nep-int New Economics Papers
on International Trade
Issue of 2017‒07‒09
seventeen papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Agricultural Trade Liberalization in the 21st Century: Has it Done the Business? By Jean-Christophe Bureau; Houssein Guimbard; Sébastien Jean
  2. Productivity and trade spillovers: Horizontal crowding-out versus vertical synergies in Europe as a response to the Foreign Direct Investment By Hanousek, Jan; Kocenda, Evzen; Vozarova, Pavla
  3. Dynamic Changes in Comparative Advantage of Indonesian Agricultural Products By Girik Allo, Albertus; Sukartini, Ni Made; Widodo, Tri
  4. Microeconomic mechanisms behind export spillovers from FDI: Evidence from Bulgaria By Ciani, Andrea; Imbruno, Michele
  5. Does the Type of Neighbor Matter? Heterogeneous Export Spillovers on Domestic Companies in Mexico By Cardoso-Vargas, Carlos-Enrique
  6. Corruption and International Trade: A Comprehensive Analysis with Gravity By Salvador Gil-Pareja; Rafael Llorca-Rivero; José Antonio Martínez-Serrano
  7. Terms-of-Trade and Counterterrorism Externalities By Bandyopadhyay, Subhayu; Sandler, Todd; Younas, Javed
  8. Weak vs. Strong Ties: Explaining Early Settlement in WTO Disputes By Lee, Jiwon; Wittgenstein, Teresa
  9. Offshore Production and Business Cycle Dynamics with Heterogeneous Firms By Zlate, Andrei
  10. The granular and fundamental components of export specialization By Juan de Lucio; Raúl Mínguez; Asier Minondo; Francisco Requena
  11. Comparative Advantage of Energy Products in the Midst of ASEAN Economic Integration By Widodo, Tri
  12. The Paul Storer Memorial Lecture—Cross-Border Trade Integration and Monetary Policy By Stephen S. Poloz
  13. Populism and the Economics of Globalization By Rodrik, Dani
  14. Breaking Badly: The Currency Union Effect on Trade By Campbell, Douglas L.; Chentsov, Aleksandr
  15. Offshoring, Low-skilled Immigration, and Labor Market Polarization By Mandelman, Federico S.; Zlate, Andrei
  16. Negative Welfare Effects from Enhanced International M&As in the Post-BREXIT-Referendum UK By Paul J.J. Welfens
  17. The BREXIT Dynamics: British and EU27 Challenges after the EU Referendum By Paul J.J. Welfens; David Hanrahan

  1. By: Jean-Christophe Bureau; Houssein Guimbard; Sébastien Jean
    Abstract: Based on a novel, detailed, time-consistent tariff database to take stock of developments regarding import protection in the agricultural sector since 2001, we propose a statistical decomposition of the changes in the various types of tariffs. The results show that the multilateral system has played a limited role in trade liberalization over the period. Many countries have continued to apply much lower tariffs on agricultural products than their WTO ceilings. Moreover, there has been substantial unilateral dismantling of tariffs over the period, so that much of the liberalization took place outside WTO and regional agreements. The number of regional trade agreements has surged, but their impact on applied agricultural tariffs has been limited. Finally, we investigate the tariffs, trade and production implications for food and agricultural products of two extreme scenarios in the future development of trade negotiations: an ambitious surge of regional agreements and a trade war within the WTO context.
    Keywords: Tariffs;Regional Trade Agreements;Agricultural Trade Liberalization;WTO
    JEL: F10 F13 F14
    Date: 2017–06
  2. By: Hanousek, Jan; Kocenda, Evzen; Vozarova, Pavla
    Abstract: We analyze the impact of multinational enterprises (MNEs), via their foreign direct investment (FDI), on domestic firms in 30 European host economies, from 2001 to 2013. We incorporate international industrial and trade linkages into a standard theoretical framework and test them empirically on a unique dataset compiled from the Amadeus, Eurostat, UN Comtrade and BACI data sources. While controlling for horizontal, vertical, and export channels at the upstream and downstream levels, we show that the presence of MNEs significantly affects domestic firms, in terms of both changing the market structure and improving productivity. The impact is not always positive, as domestic firms are often crowded-out. However, those firms that withstand such double competition receive additional benefits stemming from trade (export) spillovers. In our complex model, we did not find significant (positive) interactions of domestic firms with horizontal MNEs which would suggest desirable productivity spillovers.
