nep-int New Economics Papers
on International Trade
Issue of 2016‒09‒04
fifteen papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Estimating Importer-Specific Ad Valorem Equivalents of Non-Tariff Measures By Mahdi Ghodsi; Julia Grübler; Robert Stehrer
  2. Impact of Brexit: Firm Exit and Loss of Variety By Nobuhiro Hosoe
  3. Multinational Firms and International Business Cycle Transmission By Cravino, Javier; Levchenko, Andrei A.
  4. Trade and Agricultural Disease: Import Restrictions in the Wake of the India – Agricultural Products Dispute By Kamal Saggi; Mark Wu
  5. Are the major European wine exporters able to price discriminate across their EU extra wine export destinations? By Imre Ferto; Jeremias Mate Balogh
  6. The effect of FDI on local suppliers: Evidence from Audi in Hungary By Marta Bisztray
  7. Tracking Wage Inequality Trends with Prices and Different Trade Models: Evidence from Mexico By Halliday, Timothy J.; Lederman, Daniel; Robertson, Raymond
  8. A Study on Impact of Foreign Direct Investment on Gross Domestic Production in India By Tamilselvan, M.; Manikandan, S.
  9. Gravity with multiple tariff schemes By Hayakawa, Kazunobu; Yoshimi, Taiyo
  10. Firm-level utilization rates of regional trade agreements : importers' perspective By Hayakawa, Kazunobu; Laksanapanyakul, Nuttawut; Yoshimi, Taiyo
  11. The growth of multinational firms in the Great Recession By Javier Cravino
  12. Dynamics of investment negotiations between China and Japan : the China-Japan-Korea trilateral investment treaty and beyond By Hamanaka, Shintaro
  13. The Role of Direct Flights in Trade Costs By Demet Yilmazkuday; Hakan Yilmazkuday
  14. The Effect of Exchange Rates on Chinese Trade: A Dual Margin Approach By Bin Qiu; Kuntal K. Das; W. Robert Reed
  15. China’s evolving role in global production networks: the decoupling debate revisited By Prema-chandra Athukorala; John Ravenhill

  1. By: Mahdi Ghodsi (The Vienna Institute for International Economic Studies, wiiw); Julia Grübler (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Abstract In this paper, we examine the relevance of non-tariff measures (NTMs) at the 6-digit level of the Harmonised System over the period 2002-2011 by estimating ad valorem equivalents. We draw on information of NTMs notified to the WTO from the Integrated Trade Intelligence Portal (I-TIP), distinguishing various NTM types, such as technical barriers to trade and sanitary and phytosanitary measures. To assess whether NTMs facilitate or impede trade across countries we apply a gravity approach, which allows calculating implied ad valorem equivalents of NTMs for about 100 WTO member countries. Evidence of these AVEs is provided differentiated by NTM types, income groups, industries and product categories.
    Keywords: non-tariff measures, trade barriers, ad valorem equivalent, gravity model, I-TIP
    JEL: F13 F14
    Date: 2016–09
  2. By: Nobuhiro Hosoe (National Graduate Institute for Policy Studies)
    Abstract: The impact of Brexit is investigated using two computable general equilibrium (CGE) models, featuring conventional constant-returns-to-scale (CRS) technology and increasing-returns-to-scale (IRS) technology with firm heterogeneity, a la Melitz. The imposition of trade barriers would trigger a significant contraction of the bilateral trade between the United Kingdom (UK) and the rest of the European Union (EU). While a CRS CGE model predicts that the trade barriers would benefit or only marginally harm the UK fs welfare, the IRS model predicts a larger loss through firm exit and loss of varieties, comparable to the expected saving of the UK fs contribution to the EU budget. Among the UK industries, the textiles and apparel, steel and metal, and automotive and transportation equipment sectors would suffer most severely from their sharp fall in exports.
    Date: 2016–08
  3. By: Cravino, Javier; Levchenko, Andrei A.
    Abstract: We investigate how multinational firms contribute to the transmission of shocks across countries using a large multi-country firm-level dataset that contains cross-border ownership information. We use these data to document two novel empirical patterns. First, foreign affiliate and headquarter sales exhibit strong positive comovement: a 10 % growth in the sales of the headquarter is associated with a 2 % growth in the sales of the affiliate. Second, shocks to the source country account for a significant fraction of the variation in sales growth at the source-destination level. We propose a parsimonious quantitative model to interpret these findings and to evaluate the role of multinational firms for international business cycle transmission. For the typical country, the impact of foreign shocks transmitted by all foreign multinationals combined is non-negligible, accounting for about 10 % of aggregate productivity shocks. On the other hand, since bilateral multinational production shares are small, interdependence between most individual country pairs is minimal. Our results do reveal substantial heterogeneity in the strength of this mechanism, with the most integrated countries significantly more affected by foreign shocks.
