nep-int New Economics Papers
on International Trade
Issue of 2015‒12‒28
seventeen papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Tariff Reductions, Entry, and Welfare: Theory and Evidence for the Last Two Decades By Lorenzo Caliendo; Robert C. Feenstra; John Romalis; Alan M. Taylor
  2. International Trade in Online Services By Georgios Alaveras; Bertin Martens
  3. Extensive Margins of Offshoring and Exporting By Anders Rosenstand Laugesen
  4. The macro-economic impact of e-commerce in the EU Digital Single Market By Melisande Cardona; Nestor Duch-Brown; Joseph Francois; Bertin Martens; Fan Yang
  5. The Dynamics of Comparative Advantage By Gordon H. Hanson; Nelson Lind; Marc-Andreas Muendler
  6. Trade Shocks, Firm Hierarchies and Wage Inequality By Benjamin Friedrich
  7. The GATT's Starting Point: Tariff Levels circa 1947 By Chad P. Bown; Douglas A. Irwin
  8. International Trade and Determinants of Price Differentials of Insulin Medicine By Helble, Matthias; Aizawa, Toshiaki
  9. Specialization in Bank Lending: Evidence from Exporting Firms By Daniel Paravisini; Veronica Rappoport; Philipp Schnabl
  10. Applying Thirlwall’s Law to the Portuguese economy: a sectoral analysis By Jeanete Dias; Micaela Antunes
  11. Distance and border effects in international trade: A comparison of estimation By Magerman, Glenn; Studnicka, Zuzanna; Van Hove, Jan
  12. Assessing EU trade preferences for developing countries' development and food security By Parisa Aghajanzadeh-Darzi; Cecilia Bellora; Jean-Christophe Bureau; Anaïs Goburdhun
  13. Productivity spillovers in the GVC. The case of Poland and the New EU Member States By Jan Hagemejer
  14. Does FDI Crowd out Domestic Investment in Transition Countries? By Cristina JUDE
  15. Obstfeld and Rogoff's International Macro Puzzles: A Quantitative Assessment By Jonathan Eaton; Samuel S. Kortum; Brent Neiman
  16. Specialisation Patterns, GDP Correlations and External Balances By Alejandro Cunat; Robert Zymek
  17. Immigration, Human Capital Formation and Endogenous Economic Growth By Isaac Ehrlich; Jinyoung Kim

  1. By: Lorenzo Caliendo; Robert C. Feenstra; John Romalis; Alan M. Taylor
    Abstract: Tariffs have fallen significantly around the globe over the last two decades. Yet very little is known about the trade, entry, and welfare effects generated by this unprecedented shift in trade policy. We use a heterogeneous-firm quantitative trade model to study the effects of observed changes in trade policy. Importantly, in our model, tariffs affect the entry decision of firms across markets, a channel that has been unduly overlooked in the literature. We first show how trade policy influences entry and selection of firms into markets. We then use a new tariff dataset, and apply a 189-country, 15-sector version of our model, to quantify the trade, entry, and welfare effects of trade liberalization over the period 1990–2010. We find that the impact on firm entry was larger in Advanced relative to Emerging markets; that more than 90% of the gains from trade are a consequence of the reductions in MFN tariffs (the Uruguay Round); that PTAs have not contributed much to the overall gains from trade; and that, with the exception of a few Emerging and Developing countries, most countries do not gain much (and some lose) from a move to complete free trade under zero tariffs.