    Keywords: European firms; foreign direct investment (FDI); International Trade; multinational enterprise (MNE); Spillovers
    JEL: C33 F15 F21 F23 O24
    Date: 2017–06
  3. By: Girik Allo, Albertus; Sukartini, Ni Made; Widodo, Tri
    Abstract: Indonesia is a large country and most populous among members of ASEAN Economic Community (AEC). The purpose of this study is to perform a "mapping products" for agricultural commodity in Indonesia. This study utilizes data on export and import four-digit in the Standard International Trade Classification (SITC) Revision 2 from UN-COMTRADE for the period 1984-2014. We use Reveled Symmetric Comparative Advantage (RSCA) combined with Trade Balance Index (TBI) in our analysis. The primary result shows that dynamic changes in agricultural commodities have occurred in Indonesia. Agricultural commodities that perform de-specialization are rice, meat of sheep and goats (fresh, chilled, or frozen). On the other hand, agricultural commodities that experience specialization are fishery products.
    Keywords: products mapping, agriculture product, international trade
    JEL: F14 Q17
    Date: 2017–07–04
  4. By: Ciani, Andrea; Imbruno, Michele
    Abstract: This paper studies how the presence of multinational enterprises affects the export performance of Bulgarian manufacturing firms - Export spillovers from FDI. Using export data at the firm/product/destination level for the period 2004-2006, we find positive forward spillover on export value and quantity, related to quality upgrading. Conversely, we find negative (or insignificant) backward and horizontal spillover on export flows, related to quality downgrading. When aggregating data at the firm level and considering that a firm can operate in several sectors, we show that the presence of foreign input suppliers allows domestic firms to export additional varieties of lower quality and upgrade the average quality of existing varieties, whereas the presence of foreign customers generates the opposite effect.
    Keywords: Export spillover,FDI,Multi-product firms,Unit value,Quality
    JEL: F14 F23 F61
    Date: 2017
  5. By: Cardoso-Vargas, Carlos-Enrique
    Abstract: This document examines whether the probability of entering new external markets or the increase in export products on the part of Mexican firms are related to the proximity of diverse multinational firms exporting under different trade regimes. The evaluation was made using a panel based on data from Mexican Customs and from a sampling of national firms from 2003-2010. The results show that export spillovers are far from homogeneous in their effects on Mexican firms, since their existence is related to the export activity of neighboring foreign firms. Moreover, such spillovers are more likely to appear in places where neighboring national and foreign firms have not only common trade regimes, but also common technological level of production.
    Keywords: international trade; spillovers; agglomerated economic activity
    JEL: D22 F14 R12
    Date: 2017
  6. By: Salvador Gil-Pareja (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).); Rafael Llorca-Rivero (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).); José Antonio Martínez-Serrano (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).)
    Abstract: The aim of this paper is to analyze the impact of corruption on trade. To this end, we estimate gravity equations using a wide sample of countries for a long period of time and three different measures of corruption: Corruption Perception Index (CPI), Control of Corruption Index (CCI) and a Structural Corruption Index (SCI). Our results show that perception-based indexes (CPI and CCI) give quite different results with respect to the Structural index (SCI) and that the detected impacts are somewhat sensitive to the formation of regional trade agreements or the level of per-capita income of the trade partners. In particular, when using the CCI index and there is at least one middle or low income country in the pair a positive effect of corruption on trade appears. Moreover, the negative impact of differences in the level of corruption detected with the SCI index appears to be much more relevant when the two countries are high income.
