nep-int New Economics Papers
on International Trade
Issue of 2016‒03‒17
eighteen papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Beyond EU-US Trade Dynamics: TTIP Effects Related to Foreign Direct Investment and Innovation By Paul J.J. Welfens; Andre Jungmittag
  2. Foreign Direct Investment as a Signal By Onur A. Koska; Ngo Van Long; Frank Stähler
  3. Destination EU and USA: Improving Export Potential of Pakistan by Trading with India By Saadat, Zakee; Mamoon, Dawood
  4. The Portrait of Success: Firms in International Trade By Adriana Peluffo
  5. Quality and the Great Trade Collapse By Natalie Chen; Luciana Juvenal
  6. Impact of Services Trade on India’s Economic Growth and Current Account Balance: Evidence from Post-Reform Period By Mini P. Thomas
  7. Trade and Fisheries Subsidies By Basak Bayramoglu; Brian Copeland; Jean-François Jacques
  8. Global Value Chains and the Exchange Rate Elasticity of Exports By Swarnali Ahmed; Maximiliano Appendino; Michele Ruta
  9. The FDI-led development model revisited? The case of Hungary By Miklos Szanyi
  10. Globalization and political structure By Gino Gancia; Giacomo A. M. Ponzetto; Jaume Ventura
  11. Networks in the Diaspora By Gil S. Epstein; Odelia Heizler (Cohen)
  12. Small, young, and exporters: New evidence on the determinants of firm growth By Marco Grazzi; Daniele Moschella
  13. The Formation of Networks in the Diaspora By Epstein, Gil S.; Heizler (Cohen), Odelia
  14. South Africa’s Exports Performance; Any Role for Structural Factors? By Rahul Anand; Roberto Perrelli; Boyang Zhang
  15. Do international flights promote FDI? : the role of face-to-face communication By Tanaka, Kiyoyasu
  16. Upstreamness in the Global Value Chain: Manufacturing and Services By Kenji Suganuma
  17. Lost in translation: The fractured conversation about trade and food security: By Díaz-Bonilla, Eugenio
  18. Thought for Food: Strengthening Global Governance of Food Security By Rob Vos

  1. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); Andre Jungmittag (Economics and Quantitative Methods at the Frankfurt University of Applied Sciences)
    Abstract: The international economic debate on the Transatlantic Trade and Investment Partnership (TTIP) has focused mainly on trade induced real income gains while the FDI related and innovation induced benefits have been largely neglected, although the EU and the US are leading FDI host countries and FDI source countries. Moreover, from a theoretical perspective a knowledge production function has to be considered in order to analyze FDI and innovation dynamics – and this can then be linked to output and economic growth, respectively. The panel data estimation of knowledge production functions for 20 EU countries between 2002-2012 shows clear empirical evidence that a rise of the FDI stock-GDP ratio will raise patent applications. Additionally, a higher per capita income – that could reflect trade related real income gains in the context of TTIP – also contributes to more patent applications. Time series data analysis for Germany indicates additionally that FDI induced higher innovation dynamics will raise output. Combining trade benefits and FDI/innovation related real income gains plus transatlantic macroeconomic interdependency effects a real income gain of nearly 2% should be expected for both Germany and the EU as a whole: considerably higher than what the official TTIP report for the European Commission has suggested. The approach developed has broad implications for deep regional integration (TPP, TTIP).
    Keywords: Knowledge production function, Innovation, FDI, TTIP, Empirical Analysis, EU
    JEL: F14 F43 O30 O47 O52
    Date: 2016–02
  2. By: Onur A. Koska (Department of Economics, METU); Ngo Van Long (McGill University, Canada); Frank Stähler (Department of Economics, University of Tübingen, Tübingen, Germany; Department of Economics, University of Adelaide, Adelaide, Australia; Center for Economic Studies, The Ifo Institute (CESifo), Munich, Germany)
    Abstract: This paper models competition among multinational firms in an environment of firm heterogeneity, incomplete cost information and strategic interaction. In this context, FDI serves as a signal of productivity: when firms sort into exporters and multinationals, they also show whether they have low or high productivity. We show that the signaling effect of FDI increases the FDI incentive as firms would like to avoid sending a low productivity signal.
    Keywords: Foreign Direct Investment; Trade; Firm Heterogeneity; Incomplete Information; Signaling
    JEL: F23
    Date: 2016–02
  3. By: Saadat, Zakee; Mamoon, Dawood
    Abstract: This paper is the extension of popular work of Murshed and Mamoon(2010) that suggests that India Pakistan proximity to global trade can significantly mitigates conflict between these two nations. The paper analyses bilateral trade patterns between India Pakistan with its major exporting destinations in a simple OLS framework. It finds that if bilateral trade between two nations increases that will improve exports of Pakistan in US, EU and UAE. This finding has significant implications for improvement of ties between the two countries. Furthermore, trading with India also full fills Pakistani Government’s emphasis on Trade not Aid. This aspect of India Pakistan trade has not been investigated before.
