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on International Trade |
| By: | Julian di Giovanni (Universitat Pompeu Fabra, Barcelona GSE, CREI and CEPR); Andrei A. Levchenko (University of Michigan, NBER, and CEPR); Isabelle Méjean (Ecole Polytechnique and CEPR) |
| Abstract: | This paper investigates the role of individual firms in international business cycle comovement using data covering the universe of French firm-level value added, bilateral imports and exports, and cross-border ownership over the period 1993-2007. At the micro level, controlling for firm and country effects, trade in goods with a particular foreign country is associated with a significantly higher correlation between a firm and that foreign country. In addition, foreign multinational affliates operating in France are significantly more correlated with the source economy. The impact of direct trade and multinational linkages on comovement at the micro level has significant macro implications. Because internationally connected firms are systematically larger than noninternationally connected firms, the firms directly linked to foreign countries represent only 8% of all firms, but 56% of all value added, and account for 75% of the observed aggregate comovement. Without those linkages the correlation between France and foreign countries would fall by about 0.091, or one-third of the observed average business cycle correlation of 0.29 in our sample of partner countries. These results are evidence of transmission of business cycle shocks through direct trade and multinational ownership linkages at the firm level. |
| Keywords: | Comovement, International Trade, Firm-Level Shocks, Large Firms |
| JEL: | F44 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:mie:wpaper:649&r=int |
| By: | Gnangnon, Sèna Kimm; Roberts, Michael |
| Abstract: | This paper examines empirically whether Aid for Trade (AfT) programmes and Foreign Direct Investment (FDI) inflows affect export upgrading and, if so, whether their effects are complementary or substitutable. Export upgrading entails export diversification (including overall export diversification, as well as diversification at the intensive and at the extensive margins) and export quality improvement. The empirical analysis shows that total AfT flows have a strong positive impact on export upgrading, and that LDCs as compared to Non-LDCs, are the most important beneficiaries of this positive impact. While the impact of FDI inflows on export diversification in host economies is mixed, these flows do exert a strong positive impact on export quality upgrading. Furthermore, the impact of FDI on export diversification is higher in LDCs than in Non-LDCs. Incidentally, AfT and FDI inflows appear substitutes (in an economic theory sense) in achieving export diversification and complementary in their effect on the improvement of export quality in recipient countries, including LDCs. Results obtained on the impact of components of total AfT are inconclusive, as they suggest both complementarity and substitutability with respect to FDI inflows in affecting export upgrading in recipient countries. Overall, empirical results suggest that AfT and FDI inflows are effective in influencing export upgrading in recipient countries. However, the results also highlight the importance of the interplay between these two kinds of capital flows in affecting export development strategies and FDI policies of recipient countries, notably LDCs. We can infer from this study that AfT flows appear to play a particularly important role in ensuring that FDI inflows do not lead to further export concentration, by putting in place the necessary conditions for export diversification. |
| Keywords: | Aid for Trade,FDI,Export Upgrading |
| JEL: | O24 F21 O14 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wtowps:ersd201510&r=int |
| By: | Schwab, Jakob; Ortseifer, Christina |
| Abstract: | This paper gives a new answer to the old question of whether international trade and capital flows are substitutes or complements. In contrast to conventional intuition, we show that when Heckscher-Ohlin trade takes place in high-skill and low-skill intensive goods, this does create incentives for capital flows. Technically, we incorporate capital as a composite factor in a tractable 3-factor neoclassical trade model. It shows that countries for whom trade induces greater trade specialization observe larger capital inflows. By using data on revealed comparative advantage while controlling for common factors, we provide emprical evidence for our results. |
| JEL: | F11 F21 F14 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113194&r=int |
| By: | Pflüger, Michael Paul; Krebs, Oliver |
| Abstract: | This paper explores the quantitative consequences of transatlantic trade liberalization envisioned in a Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union. Our key innovation is to base our estimate on a new quantitative trade model with an associated recent technique which is far more parsimonious and has a far tighter connection between theory and data than previous approaches. We make use of the recently established detailed World Input Output Database (WIOD). This allows us to take input-output linkages pertaining among industries into account. We also explore the consequences of labor mobility across the countries of the European Union. |
| JEL: | F10 F16 F20 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113025&r=int |
| By: | Herzer, Dierk |
| Abstract: | This paper examines the long-run effect of the level of foreign direct investment (FDI) on the level of total factor productivity (TFP) for 70 developing countries for the period 1981-2011 using panel cointegration techniques. It is found that (i) FDI has, on average, a negative long-run effect on TFP in developing countries; (ii) causality runs in only one direction, from FDI to TFP, and (iii) the long-run effect of FDI of TFP differs between selected groups of countries: while the estimated long-run FDI-TFP coefficients are significantly negative for subsamples of countries with lower levels of human capital, financial development, and trade openness, the coefficients are insignificant or significantly positive for subgroups of countries with higher levels of human capital, financial development, and trade openness. |
