nep-int New Economics Papers
on International Trade
Issue of 2016‒01‒03
twenty-two papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Offshoring and Skill-upgrading in French Manufacturing: A Heckscher-Ohlin-Melitz View. By R. Carluccio; A. Cuñat; H. Fadinger; C. Fons-Rosen
  2. Productivity in Canada During the Auto Pact and the Free Trade Agreement By Loris Rubini
  3. Rules of Origin and Technology Spillovers from Foreign Direct Investment under International Duopoly By Naoto Jinji; Yoshihiro Mizoguchi
  4. Trade Costs and Markups By Alexander McQuoid; Loris Rubini
  5. Innovation activities and learning processes in the crisis. Evidence from Italian export in manufacturing and services By R. Brancati; E. Marrocu; M. Romagnoli; S. Usai
  6. The Effect of Trade Protection on Productivity in Uruguay By Carlos Casacuberta; Dayna Zaclicever
  7. What's Left for the WTO? By Bown, Chad P.
  8. Does Trade Imply Convergence? Analyzing The Effect of NAFTA on The Local Convergence in Mexico By Alberto Díaz Dapena; Esteban Fernández Vázquez; Rafael Garduño Rivera; Fernando Rubiera Morollón
  9. The Impact of Infrastructure on Trade and Economic Growth in Selected Economies in Asia By Ismail, Normaz Wana; Mahyideen, Jamilah Mohd
  10. Second-best Carbon Taxation in the Global Economy: The Green Paradox and Carbon Leakage Revisited By Frederick van der Ploeg
  11. Cross-Border Mergers and Acquisitions in Services: The Role of Policy and Industrial Structure By Alessandro Barattieri; Ingo Borchert; Aaditya Mattoo
  12. Input-Output Linkages of Japanese Affiliates in Mexico within NAFTA By KONDO Keisuke
  13. Who comes and Why? Determinants of Immigrants Skill Level in the Early XXth Century US By Matias Covarrubias; Jeanne Lafortune; José Tessada
  14. The Heterogeneity of Foreign Direct Investors: Linking Affiliates to Parent Productivity By Giorgia Giovannetti; Enrico Marvasi; Giorgio Ricchiuti
  15. The Effect of Trade Liberalization on Firm-Level Profits: An Event-Study Approach By Breinlich, Holger
  16. Shipment frequency of exporters and demand uncertainty: An inventory management approach By Békés, Gábor; Fontagné, Lionel; Muraközy, Balázs; Vicard, Vincent
  17. The World Trade Organization and the Future of Multilateralism By Baldwin, Richard
  18. Global Imbalances Revisited: The Transfer Problem and Transport Costs in Monopolistic Competition By Epifani, Paolo; Gancia, Gino A
  19. Firms and Trade Policy in a Global Economy (Japanese) By WAKASUGI Ryuhei
  20. We could not care less about Armington elasticities - but should we? A meta-sensitivity analysis of the influence of Armington elasticity misspecification on simulation results By Schürenberg-Frosch, Hannah
  21. Global Value Chains and Smart Specialisation Strategy: Thematic Work on the Understanding of Global Value Chains and their Analysis within the Context of Smart Specialisation By Louis Brennan; Ruslan Rakhmatullin
  22. Global commodity chains, financial markets, and local market structures: Price risks in the coffee sector in Ethiopia By Tröster, Bernhard; Staritz, Cornelia

  1. By: R. Carluccio; A. Cuñat; H. Fadinger; C. Fons-Rosen
    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 within-industry variation in skill intensity 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-abundant countries 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
  2. By: Loris Rubini
    Abstract: I study the evolution of productivity in Canada relative to the United States during two trade liberalization episodes: the 1965 Auto Pact and the 1989 Free Trade Agreement. I find that Canada's productivity grew more than U.S. productivity in the liberalized sector, which is consistent with the idea that openness increases productivity. This study reveals new evidence of productivity during the Auto Pact. Regarding the Free Trade Agreement, existing studies find that manufacturing productivity grew less in Canada than in the United States following the agreement. I argue that this is due to the use of prices that are not comparable across countries. Once these prices are made comparable, my findings are that manufacturing productivity grew more in Canada than in the United States. The results of this study suggest there are productivity gains associated with trade liberalization, and models of international trade should account for them.
