nep-int New Economics Papers
on International Trade
Issue of 2017‒07‒30
25 papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Gross versus value added trade balances of the Central and Eastern European countries By ?ukasz Ambroziak
  2. The Interconnections Between Services and Goods Trade at the Firm-Level By Ariu, Andrea; Breinlich, Holger; Corcos, Gregory; Mion, Giordano
  3. Short Run Gravity By Anderson, James E.; Yotov, Yoto
  4. Intra-Firm Trade, Multinational Production, and Welfare By Pamela Bombarda; Stefania Marcassa
  5. Strategic Trade and Privatization Policies in Bilateral Mixed Markets By Xu, Lili; Lee, Sang-Ho; Wang, Leonard
  6. The Role of Trade Costs in the Surge of Trade Imbalances By Ricardo Reyes-Heroles
  7. Brexit and the Macroeconomic Impact of Trade Policy Uncertainty By Joseph Steinberg
  8. Do Environmental Regulations Effect FDI Decisions? The Pollution Haven Hypothesis Revisited By Yoon, Haeyeon; Heshmati, Almas
  9. The Exporter Wage Premium When Firms and Workers Are Heterogeneous By Egger, Hartmut; Egger, Peter; Kreickemeier, Udo; Moser, Christoph
  10. Nonlinear Gravity By Pau Pujolas; Wyatt Brooks
  11. Road map for enhancing Morocco – Brazil economic relations By Sandra Polónia Rios; Pedro da Motta Veiga
  12. Europe’s role in North Africa: development, investment and migration By Uri Dadush; Maria Demertzis; Guntram Wolff
  13. Foreign Direct Investments, Institutional Framework and Economic Growth By Arshat Hayat
  14. Intellectual Property Rights, Multinational Firms and Technology Transfers By Sara Biancini; Pamela Bombarda
  15. Bulgaria’s Trade Relations with the Main Partners in Sub-Saharan Africa – Trends and Prospects By Marinov, Eduard
  16. Firm-to-firm Trade in Sticky Production Networks By Kevin Lim
  17. Natural Disasters and Countries' Exports: New Insights from a New (and and Old Database By Hajare EL HADRI; Daniel MIRZA; Isabelle RABAUD
  18. Energy Market Integration in the ASEAN: Economics, Technology and Welfare Implications By Chang, Youngho; Lee, Justin; Ang, Wei Xiang; Chua, Jing Yi
  20. Integration along the Abuja road map - A progress report By Jaime DE MELO; Meriem NOUAR; Jean-marc SOLLEDER
  21. Integration along the Abuja road map - A progress report By Jaime DE MELO; Meriem NOUAR; Jean-marc SOLLEDER
  22. Oil, Debt and Development: OPEC in the Third World By Paul Hallwood; Stuart Sinclair
  23. Pricing behaviour and the role of trade openness in the transmission of monetary shocks By Laura Povoledo
  24. Financial Shocks,Supply-chain Relationships and the Great Trade Collapse* By Alok Johri; Terry Yip
  25. The Second Era of Globalization is Not Yet Over:An Historical Perspective By Bordo, Michael D.

  1. By: ?ukasz Ambroziak (Warsaw School of Economics)
    Abstract: The making available in the early 2010s of databases containing world input-output tables (e.g. WIOD) was a significant advancement in research on international trade. It allowed to compile statistics of value added flows between countries. The concept ?trade in value added? accounts for the value added of one country directly and indirectly contained in final consumption of another country. The typical question would be: How much value added of other countries is contained in the consumption of the country under examination?. The trade statistics in value added term eliminate the multiple calculation of such goods in trade ? first as components (intermediate goods) and then as parts of final goods. Thus, those statistics are better to assess the benefits derived by particular countries from foreign trade. The aim of this paper is to present changes of trade balances in bilateral trade of the Central and Eastern European countries (Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia ? CEECs) in 1995-2011. The illustration of these changes is based on trade statistics both in value added terms and in gross terms. The data are downloaded from the World Input-Output Database (WIOD Release 2013). The research study shows that trade deficits and trade surpluses when measured in value added terms tend to become smaller as compared to gross trade figures. The key to understanding of this pattern is trade in intermediates. The differences between trade balances in gross and value added terms differ among the CEECs. The largest are in the Central European countries (the Czech Republic, Hungary, Poland and Slovakia). These countries are strong integrated with the global value chains.
