nep-int New Economics Papers
on International Trade
Issue of 2017‒01‒08
eighteen papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Prospects of the Food Processing Sector under Tariff and Non-Tariff Measures Liberalization in the Transatlantic Trade and Investment Partnership By Jafari, Yaghoob; Britz, Wolfgang
  2. The Economic Structure of International Trade-in-Services Agreements By Robert W. Staiger; Alan O. Sykes
  3. Regional trade agreements: The impact of the Transatlantic Trade & Investment Partnership (TTIP) on low income countries: Agreement heterogeneity and supply chain linkages By Steven Brakman; Tristan Kohl; Charles Van Marrewijk
  4. A Portrait of Trade in Value Added over Four Decades By Robert C. Johnson; Guillermo Noguera
  5. A spatial-filtering zero-inflated approach to the estimation of the gravity model of trade By Rodolfo Metulini; Roberto Patuelli; Daniel Griffith
  6. Goods-Market Frictions and International Trade By Krolikowski, Pawel; McCallum, Andrew H.
  7. Globalization and Wage Inequality By Elhanan Helpman
  8. A comment on 'Cross-border merger, vertical structure, and spatial competition' By Konstantinos Eleftheriou; Nickolas J. Michelacakis; Vassilios G. Papavassiliou
  9. How Large Are the Gains from Economic Integration? Theory and Evidence from U.S. Agriculture, 1880-1997 By Costinot, Arnaud; Donaldson, Dave
  10. Extending Industry Specialization through Cross-Border Acquisitions By Fresard, Laurent; Hege, Ulrich; Phillips, Gordon
  11. Home country bias in divestment decisions of multinational corporations in the EU By Laura Resmini; Giuseppe Vittucci
  12. Austerity and competitiveness in the Eurozone: a misleading linkage By Paternesi Meloni, Walter
  13. L'intégration économique en Afrique: un processus en cours By Vera Songwe
  14. Global Competition and Brexit By Italo Colantone; Piero Stanig
  15. Implications de la mise en œuvre de l’Accord sur la facilitation des échanges de l’OMC pour le Vietnam By Nguyen, Ngoc Ha
  16. What next after Brexit? Considerations regarding the future relationship between the EU and the UK By Matthes, Jürgen; Busch, Berthold
  17. How Large Are the Gains from Economic Integration? Theory and Evidence from U.S. Agriculture, 1880-1997 By Arnaud Costinot; Dave Donaldson
  18. Foreign direct investment and environmental degradation: Further evidence from Brazil and Singapore. By Kostakis, Ioannis; Lolos, Sarantis; Sardianou, Eleni

  1. By: Jafari, Yaghoob; Britz, Wolfgang
    Abstract: Food processing firms differ in productivity, vary in size and engage in a monopolistic competition based on highly differential products. While trade in processed food is becoming more important, the processed food sector is still the most protected one in both the European Union (EU) and the United States (US). This study employs a Computable General Equilibrium model which incorporates a module for heterogeneous firms under monopolistic competition to quantify impacts of a potential Transatlantic Trade and Investment Partnership (TTIP) agreement. Specifically, we evaluate a full removal of bilateral tariff and export subsidies between the EU and the US, and an additional reduction of bi-lateral rents and trade costs related to Non-Tariff Measures (NTMs) in the food processing sector, drawing on cost estimates of existing empirical studies. Simulation results show quite small welfare impacts under both scenarios and limited impact on trade volumes as long as NTMs are not considered. Although transatlantic trade increases significantly in food processing sectors at the extensive margin of trade once changes in NTMs are accounted for, reduction in domestic sales leaves total industry output unchanged in both regions. Our model underlines the importance of considering NTMs and vertical differentiation, but is clearly limited by data availability especially on costs of existing NTMs and their composition.
    Keywords: Trade Policy, Imperfect competition, Heterogeneous firms, Simulations, Agricultural and Food Policy, International Relations/Trade, F12, F14, F47,
    Date: 2016–12–01
  2. By: Robert W. Staiger; Alan O. Sykes
    Abstract: The existing economics literature on international trade agreements focuses on tariff agreements covering trade in goods, and offers an explanation for core features of the GATT. Tariffs play almost no role in services markets, however, and the existing models cannot account for the dramatically different approach to trade liberalization in agreements such as the WTO General Agreement on Trade in Services (GATS). We develop a model through which key features of GATS, including its emphasis on "deep integration" – sector-by-sector negotiations on behind the border policy instruments – can be understood. And we use this model to suggest that there may also be a middle ground for services trade liberalization between the GATS deep-integration approach and the traditional border-policy focused "shallow integration" approach of GATT.