    Keywords: international business cycle comovement; multinational firms
    JEL: F23 F44
    Date: 2016–08
  4. By: Kamal Saggi (Vanderbilt University); Mark Wu (Harvard University)
    Abstract: Trade in agricultural products raises sensitivities, particularly when imports originate from a trading partner experiencing an outbreak of some type of agricultural disease. In this Article, we explain why despite the negative externalities associated with diseased imports, an importing country is generally not permitted to ban such imports outright under WTO law. Rather, it is allowed to do so only under fairly specific circumstances. We also highlight how the recent India – Agricultural Products ruling contributes to the jurisprudence of two issues concerning the SPS Agreement: the interpretation of international standards, and the relationship between the risk assessment and scientific evidence requirements.
    Keywords: trade in agricultural products, disease, trade policy, WTO dispute
    JEL: F1 K0
    Date: 2016–08–27
  5. By: Imre Ferto (Institute of Economics - Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Jeremias Mate Balogh (PhD candidate, Corvinus University of Budapest, Department of Agricultural Economics and Rural Development)
    Abstract: In recent decades, New World has increased its wine export to European markets and became considerable in the global wine competition. However, the export share of traditional wine producers has decreased; Europe still remained market leader on world wine market. Moreover, the global wine market is characterised by progressively concentrated production, France, Italy and Spain accounting for about 50% of world wine production. Consequently, it is important to investigate what kind of pricing strategy the largest wine exporters of the world including France, Italy, Spain, Portugal and Germany can employ in their foreign wine export markets. The pricing behavior of five European wine exporters in their major destination markets is examined using a pricing-to-market (PTM) model for noncompetitive and exchange rate related pricing behaviour between 2000 and 2013. The results suggest that France and Italy were able to pursue price discrimination in many wine export destinations by contrast this advantage was not observable in a case of Spain, Portugal and Germany. The analysis of the asymmetric effects of exchange rates on wine export prices suggests that in many cases the depreciation of Australian, Hong Kong’s; Singapore’s dollar relating to euro had a greater impact than the appreciation while appreciation of Canadian and Singaporean dollar exceeded the effect of depreciation.
    Keywords: price discrimination, pricing to market (PTM), wine industry
    JEL: Q17 F13 F14
    Date: 2016–07
  6. By: Marta Bisztray (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: In 1993 Audi opened a new plant in Hungary. This paper examines the long-term effects of this large foreign direct investment on local firms operating in supplier industries. I use firm-level panel data with long time series. Using the method of triple difference-in-differences I compare outcomes of firms in supplier and control industries, close and far from the Audi plant, before and after the entry. My main findings are: (1) after the Audi entry the average annual growth rate of local firms increased by 3 percentage points for sales and 2 percentage points for employment. The effect is visible only five years after the entry of Audi. I find no positive effect on productivity. (2) Firms with foreign owners account for all the positive effect on sales and employment, suggesting a foreign-to-foreign complementarity in investments. Firms with higher productivity gained more. Consequently, the low initial productivity of domestic firms may explain the lack of an effect in this group. (3) New entrants in the supplier industry locating close to Audi are larger and grow faster, suggesting that Audi also had an effect on the extensive margin.
    Keywords: foreign direct investment, vertical spillovers, agglomeration
    JEL: F23 R12
    Date: 2016–06
  7. By: Halliday, Timothy J. (University of Hawaii at Manoa); Lederman, Daniel (World Bank); Robertson, Raymond (Texas A&M University)
    Abstract: Mexican wage inequality rose following Mexico's accession to the General Agreement on Tariffs and Trade/World Trade Organization in 1986. Since the mid-1990s, however, wage inequality has been falling. Since most trade models suggest that output prices can affect factor prices, this paper explores the relationship between output prices and wage inequality. The rise of inequality can be explained by the evolution of the relative price of skill-intensive goods relative to unskilled-intensive goods, but these prices flattened by 1999 and thus cannot explain the subsequent decline in wage inequality. An alternative trade model with firm heterogeneity driven by variations in the relative price of tradable relative to non-tradable goods can explain the decline in wage inequality. The paper compares this model's predictions with Mexican inequality statistics using data on output prices, census data, and quarterly household survey data. In spite of the model's simplicity, the model's predictions match Mexican variables reasonably well during the years when wage inequality fell.