| JEL: | F21 O47 C23 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112827&r=int |
| By: | Eppinger, Peter; Smolka, Marcel |
| Abstract: | We analyze the effect of the global financial crisis on firms export intensity. In a panel dataset of Spanish manufacturing firms, we show that foreign-owned firms maintained a significantly higher export intensity after the credit crunch in 2008 compared to domestically owned firms. This differential effect is identified only for small firms and stronger for financially vulnerable firms that started out with a large share of short-term debt before the crisis, as a triple difference identification strategy reveals. These novel findings confirm that exports are more prone to credit shocks than domestic sales. They support the view that foreign-owned firms can alleviate credit constraints by accessing the internal capital market of their parents. We show that credit constraints played a significant role in the great trade collapse, while their contribution to the overall decline in trade was rather limited. Our results further suggest that foreign direct investment may serve as a means to alleviate credit constraints and thus to stabilize exports during financial crises. |
| JEL: | F14 F23 G01 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113039&r=int |
| By: | Raff, Horst; Qu, Zhan; Schmitt, Nicolas |
| Abstract: | The paper develops a simple theoretical model of inventory control in global value chains. It identifies a role for intermediaries in managing inventory, and shows that inserting an intermediary as an additional link in a value chain is profitable when demand volatility is high. It also provides conditions under which the intermediary handling inventory is located in the exporting versus the importing country. Trade liberalization in the form of less lumpy trade is shown to expand the role of export and import intermediaries but to have potentially negative effects on the volume of international trade and social welfare in the importing country. |
| JEL: | F12 F23 L22 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112984&r=int |
| By: | Wrona, Jens |
| Abstract: | Over the last 20 years the border-effect literature repeatedly documented the trade-reducing effect of inter- and intra-national borders. Thereby, the sheer size and persistence of observed border effects from the beginning raised doubts on the genuine effect of underlying borders. However, when so-called "border effects" result either from statistical artefacts or from differences in fundamentals, why should their spatial dimension then inevitably coincide with the geography of present or past political borders? This paper identifies a discontinuous trade reduction along a geographic dimension that neither existing nor defunct political borders can explain. Trade between the East and the West of Japan is 23.1% - 51.3% lower than trade within both country parts. Including a rich set of explanatory variables, suggests that recent agglomeration trends, reflected by the contemporaneous structure of Japan's business and social networks, rather than cultural differences, shaped by long-lasting historical shocks, can explain the east-west bias in intra-Japanese trade. |
| JEL: | F14 F15 F12 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113060&r=int |
| By: | Brunow, Stephan; Grünwald, Luise |
| Abstract: | Theoretical and empirical contributions on export behavior highlight the importance of firms' productivity and their levels of economies of scale on firms' export success in `foreign markets. In the context of agglomeration economies, firms enjoy produc-tivity gains when they are located close to competitors or upstreaming industries and they benefit from knowledge spillovers and other positive externalities. In such a stimulating environment, firms become more prone to be exporters. Beyond the role played by externalities, firms may benefit when they employ a diverse workforce and when the interaction of distinct knowledge and related problem-solving abilities increases productivity and secures export success. In this paper, we ask whether German firms (i.e., establishments) benefit from localization and urbanization exter-nalities and face higher export proportions. We also control for a variety of estab-lishment characteristics and workforce diversity. For this purpose, a comprehensive German data set that combines survey data and administrative data is used. While controlling for firm heterogeneity in a fractional response model, we provide evi-dence that manufacturing establishments and smaller establishments (up to 250 employees) benefit most from externalities and especially from knowledge spillover. There is weak evidence supporting the benefit of workforce diversity; however, that factor could explain between-establishment variation. |
| JEL: | D22 F14 M14 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113182&r=int |
| By: | Ferguson, Shon (Research Institute of Industrial Economics (IFN)); Gars, Johan (GEDB) |
| Abstract: | The purpose of this study is to measure the sensitivity of trade volumes and unit values to agricultural productivity shocks at home and abroad. We find that the unit values of trade flows vary systematically with production shocks using both aggregate data on a large sample of countries and detailed firm-level imports to Sweden. We find that import prices increase (and import volumes fall) when importer production increases. This result is likely driven by a change in the quality composition of imports or by economies of scale in international trade. This beneficial terms-of-trade effect that we find may thus be an important coping mechanism for food net-importing countries that experience negative production shocks. Our results also suggest that trade volumes are relatively insensitive to changes in production. The results suggest that trade frictions, product differentiation and storage limit the role of international trade as way of coping with production volatility. |
| Keywords: | Climate shocks; Pass-through; Quality sorting; Agricultural trade |
| JEL: | F14 F18 Q11 Q17 Q18 |
| Date: | 2016–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1107&r=int |
| By: | Lücke, Matthias; Stöhr, Tobias |