    JEL: F11 F12 F13 F14
    Date: 2014
  3. By: Naoto Jinji; Yoshihiro Mizoguchi
    Abstract: Using a simple three-country model of international duopoly, this study analyses the optimal choice of rules of origin (ROO) in a free trade area/agreement (FTA) when firms from outside the FTA must undertake foreign direct investment (FDI) in FTA countries and conduct part of their production process within the FTA to comply with the ROO. FDI causes spillovers of the superior production technology from a non-FTA firm to its competitor within the FTA, depending on how much of the production process is shifted to the FTA area. In this situation, we show that as the degree of multilateral trade liberalisation before formation of the FTA is higher, the optimal ROO tends to be less stringent.
    Keywords: rules of origin; free trade area/agreement; foreign direct investment; technology spillovers; oligopoly;
    JEL: F12 F15
    Date: 2015–12
  4. By: Alexander McQuoid; Loris Rubini
    Abstract: We explore the effects of trade costs on markups by building a new model consistent with three stylized facts: exporters charge higher markups, markups increase when starting to export, and domestic and foreign sales are negatively correlated, which suggests decreasing returns. We calibrate the model to Chilean data, and simulate reductions in trade costs. Most markups increase along the intensive margin, and unambiguously decline along the extensive margin. This follows from prices adjusting less than marginal costs, which increase with output but decline as trade costs fall, resulting in pro-competitive effects on new exporters, but anti-competitive effects for incumbent exporters.
    JEL: F12 F17
    Date: 2014
  5. By: R. Brancati; E. Marrocu; M. Romagnoli; S. Usai
    Abstract: Are there any factors driving firms’ internationalization process other than productivity? By means of a firm-level dataset on manufacturing and production services sectors collected by MET, this paper investigates the export performance of enterprises in Italy in the aftermath of the recent economic crisis. Our results suggest that productivity is not the only (and most important) determinant in this matter. Innovation activity and learning processes are indeed pivotal in boosting enterprises to sell their products abroad and, to a certain extent, in backing their success on foreign markets. In particular, by estimating dynamic probability models as well as Tobit II-Heckman and two-part models, we provide evidence that firm’s ability to learn from its past export experiences lowers international trade informal barriers, while its ability to learn thanks to regional and local industry spillovers is important in terms of both extensive and intensive performances on foreign markets.
    Keywords: international trade, inter-regional trade, innovation, regional/industrial spillovers, dynamic binary models, Tobit II models, two-part models
    JEL: C23 C25 F14 O3
    Date: 2015
  6. By: Carlos Casacuberta (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Dayna Zaclicever (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: We analyze the effect of trade protection on firm’s performance using a panel of firms from the Annual Manufacturing Surveys of Uruguay from 1988 to 2005. We estimate total factor productivity using Levinsohn and Petrin (2003) methodology and relate such measures to protection. Firm-specific protection is measured as the average tariff within the four-digit harmonized system classes containing the firm’s products (rather than the usual four-digit ISIC averages), tracking more closely the relevant markets, both for firm’s product and input baskets, and separate indices are calculated. We find a positive effect of reduction in output protection on total factor productivity, while the effect of lower input protection, when significant, is negative, which we find related to the overall change in effective protection. Reductions in bilateral tariffs with Uruguay’s large neighbors in the context of MERCOSUR are not found to have a significant productivity enhancing effect. The results are robust to alternative protection measures, specification and controls.
    Keywords: Total factor productivity; Trade protection.
