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on International Trade |
| By: | (Indiana University); Volodymyr Lugovskyy (Indiana University) |
| Abstract: | We present a model of international trade in which credit constrained firms endogenously choose quality and countries differ in their level of financial development. This model produces a novel result where the total effect of financial development on export prices exhibits a U-shaped relationship with the exporter's labor productivity. The effect is positive for countries with the lowest and highest levels of productivity and negative for the countries in the middle. This occurs because financial development has two opposing effects on export prices: it reduces the costs of production while enabling costly quality upgrading. We confirm this pattern using a sample of U.S. imports from all exporters worldwide. This finding suggests that financial development has different implications for countries with different levels of productivity and income. |
| Keywords: | Financial development, Quality, Export prices, Labor productivity |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2015020&r=int |
| By: | Glaser, Darrell; Rahman, Ahmed |
| Abstract: | This paper tests an implication of the hypothesis that hegemons provide increased global stability and thus promote international commerce. Specifically, we measure the influence of naval power projections on global trade during the latter 19th and early 20th centuries, a time of relative peace and robust commercial activity. We use archival data on the navies of Britain, France, the United States and Germany, capturing longitudinal measures of ship deployment, tonnage, and ship personnel. First we develop an empirical naval arms race model, and demonstrate that the navies of Britain and France in particular responded rigorously to each other. We then use our estimates of naval power projected around the world by Britain and France to measure their effects on bilateral trade in a panel-data gravity model. Results indicate that while navies had some positive impact on their own nation's trade, other nations' trade suffered. Our results show that rather than bolster globalization, the first global arms race damaged commercial interests and lowered trade potential around the world. |
| Keywords: | trade, arms race, 19th century, war, mercantilism, naval power |
| JEL: | F1 F5 N4 N7 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:68357&r=int |
| By: | R. Cezar; O. R. Escobar |
| Abstract: | This paper studies the link between foreign direct investment (FDI) and institutional distance. Using a heterogeneous firms framework, we develop a theoretical model to explain how institutional distance influences FDI, and it is shown that institutional distance reduces both the likelihood that a firm will invest in a foreign country and the volume of investment it will undertake. We test our model using inward and outward FDI data on OECD countries. The empirical results confirm the theory and indicate that FDI activity declines with institutional distance. In addition, we find that firms from developed economies adapt more easily to institutional distance than firms from developing economies. |
| Keywords: | SForeign direct investment, Institutions, Heterogeneous firms, Gravity model. |
| JEL: | F12 F23 H80 K20 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:579&r=int |
| By: | Kang, Jong Woo (Asian Development Bank) |
| Abstract: | Although it is well-known that a global trade regime best ensures economic welfare, there has nevertheless been a proliferation of free trade agreements (FTAs) between individual countries. This poses the challenge known as the “noodle bowl effect”—stemming from different rules of origins and technical standards. In this paper, we explore an economy’s incentive for entering an FTA rather than anticipating a global trade regime. Using basic game theories, we show that in order for an equilibrium number of FTA participants to be obtained, the negative impact of FTAs should be significant. Globally, the side effects of FTAs centered on noodle bowl effects could contribute to inducing a global free trade regime—and also increase the viability of such regime once established. Ironically, then we need to encourage more FTAs across countries to facilitate the spread of greater noodle bowl effects instead of trying to curb the rush to FTAs to promote a global trade regime. |
| Keywords: | FTA game; global trade regime; noodle bowl effect |
| JEL: | C70 F10 F13 |
| Date: | 2015–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0446&r=int |
| By: | Arvanitis, Spyros; Hollenstein, Heinz; Stucki, Tobias |
| Abstract: | The relevance of services FDI strongly increased over the last two decades. As services and goods differ with respect to important characteristics, one may expect that the determinants of internationalisation are not identical in services and manufacturing. Surprisingly, there is practically no firm-level research contrasting the two sectors in this respect. In order to fill this gap, the authors aim at identifying for manufacturing and services, firstly, the determinants of a firm's propensity to engage in foreign activities (exports and/or FDI) and, secondly, the factors determining a firm's direct foreign presence in terms of (combinations of) business functions. The authors find that an OLI-based model is well suited for explaining not only the propensity to go international but also the differences between two specific forms of FDI in terms of business functions both for manufacturing and services. In all models, the explanatory power of the OLI approach is stronger for manufacturing than service activities. The results are consistent with the stages view of internationalisation in particular in manufacturing, but to a lesser extent also in services where the process of internationalization is less continuous. |