| Abstract: | We estimate a gravity model for bilateral FDI out-stocks from panel data for OECD reporting countries with bilateral and year fixed effects. With this demanding test, we find a robust positive effect of bilateral immigrants on bilateral FDI - provided that residents of the two countries have few language skills in common. We find a similar effect, in terms of size and statistical significance, for immigrants from third countries who speak the language(s) of the FDI host country. They thus are potential substitutes for bilateral migrants. A 1 percent increase in either immigrant group raises the FDI out-stock by 0.2 to 0.4 percent. Combined with various robustness checks, our findings suggest that immigrants facilitate outgoing FDI through their language skills, rather than through other characteristics like cultural familiarity. As most developing country residents have few language skills in common with rich country residents, developing country migrants in rich countries have a key role to play in facilitating FDI in their countries of origin. |
| JEL: | F21 F22 O14 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113191&r=int |
| By: | Emami Namini, Julian; Chisik, Richard |
| Abstract: | We embed a competitive search model with labor market discrimination into a two-sector two-country framework in order to analyze the relationship between international trade and labor market discrimination. Discrimination reduces the matching probability, and output, in the skilled-labor differentiated-product sector so that the country with more discriminatory firms has a comparative advantage in the simple sector. As countries alter their production mix in accordance with their comparative advantage, trade liberalization can then reinforce the negative effect of discrimination on development in the more discriminatory country and reduce its effect in the country with fewer discriminatory firms. Similarly, the relative profit difference between non-discriminatory and discriminatory firms will increase in the less discriminatory country and shrink in the more discriminatory one. In this way trade can further reduce discrimination in a country where it is less prevalent and increase it where it is more prevalent. |
| JEL: | F16 J71 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113074&r=int |
| By: | Sandra M. Leitner (The Vienna Institute for International Economic Studies, wiiw); Manuel Marcias; Daniel Mirza; Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Roman Stöllinger (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | Summary Global trade patterns are changing rapidly. Emerging economies are increasing their share of exports overall and intensifying competition in nearly all sectors. Low-cost advantage initially helped emerging economies, particularly China, penetrate low technology labour intensive sectors. More recently, emerging economies have started to compete in higher value-added sectors where European industries have traditionally had comparative advantage. Greater trade integration has also led to a dispersion of value chains well beyond national borders, increasing the granularity of trade. In this rapidly changing context, it is valuable to predict the future profile of EU exports so that the results can inform current policy. Using a model based approach this report examines the future profile of EU exports at sector and aggregate level in terms of trade volumes and quality competitiveness. A value chain approach allows then to quantify impacts on sectoral value added and GDP. |
| Keywords: | trade patterns, gravity, scenarios, quality of trade, GDP impact |
| JEL: | F14 F17 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:wii:rpaper:rr:409&r=int |
| By: | Stiebale, Joel |
| Abstract: | This paper analyzes the effects of cross-border mergers and acquisitions (M&As) on the innovation of European firms. The results indicate a considerable increase in post-acquisition innovation in the merged entity. This is mainly driven by inventors based in the acquirer's country, while innovation in the target's country tends to decline. The asymmetry of effects between acquiring and target firms increases with pre-acquisition differences in knowledge stocks, indicating a relocation of innovative activities towards more efficient usage within multinational firms. Instrumental variable techniques as well as a propensity-score matching approach indicate that the effect of cross-border M&As on innovation is causal. |
| JEL: | F23 D22 G34 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112898&r=int |
| By: | Schmerer, Hans-Jörg; Capuano, Stella; Egger, Hartmut; Koch, Michael |
| Abstract: | We set up a model of offshoring with heterogeneous producers that captures two empirical regularities on offshoring firms: larger, more productive firms are more likely to make use of the offshoring opportunity; the fraction of firms that engages in offshoring is positive and smaller than one in any size or revenue category. These patterns generate an overlap of offshoring and non-offshoring firms, which is non-monotonic in the costs of offshoring. In an empirical exercise, we employ firm-level data from Germany to estimate key parameters of the model. We show that ignoring the overlap leads to a severe downward bias in the estimated gains from offshoring, which amounts to almost 60 percent in our model. |
| JEL: | F10 F16 F12 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113147&r=int |
| By: | Belke, Ansgar; Oeking, Anne; Setzer, Ralph |
| Abstract: | We argue that, under certain conditions, firms consider exports as a substitute for domestic demand. Our econometric model for six euro area countries suggests domestic demand and capacity constraints as additional variables for export equations. We apply the exponential and logistic variant of a smooth transition regression model and find that domestic demand developments are relevant for short-run export dynamics particularly during more extreme stages of the business cycle. A substitutive relationship between domestic and foreign sales can most clearly be found for Spain, Portugal and Italy, providing evidence of the importance of sunk costs and hysteresis in international trade. |
| JEL: | F14 C22 F41 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113228&r=int |