    Keywords: gross trade, value added trade, trade balance, Central and Eastern European countries
    JEL: F14 F60 D57
    Date: 2017–05
  2. By: Ariu, Andrea; Breinlich, Holger; Corcos, Gregory; Mion, Giordano
    Abstract: In this paper we study how international trade in goods and services interact at the firm level. Using a rich dataset on Belgian firms during the period 1995-2005, we show that: i) firms are much more likely to source services and goods inputs from the same origin country rather than from different ones; ii) increases in barriers to imports of goods reduce firm-level imports of services from the same market, and conversely. We build upon a discrete-choice model of goods and services input sourcing that can reproduce these facts to design our econometric strategy and use the estimated model for counterfactual analysis. In particular, we look at the quantitative impact of reductions in goods and services barriers between the US and the EU. Our findings have important implications for the design of trade policy. They suggest that a liberalization of service trade can have quite direct and sizable effects on goods trade and vice-versa, and that jointly liberalizing goods and services trade brings about substantial complementarities.
    Keywords: Complementarity; Discrete Choice Models; Firm-level Analysis; Trade in Goods; Trade in Services
    JEL: F10 F13 F14 L60 L80
    Date: 2017–07
  3. By: Anderson, James E. (Boston College); Yotov, Yoto (Drexel University, ERI-BAS, CESifo)
    Abstract: Short run gravity is a geometric weighted average of long run gravity and bilateral capacity. The model features (i) joint trade costs endogenous to bilateral volumes, (ii) long run gravity as a limiting case of efficient investment in bilateral capacities, (iii) a structural ratio of short run to long run trade elasticities equal to a micro-founded buyers' incidence elasticity, and (iv) tractable short and long run models of the extensive margin. Application to manufacturing trade of 52 countries during the globalization period 1988-2006 strongly supports the model. Results solve several time invariance and trade elasticity puzzles in the literature.
    Keywords: trade elasticity puzzles; export dynamics; missing globalization
    JEL: F10 F13 F14
    Date: 2017–05–23
  4. By: Pamela Bombarda; Stefania Marcassa (Université de Cergy-Pontoise, THEMA)
    Abstract: We propose a model where firms have access to competing market strategies: export and multinational production. Due to technological appropriability issues, foreign affiliates import an intermediate input from the home headquarters. The presence of export and multinational production alters the standard results obtained for welfare in heterogeneous firm models, through a double truncation of the productivity distribution. The model is then calibrated to analyze counterfactual scenarios. We find that welfare gains from intra-firm trade range from 6 to 12 percent depending on country characteristics.
    Keywords: MNFs, multinational production, intra-firm trade, welfare.
    JEL: F12 F23
    Date: 2017
  5. By: Xu, Lili; Lee, Sang-Ho; Wang, Leonard
    Abstract: We consider strategic trade and privatization policies in international bilateral mixed markets where a domestic state-owned enterprise competes with both domestic and foreign private enterprises in each country. We examine the strategic interaction of two countries’ optimal choices of privatization and trade policies with different combinations of production subsidy and import tariff, and find some interesting policy implications. First, a higher social welfare can be achieved with the appropriate degree of privatization when both governments adopt a production subsidy only. Second, FTA can work as a coordination device to solve the prisoner’s dilemma problem. Third, the maximum-revenue privatization, combined with zero subsidy and higher tariff, is higher than optimum-welfare privatization. Finally, the international bilateral equilibrium needs less degree of privatization and lower subsidy rate, even though it is jointly suboptimal from the viewpoint of global welfare.