    Keywords: Corruption, Gravity equation, Income level, International trade, Regional Trade Agreements
    JEL: F14 F15
    Date: 2017–05
  7. 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 investigates the interplay of trade and terrorism externalities under free trade between a developed nation that exports a manufactured good to and imports a primary product from a developing nation. A terrorist organization targets both nations and reduces its attacks in response to a nation’s defensive counterterrorism efforts, while transferring some of its attacks abroad. Terms-of-trade considerations lead the developed nation to raise its counterterrorism level beyond the “small-country” level, thus compounding its over provision of these measures. By contrast, the developing nation limits its defensive countermeasures below that of the small-country level. The analysis is extended to include proactive countermeasures to weaken the terrorist group. Again, the developed country raises its efforts owing to the terms-of-trade externality, which now opposes the under provision associated with proactive efforts. A second extension allows for several developing country exporters of the primary product.
    Keywords: Terms-of-trade externalities; transference externalities; terrorism; defensive counterterrorism; proactive counterterrorism
    JEL: D62 H41 H56
    Date: 2017–06–01
  8. By: Lee, Jiwon; Wittgenstein, Teresa
    Abstract: Empirical investigations of litigation at the WTO reveal a noteworthy pattern: the majority of disputes settle early, either during consultation, or prior to the issuance of a panel ruling. This is surprising, considering the structure of its remedial regime undermines the system’s deterrent effect. It is, therefore, theorized that formal adjudication gains enforcement power by disseminating information on state conduct, unleashing reputational pressures. Building on the emerging stream of literature interested in the interaction between overlapping institutions, we contend that the degree to which defendants’ are embedded in external trade agreements acts as an important determinant of dispute escalation at the WTO. The fear of reputational sanctions emanating from an adverse ruling exerts impetus for settlement in disputes involving defendants that are signatories of a few, shallow agreements. The “shadow of the future,” in the form of ongoing trade negotiations, heightens the sensitivity to reputation for states with a strong potential to increase market access in the future.To test our hypothesis we quantified evidence on settlement patterns for the organization’s first fifteen years of operation. We have also compiled a novel dataset consisting of 233 trade agreements disputants were signatories to during our observation period. To account for diverse levels of integration, a measure of depth is included, applying the additive depth index introduced by the DESTA project. In order account for the fact that some provisions may be more relevant drivers of the depth of an agreement, we conducted a factor analysis to unravel unobserved, latent variable(s). We find strong support for the claim defendants’ wider integration in the trade realm predicts settlement dynamics within the WTO dispute settlement system. Our results remain statistically significant despite alternative specifications and robustness tests.
    Date: 2017
  9. By: Zlate, Andrei (Federal Reserve Bank of Boston)
    Abstract: To examine the effect of offshoring through vertical FDI on the international transmission of business cycles, I propose a two-country model in which firms endogenously choose the location of their production plants over the business cycle. Firms face a sunk cost to enter the domestic market and an additional fixed cost to produce offshore. As such, the offshoring decision depends on the firm-specific productivity and on fluctuations in the relative cost of effective labor. The model generates a procyclical pattern of offshoring and dynamics along its extensive margin that are consistent with data from Mexico's maquiladora sector. The extensive margin enhances the procyclical response of the value added offshore to expansions in the home economy, as the number of offshoring firms mirrors the dynamics of firm entry at home. As a result, offshoring increases the comovement of output across economies, in line with the empirical evidence.
    Keywords: Offshore production; extensive margin; heterogeneous firms; firm entry; business cycle dynamics; terms of labor.
    JEL: F23 F41
    Date: 2016–02–17
  10. By: Juan de Lucio (Universidad Nebrija. Calle de Santa Cruz de Marcenado, 27, 28015, Madrid (Spain).); Raúl Mínguez (Universidad Nebrija. Calle de Santa Cruz de Marcenado, 27, 28015, Madrid (Spain).); Asier Minondo (Deusto Business School, University of Deusto, Camino de Mundaiz 50, 20012 Donostia - San Sebastián (Spain). Research aliate of Instituto Complutense de Estudios Internacionales.); Francisco Requena (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).)