| By: | Gampfer, Benjamin; Geishecker, Ingo |
| Abstract: | In this paper we analyse the manufacturing sector's capacity to mitigate increasing import competition from China. In our view, competition exposure is endogenous, i.e. influenced by firms' decisions which products are sold and what markets are served. We construct a counterfactual competition measure to assess the importance of different types of adaptation to increased competition: inter- and intra-industry reallocations, firm entry and exit, and product- and destination switching, among others. Combining Danish firm register data with transactional level trade statistics we are able to track product-level competition changes on the domestic as well as on each export market. Between 1997 and 2008 aggregated manufacturing level exposure to Chinese imports increased by 177 per cent but counterfactually would have increased by remarkable 283 per cent had the manufacturing sector not successfully adapted. The mitigation of sector level competition exposure works through all adaptation channels, notably firm entry and exit, and inter-industry reallocations. However, for surviving firms, product and destination switching are very relevant mechanisms to mitigate increased competitive pressure from China. |
| JEL: | F14 L60 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112996&r=int |
| By: | Molina, Ana Cristina; Khoroshavina, Vira |
| Abstract: | This paper investigates whether TBT provisions included in RTAs differ from those under the WTO TBT Agreement, and, if they do, whether they entail broader commitments. Our analysis covers 238 RTAs, of which 171 include at least one provision, and focuses on the provisions on technical regulations, conformity assessment procedures, transparency, dispute settlement, marking and labelling and sector-specific commitments. We find that all RTAs signed since 2010 systematically include TBT provisions and that the most frequent provisions are those referring to the TBT Agreement and transparency. Moreover, even if there are RTAs that include new or broader commitments than the TBT Agreement, our study shows that their number remains very limited. For instance, relatively few RTAs have included provisions to better implement WTO provisions in the area of transparency or provisions requiring the equivalence or harmonization of technical regulations among the parties or even the recognition of conformity assessment results. RTAs with a dispute settlement provision that applies exclusively to TBT issues are also very few. These RTAs give in general exclusive jurisdiction to the WTO DSM over TBT related disputes. Finally, also only a minority of RTAs include provisions on new issues such as marking and labelling or sector-specific provisions, typically for electric and electronic products, pharmaceuticals or vehicles. |
| Keywords: | Regional Trade Agreements,non-tariff barriers,TBT |
| JEL: | F13 F15 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wtowps:ersd201509&r=int |
| By: | Meyer, Birgit; Donaubauer, Julian; Nunnenkamp, Peter |
| Abstract: | We raise the hypothesis that aid specifically targeted at economic infrastructure helps developing countries attract higher FDI inflows through improving their endowment with infrastructure in transportation, communication, energy and finance. By performing 3SLS estimations we explicitly account for dependencies between three structural equations on the allocation of sector-specific aid, the determinants of infrastructure, and the determinants of FDI. We find fairly strong and robust evidence that targeted aid promotes FDI indirectly through the infrastructure channel. In addition, aid in infrastructure appears to have surprisingly strong direct effects on FDI. |
| JEL: | F21 F35 O18 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112946&r=int |
| By: | Esteves, Paulo; Bobeica, Eleina; Rua, Antonio; Staehr, Karsten |
| Abstract: | The paper investigates the link between domestic demand pressure and exports by considering an error correction dynamic panel model for eleven euro area countries over the last two decades. The results sug- gest that there is a statistically signi cant substitution e ect between domestic and foreign sales. Furthermore, this relationship appears to be asymmetric, as the link is much stronger when domestic demand falls than when it increases. Weakness in the domestic market trans- lates into increased e orts to serve markets abroad, but, conversely, during times of boom, exports are not negatively a ected by increas- ing domestic sales. This reorientation towards foreign markets was particularly important during the crisis period, and thus could rep- resent a new adjustment channel to strong negative domestic shocks. The results have important policy implications, as this substitution ef- fect between domestic and external markets might allow the euro area countries under stress to improve their trade outcomes with a relatively small downward pressure on domestic prices. |
| JEL: | C22 C50 F10 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113067&r=int |
| By: | Ehrlich, Isaac (University at Buffalo, SUNY); Kim, Jinyoung (Korea University) |
| 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 four 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. |
| Keywords: | immigration, human capital formation, endogenous economic growth, migrants, natives, population, long-term income |
| JEL: | F22 F43 O15 O4 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9599&r=int |
| By: | Smolka, Marcel; Kohler, Wilhelm |
