nep-int New Economics Papers
on International Trade
Issue of 2016‒03‒10
twenty papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. How Firms Export: Processing vs. Ordinary Trade with Financial Frictions By Manova, Kalina; Yu, Zhihong
  2. Are global trade negotiations behind a fragmented world of "gated globalization"? By James Lake; Santanu Roy
  3. Productivity effects from inter-industry offshoring and inshoring: Firm-level evidence from Belgium By Bruno Merlevede; Angelos Theodorakopoulos
  4. Trade and Terrorism: A Disaggregated Approach By Bandyopadhyay, Subhayu; Sandler, Todd; Younas, Javed
  5. Assessing the Trans-Pacific Partnership, Volume 1: Market Access and Sectoral Issues By Kimberly Ann Elliott; Caroline Freund; Anna Gelpern; Cullen S. Hendrix; Gary Clyde Hufbauer; Barbara Kotschwar; Theodore H. Moran; Tyler Moran; Lindsay Oldenski; Sarah Oliver; Peter A. Petri; Michael G. Plummer
  6. R&D, Export, and Investment Decision By O.A. Carboni; G. Medda
  7. The Effect of Preferential Trade Agreements on Pakistan’s Export Performance By Shaista Alam
  8. A tale of two globalizations: gains from trade and openness 1800-2010 By Federico, Giovanni; Tena Junguito, Antonio
  9. Using the input-output approach to measure participation in GVCs : the case of Costa Rica By Bullón, David; Mena, Tayutic; Meng, Bo; Sánchez, Natalia; Vargas, Henry; Inomata, Satoshi
  10. Margin rate and the cycle: the role of trade openness. By G. Cette; R. Lecat; A. Ould Ahmed Jiddou
  11. Valor Agregado Doméstico y Contenido Importado de las Exportaciones: Evidencia de las Matrices Insumo-Producto de Chile 2008-2012 By Sebastián Rébora; Diego Vivanco
  12. Capital Market Imperfections and Trade Liberalization in General Equilibrium By Michael Irlacher; Florian Unger
  14. Learning or Leaning: Persistent and Transitory Spillovers from FDI By Ronald B. Davies; Michael J. Lamla; Marc Schiffbauer
  15. Circular Causality of R&D and Export in EU countries By Dilek Cetin; Michele Cincera
  16. Trade Costs and Income in European Regions By Christoph Hammer; Aurélien Fichet de Clairfontaine
  17. Service liberalization in Lao PDR By Isono, Ikumo; Ishido, Hikari
  18. The International Model for Policy Analysis of Agricultural Commodities and Trade (IMPACT): Model description for version 3: By Robinson, Sherman; Mason d'Croz, Daniel; Islam, Shahnila; Sulser, Timothy B.; Robertson, Richard D.; Zhu, Tingju; Gueneau, Arthur; Pitois, Gauthier; Rosegrant, Mark W.
  19. The Topology of African Exports: emerging patterns on spanning trees By Tanya Araújo,; Ennes Ferreira
  20. Optimal tariffs with smuggling: A spatial analysis of Nigerian rice policy options: By Johnson, Michael E.; Dorosh, Paul A.

  1. By: Manova, Kalina; Yu, Zhihong
    Abstract: The fragmentation of production across borders allows firms to make and export final goods, or to perform only intermediate stages of production by processing imported inputs for re-exporting. We examine how financial frictions affect companies' choice between processing and ordinary trade - implicitly a choice of production technology and position in global supply chains - and how this decision affects performance. We exploit matched customs and balance-sheet data from China, where exports are classified as ordinary trade, import-and-assembly processing trade (processing firm sources and pays for imported inputs), and pure-assembly processing trade (processing firm receives foreign inputs for free). Value added, profits and profitability rise from pure assembly to processing with imports to ordinary trade. However, more profitable trade regimes require more working capital because they entail higher up-front costs. As a result, credit constraints induce firms to conduct more processing trade and pure assembly in particular, and preclude them from pursuing higher value-added, more profitable activities. Financial market imperfections thus impact the organization of production across firms and countries, and inform optimal trade and development policy in the presence of global production networks.
    Keywords: China; credit constraints; global value chain; Heterogeneous Firms; processing trade; trade regime
    JEL: F10 F13 F14 F23 F34 G32
    Date: 2016–02
  2. By: James Lake (Southern Methodist University); Santanu Roy (Southern Methodist University)
    Abstract: We show that global trade negotiations can prevent global free trade. In a simple model where global tariff negotiations precede sequential Free Trade Agreement (FTA), we show FTA formation can expand all the way to global free trade in the absence of global tariff negotiations but global free trade never emerges when global tariff negotiations precede FTA formation. This result arises precisely because global tariff negotiations successfully elicit concessions from negotiating countries. Moreover, global tariff negotiations can produce a fragmented world of "gated globalization" where some countries form FTAs eliminating tariff barriers among themselves while outsiders continue facing higher tariffs.