    Keywords: strategic privatization; international bilateral mixed market; industrial policy; optimal tariff;
    JEL: D43 F12 L32
    Date: 2017–07–24
  6. By: Ricardo Reyes-Heroles (Federal Reserve Board)
    Abstract: This paper shows that the decline in trade costs that underlies the increase in observed global bilateral gross trade flows has notably contributed to the surge in the size of net trade imbalances over the past four decades. To show this, I propose a framework that embeds a quantitative multi-country general equilibrium model of international trade based on Ricardian comparative advantages into a dynamic framework in which trade imbalances arise endogenously. I identify and describe two mechanisms through which declines in trade costs lead to larger imbalances in the model. By exploiting the information in bilateral trade flows, among other data, I calibrate the model and provide a decomposition that shows that 69 percent of the increase in the size of world trade imbalances can be explained by the decline in trade costs across countries. In other words, lower trade costs have not only allowed for more trade across countries in a particular point in time, but also for more trade over time. Moreover, the effect of lower trade costs on trade imbalances is heterogeneous across countries. In particular, trade imbalances in countries like the United States and China have been significantly affected by the decline in trade costs. I also show that the welfare gains from lower trade costs can differ substantially from those that are obtained when changes in trade imbalances are not taken into account.
    Date: 2017
  7. By: Joseph Steinberg (University of Toronto)
    Abstract: The United Kingdom has voted to leave the European Union but the trade policies that will replace E.U. membership are uncertain, and speculation abounds that this uncertainty will harm the U.K. economy until it is resolved. To assess the impact of uncertainty about post-Brexit trade policies, I study a dynamic general equilibrium model with endogenous export participation and uncertainty about whether future U.K.-E.U. trade costs will be high or low. I find that the total welfare cost of Brexit for U.K. households is between £7,000 and £18,000 per person, while uncertainty about Brexit costs less than £45 per person.
    Date: 2017
  8. By: Yoon, Haeyeon (Sogang University); Heshmati, Almas (Jönköping University, Sogang University)
    Abstract: In an attempt to verify the pollution haven hypothesis, this study investigates the impact of environmental regulations on foreign direct investment (FDI). We use Korean outward FDI data covering the manufacturing sector for 2009-15. The study not only considers the stringency but also the enforcement of environmental regulations when measuring the degree of the host country's environmental regulations. Since the pollution haven's effects indicate moving the polluting production stages from the home country to other (host) countries, we distinguish between investments in the 'production' part from that in the non-production part using location information about the host country. The main results of the estimation of a FDI model show that the stricter the regulations in host countries in Asia the lower the FDI both intensively and extensively to those countries. This supports the prevalence of the effects of pollution havens. However, before we separate the FDI into the production part, the effect of environmental regulations on FDI is hindered by the FDI in the non-production part. The results indicate that environmental regulations are determinants of FDI in the production part, while environmental regulations do not have a significant effect on FDI decisions when the entire FDI is considered.
    Keywords: pollution haven hypothesis, environmental regulation, foreign direct investment
    JEL: F23 K32 L51 Q56
    Date: 2017–07
  9. By: Egger, Hartmut; Egger, Peter; Kreickemeier, Udo; Moser, Christoph
    Abstract: We set up a trade model with heterogeneous firms and a worker population that is heterogeneous in two dimensions: workers are either skilled or unskilled, and within each skill category there is a continuum of abilities. Workers with high abilities, both skilled and unskilled, are matched to firms with high productivities, and this leads to wage differentials within each skill category across firms. Self-selection of the most productive firms into exporting generates an exporter wage premium, and our framework with skilled and unskilled workers allows us to decompose this premium into its skill-specific components. We employ linked employer-employee data from Germany to structurally estimate the parameters of the model. Using these parameter estimates, we compute an average exporter wage premium of 5 percent. The decomposition by skill turns out to be quantitatively highly relevant, with exporting firms paying no wage premium at all to their unskilled workers, while the premium for skilled workers is 12 percent.
    Keywords: Ability differences; Exporter wage premium; Heterogeneous Firms
    JEL: C31 F12 F15 J31
    Date: 2017–07
  10. By: Pau Pujolas (McMaster University); Wyatt Brooks (University of Notre Dame)
    Abstract: In constant elasticity of substitution (CES) trade models, the elasticity of import intensity to trade costs is constant while in non-CES models, it is a function. We provide a general formula for this function without making functional form assumptions on the utility function and allowing for quite general production environments. We show how to use the formula to measure welfare gains and to compare them between CES and non-CES models. In a quantitative application we nd that more closed countries and countries with similar patterns of production and consumption across sectors have gains larger than those implied by CES models.
