08
  41. By: Laura Alfaro; Maggie Chen
    Abstract: The explosion of multinational activities in recent decades is rapidly transforming the global landscape of industrial production. But are the emerging clusters of multinational production the rule or the exception? What drives the offshore agglomeration of multinational firms in comparison to the agglomeration of domestic firms? Using a unique worldwide plant-level dataset that reports detailed location, ownership, and operation information for plants in over 100 countries, we construct a spatially continuous index of pairwise-industry agglomeration and investigate the patterns and determinants underlying the global economic geography of multinational firms. Our analysis presents new stylized facts that suggest the emerging offshore clusters of multinationals are not a simple reflection of domestic industrial clusters. Agglomeration economies including capital-good market externality and technology diffusion play a more important role in the offshore agglomeration of multinationals than the agglomeration of domestic firms. These findings remain robust when we address potential reverse causality by exploring the regional pattern and process of agglomeration.
    Keywords: multinational firm, agglomeration, location fundamentals, agglomeration economies
    JEL: F2 D2 R1
    Date: 2014–04

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