| Abstract: | This paper investigates the role of firm productivity in drawing firm boundaries in global sourcing. Our analysis focuses on how productivity affects the allocation of ownership rights between the headquarter of a firm and its intermediate input supplier (vertical integration vs. outsourcing), as well as the location of intermediate input production (offshore vs. domestic). Unlike previous work, we allow for a fully flexible productivity effect with varying magnitude and sign across different industries. Our estimation strategy is motivated by the canonical economic model of sourcing due to Antr s & Helpman (2004). This model invokes the property rights theory of the firm in order to pin down firm boundaries as the outcome of an interaction between firm heterogeneity and the industry's sourcing intensity (i.e. the importance of inputs sourced from suppliers relative to headquarter inputs). We demonstrate that, at the level of the firm, the model implies a productivity effect that varies not just in magnitude (and potentially non-monotonically), but also in sign with the sourcing intensity of the industry. To estimate the effects empirically, we use Spanish firm-level data from the Encuesta sobre Estrategias Empresariales (ESEE). We find a pattern of effects whereby productivity stimulates vertical integration in industries of low sourcing intensity, but favors outsourcing in industries of high sourcing intensity. Moreover, we find that productivity boosts offshoring throughout all industries, with the effect increasing monotonically in the sourcing intensity. Our results lend strong empirical support to the property rights view of the firm in the global economy. |
| JEL: | F12 F23 L22 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113012&r=int |
| By: | Eichner, Thomas; Pethig, Rüdiger |
| Abstract: | This paper studies the formation of self-enforcing global environmental agreements in a world economy with international trade and two groups of countries that differ with respect to fuel demand and environmental damage. It investigates whether the signatories threat to embargo (potential) free riders secures all countries participation in the agreement. Resorting to numerical analysis, we find that an embargo may be unnecessary, ineffective or even counterproductive - depending on the degree of asymmetry and other parameters. On some subset of parameters, the embargo stabilizes the otherwise unstable global agreement, but the threat of embargo is not credible. However, in some of these cases credibility can be restored by suitable intra-coalition transfers. |
| JEL: | F18 Q37 Q58 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112911&r=int |
| By: | Enders, Zeno; Peter, Alexandra |
| Abstract: | The global financial crisis of 2007-2009 spread through different channels from its origin in the United States to large parts of the world. In this paper we explore the financial and the trade channels in a unified framework and quantify their relative importance for this transmission. Specifically, we employ a DSGE model of an open economy with an internationally operating banking sector. We investigate the transmission of the crisis via the collapse of export demand and through losses in the value of cross-border asset holdings. Calibrated to German and UK data, the model attributes around half of the observed maximum output decline in Germany to these channels, and 87% for the UK. While the trade channel explains 30% of the empirical output decline in both countries, the financial channel plays a much larger role in the UK than in Germany. The UK's larger vulnerability to financial shocks is due to higher foreign-asset holdings, which simultaneously serve as an automatic stabilizer in case of plummeting foreign demand. The transmission via the financial channel triggers a much longer-lasting recession relative to the trade channel, resulting in larger cumulated output losses and a prolonged crisis particularly in the UK. Stricter bank capital regulations would have deepened the initial slump while simultaneously speeding up the recovery. |
| JEL: | F44 F41 E32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113022&r=int |
| By: | Zhang, Ruosi |
| Abstract: | The GATS does not offer a definition of "services", but services need to be identified and classified for the operation of the Agreement, especially for the scheduling of specific commitments on market access and national treatment. There is no obligation on WTO Members to use any particular classification system in undertaking commitments. Nevertheless, an informal document produced for the services negotiation during the Uruguay Round, the Services Sectoral Classification List (W/120), was used and continues to be used as the principal guiding classification system, not only in the WTO, but also in bilateral and plurilateral services trade negotiations outside of the WTO. WTO jurisprudence has also noted the role of W/120 in the determination of sectoral coverage of GATS commitments. However, services classification does not receive enough attention it deserves. This paper attempts to make contribution by providing an overview of services classification and highlighting its relevance to both trade negotiations and WTO dispute settlement. It consists of four sections. Section I reviews how a services classification system was introduced into the multilateral trading system and describes the main features of W120. Section II takes a closer look at some aspects of the classification system, drawing attention to challenges in its application, which arise from inter alia services with multiple end-uses, overlaps between sectors, and the issue of "new services". Section III considers the implications of classification on GATS commitments by examining a number of WTO dispute settlement cases. Section IV concludes. In conclusion, the paper underlines the importance of services classification in assisting governments in clearly and accurately undertaking commitments. It also notes that WTO Members have taken or suggested various pragmatic approaches to addressing challenges in the application of the current services classification system. The proposed approaches again highlight the role of classification in ensuring the clarity, certainty and predictability of specific commitments in services. |
| Keywords: | services classification,specific commitments,GATS |
| JEL: | K33 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wtowps:ersd201511&r=int |
| By: | Jung, Benjamin; Felbermayr, Gabriel |
| Abstract: | Increasing-returns-to-scale imperfect competition trade models predict a more than proportionate relationship between the larger country s share in world endowments and its share in producing firms: the so called home market effect (HME). We show that the single-sector Melitz (2003) model features a weak and a strong HME, even in the absence of a second sector. The HMEs are generally non-linear; they are magnified by lower trade costs or by more pronounced productivity dispersion. The model implies that market size differences translate into regional inequality. In contrast to the traditional formulation with a linear outside sector, trade liberalization leads to convergence of real per capita income. In terms of demand shares, a HME holds if demand shocks are due to endowment shocks but reverses in the case of productivity shocks. |