    JEL: F13 F23
    Date: 2016–12
  3. By: Steven Brakman; Tristan Kohl; Charles Van Marrewijk
    Abstract: The Transatlantic Trade & Investment Partnership (TTIP) that is currently being negotiated between the EU and USA is aimed to stimulate international trade between the two partners. Most research indicates that the economic effects for the EU and USA are positive, but that with regard to third countries the economic effects seem less certain. Most existing studies point to the (negative) trade diversion effects for third countries. What is neglected in the literature is agreement heterogeneity; the ambition of TTIP is far reaching and the provisions discussed encompass much more than just the standard trade measures. A related topic is the influence of supply chains in determining the impact of TTIP on third countries. If strong supply chains exist between the TTIP partners and third (low income) countries, trade diversion need not occur. In general, we find that some provisions have a statistically significant impact on trade (positive as well as negative). Others have no effect at all, but can be important for other (policy) reasons than trade. The trade effects of TTIP for the EU and USA are positive. Third country effects are diverse, but for the poorest countries they tend to be positive, especially if provisions mutually reinforce each other. Stylized facts on supply chains show that we do not have to modify our results by including supply chains explicitly for the lowest income countries. Instead, supply chain effects are concentrated in middle income countries. This is largely in line with our results for the trade effects.
    Keywords: Regional Trade Agreements; Low income countries; TTIP
    JEL: R11 R13
    Date: 2016–12
  4. By: Robert C. Johnson; Guillermo Noguera
    Abstract: We combine data on trade, production, and input use to document changes in the value added content of trade between 1970 and 2009. The ratio of value-added to gross exports fell by roughly 10 percentage points worldwide. The ratio declined 20 percentage points in manufacturing, but rose in non-manufacturing sectors. Declines also differ across countries and trade partners: they are larger for fast growing countries, for nearby trade partners, and among partners that adopt regional trade agreements. Using a multi-sector structural gravity model with input-output linkages, we show that changes in trade frictions play a dominant role in explaining all these facts.
    JEL: F1 F4 F6
    Date: 2016–12
  5. By: Rodolfo Metulini; Roberto Patuelli; Daniel Griffith
    Abstract: Nonlinear estimation of the gravity model with Poisson/negative binomial methods has become popular to model international trade flows, as it permits a better accounting for large numbers of zero flows. Nevertheless, as trade flows are not independent of each other due to spatial autocorrelation, those methods lead to biased parameter estimates. To overcome this problem, eigenvector spatial filtering variants of the Poisson/Negative binomial specification has been proposed in the literature of gravity modelling of trade. This paper contributes to the literature in two ways. First, by employing a stepwise selection criterion for spatial filters which is based on robust (sandwich) p-values and does not require likelihood-based indicators. In this respect, we develop an ad hoc backward stepwise function in R. Second, using this function, we select a reduced set of spatial filters that properly accounts for importer-side and exporter-side specific spatial effects, both at the count and the logit process. Applying this estimation strategy to a cross-section of bilateral trade flows between a set of worldwide countries for the year 2000, we find that our specification outperforms the benchmark models, in terms of model fitting, both considering the AIC and in predicting zero (and small) flows.
    Keywords: bilateral trade; unconstrained gravity model; eigenvector spatial filtering; zero flows; backward stepwise
    JEL: C14 C21 F10
    Date: 2016–12
  6. By: Krolikowski, Pawel (Federal Reserve Bank of Cleveland); McCallum, Andrew H. (Federal Reserve Bank of Cleveland)
    Abstract: We present a tractable framework that embeds goods-market frictions in a general equilibrium dynamic model with heterogeneous exporters and identical importers. These frictions arise because it takes time and expense for exporters and importers to meet. We show that search frictions lead to an endogenous fraction of unmatched exporters, alter the gains from trade, endogenize entry costs, and imply that the competitive equilibrium does not generally result in the socially optimal number of searching firms. Finally, ignoring search frictions results in biased estimates of the effect of tariffs on trade flows.