    Abstract: Countries' export specialization patterns are often caused by the behavior of very few firms. We propose an easy-to-implement methodology to decompose export specialization into fundamental comparative advantage (a country-specific component) and granular comparative advantage (a firm-specific component). We apply this methodology to analyze export specialization across countries and across regions within a country. In the country-level analysis, we find that, on average, granular comparative advantage leads to export specialization in 29% of industries, which account for 47% of total exports. We also show that 60% of the variation in export specialization across countries is explained by granular comparative advantage. The contribution of firms to export specialization is more important across regions within a country than across countries.
    Keywords: exports, fundamental comparative advantage, granular comparative advantage, European Union, Spain, regions, export superstars, firm-level data
    JEL: F12 F14
    Date: 2017–04
  11. By: Widodo, Tri
    Abstract: This research aims to analyze the ASEAN countries’ comparative advantage of energy products. Trade Balance Index (TBI) is applied. This research uses data import value and price of energy products under SITC 3 digits. This research concludes that Coal, lignite and peat (SITC 333) and gas, natural, and manufactured (SITC 341) are the upfront energy commodity line that share positive index, meanwhile briquettes; coke and semi-coke; lignite or peat; retort carbon (SITC 332) is the least competitive basket in energy market.
    Keywords: energy products, energy market integration
    JEL: F1 I3 Q4
    Date: 2016–08–17
  12. By: Stephen S. Poloz
    Abstract: In this paper we explore the nexus between cross-border trade integration and monetary policy. We first review the evidence that trade liberalization has increased the degree of integration in North America and conclude that, while robust structural inferences remain elusive, there is sufficient supporting evidence for central banks to treat the issue seriously. The paper then discusses several channels by which increased integration might affect macroeconomic models. We introduce modifications to the Bank of Canada’s main policy model, ToTEM, to capture some of the impacts of integration suggested in the literature and generate stochastic simulations to compare versions of the model with low and high integration. The main conclusion is that increased integration may make it more challenging for central banks to control inflation, in the sense that doing so will require more variability in interest rates, exchange rates and the output gap.
    Keywords: Economic models, Monetary Policy, Trade Integration
    JEL: E37 E5 F1 F41 F6
    Date: 2016
  13. By: Rodrik, Dani
    Abstract: Populism may seem like it has come out of nowhere, but it has been on the rise for a while. I argue that economic history and economic theory both provide ample grounds for anticipating that advanced stages of economic globalization would produce a political backlash. While the backlash may have been predictable, the specific form it took was less so. I distinguish between left-wing and right-wing variants of populism, which differ with respect to the societal cleavages that populist politicians highlight. The first has been predominant in Latin America, and the second in Europe. I argue that these different reactions are related to the relative salience of different types of globalization shocks.
    Keywords: Globalization; populism
    JEL: G02
    Date: 2017–06
  14. By: Campbell, Douglas L.; Chentsov, Aleksandr
    Abstract: As several European countries debate entering, or exiting, the Euro, a key policy question is how much currency unions (CUs) affect trade. Recently, Glick and Rose (2016) confirmed that currency unions increase trade on average by 100%, and that the Euro has increased trade by a still-large 50%. In this paper, we find that the apparent large impact of CUs on trade is driven by other major geopolitical events correlated with CU switches, including communist takeovers, decolonization, warfare, ethnic cleansing episodes, the fall of the Berlin Wall and the whole history of European integration. We find that moving from robust standard errors to multi-way clustered errors alone reduces the t-score of the Euro impact by 75%. Looking at individual CUs, we find that in no cases does the time series evidence support a large trade effect, and that the effect breaks particularly badly once we find suitable control groups. Overall, we find that intuitive controls and omitting the CU switches coterminous with war and missing data render the trade impact of the Euro and all CUs together statistically insignificant.