| JEL: | F12 F15 R12 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113038&r=int |
| By: | Kukharskyy, Bohdan; Gorodnichenko, Yuriy; Roland, Gerard |
| Abstract: | This paper develops a model of global sourcing with culturally dissimilar countries. Production of final goods requires the coordination of decisions between the headquarter of a multinational firm and managers of their component suppliers. Managers of both units are assumed to have strong beliefs about the right course of action and are reluctant to adjust their decisions. We then characterize the optimal allocation of decision rights across firms when contracts are incomplete. Our theoretical model delivers two key predictions: An incentive of a firm to integrate (rather than outsource) its input supply is decreasing in cultural distance between the home and the host country and decreasing in trade cost between the two countries. Combining data from the U.S. Census Bureau s Related Party Trade with various measures for cultural distance and trade cost, we find empirical evidence broadly supportive of these two predictions. |
| JEL: | F14 F23 L23 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113015&r=int |
| By: | Hauptmann, Andreas; Capuano, Stella; Schmerer, Hans-Jörg |
| Abstract: | Unions are often stigmatized as being a source of inefficiency due to higher collective bargaining outcomes. This is in stark contrast with the descriptive evidence presented in this paper. Larger firms choose to export and are also more likely to adopt collective bargaining. We rationalize those stylized facts using a partial equilibrium model that allows us to evaluate firms value functions under individual or collective bargaining. Exporting further decreases average production costs for large firms in the collective bargaining regime, allowing them to benefit from additional external economies of scale due to lower bargaining costs. Our findings suggest that the positive correlation between export status and collective bargaining can be explained through size. Including controls for firm-size destroys the estimated positive relationship between export status and collective bargaining. Using interaction terms between size and the export status, we find that larger exporters tend to do collective bargaining, whereas smaller exporters tend to refrain from collective agreements. |
| JEL: | F16 E24 J30 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113019&r=int |
| By: | Li, Chen |
| Abstract: | Using novel German district-level data from 1999-2011, this paper analyses whether the presence of immigrants in a particular location helps to attract inward FDI from the immigrants' country of origin. Results show that a one standard-deviation increase in the immigrant share is associated with a 3.3% rise in firm entry. This effect is stronger for an investor's first entry into Germany, and there is indication that firms from developing countries depend more on immigrants. A quasi-natural experiment exploiting the migration of ethnic Germans from the former Soviet Union in the 1990s (`Sp taussiedler') confirms the results. |
| JEL: | F14 F22 F23 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113130&r=int |
| By: | Vogel, Lukas; Kollmann, Robert; Ratto, Marco; Roeger, Werner; in 't Veld, Jan |
| Abstract: | We estimate a three-country model using 1995 2013 data for Germany, the Rest of the Euro Area (REA) and the Rest of the World (ROW) to analyse the determinants of Germany s current account (CA) surplus after the launch of the euro. Our results suggest that the German surplus reflects a succession of distinct shocks. Mono-causal explanations of the surplus are thus insufficient. The most important factors driving the German surplus were positive shocks to the German saving rate and to ROW demand for German exports, as well as German labour market reforms and other positive German aggregate supply shocks. The key shocks that drove the rise in the German CA tended to worsen the REA trade balance, but had a weak effect on REA real activity. Our analysis suggests these driving factors are likely to be slowly eroded, leading to a very gradual reduction of the German CA surplus. An expansion in German government consumption and investment would raise German GDP and reduce the CA surplus, but the effects on the surplus would be weak. |
| JEL: | E30 F30 F40 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112810&r=int |
| By: | Hiller, Sanne; Bitzer, Jürgen; Gören, Erkan |
| Abstract: | This paper explores the role of immigrant employees for a firm's capability to absorb international knowledge. Using matched employer-employee data from Denmark for the years 1999 to 2009, we are able to show that non-Danish employees from technological advanced countries contribute significantly to firm's economic output through their ability to access international knowledge. The empirical results suggest that the immigrants' impact increases if they come from technological advanced countries, have a high educational level, and are employed in high-skilled positions. However, the latter does not hold for immigrant managers. |
| JEL: | D20 J82 L20 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113205&r=int |
| By: | Schäffler, Johannes; Hecht, Veronika; Moritz, Michael |
| Abstract: | On the basis of a unique dataset the regional distribution of German multinationals and their Czech affiliates is analysed for both countries. The investigation covers market size and agglomeration features, distance issues, and labour market characteristics. Apart from the vital role of large markets and a low transport distance there are further crucial findings regarding joint foreign direct investment (FDI) projects that can be revealed from a home-host country perspective: the strong position of the common border region, the non-relevance of a relatively high wage gap between the site of the headquarters and the location of the affiliate in coincidence with the great importance of the availability of high-skilled employees in the target country, and differences in the significance of sectoral employment shares. |