    Keywords: Search; trade; goods; frictions; information;
    JEL: D83 F12
    Date: 2016–12–23
  7. By: Elhanan Helpman
    Abstract: Globalization has been blamed for rising inequality in rich and poor countries. Yet the views of many protagonists in this debate are not based on evidence. To help form an evidence-based opinion, I review in this paper the theoretical and empirical literature on the relationship between globalization and wage inequality. While the initial analysis that started in the early 1990s focused on a particular mechanism that links trade to wages, subsequent studies have considered several other channels, and the quantitative assessment of the size of these influences has been carried out in multiple studies. Building on this research, I conclude that trade played an appreciable role in increasing wage inequality, but that its cumulative effect has been modest, and that globalization does not explain the preponderance of the rise in wage inequality within countries.
    JEL: F10 F61 F66
    Date: 2016–12
  8. By: Konstantinos Eleftheriou; Nickolas J. Michelacakis; Vassilios G. Papavassiliou
    Abstract: The aim of this paper is to revise and correct the results obtained in Beladi et al. [Beladi, H., Chakrabarti, A., Marjit, S., 2010. Cross-border merger, vertical structure, and spatial competition. Economics Letters 109, 112-114]. Specifically, we prove that the Nash equilibrium locations of the downstream firms are the same in the pre-merger free-trade case as they are following a cross-border upstream merger.
    Keywords: Price-discrimination; Spatial-competition; Firm-location; Cross-border merger
    JEL: L13 L42 D43 R32 F10 F12
    Date: 2016–09
  9. By: Costinot, Arnaud; Donaldson, Dave
    Abstract: In this paper we develop a new approach to measuring the gains from economic integration based on a generalization of the Ricardian model in which heterogeneous factors of production are allocated to multiple sectors in multiple local markets based on comparative advantage. We implement this approach using data on crop markets in approximately 2,600 U.S. counties from 1880 to 1997. Central to our empirical analysis is the use of a novel agronomic data source on predicted output by crop for small spatial units. Crucially, this dataset contains information about the productivity of all units for all crops, not just those that are actually being grown - an essential input for measuring the gains from trade. Using this new approach we find substantial long-run gains from economic integration among US agricultural markets, benefits that are similar in magnitude to those due to productivity improvements over that same period.
    Keywords: Gains from Economic; Ricardian Model; U.S. Agriculture
    JEL: F1 F10 F11 F14 F15 F17
    Date: 2016–12
  10. By: Fresard, Laurent; Hege, Ulrich; Phillips, Gordon
    Abstract: We investigate the role of industry specialization in horizontal cross-border merg- ers and acquisitions. We find that acquirers from more specialized industries in a country are more likely to buy foreign targets in countries that are less specialized in these same industries. The role of industry specialization in foreign acquisitions is more prevalent when contracting inefficiencies and exporting costs limit arms' length relationships. The economic gains in cross-border deals are larger when spe- cialized acquirers purchase assets in less specialized industries. These results are consistent with an internalization motive for foreign acquisitions, through which acquirers can apply localized intangibles on foreign assets.