    JEL: D24 F14
    Date: 2015–04
  7. By: Bown, Chad P.
    Abstract: Suppose that when addressing the question of "what’s left for the WTO?," tariff negotiators relied not on the agenda established in 2001 but instead on the terms-of-trade theory of trade agreements to identify negotiating priorities. This paper uses the lens of the terms-of-trade theory to investigate three areas in which it is frequently alleged that currently applied tariffs remain “too high”; the implication being that the WTO’s job performance to date is incomplete. This includes applied tariffs for countries that are not members of the WTO, applied MFN tariffs for WTO members that are unbound, and applied MFN tariffs for WTO members set in the presence of large amounts of tariff binding overhang. These are almost exclusively the domain of developing countries’ own trade policies and they are collectively important; 3.5 billion people currently live in countries in which the WTO has had minimal effect for one of these three reasons. This paper builds upon recent developments in the empirical literature to present evidence - some direct, some indirect - that sheds light on each area. It then identifies specific needs for additional research to clarify policy implications for the future role of the WTO in the ever-changing international trading system.
    Keywords: binding overhang; developing countries; MFN; tariff bindings; tariff liberalization; WTO
    JEL: F13
    Date: 2015–12
  8. By: Alberto Díaz Dapena (Universidad de Oviedo); Esteban Fernández Vázquez (Universidad de Oviedo); Rafael Garduño Rivera (Division of Economics, CIDE); Fernando Rubiera Morollón (Universidad de Oviedo)
    Abstract: Regional Economics and Economic Growth focus on the question of whether trade leads to a greater concentration of economic activity. Yet little empirical work has assessed the regional convergence impacts of trade. Therefore this paper studies the regional convergence from trade in Mexico after NAFTA. Unlike previous papers, working with municipal-level data allows to observe more clearly the convergence patterns across space and to identify the effect of NAFTA, respectively. Result shows that after NAFTA, convergence in regions near the U.S. border grew faster than those further away. However, there is a significant reduction of the ß coefficient after NAFTA indicating a slowdown in the convergence rate. Additional, we find that those municipalities in the south have not been integrated in the world markets, and have, instead, lagged behind their counterparts after NAFTA.
    Keywords: Convergence, clusters, international trade, NAFTA, Mexico
    JEL: R11 R15
    Date: 2015–12
  9. By: Ismail, Normaz Wana (Asian Development Bank Institute); Mahyideen, Jamilah Mohd (Asian Development Bank Institute)
    Abstract: Infrastructure plays a key role in facilitating trade, especially since recent trade liberalization in Asia has resulted in significant tariff reductions. This study quantifies the impacts of both hard and soft infrastructure on trade volume for exporters and importers in the region as well as on various economic growth indicators.
    Keywords: infrastructure; trade facilitation; hard infrastructure; soft infrastructure
    JEL: O18 O53 R53
    Date: 2015–12–30
  10. By: Frederick van der Ploeg
    Abstract: Unilateral second-best carbon taxes are analysed in a two-period, two-country model with international trade in final goods, oil and bonds. Acceleration of global warming resulting from a future carbon tax is large if the price elasticities of oil demand are large and that of oil supply is small. The fall in the world interest rate weakens this weak Green Paradox effect, especially if intertemporal substitution is weak. Still, green welfare rises if the fall in oil supply and cumulative emissions is strong enough. If the current carbon tax is too low, the second-best future carbon tax is set below the first best to mitigate adverse Green Paradox effects. Unilateral second-best optimal carbon taxes exceed the first-best taxes due to an import tariff component. The intertemporal terms of trade effects of the future carbon tax increase current and future tariffs and those of the current tax lower the current tariff. Finally, carbon leakage and globally altruistic and unilateral second-best optimal carbon taxes if non-Kyoto oil importers do not price carbon or price it too low are analysed in a three-country model of the global economy.
    Keywords: unilateral carbon taxes, intertemporal terms of trade, tax incidence, Green Paradox, asset tax, carbon leakage, second best, global altruism, unburnt fossil fuel
    JEL: D62 D90 H22 H23 Q31 Q38 Q54
    Date: 2015–11–19
  11. By: Alessandro Barattieri; Ingo Borchert; Aaditya Mattoo
    Abstract: This paper explores the role of policy and economic structure in determining interna- tional mergers and acquisitions (M&A) in services sectors. The analysis is based on bilateral sectoral M&A ow data and detailed information on policy barriers from a new database. Restrictive investment policies are found to reduce the probability of M&A inows, controlling for bilateral frictions such as geography. This negative effect, however, is mitigated in countries with relatively large shares of manufacturing and (to a lesser extent) services in GDP. The same result holds for the number of M&A deals concluded. Findings are robust to accounting for the potential endogeneity of policy restrictiveness. The evidence suggests that the impact of policy is state-dependent and related to the composition of GDP in the target economy.