| Keywords: | manufacturing vs. services internationalisation,offshoring vs. exports,internationalisation of business functions,multinational companies,international business strategy |
| JEL: | F23 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201567&r=int |
| By: | Onur A. Koska (Department of Economics, METU); Frank Stähler (Department of Economics, University of Tübingen, Tübingen, Germany; Department of Economics, University of Adelaide, Adelaide, Australia; Center for Economic Studies, The Ifo Institute (CESifo), Munich, Germany) |
| Abstract: | Since Dixit (1984), it is well accepted that a home country's best policy is to ban imports in an oligopolistic market if the resulting monopoly has a cost advantage over imports. This note (i) provides a formal proof and (ii) extends this result to symmetric firms. When domestic instruments are available, the optimal policy in a non-cooperative game is to subsidize local production such that it completely replaces imports. This policy is also globally first-best. |
| Keywords: | Import tariffs, Export subsidies, Profit shifting |
| JEL: | F13 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:met:wpaper:1511&r=int |
| By: | Céline Carrère; Anja Grujovic; Frédéric Robert-Nicoud |
| Abstract: | We develop a multi-country, multi-sector trade model with labor market frictions and equilibrium unemployment. Trade opening leads to a reduction in unemployment if it raises real wages and reallocates labor towards sectors with lower-than-average labor market frictions. We estimate sector-specific labor market frictions and trade elasticities using employment data from 25 OECD countries and worldwide trade data. We then quantify the potential unemployment and real wage effects of implementing the Transatlantic Trade and Investment Partnership (TTIP) or the Trans-Pacific Partnership (TPP), and of eliminating trade imbalances worldwide The unemployment and real wage effects work in conflicting directions for some countries under some trade regimes, such as the US under TTIP. We introduce a welfare criterion that accounts for both effects and splits such ties. Accordingly, US welfare is predicted to decrease under TTIP and increase under TPP. |
| Keywords: | labor market frictions, unemployment, trade |
| JEL: | F15 F16 F17 J64 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:sercdp:0189&r=int |
| By: | Hamanaka, Shintaro (Asian Development Bank) |
| Abstract: | This paper attempts to provide a clear and comprehensive picture of trade integration in Asia, using a trade linkage diagram. The paper reviews four types of indicators (share, intensity, homogeneous intensity, and introversion index) and argues that the introversion index is the most suitable indicator for the comparison of the level of trade integration, both in terms of cross-regional comparisons and time series analyses. Next, since Asia is a group of heterogeneous economies and the level of integration across subregions is not consistent, the paper includes a subregional analysis of trade integration in Asia. The analysis includes the (i) regional introversion of each subregion, (ii) intersubregional trade linkage, and (iii) extraregional trade linkage of each subregion. The subregional trade linkage diagram based on the introversion index provides us with a snapshot of trade integration, which is useful for both scholars and policy makers. At a glance, we can understand who trades more than others, and with whom. |
| Keywords: | intraregional trade share; introversion index; subregions; trade integration; trade linkage diagram |
| JEL: | F14 F15 |
| Date: | 2015–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0455&r=int |
| By: | Bown, Chad P.; Irwin, Douglas |
| Abstract: | How high were import tariffs when GATT participants began negotiations to reduce them in 1947? Establishing this starting point is key to determining how successful the GATT has been in bringing down trade barriers. If the average tariff level was about 40 percent, as commonly reported, the implied early tariff reductions were substantial, but this number has never been verified. This paper examines the evidence on tariff levels in the late 1940s and early 1950s and finds that the average tariff level going into the first Geneva Round of 1947 was about 22 percent. We also find that tariffs fell by relatively more in the late 1940s and early 1950s for a core group of GATT participants (the United States, United Kingdom, Canada and Australia) than they did for many other important countries, including the set of other (non-core) GATT participants. |
| Keywords: | GATT; tariffs; trade agreements; trade liberalization |
| JEL: | F13 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10979&r=int |
| By: | Hamanaka, Shintaro (Asian Development Bank); Tafgar, Aiken (Consultant at the former Office of Regional Economic Integration, ADB); Ico, Ronald (Consultant at the former Office of Regional Economic Integration, ADB) |
| Abstract: | Governance is one of the key factors that shape the economic performance of an economy in terms of economic and trade growth. However, accurately measuring the quality of governance is not an easy task. Research typically uses governance indicators from surveys, which may have biases and inherent errors. In this paper, we attempt to construct an alternative governance indicator, which is free from perception and subjective biases. Our exercise is based on the inference that economies with good trade governance can compile high quality trade statistics; the latter being a close proxy for the former. This study comes up with a global ranking of the quality of (trade) governance. The paper also compares our bias-free indicator against existing survey governance indicators. |
| Keywords: | bias; corruption; governance; indicators; perception; survey; trade |
| JEL: | F14 F15 |