    Keywords: Free Trade Agreement, global free trade, multilateralism, tariff complementarity, binding overhang
    JEL: C73 F12 F13
    Date: 2014–10
  3. By: Bruno Merlevede; Angelos Theodorakopoulos
    Abstract: In this paper we confirm the existence of improvements of firm productivity when domestic upstream and downstream firms become more internationalized and therefore offshore (import intermediate inputs) and inshore (export final output for intermediate input usage) intensively. China’s accession to the WTO, which in the case of Belgium reduced trade barriers to China, help us confirm that these inter-industry productivity improvements can also be generated form a quasi-trade liberalization event. Upstream linkages are the dominant source of these productivity benefits and are reaped mainly from medium-low tech, labor intensive and upstream industries. Finally, we draw upon the importance of biases in our results from misspecifications common in the literature. From ignoring the dynamic nature of productivity, results appear overestimated or with sign reversals. From estimating a value-added instead of a gross-output production function, results become spurious.
    Keywords: Offshoring, supply chain, spillovers, productivity
    JEL: F2 F14 F15
    Date: 2016–02
  4. By: Bandyopadhyay, Subhayu (Federal Reserve Bank of St. Louis); Sandler, Todd (University of Texas at Dallas); Younas, Javed (American University of Sharjah)
    Abstract: This paper constructs a model of trade consequences of terrorism, where firms in trading nations face different costs arising from two distinct types of terrorist risks – domestic and transnational. Using dyadic dataset in a gravity model, we test these predictions for terrorism’s effects on overall trade, exports, and imports, while allowing for disaggregation by primary commodities and manufacturing goods. The latter is also decomposed by skill intensities. In general, the detrimental impact of transnational terrorism on various classes of traded commodities is twice that of domestic terrorism. As a general rule, terrorism’s negative influence on trade is greater on imports than on exports. There is also a marked tendency for medium-skilled and high skilled manufacturing sectors to sustain a greater harm from terrorism than labor-intensive or low skilled manufacturing sectors.
    Keywords: International trade; domestic and transnational terrorism; imports and exports; gravity model
    JEL: D74 F14 H56
    Date: 2016–02–01
  5. By: Kimberly Ann Elliott (Center for Global Development); Caroline Freund (Peterson Institute for International Economics); Anna Gelpern (Peterson Institute for International Economics); Cullen S. Hendrix (Peterson Institute for International Economics); Gary Clyde Hufbauer (Peterson Institute for International Economics); Barbara Kotschwar (Peterson Institute for International Economics); Theodore H. Moran (Peterson Institute for International Economics); Tyler Moran (Peterson Institute for International Economics); Lindsay Oldenski (Peterson Institute for International Economics); Sarah Oliver (Peterson Institute for International Economics); Peter A. Petri (Brandeis University, International Business School); Michael G. Plummer (Johns Hopkins University and East-West Center)
    Abstract: After five and a half years of negotiations, the Barack Obama administration concluded the most ambitious free trade deal of the postwar era on October 5, 2015. The Trans-Pacific Partnership (TPP) is a comprehensive accord that encompasses provisions on lowering barriers to trade and investment in goods and services and also covers critical new issues such as digital trade, state-owned enterprises, intellectual property rights, regulatory coherence, labor, and environment. Like all trade pacts, the TPP elicited praise and criticism from economic interests in the United States and the other 11 participating countries: Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Together the 12 TPP members account for nearly 40 percent of global GDP. For the United States, the TPP countries account for 36 percent of US two-way trade in goods and services.
  6. By: O.A. Carboni; G. Medda
    Abstract: This paper provides an empirical analysis of the mechanism through which R&D and export influence investment decision. The analysis is based on a large representative and cross-country comparative sample of manufacturing firms across seven European countries. To control for reverse causality between export decision and R&D spending and investment, we use an instrumental variable analysis to overcome the problem of endogeneity. Employing a three step procedure, it is assumed that R&D decision is endogenously determined by receiving public subsidies, and, in turn, affect investments through its impact on engagement by the firm in international trade. The results suggest that R&D positively affects export propensity. We find that there is an average increase in propensity to invest for those firms which decide to engage in R&D activities. The results also reveal that the effect of decision to export on investment behaviour is positive and highly significant, when accounting for endogeneity of export activity.