    Keywords: Mexico, inequality, labor markets, firm heterogeneity
    JEL: F66 J31
    Date: 2016–08
  8. By: Tamilselvan, M.; Manikandan, S.
    Abstract: The review of various literatures and renowned publications is emphasizing that the gross domestic production of a nation is determined by several factors such as growth in agriculture and manufacturing sector, export, inflation, exchange rate and international investment. In spite of different factors affecting the growth, the incremental growth of foreign direct investment in various sectors is considered to be a vital factor which controls all other factor. The 1991 new economic policy has unfolded red carpet to the international investors and reduced the uncertainty on the legal and regulatory frame work boosted the investors’ confidence in the economy. As a result, the Indian economy witnessed a vigorous growth since the implementation of Liberalization, Privatization and Globalization (LPG). In this regard this paper is attempting to investigate the contribution of foreign direct investment to the gross domestic production of India. The investigation was made using a simple regression between foreign direct investment (FDI) and gross domestic production (GDP) for 23 years from 1991 – 2014. The result revealed that FDI has as positive impact on GDP.
    Keywords: FDI, Growth, GDP,
    JEL: E2 F3
    Date: 2015–10–24
  9. By: Hayakawa, Kazunobu; Yoshimi, Taiyo
    Abstract: This study contributes to the literature on gravity analysis by explicitly incorporating both most favored nation (MFN) rates and regional trade agreement (RTA) rates. Our gravity equation considers the fact that all exporters do not necessarily utilize RTA schemes, even when exporting to their RTA partners. We apply the tariff line–level data on worldwide trade to this gravity equation. As a result, we find a significantly negative coefficient for the (log) ratio of RTA rates to MFN rates. From the quantitative point of view, we show that in the first year of the Japan–Australia Economic Partnership (i.e., 2015), exports from Australia to Japan are expected to increase by 6% compared with the exports in 2014. Furthermore, it is shown that, based on the subsequent reduction in RTA rates, the magnitude of the trade-creation effect through tariff reductions gradually rises over time.
    Keywords: Tariff, International trade, Gravity, RTA, Preference margin
    JEL: F15 F53
    Date: 2016–08
  10. By: Hayakawa, Kazunobu; Laksanapanyakul, Nuttawut; Yoshimi, Taiyo
    Abstract: While previous theoretical studies have examined exporters' choice of tariff schemes without considering explicit heterogeneity of importers, an empirical analysis on regional trade agreement (RTA) utilization is, in general, possible by employing trade data covering the importers' side. To better link the empirical analysis with a theoretical model, this study develops a model that sheds light on the role of both importers' and exporters' characteristics in RTA utilization. The model enables us to replicate stylized facts concerning importers' RTA utilization. Based on this model, we derive some propositions on the determinants of RTA utilization rates (i.e., share of imports under RTA schemes out of total imports) at an import firm-product level. Finally, we found that these theoretical predictions are supported by highly detailed import data in Thailand from Australia from 2007 to 2009.
    Keywords: International trade, International agreements, RTA, Utilization, Thailand
    JEL: F15 F53
    Date: 2016–08
  11. By: Javier Cravino (University of Michigan)
    Abstract: We investigate how multinational firms performed during the latest global recession, using a unique firm-level dataset covering 8 million firms in 34 countries over the period 2004-2012. We document that the foreign affiliates of multinational firms grew faster than local firms both before and after the crisis, but that this faster growth was interrupted during the crisis. We explore the mechanisms for this decline in multinational activity and show that multinational firms from certain source countries did systematically worse during the crisis. Building on these results, we use a quantitative model to assess the role of foreign multinational firms in propagating the global recession across countries.