    Date: 2017
  11. By: Sandra Polónia Rios; Pedro da Motta Veiga
    Abstract: There is much room for deepening Brazil and Morocco’s bilateral economic relationship, in the fields of trade and investment flows. This is the main conclusion of the assessment of both countries external economic relations and of their bilateral trade and investment flows. This policy brief aims at presenting a roadmap for fostering bilateral economic relations, focusing on the avenues for a bilateral free trade agreement and for bilateral treaties on investment promotion. This approach is based on the findings that the trade and industrial policies adopted by both countries create important obstacles to bilateral trade.
    Date: 2017–04
  12. By: Uri Dadush; Maria Demertzis; Guntram Wolff
    Abstract: Africa’s population is projected to reach almost 2.5 billion by 2050. Migration from Africa to the EU is relatively stable, at around 500,000 migrants per year, or 0.1 percent of the EU population, yet irregular immigration into the EU has increased recently. Development is often seen as the way to reduce migration but the development-migration nexus is complex. At low levels of development, migration might increase with rising GDP per capita. This applies to most of sub-Saharan Africa. By contrast, North African countries are among the continent’s more developed economies. Their geographical positions make them natural partners for the EU. The region is diverse but political instability has been a common feature that in recent years has hindered economic development. Cyclical factors and deep-rooted structural weaknesses have also contributed to weak economic performance. Conditions for business are relatively poor and trade barriers in some sectors have prevented integration either between these countries or into global value chains. We propose five ways in which EU policymakers can contribute to development in North Africa and build partnerships on trade, investment and migration.
    Date: 2017–05
  13. By: Arshat Hayat (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)
    Abstract: This paper explores the role of institutional quality in economic growth and more specifically the role it plays via the channel of foreign direct investments. This paper uses economic performance-relevant indicators of institutional quality (both an aggregated variable of institutional quality and individual indicators) to evaluate their direct impact on economic growth and their indirect impact on economic growth via foreign direct investments. This paper uses a larger dataset of 104 countries and applies GMM estimation method to a dynamic panel data and finds that FDI inflows cause stronger economic growth in countries with better institutional quality compared to countries with lower institutional quality. The same is true for individual institutional quality measure.
    Keywords: Foreign Direct Investments, Institutional Quality, Economic Growth, GMM
    Date: 2017–05
  14. By: Sara Biancini; Pamela Bombarda (Université de Cergy-Pontoise, THEMA)
    Abstract: Intellectual property rights (IPR) protect firms from imitation and are considered crucial to promote innovation and technological diffusion. This paper examines the im- pact of IPR on import sourcing decisions of multinationals. We consider a framework in which multinational firms offshore production of an intermediate good in a developing country. Firms can either decide to import the intermediate from vertically integrated producers, or from independent suppliers. In both cases, offshoring part of the produc- tion process embodies a risk of imitation. The model predicts that, under reasonable assumptions, stronger IPR encourage by a larger extent the imports of intermediates through vertical integration. Using U.S. Related-Party Trade database, we find empiri- cal evidence supportive of the positive link between level of IPR and the relative share of imports from vertically integrated manufacturers.
    Keywords: Intellectual Property Rights, MNF, FDI, outsourcing, international trade.
    JEL: F23 F12
    Date: 2017
  15. By: Marinov, Eduard
    Abstract: The article aims at presenting the prospects for trade between Bulgaria and Sub-Saharan Africa by analyzing the direction of international trade with the region. To achieve this firstly it presents Bulgarian trade with Sub-Saharan countries summarizing the trade flow dynamics for the 2003-2015 period, the share of Sub-Saharan Africa in Bulgarian international trade as well as its commodity structure. The main section of the article thoroughly discusses firstly the major trade products for the leading trade partners, then the dynamics of trade with these countries and finally analyses the significant cases of fluctuations. The conclusion summarizes the main findings which show the increasing importance of Sub-Saharan Africa for Bulgaria’s international trade relations.