    Date: 2016–12
  11. By: Laura Resmini; Giuseppe Vittucci
    Abstract: This paper deals with the performance of multinational enterprises (MNEs) during the recent financial crisis in the EU regions. According to the existing literature both foreign affiliates and local territories may benefit one from each other. There is a huge literature suggesting that FDI is sensitive to transparent and open systems that may ensure a good access to local resources, such as human capital, knowledge and technology, as well as regions with enough capacity to ?absorb? the new technology, know-how and management practices brought into their territories by MNEs may enjoy faster economic growth. This implies that MNEs and regions hosting their foreign plants are interlinked; therefore, the (mis)fortunes of one may condition the performance of the other. The economic crisis that affected and still affects most of European regions both within and across countries has further emphasised the importance of this issue. Do regions hosting foreign production plants show a better resilience to crisis? Do MNEs survive better than indigenous firms during this period? And if yes, which characteristics allowed MNEs to better react to the crisis than other firms? In addressing these questions, we first examine if foreign ownership, and the associated involvement in global value chains, was a factor influencing firms? performance and, if so, through which channels. Then, the identified channels are shown to be also important to explain differences across firms in the response to the crisis. To the best of our knowledge, this is the first article addressing systematically the implications of the recent crisis for firms? performance and drawing from it insights about the EU regions resilience to global shocks. Our analyses rely on a comprehensive firm-level dataset including all firms active in the EU before the economic crisis (2006). Both indigenous and foreign firms are considered and several firm?s characteristics, i.e. size and experience, the market focus, and the ownership structure, have been accounted for in order to analyse the probability to survive to the crisis of domestic and foreign firms. Micro-data on firms is derived from the AMADEUS database of firm financial accounts which is provided by the Bureau Van Dijk. This paper offers several contributions to the existing debate on the importance of foreign firms for the performance of local economies. First all, it sheds light on the role of MNEs in EU regions resilience to the crisis. Secondly, it helps in understanding whether multinational firms acted as a stabilizer or a propagator of the crisis across EU regions. Finally, identifying firms ? both local and foreign ? that may improve regions? resilience to the crisis may help design more effective and better targeted policies for enhancing local development and attract foreign firms that suit better within the local context.
    Keywords: foreign divestments; EU regions? resilience; survival analysis
    JEL: F23 O52 R12
    Date: 2016–12
  12. By: Paternesi Meloni, Walter
    Abstract: After a preliminary focus on increasing government debts, the debate on the “Eurozone crisis” switched over persistent external imbalances - both trade and net foreign assets - among European Monetary Union country members. Endorsing a pure neoclassical view, current account differentials were almost exclusively ascribed to weak price competitiveness of deficit countries (the so called Euro Area periphery), neglecting both demand-side factors and the structural productive asymmetries of the EMU. As a consequence, policy makers decided to impose austerity measures to peripheral countries in order to foster their competitiveness, and consequently to correct external imbalances by means of increasing export - while current accounts realignment mainly occurred due to decreasing import. In this paper, we identify this view as competitive austerity, in parallel with the debated expansionary austerity. According to their proponents, these policies would have a direct impact on trade balances and expansionary effects on real output and employment. By contrast, from an alternative standpoint fiscal restraints can be generally considered as counterproductive. In this perspective, following Keynesian arguments the aim of this paper is to critically assess the austerity-competitiveness linkage from a theoretical perspective. Moreover, some macroeconomic evidences are suggested to evaluate both effectiveness on external positions and real side-effects of austerity policies.
    Keywords: austerity, competitiveness, European imbalances, current account, fiscal policy, aggregate demand
    JEL: E63 F32 F45
    Date: 2016–12–01
  13. By: Vera Songwe
    Abstract: Partout dans le monde, l'intégration économique régionale permet d'accélérer la croissance et le développement en apportant une panoplie d'avantages liés à une meilleure coopération politique, à un commerce intra-régional accru et à la création d'emplois. Les régions qui sont plus intégrées se sont révélées capables de connaître une croissance plus rapide et ont fait preuve d'une plus grande capacité d'adaptation en période de ralentissement de l'économie mondiale. Alors que l'économie mondiale lutte pour retrouver ses niveaux de croissance élevés d'il y a dix ans, la stimulation de la croissance interne et régionale est devenue la principale solution stratégique pour de nombreux pays et régions. La Chine tisse davantage de liens avec ses voisins, l'Inde fait pareil, et même dans l'Union Européenne le commerce intra-régional est en passe de retrouver ses niveaux qui existaient avant la crise financière. En Afrique, le Maroc et l'Afrique du Sud adoptent aussi des stratégies commerciales régionales de manière vigoureuse, alors que l'Europe reste le principal marché d'exportation de l'Afrique. Le commerce de l'Afrique avec les nations atlantiques de l'Europe se rétrécit à un moment où l'Afrique envisage d'intensifier ses relations commerciales avec elle-même. Toutefois, à mesure que l'Afrique s'intègre dans les chaînes de valeur mondiales, on devrait s'attendre à ce que le commerce avec l'Europe continue d'augmenter, sachant que la concurrence avec les autres voisins atlantiques de l'Afrique au sud des États-Unis s'accentuera probablement.