    Keywords: Cross-border M&A, services trade policy, trade frictions
    JEL: F13 F21 L80
    Date: 2015
  12. By: KONDO Keisuke
    Abstract: This study empirically investigates input-output linkages of Japanese affiliates in Mexico between the United States, Canada, Mexico, and Japan. Constructing a panel dataset at the affiliate level between 1995 and 2012, this study identifies significant linkages for international input-output flows between these countries. It finds that Japanese affiliates' imports of inputs from the United States and Canada significantly increase their exports of output to those countries. On the other hand, there is little evidence that their purchases of inputs in Mexico increase their exports to the United States and Canada. In turn, local sales of Japanese affiliates in Mexico are sustained by diversified intermediate inputs sourced from the United States, Canada, Mexico, and Japan.
    Date: 2015–12
  13. By: Matias Covarrubias; Jeanne Lafortune; José Tessada
    Abstract: This paper first elaborates a model of intermediate selection where potential migrants must have both the resources to finance the migration cost (liquidity constraint restriction) and an income gain of migrating (economic incentives restriction). We then test the predictions of the model regarding the impact of output in the sending country and migration costs on average skill level of immigrants to the United States from 1899 to 1932, where immigration was initially unrestricted by law and then highly limited. Our panel of 39 countries includes data on occupations that immigrants had in their country of origin, providing a more accurate skill measure than previously available datasets. We find that migration costs have a negative but skill-neutral effect on quantity of immigrants and an increase in output, measured as GDP per capita, has a positive effect on quantity and a negative effect on average skill level of immigrants, suggesting that the main channel by which changes in output affected the average skill level of migrants in that time period is through the easing or tightening of the liquidity constraints and not through the economic incentives as in previous models. Also, using migrants’ occupation in the United States as a measure of skills would lead to misleading conclusions.
    JEL: F22 H56 J61 O15
    Date: 2014
  14. By: Giorgia Giovannetti (Dipartimento di Scienze per l'Economia e l'Impresa); Enrico Marvasi; Giorgio Ricchiuti (Dipartimento di Scienze per l'Economia e l'Impresa)
    Abstract: We investigate the heterogeneity within the group of foreign direct investors and the relation between affiliates characteristics and parent productivity. Using data on Italian firms, we show that foreign direct investors differ in their productivity level according to their characteristics and their investment decisions. Larger parents by employment or sales tend to be more productive, to have more affiliates and to invest in a higher number of destinations. Focusing on manufacturing firms, we show econometrically that having more and larger affiliates in rich countries leads to higher ex-post productivity. In particular, investing in high income countries or both in high and low income countries is associated with a subsequent productivity premium \textit{vis-\`a-vis} low income countries investors, especially for larger parents. Low income countries investors are found to be relatively more productive when operating in low technology sectors, while the opposite applies to high income countries investors.
    Keywords: foreign direct investment, heterogeneous firms, total factor productivity, multinationals, foreign affiliates
    JEL: F12 F14 F21
    Date: 2015
  15. By: Breinlich, Holger
    Abstract: I use an event study approach to present novel evidence on the impact of trade liberalization on firm-level profits. Using the uncertainty surrounding the negotiation and ratification process of the Canada-United States Free Trade Agreement of 1989 (CUSFTA), I estimate the impact of different types of tariff reductions on the abnormal returns of Canadian manufacturing firms. I find that Canadian import tariff reductions lead to lower, and reductions in Canadian intermediate input tariffs to higher abnormal returns. The impact of U.S. tariff reductions is less clear and depends on the size of the affected firms. I also calculate the total profit increase implied by my estimates. Overall, CUSFTA increased per-period profits by around 1.2%. This was mainly driven by intermediate input tariff reductions which more than offset the negative effect of Canadian import tariff reductions.