    JEL: F10 F11 F12 F13 F15 F17
    Date: 2015–12
  2. By: Georgios Alaveras (European Commission – JRC - IPTS); Bertin Martens (European Commission – JRC - IPTS)
    Abstract: This paper presents an innovative database of domestic and bilateral online services trade between 39 countries, including the US, the EU and some emerging market economies. It combines monetized and “free” online services in a single measure based on the volume of page views on websites of online service providers. We find that the online services market is geographically very fragmented. Less than 1% of all online service providers export worldwide and account for almost half of worldwide online services trade; they are mostly US-based. In the EU and other regions the share of online services imported from the US is very substantial. Conversely, in the US 32% of its online services providers export and these exports account for nearly twice as much as domestic demand. Application of the well-known gravity model of trade shows that trade frictions from geographical distance are greatly reduced in online services. However, cultural and linguistic borders are reinforced and home bias is stronger online than offline. We explain this paradox in terms of online information cost reduction and consumers’ quest to explore the longer tail of online supply, both at home and worldwide. Larger firms export to more markets than smaller firms. It is easier for larger online firms to reduce distance and language related trade costs; however large firms do not reduce strong online home bias. Trade costs and home bias vary considerably across services sectors though, in principle, all online services are fully tradable. The export performance of online firms is driven mostly by the comparative advantages of their home country, more so than by their own competitiveness. We conclude with some suggestions for further research.
    Keywords: online services, e-commerce, online trade, international trade in services, gravity models
    JEL: F10 F13 F14 L86
    Date: 2015–08
  3. By: Anders Rosenstand Laugesen (Department of Economics and Business Economics, Aarhus University, Denmark)
    Abstract: This paper derives new comparative statics within a two-country version of the recent offshoring model by Antràs, Fort, and Tintelnot (2014) with nonprohibitive costs of exporting final goods. One key finding is that an asymmetric trade liberalisation might very well imply that the fractions of offshorers and exporters increase in one country and decrease in the other country. This model outcome occurs when competition enhances in a country experiencing a decline in its costs of international trade. The fractions of offshorers and exporters certainly increase in a small open economy experiencing a decline in its costs of international trade. These strong industry-level results appear even though the comparative statics at the firm level are nonmonotone and asymmetric across the heterogeneous firms.
    Keywords: Firm Heterogeneity, Offshoring, Exporting, Trade Liberalisation
    JEL: D21 F12 L23
    Date: 2015–12–16
  4. By: Melisande Cardona (European Commission - JRC - IPTS); Nestor Duch-Brown (European Commission - JRC - IPTS); Joseph Francois (World Trade Institute); Bertin Martens (European Commission – JRC - IPTS); Fan Yang (Hohenheim University)
    Abstract: This paper examines the economic impact of a change in retail technology - the shift from offline to online shopping – and a change in policy – measures to reduce the barriers to online trade perceived by consumers and retailers. Contrary to the prevalent micro-economic partial equilibrium consumer modelling approach to e-commerce, we use a macro-economic general equilibrium model that brings together the impact on consumers as well as on producers. We use survey data on cross-border e-commerce between EU Member States to estimate the implied cross-border trade cost reduction when consumers move from offline to online consumption as well as the implied costs of perceived regulatory barriers to e-commerce. We distinguish between cross-border and domestic trade costs effects. We find that cross-bordere-commerce reduces trade costs compared to offline trade. Increased price competition squeezes domestic retail price margins and has a negative output effect in that sector (-2.6%). However, the resulting retail efficiency gains have a positive effect on production in other sectors (between 0.9 and 2.6%) and on household consumption (+1.07%). The combined macro-economic effect of these transmission channels adds 0.14% to EU GDP. Additional policy measures to facilitate cross-border e-commerce between EU Member States could add another 0.3% to household consumption and 0.04% to GDP, or 0.03% in the more conservative estimate. The relatively weak GDP effect in comparison with the production and consumption effects indicates that the shift from offline to online retail induces considerable welfare redistribution from retailing to other sectors and to households, more so than a production effect.