    Keywords: Economic Integration
    JEL: F1 F15 F52
    Date: 2016
  4. By: Adriana Peluffo (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: This article sets a portrait of firm heterogeneity associated to international activities, showing how they differ from firms oriented exclusively towards the domestic market and the impact of trade flows along several dimensions: trade status, product and country extensive margins of exports and imports, and trade with different type of partners (developed vs. less developed countries). These first descriptive approaches are complemented with regressions by ordinary least squares and fixed effects (controlling for industrial sector, year, foreign ownership, and firm size), allowing the comparison of the results obtained to the findings for other countries for which there are similar works. To this end we use detailed national customs and manufacturing firm survey data of Uruguay for the period 1997-2006. In line with previous works we find that among firms trade is more concentrated than employment and sales, and that two-way traders (firms that both export and import) perform better than only exporters, only importers and domestic firms. Furthermore, we find that the product extensive margin of imports and the country extensive margin of exports have positive effects on two key variables: total factor productivity and employment. Finally, the results are also supportive that firms trading only with high income countries exhibit a better performance than firms trading only with Mercosur partners, but the best performing firms are those that trade with both types of markets.
    Keywords: trade, labour markets, productivity, exports
    JEL: F14 F16 J23 O33
    Date: 2016–01
  5. By: Natalie Chen; Luciana Juvenal
    Abstract: We explore whether the global financial crisis has had heterogeneous effects on traded goods differentiated by quality. Combining a dataset of Argentinean firm-level destination-specific wine exports with quality ratings, we show that higher quality exports grew faster before the crisis, but this trend reversed during the recession. Quantitatively, the effect is large: up to nine percentage points difference in trade performance can be explained by the quality composition of exports. This flight from quality was triggered by a fall in aggregate demand, was more acute when households could substitute imports by domestic alternatives, and was stronger for smaller firms' exports.
    Date: 2016–02–18
  6. By: Mini P. Thomas
    Abstract: Economic Growth and External Stabilisation (defined in terms of Current Account Balance as a percentage of GDP) is a top priority for policy-makers, while laying out the macroeconomic framework for Indian economy. Government of India had targeted for an average GDP growth rate of 9 percent and a Current Account Deficit (CAD) below 2.5 percent of GDP during the five-year period from 2012-2017. However, the actual CAD of Indian economy widened to 4.2% of GDP in 2011-12, and further reached a historic high CAD of 4.7 percent of GDP in 2012-13. Given such a scenario, this paper aims to estimate the impact of services trade on India’s Economic Growth and Current Account Balance, during the post-reform period from 1990-91 to 2011-12. Facilitated by economic globalisation, domestic liberalization, and technological advances which resulted in increasing international fragmentation of the production process, India’s services trade began growing rapidly post 1991. With the help of Thirlwall’s Balance of Payments Constrained Growth Model and ARDL approach to cointegration, this study estimates and establishes the crucial role of services trade in achieving the policy objectives of economic growth and external stabilisation simultaneously for Indian economy. This study also examines the impact of services exports on India’s economic growth, by comparing the latest officially published input-output table of India for 2007-08, with that of 1993-94. Among the major services in India’s export basket, construction, transport and business services are found to exhibit strongest backward linkages, and hence can act as engines of export-led growth. Role of services imports in India’s export-led growth and the import content going into production of India’s services exports is analysed using the TIVA database for 1995 and 2008, which have implications for India’s external stabilisation. Foreign value added content in India’s services exports is found to be highest in case of business services, transport services and telecommunications.
    Keywords: Services Trade, Current Account Deficit, Economic Growth, Backward Linkages, Trade in Value Added
    JEL: F14 F32 F43 C67
    Date: 2016–02
  7. By: Basak Bayramoglu (Economie Publique, INRA, AgroParisTech, Université Paris-Saclay); Brian Copeland (Vancouver School of Economics, University of British Columbia); Jean-François Jacques (Université Paris-Est, ERUDITE (EA 437), UPEMLV, and LEDa-CGEMP, Université Paris-Dauphine)
    Abstract: World Trade Organization members included fishery subsidies in the Doha round of trade negotiations, which subsequently stalled. This paper develops a simple model to show why prospects for a deal on fisheries subsidies may be difficult. Typically international spillover effects create incentives among exporters to negotiate reductions in subsidies: one country's subsidy worsens other exporters' terms of trade. These incentives may not exist in fisheries for 3 reasons. First, if fisheries are severely depleted, one country's subsidy reduces its long run supply of fish, raising prices and benefiting other fish exporting countries. Second, if governments use other policies to manage fish stocks, then changes in subsidies may not affect harvests and hence may not generate international spillover effects. And third, even if governments were compelled to reduce fishery subsidies, there may be little real effect because governments would be motivated to weaken other regulations targeting the fish sector.