    Keywords: Canada-U.S. Free Trade Agreement; profitability; stock market event studies; trade liberalization
    JEL: F12 F14 G14
    Date: 2015–12
  16. By: Békés, Gábor; Fontagné, Lionel; Muraközy, Balázs; Vicard, Vincent
    Abstract: This paper studies how exporting firms optimize their inventory management in order to adapt to the uncertainty stemming from demand volatility. We motivate our analysis with a stochastic inventory management framework. We use monthly micro data on French exporters and find that greater uncertainty is associated with lower sales volume. We decompose this effect to its two margins, the number of shipments and average shipment size to find that the number of shipments decreases more quickly as uncertainty increases which is in line with firms adjusting their inventory policy as well as their exported volume as a result of increased uncertainty. Also, uncertainty was found to matter more at distant markets where the uncertainty between firm actions and the arrival of the products is the largest.
    Keywords: firms; frequency of trade; gravity; inventory model; transport costs
    JEL: D40 F14 R41
    Date: 2015–12
  17. By: Baldwin, Richard
    Abstract: This paper looks that the future of multilateralism and the WTO in the light of its current problems and past successes. The main thesis is that WTO and the future of multilateralism are two different things. The ICT Revolution created a new type of trade – what might be called 21st century trade – where greater integration means more ‘factories crossing borders’. As a result, the flows that used happen only inside rich nation factories are now part of international commerce. These new, more complex cross-border flows go beyond, the 20th century trade that the WTO was set up to govern. For 20th century trade, the WTO and multilateralism are likely to continue even as the WTO’s centrality in global trade governance shrinks. Multilateralism for 21st century trade, however, has shifted to regional arrangements like TPP. Unless the WTO membership makes a big shift and embraces 21st century trade issues, the new mega-regional trade arrangements will act as loose governance organizations for 21st century trade. Whatever happens, it is clear that by the end of the decade, world trade governance will be quite different than it is today. The idea that the WTO is the central pillar of global trade governance will either be replaced by a multipolar system, or the WTO itself will be transformed.
    Keywords: 21st century trade; GVCs; Mulilateralism; WTO
    JEL: F02
    Date: 2015–12
  18. By: Epifani, Paolo; Gancia, Gino A
    Abstract: We study the welfare effects of trade imbalances in a two-sector model of monopolistic competition. As in perfect competition, a trade surplus involves an income transfer to the deficit country and possibly a terms-of-trade deterioration. Unlike the conventional wisdom, however, trade imbalances do not impose any double burden on surplus countries. This is because of a production-delocation effect, which leads to a reduction in the local price index. In the presence of intermediate goods, new results arise: A trade surplus may lead to an appreciation of the exchange rate, to a terms-of-trade improvement and to a welfare increase under standard parameter configurations. In addition, policies that stabilize the exchange rate can make the balanced-trade equilibrium unstable. These results can explain why the manufacturing sector may agglomerate in countries that resist the real appreciation of their currency and suggest that a fixed exchange rate and nominal rigidities may generate short-run instability.
    Keywords: intermediate goods; monopolistic competition; trade costs; trade imbalances
    JEL: F1
    Date: 2015–12
  19. By: WAKASUGI Ryuhei
    Abstract: Abstract in English is not available.
    Date: 2015–11
  20. By: Schürenberg-Frosch, Hannah
    Abstract: This paper investigates the robustness of CGE models with respect to the elasticities of substitution in demand between domestically produced goods and foreign goods - the so-called Armington elasticities. The Armington-type modeling of trade is still one of the most extensively used specifications in CGE modeling. For a long time the choice of the respective elasticities of substitution has not been given much attention. We resimulate 50 published CGE policy simulations each a 1000 times and randomize the elasticities. The results of this experiment clearly indicate that a change in the elasticities has noteworthy quantitative and qualitative effects on the results in more than half of the models. We thus conclude that the choice of the elasticities should get more attention and robustness of models with respect to elasticities should be tested by modellers.