    Keywords: Sub-Saharan Africa, international trade, export diversification
    JEL: F1 F14 N77
    Date: 2017
  16. By: Kevin Lim (Dartmouth College)
    Abstract: This paper develops a structural model of trade between heterogeneous firms in which the network of firm-level input-output linkages is determined both dynamically and endogenously. Firms vary in the size of their customer and supplier bases, occupy heterogeneous positions in different supply chains, and adjust their sets of trade partners over time. Despite the rich heterogeneity and dynamics, the model remains computationally tractable. Using both cross-sectional and panel data on trading relationships between US firms, I estimate the model's key parameters via a simulated method of moments technique and assess its fit to the data. Simulations of the model are then used to study how the structure and dynamics of the production network matter for the propagation of firm-level supply and demand shocks and their translation into aggregate effects.
    Date: 2017
  17. By: Hajare EL HADRI; Daniel MIRZA; Isabelle RABAUD
    Date: 2017
  18. By: Chang, Youngho (School of Business, Singapore University of Social Sciences); Lee, Justin (School of Social Sciences, Nanyang Technological University); Ang, Wei Xiang (School of Social Sciences, Nanyang Technological University); Chua, Jing Yi (School of Social Sciences, Nanyang Technological University)
    Abstract: Energy Market Integration (EMI) in the ASEAN through the ASEAN Power Grid (APG) is considered to improve the welfare of the economy. However, the EMI through power grids incurs some costs due to transmission losses, among others and the pricing of transmission losses ought to consider the marginal effect of demand and supply of both generators and consumers. Charging only a tariff as a function of the distance transmitted as access costs ignores the effect of a marginal change in demand or supply from consumers and generators respectively on the transmission grid. This leads to a poor signal to the market, leading to suboptimal decisions made by economic agents. The marginal cost pricing of transmission losses would reflect the opportunity costs of alternative options better and provide better incentives for investment, consumption and generation, leading to increases in welfare. This study aims to analyze how the locational marginal pricing (LMP) of transmission losses influences an optimal energy mix and energy trading in the ASEAN and derive policy implications for completing the APG. Four energy trade scenarios of 0%, 25%, 50%, and 75% with LMP mechanism of transmission losses appear to provide benefits to the countries under the APG as the total cost of electricity generation declines when power trade increases among ASEAN countries. The underpinnings of positive results strongly suggest ASEAN member countries seriously consider to enhance grid interconnection to realize the efficiency of power trading infrastructure.
    Keywords: Energy Market Integration; Transmission losses; Locational marginal pricing of transmission loses; Grid interconnection; Power trading
    JEL: F15 O13 Q49
    Date: 2017–03–15
  19. By: Boopendra seetanah (Uni of Mauritius)
    Abstract: The objective of the present study is two-fold. Firstly, to assess the impact of air access liberalization on tourism demand for Mauritius and secondly to analyse the dual impact of the interplay between air access liberalization and marketing promotion efforts on tourism demand. Using an Autoregressive Distributed Lag model, the results suggest that air access liberalisation is an important ingredient, albeit to a lesser extent as compared to other classical explanatory variables, of tourism demand. The results also highlight the fact that Mauritius is perceived as a luxurious destination and tourists are also deemed to be price sensitive. Moreover our dynamic approach interestingly confirms the presence of repeat tourism in the island. Finally, the findings also uncover the positive impact of the interplay between air access liberalization and marketing promotion efforts on fostering tourism demand.
    Keywords: Air Transport Liberalisation, Tourism, Autoregressive Distributed Lag Model.
    JEL: C22 F19
    Date: 2017–07
  20. By: Jaime DE MELO (Ferdi); Meriem NOUAR (FERDI); Jean-marc SOLLEDER (University of Geneva)
    Abstract: This paper reviews integration among the eight African Regional Economic Communities by comparing their characteristics and progress with three other South–South Regional Integration Arrangements. Three conclusions emerge: (i) slow progress towards meeting overly ambitious objectives; (ii) small changes in the destination of trade across all Regional Economic Communities, indicative of persistent high trade costs and few new manufactures products destined for geographically close markets; and (iii) compared with other South–South Regional Integration Arrangements, the Regional Economic Communities include a high number of provisions not covered in Word Trade Organization negotiations, but these have low legal enforceability. Reasons for this slow progress are explored in the paper.