| Date: | 2015–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0454&r=int |
| By: | Robert DEKLE; KAWAKAMI Atsushi; KIYOTAKI Nobuhiro; MIYAGAWA Tsutomu |
| Abstract: | We examine the effects of shocks to aggregate productivity, foreign output demand, government expenditures, and demand for foreign liquidity on dynamics of products and exports of heterogeneous firms. The framework is motivated by open economy general equilibrium models of Bilbie, Ghironi and Melitz (2012) and Dekle, Jeong and Kiyotaki (2014). We first construct unique firm level data on products and exports from the Census of Manufactures conducted by the Ministry of Economy, Trade and Industry. The data are more disaggregated than comparable U.S. data and available at the annual frequency (while U.S. product level data are only available at five-year intervals), which makes our data more suitable for examining the interaction between the business cycle and firm-product heterogeneity. Our empirical results show that the development of new products is stimulated by improvements in not only firm level productivity but also aggregate productivity. We also find that an increase in foreign demand and a shock to depreciate the home real exchange rate increase product dynamics and exports. |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:15137&r=int |
| By: | VLAEMINCK, Pieter; VRANKEN, Liesbet; VAN DEN BROECK, Goedele; VANDE VELDE, Katrien; RAYMAEKERS, Karen; MAERTENS, Miet |
| Abstract: | Private standards – such as Fair Trade (FT) – have emerged as a response to consumer, civil society and corporate concern about the conditions under which imported food is produced. A large empirical literature exists on the welfare implications of smallholder participation in FT schemes and on consumers’ willingness to pay for ethical products. However, the question whether smallholder farmers prefer to produce under FT has never been studied. Understanding smallholders’ preferences is crucial in light of the main critiques on FT namely that the poorest smallholders are often excluded and that FT is too supply-driven. Using a choice experiment, we investigate preferences of rice smallholders for (organic) FT in Benin and compare the value of three contracts (domestic contract, FT, organic FT). We find that farmers prefer domestic contracts over FT contracts. They prefer contracts with fewer requirements but contract benefits can outweigh the costs related to these requirements in the case of FT contracts. This does not hold for FT contracts with organic standards. Our results imply that adding organic requirements to FT contracts may undermine the adoption and spread of FT certification and limit the expansion of FT production and trade. |
| Keywords: | Global value chains, Private standards, Contract-farming, Rice, Organic, Ethical certification, Agribusiness, Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety, Food Security and Poverty, International Development, Q01, Q13, Q17, Q18, Q56, |
| Date: | 2015–11 |
| URL: | http://d.repec.org/n?u=RePEc:ags:kucawp:225931&r=int |
| By: | Enrique Gilles; Andrés Carvajal Contreras |
| Abstract: | Ante la creciente importancia de las denominadas “cadenas globales de valor”, término que hace referencia a la globalización de la producción, el comercio de insumos intermedios es cada vez más significativo. Para entender una dimensión del fenómeno, se propone una caracterización de las importaciones de bienes intermedios en Colombia. Combinando estadísticas de comercio con herramientas del análisis insumo-producto, es posible identificar no solamente el origen sectorial de los insumos sino también su destino en términos de sectores domésticos de utilización. El análisis se centra en el rol de los países de la Alianza del Pacífico, para estudiar cuál es el grado de complementariedad productiva con Colombia. Los resultados indican que estos relacionamientos son bajos. ****** Faced with the growing importance of the so-called "global value chains", a term referring to the globalization of production, trade in intermediate inputs is increasing its significance. To understand one dimension of this phenomenon, we propose a characterization of imports of intermediate goods in Colombia. Combining trade statistics with input-output analysis techniques, it is possible to identify not only the sectoral origin of inputs, but also its destination in terms of domestic sectors of use. The analysis focuses on the role of the countries of the Pacific Alliance, to study the degree of productive complementarity of its countries with Colombia. The results indicate that such interrelationships are low. |
| Keywords: | cadenas globales de valor, análisis insumo-producto, comercio de insumos intermedios, Colombia, Alianza del Pacífico. |
| JEL: | F10 F14 |
| Date: | 2015–12–11 |
| URL: | http://d.repec.org/n?u=RePEc:col:000487:014139&r=int |
| By: | Le, Thai-Ha (RMIT University); Kim, Jungsuk (Sogang University); Lee, Minsoo (Asian Development Bank) |
| Abstract: | We examine the determinants of financial development in Asia and the Pacific from 1995 to 2011. To do so, we apply the dynamic generalized method of moments to a panel data set of 26 economies in the region. We find that better governance and institutional quality foster financial development in developing economies while economic growth and trade openness are key determinants of financial depth in developed economies. |
| Keywords: | Asia and the Pacific; economic growth; financial development; governance and institutional quality; panel data analysis; trade openness |
| JEL: | G10 G20 |
| Date: | 2015–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0452&r=int |
| By: | Sarantis Kalyvitis (Athens University of Economics and Business) |