    Abstract: Berechenbare allgemeine Gleichgewichtsmodelle (CGE, engl. Computable General Equilibrium) sind seit langem in den Bereichen Handelspolitik, Ökonomie des Klimawandels, Entwicklungspolitik und Steuerpolitik ein fester Bestandteil der angewandten Volkswirtschaftslehre, insbesondere in der Politikberatung. Die Modelle eignen sich ausgezeichnet zur Politikfolgenabschätzung, da sie eine ex ante Abschätzung der Folgen z.B. einer Politikmaßnahme zu simulieren. Der größte regelmäßige Kritikpunkt gegenüber CGE-Modellen ist die Abhängigkeit der Ergebnisse von per Annahme festgelegten Parametern, über deren wahre Werte Unsicherheit besteht. Einer der hiervon betroffenen Kernparameter sind die sog. Handels- bzw. Armingtonelastizitäten. Aufgrund des hohen Aufwands empirischer Schätzungen sowie der generell schlechten Datenverfügbarkeit werden die Elastizitäten für die meisten CGE-Anwendungen nicht aus realen Landesdaten gewonnen, sondern unverändert aus anderen Studien übernommen. Die vorliegende Meta-Studie untersucht und bestätigt die Relevanz dieses Kritikpunktes. Hierzu werden 50 Simulationen in 19 Modellen aus bereits veröffentlichten Studien jeweils 1000 Mal re-simuliert und dabei (ausschließlich) die Elastizitätensätze randomisiert ausgetauscht. Das Intervall für die Bestimmung der Elastizitäten wird durch alle der Autorin bekannten Elastizitätenschätzungen vorgegeben, es umfasst alle Werte zwischen 0 und 18. Die Studie kommt zu dem eindeutigen Ergebnis, dass etwa die Hälfte der Modelle nicht robust im Bezug auf die Wahl der genutzten Elastizitäten ist. Konkret ergibt die 1000-fache randomisierte Ziehung der Elastizitäten und anschließende Re-Simulation des Original-Experiments im jeweiligen Modell z.T. quantitative Abweichungen bei der Wohlfahrts- und BIP-Bewertung von über 100% und in etwa 25% der Modelle auch qualitative Änderungen, so dass als wohlfahrtsfördernd eingestufte Politiken mit neuem Elastizitätensatz wohlfahrtshemmend wirken und umgekehrt.
    Keywords: Armington,trade elasticities,computable general equilibrium,meta-study
    JEL: F14 C68 F17
    Date: 2015
  21. By: Louis Brennan (School of Business, Trinity College, University of Dublin); Ruslan Rakhmatullin (European Commission – JRC - IPTS)
    Abstract: The paper elaborates the foundations and functioning of global value chains, the importance of their analysis within the S3 context, in line with the existing RIS3 framework. A methodological approach to analysing a country’s position in GVCs in terms of activities, flows and relationships is presented. The approach is illustrated with its application to the Irish pharmaceutical sector.
    Keywords: smart specialisation, S3, global value chain, GVC, regional policy, European Union, EU
    Date: 2015–12
  22. By: Tröster, Bernhard; Staritz, Cornelia
    Abstract: Risks related to commodity price volatility are a major thread to actors in commodity chains, particularly to smallholder farmers in low income countries. Therefore, price setting and transmission within global commodity chains are of crucial importance from a developmental and distributional perspective. With the end of global price stabilization mechanisms in the 1980s, financial derivative markets have taken over the central role in price discovery and risk management. This is also true for the case of coffee, being the agro-commodity with the highest trading volume on financial commodity exchanges. In this paper, the coffee commodity chain is assessed with a focus on Ethiopia, the largest coffee exporter in Sub-Saharan Africa. Given the crucial role of the coffee sector for exports and for millions of smallholders, price risks for Ethiopian and international actors are analyzed along two indicators - exposure to price risks and ability to mitigate price risks. Even though Ethiopia imposes strict regulations on local value addition in green coffee production, the use of a market-based price discovery system via the Ethiopian Commodity Exchange exposes local actors to highly volatile international coffee prices, but with limited access to risk management. This is in contrast to lead firms in the global coffee chain - international traders and roasters - which use various strategies to deal with and also profit from price risks, mainly interlinked to financial derivate markets.
    Keywords: global commodity chains,financialization,commodity prices,price risks,price risk management,coffee sector,Ethiopia,commodity exchange
    Date: 2015

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