    Keywords: r&d, IV model, export
    JEL: O32 F14 B22
    Date: 2016
  7. By: Shaista Alam
    Abstract: The main objective of this study is to investigate empirically the effect of free or preferential trade agreements (PTAs) on Pakistan’s export performance (value of exports, number of exporters and number of products per exporter) during the period 2003 to 2010. The analysis covers the South Asian Free Trade Area (SAFTA) and five bilateral PTAs with China, Sri Lanka, Malaysia, Iran and Mauritius. Data from the World Bank Exporters Dynamics Database are analysed using fixed effect panel data techniques. The SAFTA and PTAs with China and Iran are associated with improved export performance in terms of value of exports and number of exporters. There is no evidence that the bilateral PTAs with Sri Lanka and Mauritius affect export performance of Pakistan. There is some evidence for product diversification under the PTAs with Malaysia and Mauritius, whereas with Sri Lanka and China product diversification declined.
    Keywords: Pakistan, Preferential Trade agreements, Free Trade Areas, Export Performance.
    Date: 2015
  8. By: Federico, Giovanni; Tena Junguito, Antonio
    Abstract: This paper compares the wave of globalization before the outbreak of the Great Recession in 2007 with its alleged historical antecedent before the outbreak of World War One. We describe trends in trade and openness, estimate the gains from trade and investigate the proximate causes of the growth of openness. We argue that the conventional wisdom has to be revised. The first wave of globalization started around 1820 and culminated around 1870. In the next century, trade continued to grow, with the exception of the Great Depression, but openness and gains fluctuated widely. Growth resumed in the early 1970s. By 2007, the world was more open than a century earlier and its inhabitants gained from trade substantially more than their ancestors did. The current wave of globalization, in spite of some similarities with previous trends, has no historical antecedents.
    Keywords: openness; Trade; welfare gains
    JEL: F14 F43 N70
    Date: 2016–02
  9. By: Bullón, David; Mena, Tayutic; Meng, Bo; Sánchez, Natalia; Vargas, Henry; Inomata, Satoshi
    Abstract: In order to illustrate how the input-output approach can be used to explore various aspects of a country's participation in GVCs, this paper applies indicators derived from the concept of trade in value-added (TiVA) to the case of Costa Rica. We intend to provide developing countries that seek to foster GVC-driven structural transformation with an example that demonstrates an effective way to measure progress. The analysis presented in this paper makes use of an International Input-Output Table (IIOT) that was constructed by including Costa Rica's first Input-Output Table (IOT) into an existing IIOT. The TiVA indicator has been used to compare and contrast import flows, export flows and bilateral trade balances in terms of gross trade and trade in value-added. The country's comparative advantage is discussed based on a TiVA-related indicator of revealed comparative advantage. The paper also decomposes the domestic content of value added in each sector and measures the degree of fragmentation in the value chains in which Costa Rica participates, highlighting the partner countries that add the most value.
    Keywords: Costa Rica, International trade, Input-output tables, Globalization, Trade in Value-added, TiVA, Global Value Chains, GVCs, Input-Output
    JEL: D57 F13 F15
    Date: 2015–05–12
  10. By: G. Cette; R. Lecat; A. Ould Ahmed Jiddou
    Abstract: Using three datasets of French manufacturing firms, this paper studies the role of trade openness, in relation with the cycle, as a determinant of company margin rate. Margin rates increase as capacity utilization tightens (and vice versa), reflecting the procyclicality of margin rates. However, high import rates are limiting this procyclicality: when capacities are tight, domestic producers may not be able to serve demand, but foreign producers may substitute for them if they are already present on the market as reflected by the level of import rates.
    Keywords: margin rates, capacity utilization, cycle, trade openness.