    Keywords: e-commerce, online trade, cross-border trade, international online trade, trade costs, trade barriers
    JEL: F14 F47
    Date: 2015–09
  5. By: Gordon H. Hanson; Nelson Lind; Marc-Andreas Muendler
    Abstract: This paper characterizes the dynamic empirical properties of country export capabilities in order to inform modelling of the long-run behavior of comparative advantage. The starting point for our analysis is two strong empirical regularities in international trade that have previously been studied incompletely and in isolation to one another. The literature has noted a tendency for countries to concentrate exports in a few sectors. We show that this concentration arises from a heavy-tailed distribution of industry export capabilities that is approximately log normal and whose shape is stable across countries, sectors, and time. Likewise, previous research has detected a tendency for mean reversion in national industry productivities. We establish that mean reversion in export capability, rather than indicative of convergence in productivities or degeneracy in comparative advantage, is instead consistent with a well behaved stochastic growth process that delivers a stationary distribution of country export advantage. In literature on the growth of cities and firms, economists have used stochastic processes to study the determinants of the long-run size distributions. Our contribution is to develop an analogous empirical framework for identifying the parameters that govern the stationary distribution of export capability. The main result of this analysis is that a generalized gamma distribution, which nests many commonly studied distributions, provides a tight fit of the data but log normality offers a reasonable approximation. Importantly, the stochastic process that generates log normality can be estimated in its discretized form by simple linear regression. Log linearity allows for an extension of our approach to multivariate diffusions, in which one can permit innovations to productivity to be transmitted intersectorally and internationally, as in recent models of trade and growth.
    JEL: F14
    Date: 2015–11
  6. By: Benjamin Friedrich (Yale University, CT, USA and Department of Economics and Business Economics, Aarhus University, Denmark)
    Abstract: This study uses administrative employer-employee data and firm-level trade data from Denmark to provide evidence for a novel mechanism through which trade affects wage inequality: changes in firm hierarchies. This mechanism is motivated by the empirical fact that within-firm wage variation across the hierarchical levels of top manager, middle manager, supervisor and worker accounts for an important component of wage inequality. It is comparable in magnitude to wage differences across firms. To identify the causal effect of trade shocks on firm hierarchies and wage inequality, I use two distinct research designs for firm-level trade shocks—one based on foreign demand and transportation costs, and the other using the Muslim boycott of Danish exports after the Cartoon crisis. Both identification strategies suggest robust effects of trade shocks on within-firm inequality through changes in hierarchies. Consistent with models of knowledge-based or incentive-based hierarchies, firm-level trade shocks influence organizational choices through production scale. Adding a hierarchy layer significantly increases inequality within firms, ranging from 2% for the 50-10 wage gap to 4.7% for the 90-50 wage gap.
    Keywords: Empirical Studies of Trade, Trade and Labor Market Interactions , Wage Level and Structure, Wage Differentials, Firm Organization and Market Structure, Organization of Production
    JEL: F14 F16 J31 L22 L23
    Date: 2015–12–18
  7. By: Chad P. Bown; Douglas A. Irwin
    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.
    JEL: F13
    Date: 2015–12
  8. By: Helble, Matthias (Asian Development Bank Institute); Aizawa, Toshiaki (Asian Development Bank Institute)
    Abstract: Empirical studies on pharmaceuticals pricing across countries have found evidence that prices vary according to per capita income. These studies are typically based on survey data from a subset of countries and cover only one year. In this paper, we study the international trade and price of insulin by using detailed trade data for 186 importing countries from 1995 to 2013. With almost 12,000 observations, our study constitutes the largest comparative study on pharmaceutical pricing conducted so far. The large dataset allows us to uncover new determinants of price differentials. Our analysis shows that the international trade of insulin increased substantially over this time period, clearly outpacing the increasing prevalence of diabetes. Using the unit values of imports, we also study the determinants of price differentials between countries. Running various panel regressions, we find that the differences in prices across countries can be explained by the following factors: First, corroborating earlier studies, we find that per capita GDP is positively correlated with the unit price of insulin. Second, the price of insulin drugs originating from Organisation for Economic Co-operation and Development countries tends to be substantially higher than for those imported from developing countries. Third, more intense competition among suppliers leads to lower insulin prices. Fourth, higher out-of-pocket payments for health care are associated with higher prices. Finally, higher volumes and tariffs seem to result in lower unit prices.