| JEL: | F15 F23 R12 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112891&r=int |
| By: | ISHIKAWA Jota; TARUI Nori |
| Abstract: | Trade barriers due to transport costs are as large as those due to tariffs. This paper explicitly incorporates the transport sector into the framework of an international oligopoly and studies the effects of trade and industrial policies. Transport firms need to commit to a shipping capacity sufficient for a round trip, with a possible imbalance of shipping volumes in two directions. Because of this "backhaul problem," trade restrictions may backfire: domestic import restrictions may also decrease domestic exports, possibly harming domestic firms and benefiting foreign firms. In addition, trade policy in one sector may affect other independent sectors. |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:16006&r=int |
| By: | Wassmann, Pia |
| Abstract: | The paper evaluates the impact the EU Eastern enlargement in 2004 had for the economic performance of NUTS2 region located at the border to the new member states. Effects are identified by applying a synthetic control method. It compares the economic performance of these regions with synthetic control groups generated by weighting potential control regions that share the same characteristics of the border regions, but are not located at the border to the new member states. Results show that overall, the EU enlargement had a positive impact for the regional GDP of these border regions. However, when looking at selected region individually, it becomes evident that a heterogeneous treatment effect is at play: While the German region of Lower Bavaria has profited from the EU enlargement, the Italian region of of Friuli-Venezia Giulia reveals a weaker performance than they would have in the absence of the enlargement. This suggests that regions adjust differently to the changes in market access. Furthermore, results indicate that an anticipation effect is at play. Hence, border regions seem to develop differently in the years prior to the enlargemnt than they would have, had the enlargement not taken place. |
| JEL: | F15 R10 R11 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113028&r=int |
| By: | Dix-Carneiro, Rafael (Duke University); Soares, Rodrigo R. (Sao Paulo School of Economics); Ulyssea, Gabriel (Pontifical Catholic University of Rio de Janeiro (PUC-Rio)) |
| Abstract: | This paper estimates the effect of local labor market conditions on crime in a developing country with high crime rates. Contrary to the previous literature, which has focused exclusively on developed countries with relatively low crime rates, we find that labor market conditions have a strong effect on homicides. We exploit the 1990s trade liberalization in Brazil as a natural experiment generating exogenous shocks to local labor demand. Regions facing more negative shocks experience large relative increases in crime rates in the medium term, but these effects virtually disappear in the long term. This pattern mirrors the labor market responses to the trade shocks. Using the trade liberalization episode to design an instrumental variables strategy, we find that a 10% reduction in expected labor market earnings (employment rate × earnings) leads to a 39% increase in homicide rates. Our results highlight an additional dimension of adjustment costs following trade shocks that has so far been overlooked in the literature. |
| Keywords: | labor markets, crime, trade liberalization |
| JEL: | F16 J23 J24 K42 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9638&r=int |
| By: | Fritsch, Ursula |
| Abstract: | This paper empirically investigates the effects of offshoring on innovation in a sample of 18 developed countries. Offshoring of services relates positively to innovation whereas offshoring of manufacturing depicts a negative relation with innovation. Solely offshoring manufacturing to high-income countries is found to be detrimental to domestic innovation, but not offshoring of manufacturing to emerging countries. These results are robust to an instrumental variables approach. Labor market dynamics can mitigate or even reverse these negative effects of offshoring of manufacturing if skill upgrading takes place simultaneously. This paper documents that innovation effects differ from the positive productivity effects found in earlier research and suggests that policy makers should take these different effects into account when designing a regulatory framework for further trade integration. |
| JEL: | F14 F16 O30 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112973&r=int |
| By: | Haufler, Andreas; Wooton, Ian |
| Abstract: | We set up a two-country, regional model of trade in financial services. Competitive firms in each country manufacture untraded consumer goods in an uncertain productive environment, borrowing funds from a bank in either the home or the foreign market. Duopolistic banks can choose their levels of monitoring of firms and thus the level of risk-taking, where the risk of bank failure is ultimately borne by taxpayers in the bank's home country. Moreover, each bank chooses the share of lending allocated to domestic and to foreign firms, respectively, but the bank's overall loan volume may be fixed by a capital requirement set in its home country. In this setting we consider two types of financial integration. A reduction in the transaction costs of cross-order banking reduces aggregate output and increases risk-taking, thus harming consumers and taxpayers in both countries. In contrast, a reduction in the costs of screening foreign firms is likely to be beneficial for banks, consumers, and taxpayers alike. |
| JEL: | F36 G18 H81 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113056&r=int |
| By: | Hanslin Grossmann, Sandra; Scheufele, Rolf |