    JEL: D24 D43 E32
    Date: 2016
  11. By: Sebastián Rébora; Diego Vivanco
    Abstract: It is commonly stated that foreign trade represents 60% to 70% of the Chilean economy, a claim that is based on adding exports and imports and dividing by GDP. However, according to the international evidence, with globalization and the development of global value chains, exports are increasingly composed of imported inputs giving a misleading view of foreign trade size and its effects on economic growth. This paper provides recent empirical evidence on the evolution of domestic value-added and import content of Chilean exports by using an input-output framework in order to identify the direct and indirect effects of industries. For the period 2008-2012 domestic value-added accounted on average 31% of nominal GDP while the import content of export reached 9% of GDP and 23% of gross exports for the same period. At industry level, “Copper mining”, “Business services” and “Transport” are the activities that contribute most to the total value-added of exports. On the other hand, “Copper mining”, “Transport” and “Fuel” are the industries that contribute more to the import content of exports
    Date: 2016–01
  12. By: Michael Irlacher; Florian Unger
    Abstract: This paper develops a new international trade model with capital market imperfections and endogenous borrowing costs in general equilibrium. A key element of our model is that firm heterogeneity arises from the interaction of credit constraints at the firm-level with financial frictions at the country-level. Producers differ in pledgeability of sales which results in firm heterogeneity, if financial institutions are imperfect. We show that endogenous adjustments of capital costs represent a new channel that reduces common gains from globalization. Trade liberalization increases the borrowing rate, leads to a reallocation of market shares towards unconstrained producers and a larger fraction of credit-rationed firms. This increases the within-industry variance of, sales and reduces welfare gains as consumers dislike price heterogeneity. Our theory is consistent with new empirical patterns from World Bank firm-level data. We highlight that credit frictions are positively related to the degree of product market competition and to the variance of sales across firms.
    Keywords: Credit constraints, General equilibrium, Globalization, Imperfect capital markets, Welfare
    JEL: F10 F36 L11
    Date: 2016–02
  13. By: Hanh Pham (University of Greenwich)
    Abstract: This paper investigates whether firms with foreign capital participation are more productive than domestically-owned firms in Vietnam; and whether the presence of firms with foreign capital has a crowding-out effect on domestically-owned firms. We utilize a rich dataset compiled by the Vietnamese General Statistical Office (GSO) from 2001–2010 and a dynamic panel data approach proposed by Arellano and Bond (1991) and Blundell and Bond (1998) to address the issue of endogeneity. We report that the share of foreign capital in firm equity has a positive and significant effect on productivity of foreign-owned firms in Vietnam. With respect to crowding-out effects, we identify opposing dynamics at work. On the one hand, we observe a firm-level crowding-out effect due to higher shares in turnover as the level of foreign capital increases. On the other hand, we observe an industry-level crowding-in effect as the share of both domestic and foreign-owned firms in turnover is higher when the industry-level of foreign capital intensity increases. Finally, we report that the crowding-in and crowding-out effects do not differ as the level of foreign capital share differs between firms and industries. The findings indicate that domestically-owned Vietnamese firms tend to lose market share to their foreign-owned competitors when they compete head to head; but they also tend to benefit from higher levels of foreign capital invested in their industry.
    Keywords: dynamic panel, foreign direct investment, market-stealing effect, productivity, Vietnamese enterprises
    JEL: A10 C13 D20
  14. By: Ronald B. Davies; Michael J. Lamla; Marc Schiffbauer
    Abstract: Using firm-level data for Jordan, we estimate the extent to which growth spillovers from foreign direct investment (FDI) to local firms stem from persistent learning externalities (i.e., they endure even after foreign investment leaves as knowledge has been transferred to local firms) or from transitory effects (e.g., demand increases which evaporate following disinvestment). We find that they have a significant transitory nature, with employment and capital growth declining when FDI falls, particularly in downstream industries supplied by locals. This suggests that if FDI-attracting policies are intended to promote sustainable growth, it may be more effective to attract and retain FDI via long-term structural policies, for instance, through low corporate tax rates rather than temporary tax holidays or through policies that strengthen the domestic absorptive capacity and linkages between foreign and local firms.
    Keywords: FDI; Spillovers
    JEL: F23 F16
    Date: 2016–02
  15. By: Dilek Cetin; Michele Cincera
    JEL: F14 O33
    Date: 2015–12–01
  16. By: Christoph Hammer (Department of Economics, Vienna University of Economics and Business); Aurélien Fichet de Clairfontaine (Department of Economics, Vienna University of Economics and Business)
    Abstract: Using a New Economic Geography (NEG) model, this study estimates the relationship between regional per capita income levels and the proximity of regions to large markets. Market access cannot be observed directly, so it has to be constructed. We follow a two-step-procedure of Redding and Venables (2004) and use results of a spatially-filtered gravity model to infer market access. To this end, we make use of a new dataset of constructed bi-regional trade flows between (and within) 240 European NUTS-2 regions (from 25 European countries excluding Bulgaria, Croatia and Romania) for the year 2010 (Thissen et al. 2014, IPTS). In a second step we test the hypothesis that access to large markets increases factor incomes. We find robust evidence that supports this hypothesis on a regional level. Controlling for a variety of factors that drive income differences, our findings highlight the robustness of the role of market access in explaining the uneven spatial distribution of income.