    Keywords: intégration régionale
    JEL: F13 F55 F63
    Date: 2017–07
  21. By: Jaime DE MELO (Ferdi); Meriem NOUAR (FERDI); Jean-marc SOLLEDER (Université de Genève)
    Abstract: This paper reviews integration among the eight African Regional Economic Communities by comparing their characteristics and progress with three other South–South Regional Integration Arrangements. Three conclusions emerge: (i) slow progress towards meeting overly ambitious objectives; (ii) small changes in the destination of trade across all Regional Economic Communities, indicative of persistent high trade costs and few new manufactures products destined for geographically close markets; and (iii) compared with other South–South Regional Integration Arrangements, the Regional Economic Communities include a high number of provisions not covered in Word Trade Organization negotiations, but these have low legal enforceability. Reasons for this slow progress are explored in the paper.
    Keywords: intégration régionale
    JEL: F13 F55 F63
    Date: 2017–07
  22. By: Paul Hallwood (University of Connecticut); Stuart Sinclair (Lloyds Bank)
    Abstract: Our original monograph, Oil, Debt and Development: OPEC in the Third World was re-issued in 2016. As there was not enough time to write a new Preface reflecting how our ideas had stood the test of time, we offer this short paper touching on some of the book’s main themes, in particular, the nature of OPEC as a cartel, the terms of trade between oil prices and developing country non-oil primary commodity export prices, the generosity of Arab foreign aid, oil prices and oil importing countries’ foreign debts, and the importance of migrant worker remittances from Arab OPEC host countries to the main sending countries.
    Keywords: OPEC, Arab aid, oil exports, oil shock
    JEL: F5
    Date: 2017–07
  23. By: Laura Povoledo (University of the West of England, Bristol)
    Abstract: External demand is considered to be one of the channels of transmission of monetary policy to aggregate demand. If external demand matters in the monetary transmission, then the response of output to monetary shocks must be more pronounced in the sectors that are more open to trade and exposed to foreign competition. However, the empirical evidence is not conclusive. Using a New Keynesian open economy model, I show that the role of trade openness in the transmission of monetary shocks can be reversed completely by the degree of exchange-rate pass-through into import prices. If the pass-through is complete, traded output increases more than nontraded output after a positive monetary shock, if the pass-through is zero, traded output increases less. The lack of conclusive evidence on the role of external demand in the transmission of monetary shocks may also be explained by sectoral heterogeneity in price rigidity: if prices are more rigid in the nontraded sector, then it is not possible to find a positive correlation between the response of output to monetary shocks and the degree of openness, regardless of the degree of exchange rate pass-through.
    Keywords: Monetary transmission; External demand channel; Exchange rate pass-through;
    JEL: E52 F41
    Date: 2016–01–09
  24. By: Alok Johri; Terry Yip
    Abstract: The collapse in trade relative to GDP during 2008-09 was unusually large historically and puzzling relative to the predictions of canonical two-country models.In a calibrated dynamic general equilibrium two-country model where firms must build supply chain relationship in order to sell their product, we show that a tightening of credit can cause a sizable fall in the trade-GDP ratio (44 percent of the observed value) while productivity shocks cannot. The key mechanism underlying the sharper fall in trade relative to GDP involves an endogenous reallocation of scarce resources from international to domestic supply-chains, that are acquired and maintained at lower cost.
    JEL: E32 F41 F44
    Date: 2017–06–07
  25. By: Bordo, Michael D. (Rutgers University)
    Abstract: The recent rise of populist anti-globalization political movements has led to concerns that the current wave of globalization that goes back to the 1870s may end in turmoil just like the first wave which ended after World War I. It is too soon to tell. The decline and then levelling off of trade and capital flows in recent years reflects the drastic decline in global real income during the Great Recession. Other factors at work include the slowdown in the growth rate of China and the reversal of the extended international supply chains developed in the 1990s, as well as increased financial regulation across the world after the crisis. This suggests either a pause in the pace of integration or more likely a slowing down, rather than a reversal.
    JEL: F6 N1
    Date: 2017–07–01

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