    Date: 2016–12
  14. By: Italo Colantone; Piero Stanig
    Abstract: Using disaggregated referendum returns and individual-level data, we show that support for the Leave option in the referendum regarding European Union membership of the United Kingdom was systematically higher in regions hit harder by economic globalization. We focus on the shock of surging imports from China over the past three decades. An instrumental variables approach supports a causal interpretation. We claim that this effect is driven by the displacement determined by globalization in the absence of effective compensation of its losers. On the other hand, neither stocks nor inflows of immigrants in a region are associated with support for the Leave option. The analysis of individual data from the British Election Study shows that attitudes towards immigration are strongly correlated with vote choice. Yet, attitudes about immigration are more closely related to the import shock than to the actual incidence of immigration in a region.
    Keywords: Brexit, Globalization, Economic Vote
    Date: 2016
  15. By: Nguyen, Ngoc Ha
    Abstract: SECO Working Paper 20/2016 by Ngoc Ha Nguyen
    Date: 2017–01–03
  16. By: Matthes, Jürgen; Busch, Berthold
    Abstract: In order to be able to assess the future institutional relationship between the UK and the EU, this study organises the relevant facts systematically. This is done by using a framework in which two aspects are compared with each other: On the one hand, the extent of the Single Market access for the EU's current partners (incl. Norway, Switzerland and Canada), and on the other, the concessions agreed by these partners with the EU with regard to free movement of people, relinquishment of regulatory sovereignty (legal harmonisation with the EU) and payments to the EU. Here a clear reciprocity between give and take can be seen, which it is assumed will also be valid for the pending negotiations, particularly as the EU needs to prevent bandwagon effects in terms of other EU countries following the UK example to exit the EU. On this basis we discuss which concessions the UK might give and what extent of Single Market access the EU might grant in return, if it is to be guided by the existing integration models, and in addition takes into account the British trade deficit with the EU and the substantial political and military role played by the British. Although the UK would like to retain as broad access to the Single Market as possible, the political restrictions might mean that the UK can only offer medium level concessions overall: small regarding free movement of people, small to medium regarding payments to the EU, and medium to high regarding legal harmonisation with the EU. In this respect, there are clear parallels with the Swiss integration model, since Switzerland also gives the EU medium level concessions on average, and in return receives medium level access to the Single Market. However, in the case of the UK there would be a single overall agreement (rather than many individual agreements as in the case of Switzerland) and concessions would be distributed differently amongst the various categories.
    JEL: F13 F15 O52
    Date: 2016
  17. By: Arnaud Costinot; Dave Donaldson
    Abstract: In this paper we develop a new approach to measuring the gains from economic integration based on a generalization of the Ricardian model in which heterogeneous factors of production are allocated to multiple sectors in multiple local markets based on comparative advantage. We implement this approach using data on crop markets in approximately 2,600 U.S. counties from 1880 to 1997. Central to our empirical analysis is the use of a novel agronomic data source on predicted output by crop for small spatial units. Crucially, this dataset contains information about the productivity of all units for all crops, not just those that are actually being grown—an essential input for measuring the gains from trade. Using this new approach we find substantial long-run gains from economic integration among US agricultural markets, benefits that are similar in magnitude to those due to productivity improvements over that same period.
    JEL: F0 F1 F11 F15 F17
    Date: 2016–12
  18. By: Kostakis, Ioannis; Lolos, Sarantis; Sardianou, Eleni
    Abstract: This paper assesses empirically the role of foreign direct investment (FDI) inflows on environmental quality, measured by CO2 emissions. The cases of Brazil and Singapore are taken as examples for our empirical investigation, on the grounds of their specific similarities and differences. The empirical analysis is carried out in a multivariate setting, using a variety of models (ARDL, FMOLS, OLS) for the early 1970s to 2010. The results indicate that FDI inflows have lead to environmental degradation in Brazil but not in Singapore. Our findings point to the importance of the sectoral composition of FDI as a determinant of its impact on environmental quality. The analysis is supplemented with an environmental Kuznets curve (EKC), our results showing that the EKC hypothesis holds for the case of Singapore but its validity is marginal in Brazil.
    Keywords: foreign direct investment; environmental degradation; kuznets curve
    JEL: Q43 Q56
    Date: 2016–12–19

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