| Abstract: | Foreign economic activity is a major determinant of export development. This paper presents an indicator for now- and forecasting exports, which is based on survey data that captures foreign economic performance. We construct an indicator by weighting foreign PMIs of Switzerland's main trading partners with their export shares and compare its forecasting performance with alternative indicators. The paper shows that the indicator based on foreign PMIs is strongly correlated with exports (total as well as goods exports). In an out-of-sample forecast comparison we employ standard ARDL models as well as MIDAS models to forecast different definitions of exports. We document that our export indicator outperforms many other previously used indicators for forecasting exports and an univariate benchmark. As manufacturing is an important pillar of the Swiss economy and is highly export intensive, improving export forecasts is also beneficial for forecasting Swiss GDP. |
| JEL: | F14 F17 C53 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112830&r=int |
| By: | Rydzek, Benedikt; Egger, Peter; Riezman, Raymond |
| Abstract: | In this paper we develop a model to analyze the effects of (country-pair-specific) costs of creating, transferring and accessing intangible assets for multi-unit firms. These costs might vary with the cultural distance between countries, such as the difference in language, work ethics or other moral values. We argue that these costs are an important factor to explain why most firms are single unit firms, most multi-unit firms have only one affiliated unit and why multinational firms are only a tiny fraction of all firms in a country. Therefore, we develop a model with heterogeneous firms that produce differentiated goods in different firm units. The number of units depends on the costs of transferring intangible assets. If these costs are relatively high, most firms will be single unit firms. Furthermore, if costs of transferring intangible assets to an affiliated firm in a foreign country are even higher, only the most productive firms will be multinational firms. Additionally, multinational firms will be open more affiliated firms in countries that are culturally closer to their home country. These findings square with stylized facts and estimation results presented in the paper. |
| JEL: | F23 L11 L25 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112925&r=int |
| By: | Janeba, Eckhard; Flach, Lisandra |
| Abstract: | This paper provides first firm-level evidence on the links between income inequality within a country and the patterns of trade and export prices. We identify a theoretical mechanism behind these links, which relates income inequality to product quality and prices using a simple demand composition effect. Theory suggests that a more unequal distribution of income leads to higher average prices, in particular in middle-income countries. The predictions are confirmed using detailed firm and product level data. Controlling for income per capita, prices are systematically higher in more unequal destination countries, with this effect being particularly relevant for middle-income countries. Our results are robust to different measures of income distribution, hold only for differentiated goods and in particular for products with a high degree of vertical differentiation. |
| JEL: | F12 F14 L11 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112890&r=int |
| By: | KAWASHIMA Fujio |
| Abstract: | Rapid economic development in emerging economies including China has been transforming the structure of the world economy. One such phenomenon is an international struggle for resources, in which resource-endowed countries tend to resort to export restraints of resources as one of their tools. Following the Panel and the Appellate Body in China—Measures Related to the Exportation of Various Raw Materials which established, for the first time since the formation of the World Trade Organization (WTO), the interpretation of major legal disciplines on export restraints, the Panel and the Appellate Body of China—Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum have further clarified their interpretation. After introducing the factual background and the findings of the reports, this policy discussion paper examines the practical significance of this case where Japan for the first time made a WTO dispute settlement complaint against China and for the first time gained a victory, and analyzes how the legal disciplines on export restraints have been developed compared with the precedents. |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rpdpjp:16003&r=int |
| By: | Vuong, Van Anh; Peters, Bettina; Roberts, Mark |
| Abstract: | In this paper, we estimate a dynamic structural model of a rm s decision to invest in R&D and use it to measure the expected long-run bene t from R&D investment. We apply the model to German rms in ve high-tech manufacturing industries and distinguish rms by whether they sell in just the domestic market or also export some of their production. We nd that R&D investment leads to a higher rate of product and process innovation among exporting rms and these innovations have a larger impact on productivity improvement in export market sales. As a result, exporting rms have a higher payo from R&D investment, invest in R&D more frequently than rms that only sell in the domestic market, and, subsequently, have higher rates of productivity growth. The endogenous investment in R&D is an important mechanism that leads to a divergence in the long-run performance of rms that di er in their export market exposure. |
| JEL: | L60 O31 O33 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112938&r=int |
| By: | Poutvaara, Panu; Borjas, George; Kauppinen, Ilpo |
| Abstract: | This paper uses Danish full population register data from 1995 to 2001 to analyze self-selection of migrants from Denmark. We find that Danish emigrants are more educated and have higher pre-emigration earnings than non-migrants. The earnings of emigrants are not higher only on average, but the earnings distribution for emigrants stochastically dominates that of non-migrants. Furthermore, we also find positive self-selection in terms of residuals from earnings regressions. These results are consistent with the positive selection hypothesis for migrants from a rich and equal country derived from the Roy model. We also derive the stochastic dominance result from the model. |
| JEL: | F22 J61 J24 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113140&r=int |