    Keywords: Fishery subsidies, international trade, trade agreements
    JEL: F18 F53 Q22 Q27
    Date: 2016–02
  8. By: Swarnali Ahmed; Maximiliano Appendino; Michele Ruta
    Abstract: This paper analyzes how the formation of Global Value Chains (GVCs) has affected the exchange rate elasticity of exports. Using a panel framework covering 46 countries over the period 1996-2012, we first find some suggestive evidence that the elasticity of real manufacturing exports to the Real Effective Exchange Rate (REER) has decreased over time. We then examine whether the formation of supply chains has affected this elasticity using different measures of GVC integration. Intuitively, as countries are more integrated in global production processes, a currency depreciation only improves competitiveness of a fraction of the value of final good exports. In line with this intuition, we find evidence that GVC participation reduces the REER elasticity of manufacturing exports by 22 percent, on average.
    Keywords: Foreign exchange;Economic integration;Export growth;Real Exchange Rate, Global Value Chains, exports, exchange, value, elasticity, trade, Country and Industry Studies of Trade, All Countries,
    Date: 2015–11–30
  9. By: Miklos Szanyi (Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: Countries of East-Central Europe underwent fundamental economic and political changes in their transition process. Their economies were restructured and modernized, became integrated part of the world’s most competitive value chains. Although, benefits of the FDI-led development process did not spread spatially evenly, moreover, they might be smaller than what was expected the achieved economic and political results were remarkable. Yet, in some of these countries acknowledgement of benefits have been started to be overshadowed by strong criticism that sometimes queries the advantages of the FDIled development at large. The main question of the paper is if this criticism is reflected in (both positively and negatively) discriminating policies of the Hungarian state towards foreign companies? The main finding of the paper is that the main aim of changing FDI-related policies is not a decisive break with the model, but rather to split the strong networks of multinational business in order to increase the room of selective and arbitrary advantage and disadvantage measures of the government. This means first of all a departure from the concept of “competition state” towards “patronage state”.
    Keywords: FDI policy, crony capitalism, patronage state
    JEL: D72 H82 P16 P31
    Date: 2016–02
  10. By: Gino Gancia; Giacomo A. M. Ponzetto; Jaume Ventura
    Abstract: The first wave of globalization (1830-1914) was accompanied by a decline in the number of countries from 125 to 54. The second wave of globalization (1950-present) has led instead to an increase in the number of countries to a record high of more than 190. This paper develops a theoretical framework to study the interaction between globalization and political structure. We show that political structure adapts to expanding trade opportunities in a non-monotonic way. Borders hamper trade. In its early stages, the political response to globalization consists of removing borders by increasing country size. In its later stages, however, the political response to globalization is to remove borders by creating economic unions, and this leads to a reduction in country size.
    Keywords: Globalization, political structure, size of countries, international unions.
    JEL: D71 F15 F55 H77 O57
    Date: 2016–02
  11. By: Gil S. Epstein (Bar-Ilan University); Odelia Heizler (Cohen) (Tel-Aviv-Yaffo Academic College)
    Abstract: In this paper, we examine possible types of network formation among immigrants in the diaspora and between those immigrants and the locals in different countries. We present the model by considering different possible interactions between immigrants and the new society in their host country. Spread of migrants from the same origin in the diaspora may well increase international trade between the different countries, depending on the types of networks formed. We present possible applications of network structure on the country of origin, such as on international trade. We find that when the size of the diaspora is sufficiently large, the natives in the different countries will be willing to bear the linking cost with the immigrants because the possible benefits increase with increasing size of the diaspora.
    Keywords: Immigrants, Networks, Diaspora
    JEL: D85 D74 J61 L14
    Date: 2016–02
  12. By: Marco Grazzi; Daniele Moschella
    Abstract: This work investigates how the export status of the firm influences the patterns of growth at different age classes. We address this research question resorting to a novel set of data that links together the universe of Italian firms and detailed data on export transactions. We find that the positive relationship between export status and growth declines with firm age. Further, we also find that, even when accounting for the role of age, the negative size-growth relationship does not disappear, contrary to some recent evidence. These results, which are robust to a series of controls, suggest for a positive signaling role of the export status which is stronger for young exporters or born globals. Exploiting the product-country level dimension of the customs data we also provide, for the first time, evidence on differences in exchange rates pass through between young and experienced exporters. In particular, we find that early exporters appear to be well equipped to face exchange rates variations as their exports decrease less following a currency appreciation.