| Abstract: | This study assesses the quality of Greek exports and links the estimates with exporters’ characteristics. Export quality in manufacturing is estimated to have fallen by 1% per year on average for the period 1998-2010, but recovered in 2011 and 2012 when export quality displayed a cumulative rise of 25.7%, yielding a cumulative rise of 9.2% for the entire period 1998-2012. Export quality in agriculture displays a slightly upward trend with the average annual rise over the period 1998-2012 amounting to 1.6%. Linking the quality estimates at the product level with exporting firms in the manufacturing sector shows that higher product quality is associated with firms that have a higher share of their wage bill paid to skilled workers. This positive relationship stems from firms with higher skilled to unskilled employment ratios, rather than higher wage skill premia, and is more pronounced in large and rich destinations. |
| Keywords: | international trade; firm exporting; product quality |
| JEL: | F14 L15 L25 J31 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:201&r=int |
| By: | Edward J. Balistreri (Division of Economics and Business, Colorado School of Mines); Daniel T. Kaffine (Department of Economics, University of Colorado, at Boulder); Hidemichi Yonezawa (Institute of the Environment, University of Ottawa) |
| Keywords: | climate policy, border tax adjustments, carbon leakage, trade and carbon taxes |
| JEL: | F18 Q54 Q40 K33 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:mns:pbrief:wp2014-03&r=int |
| By: | Cardoso-Vargas, Carlos Enrique |
| Abstract: | This paper examines the relationship between size and productivity on the export dynamics of a developing country like Mexico. The theoretical framework that guides the empirical evaluation is based on a simple model inspired by Melitz (2003). The results suggest that differences in size and productivity of firms indicate who will be able to internationalize and which markets can sell. According to estimates there are other feasible locations to replace the neighboring market of North America as the main buyer; however, the limiting factor for achieving this goal would be the low productivity of firms. In particular, it is that if transport costs are doubled, as is expected in destinations beyond the area of North America, would imply an increase in productivity of the firms of at least 9%. Finally, we find that the financial crisis caused a selection effect with respect to firms with higher productivity, while those firms that reported very low levels of productivity ceased its export activities |
| Keywords: | Productivity, international trade, heterogeneous firms |
| JEL: | D22 D24 F14 |
| Date: | 2015–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:68425&r=int |
| By: | Chensheng Xu (Guangdong University of Foreign Studies, School of Economics and Trade); Feng Yao (West Virginia University, Department of Economics); Fan Zhang (West Virginia University, Department of Economics) |
| Abstract: | This paper uses a panel data of China's outward foreign direct investment (OFDI) from 2004-2012 to investigate the influence of Confucius Institute on China's OFDI. We find that Confucius Institute, as a comprehensive platform for China's foreign cultural exchange, has a significant positive effect on China’s OFDI. Interestingly, the positive effect can be reduced with larger cultural difference and can be increased in host countries with lower institutional quality. Correspondingly, we find that Confucius Institute’s impact on China’s OFDI is more obvious in host countries with smaller cultural difference or lower institutional quality. |
| Keywords: | Confucius Institute, foreign cultural exchange, outward foreign direct investment (OFDI), heterogeneous effect |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:wvu:wpaper:15-45&r=int |
| By: | Edward J. Balistreri (Division of Economics and Business, Colorado School of Mines); Christoph Bohringer (Department of Economics, University of Oldenburg); Thomas F. Rutherford (University of Wisconsin) |
| Keywords: | Heterogeneous firms, carbon leakage, competitive effects |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:mns:pbrief:wp2015-02&r=int |
| By: | Naeher, Dominik (Goethe University Frankfurt) |
| Abstract: | This paper uses directed bilateral flow data on multiple dimensions of economic integration to construct a composite index of regional integration outcomes covering 19 regions in various parts of the world. As a first step, the multidimensional indicator is used to rank regions according to their current degree of regional integration, which allows for a direct comparison of Asia’s regional integration performance with those of other regions of the world. As a second step, the constructed indicator of regional integration outcomes is used as the output variable in a data envelopment analysis (DEA) to estimate Asia’s untapped regional integration potential. |
| Keywords: | Asia; composite index; data envelopment analysis; integration potential; regional integration |
| JEL: | F02 F10 F13 F15 |
| Date: | 2015–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0445&r=int |
| By: | Koen Jochmans (Département d'économie) |
| Abstract: | Empirical models for dyadic interactions between n agents often feature agent-specific parameters. Fixed-effect estimators of such models generally have bias of order n−1,which is non-negligible relative to their standard error. Therefore, confidence sets based on the asymptotic distribution have incorrect coverage. This paper looks at models with multiplicative unobservables and fixed effects. We first derive moment conditions that are free of fixed effects. We next use these moment conditions to set up estimators that are n-consistent, asymptotically normally-distributed, and asymptotically unbiased. We provide Monte Carlo evidence for a range of models and we estimate a gravity equation with multilateral resistance terms as an empirical illustration. |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpecon:info:hdl:2441/2etjsneok98utpcm5s44jn4dlh&r=int |