    Keywords: Wage equation, Gravity, European regions, New Economic Geography
    JEL: F12 F14
    Date: 2016–02
  17. By: Isono, Ikumo; Ishido, Hikari
    Abstract: Service liberalization is emerging as a high-priority issue in various parts of the world for mega free trade agreements as well as national policy. Lao PDR is no exception. To examine the level of service liberalization in Lao PDR, we first compare the Hoekman Indices of Lao PDR, Cambodia, and Vietnam on the ASEAN Framework Agreement on Services (AFAS 8). Lao PDR has lower commitment in many subsectors. In particular, we list the sectors in which Lao PDR made a lower commitment than Cambodia and Vietnam in Mode 3 (supply of services through commercial establishments abroad). Second, a simulation analysis using the Geographical Simulation Model (IDE-GSM) from the Institute of Developing Economies at the Japan External Trade Organization (IDE-JETRO) reveals how service liberalization benefits the economic development of Lao PDR. The two analyses clearly reveal that it is essential for Lao PDR to promote further service liberalization since such liberalization will contribute to the country's development.
    Keywords: Laos, Service industries, Foreign investments, International trade, Lao PDR, Service, Simulation, AFAS
    JEL: F14 F15 F21
    Date: 2016–03
  18. By: Robinson, Sherman; Mason d'Croz, Daniel; Islam, Shahnila; Sulser, Timothy B.; Robertson, Richard D.; Zhu, Tingju; Gueneau, Arthur; Pitois, Gauthier; Rosegrant, Mark W.
    Abstract: The International Food Policy Research Institute’s International Model for Policy Analysis of Agricultural Commodities and Trade (IMPACT) supports analysis of long-term challenges and opportunities for food, agriculture, and natural resources at global and regional scales. IMPACT is continually being updated and improved to better inform the choices that decisionmakers face today. This document describes the latest version of the model. IMPACT version 3 expands the geographic and commodity scope of the model in response to desires expressed by researchers and policymakers to address more complex questions involving climate change, food security, and economic development into the future. IMPACT 3 is an integrated modeling system that links information from climate models (Earth System Models), crop simulation models (for example, Decision Support System for Agrotechnology Transfer), and water models linked to a core global, partial equilibrium, multimarket model focused on the agriculture sector. This model system supports longer-term scenario analysis through the integration of these multidisciplinary modules to provide researchers and policymakers with a flexible tool to assess and compare the potential effects of changes in biophysical systems, socioeconomic trends, technologies, and policies.
    Keywords: mathematical models, simulation models, agriculture, international trade, food security, climate change, markets, welfare, hydrology, water use, water management, drought stress, International Model for Policy Analysis of Agricultural Commodities and Trade IMPACT model, scenario analysis, multi-market model, modular modeling approach, welfare analysis, global hydrology, water basin management, water stress simulation, crop simulation modeling, ex ante analysis,
    Date: 2015
  19. By: Tanya Araújo,; Ennes Ferreira
    Abstract: This paper is a contribution to interweaving two lines of research that have progressed in separate ways: network analyses of interna- tional trade and the literature on African trade and development. Gathering empirical data on African countries has important limi- tations and so does the space occupied by African countries in the analyses of trade networks. Here, these limitations are dealt with by the de?nition of two independent bipartite networks: a destination share network and a commodity share network. These networks - together with their corresponding minimal spanning trees - allow to uncover some ordering emerging from African exports in the broader context of international trade. The emerging patterns help to understand important characteristics of African exports and its binding relations to other economic, geographic and organizational concerns as the recent literature on African trade, development and growth has shown. Key Words : Trade networks, African exports, Spanning trees, Bipartite graphs
    Date: 2016–02
  20. By: Johnson, Michael E.; Dorosh, Paul A.
    Abstract: Utilizing a spatial multi-market model for rice in Nigeria that explicitly takes into account the potential for smuggling, in this paper we analyze the welfare implications of alternative rice tariff rates given the government’s goals of spurring domestic production and reducing imports. Because smuggling occurs through the diversion of imports from Lagos, the official port of entry in the south, to the north, our modeling framework also captures the spatial effects of higher tariffs on changes in rural and urban prices, production and consumption, the flow of trade in rice, and welfare across different parts of the country. Results show that tariff rates that exceed about 40 percent introduce some smuggling of rice through the north when smuggling becomes more profitable than importing through official channels in the south. It is also at this tipping point that government tariff revenues are maximized. At higher tariff rates with smuggling, the south experiences greater welfare losses, especially in urban areas.
    Keywords: tariffs, rice, trade, trade barriers, spatial market equlibrium model, smuggling,
    Date: 2015

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