    Keywords: Firm age and performance, Firm growth, International trade, Born global, Exchange rates pass-through
    Date: 2016–02–25
  13. By: Epstein, Gil S. (Bar-Ilan University); Heizler (Cohen), Odelia (Academic College of Tel-Aviv Yaffo)
    Abstract: In this paper, we examine possible types of network formation among immigrants in the diaspora and between those immigrants and the locals in different countries. We present the model by considering different possible interactions between immigrants and the new society in their host country. Spread of migrants from the same origin in the diaspora may well increase international trade between the different countries, depending on the types of networks formed. We present possible applications of network structure on the country of origin, such as on international trade. We find that when the size of the diaspora is sufficiently large, the natives in the different countries will be willing to bear the linking cost with the immigrants because the possible benefits increase with increasing size of the diaspora.
    Keywords: immigrants, networks, diaspora
    JEL: D85 D74 J61 L14
    Date: 2016–02
  14. By: Rahul Anand; Roberto Perrelli; Boyang Zhang
    Abstract: Despite a substantial and prolonged exchange rate depreciation, South Africa’s export performance has disappointed since the global financial crisis. In this paper we focus on the role of structural factors in reducing the responsiveness of South African exports to the real exchange rate depreciation. To this end, we construct a unique database of export performance at the firm level. Our analysis suggests that electricity bottlenecks, limited product market competition, and labor market constraints have reduced the responsiveness of firms’ exports to the rand depreciation. On the other hand, a firm’s ability to diversify its exports has helped it benefit more from currency movements.
    Keywords: Exports;South Africa;Export performance;Exchange rate depreciation;Real effective exchange rates;Electricity;Labor markets;Competition;Export performance, current account, structural bottlenecks, South Africa.
    Date: 2016–02–12
  15. By: Tanaka, Kiyoyasu
    Abstract: Air transportation facilitates face-to-face interactions across borders for the spatial expansion of manufacturing production. I investigate the impact of international flights on FDI entry by Japanese firms. I find that FDI entry significantly increases with the weekly frequency of flights from Japan, and the positive impact increases with a proxy for an intensity of face-to-face communication between the parent firm and foreign affiliate. The results are robust to estimation methods, additional control variables, and definitions of face-to-face communication. Thus, the results suggest that flights encourage FDI entry through a reduction in face-to-face communication costs.
    Keywords: Japan, Air transport, Foreign investments, Direct Flight, FDI, Face-to-Face Contact
    JEL: F21 F23 L9
    Date: 2016–02
  16. By: Kenji Suganuma (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: This paper investigates gupstreamness, h which measures the distance of an industry from the final use in terms of the number of production stages, using the WIOD global input-output tables, which cover 40 major countries. We find that global upstreamness increased in the mid -2000s. This trend is mainly due to developments in the manufacturing sector, but the service sector also contributed to the increase. In manufacturing, upstreamness has increased mainly in East Asian economies including Japan, which is consistent with the recent deepening of global value chains in this area. In services, the growing role of business services contributed to the deepening of value chains, such as outsourcing via leasing and staff agencies, and linkages to new businesses through mobile telecommunications. In further research, the concept of upstreamness can be applied to the analysis of industries f international competitiveness and of the influence of demand shocks across countries.
    Keywords: Upstreamness, Global value chain, Production fragmentation, I-O tables
    JEL: D57 F14 O14 O24 O53 O57
    Date: 2016–02
  17. By: Díaz-Bonilla, Eugenio
    Abstract: There is a heated debate among policy makers, civil society, and analysts about the impact of trade and trade policies on food security. While there have been several empirical reviews on these issues the controversy has not abated. This paper surveys possible reasons why the polemic continues and why it may be difficult to settle it unequivocally. The reasons are related to the different notions of trade, food and nutrition security, the variety of possible indicators for those concepts, the multiplicity of channels through which trade and food and nutrition security notions interact, the diversity of analytical and quantitative approaches utilized, and differences in values and conceptual priors about the operation of the world economy. The paper concludes with some reflections about what can be reasonably said about the potential impacts of trade on food security.
    Keywords: trade, food security, nutrition security, developing countries,
    Date: 2015
  18. By: Rob Vos
    Abstract: here are significant threats to sustainable food security and nutrition in the long-run, including demographic and environmental pressures and changing business practices in agriculture with the emergence of global values chains. The global nature and public good aspects of the challenges require coordinated responses and urgent improvement of the global governance of food security. This paper argues for the strengthening of the Committee on World Food Security to ensure greater coherence in the global approach to food security and the multilateral trade, financial and environmental regimes.
    Keywords: agriculture, food security, nutrition, global public goods, global governance, food safety, policy coordination
    JEL: F53 F55 O13 O19 Q15 Q18

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