    Keywords: Insulin trade; price differentials; pharmaceuticals trade
    JEL: F14 I11
    Date: 2015–12–14
  9. By: Daniel Paravisini; Veronica Rappoport; Philipp Schnabl
    Abstract: This paper develops an empirical approach for identifying bank specialization in export markets. Combining loan and shipment data for all exporters in Peru, we find that all banks have abnormally large and persistent loan portfolio exposures to at least one export destination market. Specifications that saturate all bank-time and firm-time variation show that firms that expand exports to a country are more likely to borrow from banks that specialize in that country. This link between exports and bank specialization holds both for existing and new lending relationships. Using differential exposure to the 2008 financial crisis, we further find that shocks to the credit supply of banks has a larger effect on exports to the bank's markets of specialization, implying that specialized bank debt is difficult to replace. These results suggest that banks have market-specific areas of expertise that are distinct from firm-specific knowledge gathered through relationship lending.
    JEL: F14 G21
    Date: 2015–12
  10. By: Jeanete Dias (University of Coimbra); Micaela Antunes (University of Coimbra Faculty of Economics / GEMF)
    Abstract: International trade is definitely one of the most relevant factors when considering the economic expansion of a small country like Portugal and as such, this work analyzes the impact that the Balance of Payments can have on economic growth. For that, we apply Thirlwall’s Law. In addition, following the international economic and financial crisis of 2008, that among others, led to a fall in Private Investment and Public and Private Consumption, this work aims at verifying whether international trade can contribute to growth. Moreover, we examine whether the production structure can influence national growth, by using Thirlwall’s Multi-Sectoral Law. Furthermore, the evolution of the main exporting and importing sectors is described for the period 1994-2013 and the import and export demand functions are estimated both at an aggregated and sectoral level, in order to obtain the income elasticities that allow the computation of the Balance-of-Payments equilibrium growth rate. The results show Thirlwall’s Law is not as accurate as usual, probably due to the peculiarity of the period of analysis. In addition, the multi-sectoral perspective proves to be a better approximation to the period’s effective growth rate.
    Keywords: Economic Growth, Income-elasticities, Thirlwall’s Law, Multi-sectoral Thirlwall’s Law
    JEL: E12 F31 F43
    Date: 2015–12
  11. By: Magerman, Glenn; Studnicka, Zuzanna; Van Hove, Jan
    Abstract: This paper compares various estimation techniques used to determine the impact of distance and borders on international trade. The results consistently confirm the significantly negative distance effect, while the border effect, measured by evaluating whether intra-continental trade exceeds inter-continental trade, appears to be ambiguous and dependent on the estimation method. In addition, also the size of both effects varies substantially across estimation methods. Finally, the authors generally find that the estimations are in line with the respective weighting schemes of each estimation method.
    Keywords: distance effect,border effect
    JEL: F10 F14
    Date: 2015
  12. By: Parisa Aghajanzadeh-Darzi; Cecilia Bellora; Jean-Christophe Bureau; Anaïs Goburdhun
    Abstract: The EU has a long history of specific trade arrangements with developing countries. Under a variety of schemes, the EU allows developing countries to export goods to the Community market with reduced or zero duty. The stated objective is to encourage economic growth and to promote sustainable development in developing countries through their integration into the world trade system. Recently, these schemes have experienced significant reform. This applies particularly to the case of the Generalized System of Preferences and the arrangements affecting African, Caribbean, and Pacific countries. In addition, preferential (reciprocal) trade agreements are replacing non-reciprocal tariff concessions. We describe the current status of EU trade policy with developing countries, focusing on those where food security is a major issue. We assess the impact of selected preferential schemes, using an applied general equilibrium model. Our counterfactual simulations show that removing EU preferences will impact negatively on some developing country economies; both exports and gross domestic product will go down (particularly in North and Sub-Saharan African regions). Overall, our simulations suggest that EU preferential agreements provide export opportunities and contribute to higher incomes, particularly the least developed countries. However, their contribution to food security is indirect. Because of the magnitude of the prices and income changes which we measure at the aggregate level, the impact on food and nutrition security indicators seems limited. To explore in more depth the impact of EU preferences on the food security of particularly vulnerable segments of the population would require our simulations to be combined with household data.