    Keywords: The Euro, Currency Unions and Trade, Gravity Regressions for Policy Analysis
    JEL: F15 F33 F54
    Date: 2017–06–29
  15. By: Mandelman, Federico S. (Federal Reserve Bank of Atlanta); Zlate, Andrei (Federal Reserve Bank of Boston)
    Abstract: During the last three decades, the U.S. labor market has been characterized by its employment polarization. As jobs in the middle of the skill distribution have shrunk, employment has expanded in high- and low-skill occupations. Real wages have not followed the same pattern. While earnings for high-skill occupations have risen robustly, wages for both low- and middle-skill workers have remained subdued. We attribute this outcome to the rise in offshoring and low-skilled immigration, and develop a three-country stochastic growth model to rationalize their asymmetric effect on employment and wages, as well as their implications for U.S. welfare. In the model, the increase in offshoring negatively affects middle-skill occupations but benefits the high-skill ones, which in turn boosts aggregate productivity. As the income of high-skill occupations rises, so does the demand for complementary services provided by low-skill workers. However, low-skill wages remain depressed due to the rise in low-skilled immigration. Native workers react to immigration by investing in training. Offshoring and low-skilled immigration improve aggregate welfare in the U.S. economy, notwithstanding their asymmetric impact on native workers of different skill levels. The model is estimated using data on real GDP, U.S. employment by skill group, and enforcement at the U.S.-Mexico border.
    Keywords: International labor migration; offshoring; labor market polarization; task upgrading; heterogeneous workers
    JEL: F16 F22 F41
    Date: 2016–09–30
  16. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: Summary: The disintegration of a regional integration group raises many questions, including some which relate to welfare aspects. As regards the UK’s leaving of the EU (BREXIT), many studies have considered the effect on real gross domestic product (GDP), but thus far no papers have studied the effects on real gross national product and the maximum long-term per capita consumption. As regards these important questions one may consider an enhanced neoclassical growth model with foreign direct investment that allows to capture the main effect from higher post-BREXIT mergers & acquisitions; namely that an increasing number of foreign investors will take over more British banks and firms. The theoretical link picks up the basic insights of the FROOT/STEIN model (QJE, 1991) which says that a real depreciation of the currency brings about higher international mergers and acquisitions in the country with the depreciation. Thus the UK should anticipate a higher share of foreign capital ownership and effectively a worsening of the terms of capital in the future. The model presented shows that the golden age per capita consumption in the UK is reduced by BREXIT. This is an additional negative effect beyond the anticipated 10 percent GDP loss emphasized in the Treasury Study (2016) on the long-term effects of British EU membership.
    Keywords: : Growth, Brexit, M&A, Mergers, Acquisitions, Foreign Direct Investment, Welfare Effects
    JEL: O11 O3 F5
    Date: 2017–04
  17. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); David Hanrahan (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: Summary: The BREXIT dynamics are considerable in a politico-economic perspective. The British referendum of June 23rd, 2016, was a disorderly one as the Cameron government did not include key information in the official government brochure sent to all households across the UK – a study by the Treasury had shown a 10 percent income decline as a consequence of a potential BREXIT, but in the 16-page information brochure distributed to all households/the electorate, this prognosis was not mentioned at all. EU immigration issues played a role not only under Cameron but also under the May government and in the UK government’s White Paper on exiting the EU, respectively. Key issues of BREXIT are related to the potential political instability in the EU. As regards the Global Britain approach of the May government, it is shown here that this is unlikely to work. EU27 reforms are quite important, without adequate reforms and much better leadership in Germany and other EU countries, there will be further disintegration in the EU.
    Keywords: Brexit, UK, Global Britain, EU, Disintegration
    JEL: E00 F15 E6 F5 O52
    Date: 2017–05

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