    Date: 2016
  12. By: Hamanaka, Shintaro
    Abstract: The investment agreement relationship between China and Japan is complex. The many intersecting and overlapping agreements can rightly be described as a "noodle bowl of agreements." The 1989 bilateral investment treaty (BIT) between China and Japan still stands. Japan can also free-ride on the negotiation outcome of China's BITs and free trade agreements (FTAs) with other countries by using the most-favored-nation (MFN) provision in the 1989 China-Japan BIT, which does not contain regional economic integration organization (REIO) exception rules. However, because the China-Japan BIT does not have investor-state dispute settlement (ISDS), it may face implementation problems. The China-Japan-Korea trilateral investment treaty (CJK TIT), in force since 2014, made improvements upon the 1989 BIT, but Japan is not entirely satisfied with the outcome. For Japan, pre-establishment national treatment (NT) and prohibition of various types of performance requirements are the most important negotiation items, but the CJK TIT insufficiently addressed those problems. Moreover, because the CJK TIT has MFN provisions with an REIO exception rule, better access to investment markets brought about by future FTAs such as the China-Korea FTA and the EU-China FTA cannot be imported into CJK TIT. Hence, in the long run, Japan needs to pursue an FTA investment chapter with China that covers both MFN and ISDS.
    Keywords: International agreements, Foreign investments, Bilateral investment treaty (BIT), China-Japan-Korea Trilateral Investment Treaty (CJK TIT), US-China BIT, Most-favored nation (MFN)
    JEL: F15 F53 F55
    Date: 2016–08
  13. By: Demet Yilmazkuday (Department of Economics, Florida International University); Hakan Yilmazkuday (Department of Economics, Florida International University)
    Abstract: Effects of direct flights on trade costs are investigated using micro price data at the city level. After controlling for local retail/distribution costs, traded input prices are obtained to be further used in the measurement of trade costs across cities through arbitrage conditions. The existence of a direct flight enters trade costs regressions negatively and significantly. The results are shown to be robust to the consideration of many control variables, nonlinearities in the effects of distance on trade costs, possible endogeneity of having direct flights between cities and alternative definitions of the data. The direct flights that are shown to be determined by bilateral air services agreements are further shown to reduce trade costs through an endogeneity analysis; the main policy implications are twofold: (i) international trade policies through aviation services, such as Open Skies Agreements of the U.S., are alternative trade policy tools to reduce international trade barriers; (ii) direct flights facilitate the integration of internal markets as in the case of European Union.
    Keywords: Market Integration, Trade Costs, Direct Flights, Border Effects
    JEL: F15 F31 L93 L98
    Date: 2016–08
  14. By: Bin Qiu; Kuntal K. Das (University of Canterbury); W. Robert Reed (University of Canterbury)
    Abstract: Previous studies investigating the effect of exchange rate changes on a country's exports have found little evidence that exchange rates matter. This “Exchange Rate Disconnect Puzzle†may stem from the fact that studies have mostly focused on aggregate data. We analyze the effect of real exchange rate fluctuations of the RMB by decomposing Chinese trade into its “extensive†and “intensive†margins using product-level data. Contrary to recent empirical evidence on the insignificant effects of exchange rate changes on trade, we estimate that real appreciation of the RMB has a significantly negative impact on Chinese exports. We also find that the major channel of effect is via the extensive margin. There is only weak evidence to indicate that imports are affected by exchange rates. With respect to exchange rate volatility, we generally find that it is negatively associated with exports, with no significant effect on imports. There appear to be major differences across China's major and non-major trading partners. Most of the exchange rate effects that we estimate are with China’s non-major trading partners.
    Keywords: Chinese Trade, Extensive Margin, Intensive Margin, Real Exchange Rate, Volatility
    JEL: F14 F31
    Date: 2016–08–22
  15. By: Prema-chandra Athukorala; John Ravenhill
    Abstract: This paper examines the implications of the evolving role of China in East-Asia centred global production networks for regional and global integration of the Chinese economy. The main focus is on the ‘decoupling’ thesis, the notion that China’s rise has been instrumental in reshaping the East-Asian region as a self-contained economic entity with potential for maintaining growth dynamism independent of the developed economies. The analysis is based on a new dataset that permits delineating the role of the other East Asian countries as suppliers of parts and components for assembly bases in China and China’s dependence on third-country markets. We find that China’s reliance on East Asian neighbours for parts and component supply has significantly declined in recent years, reflecting deepening of China’s engagement in production networks. China is also emerging as a significant supplier of parts and components within global production networks. There has been a notable geographic diversification of China’s assembly exports with a significant increase in the shares of extra-regional developing countries, but Western countries still absorb a sizeable share.
    Keywords: China, global production networks, trade patterns, decoupling thesis
    JEL: F11 F14 F23 M16
    Date: 2016

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