    JEL: F13 Q17 Q18
    Date: 2015–11
  13. By: Jan Hagemejer (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)
    Abstract: The new EU member states have been experiencing firm internationalization not only through inward foreign direct investment but also through exporting, importation of foreign technology in investment goods and increased use of imported intermediates. We argue that there are important productivity spillovers within the global value chains, i.e. FDI alone does not tell the whole story of the reallocation processes going on in the economies of the NMS. We augment the standard TFP spillover empirical model with modern measures of GVC participation. We show that increased foreign content of exports brings additional productivity gains on top of the ones attributed to exporting. Moreover, we show that in selected cases, participation in the GVC leads to a smaller productivity gap between foreign and domestic firms.
    Keywords: global value chains, productivity, New Member States, productivity spillovers
    JEL: L25 C67 F10 F23 O12
    Date: 2015
  14. By: Cristina JUDE
    Date: 2015
  15. By: Jonathan Eaton; Samuel S. Kortum; Brent Neiman
    Abstract: Obstfeld and Rogoff (2001) propose that trade frictions lie behind key puzzles in international macroeconomics. We take a dynamic multicountry model of international trade, production, and investment to data from 19 countries to assess this proposition quantitatively. Using the framework developed in Eaton, Kortum, Neiman, and Romalis (2015), we revisit the puzzles in a counterfactual with drastically lower trade frictions. Our results largely support Obstfeld and Rogoff's explanation. Most notably, with lower trade frictions, domestic investment becomes much less correlated with domestic saving, mitigating the Feldstein-Horioka (1980) puzzle. Nominal GDP becomes less variable while real GDP becomes much more closely tied to nominal GDP, mitigating the purchasing power parity and exchange rate disconnect puzzles. Lower trade frictions don't help resolve all of the puzzles, however. The correlation of consumption growth across countries, if anything, diminishes.
    JEL: E3 F17 F4
    Date: 2015–12
  16. By: Alejandro Cunat; Robert Zymek
    Abstract: This paper provides evidence of a link between specialisation patterns - in intermediate inputs or final goods - and business cycle correlations: countries with a similar intermediate-good content of exports tend to have more correlated GDP fluctuations and external balances. We produce a model that replicates these facts. A productivity shock in a large country ("the U.S.") has a smaller effect on the terms of trade of countries that share its specialisation, while being shared fully with countries specialised in the other type of good through a terms-of-trade effect. In the presence of complete asset markets, the trade balance reflects the flow of insurance payments. All countries who benefit little from the shock in the large country will have correlated, negative net exports. The trade balances of all other countries will jointly move in the opposite direction.
    Keywords: international business cycles, net exports, intermediate inputs
    JEL: F4
    Date: 2015–07–01
  17. By: Isaac Ehrlich; Jinyoung Kim
    Abstract: Census data from international sources covering 77% of the world’s migrant population indicate that the skill composition of migrants in major destination countries, including the US, has been rising over the last 4 decades. Moreover, the population share of skilled migrants has been approaching or exceeding that of skilled natives. We offer theoretical propositions and empirical tests consistent with these trends via a general-equilibrium model of endogenous growth where human capital, population, income growth and distribution, and migration trends are endogenous. We derive new insights about the impact of migration on long-term income growth and distribution, and the net benefits to natives in both destination and source countries.
    JEL: F22 F43 O15 O4
    Date: 2015–11

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