nep-int New Economics Papers
on International Trade
Issue of 2017‒08‒06
nineteen papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. The Role of Export Restrictions in Agricultural Trade By Carmen Estrades; Manuel Flores; Guillermo Lezama
  2. Exchange Rate Induced Export Quality Upgrading: A Firm-Level Perspective By Hu, Cui; Parsley, David; Tan, Yong
  3. Deep and Not Comprehensive? What the WTO rules permit for a UK-EU Trade Agreement By Emily Lydgate; L Alan Winters
  4. Interdependence of Trade Policies in General Equilibrium By Mostafa Beshkar; Ahmad Lashkaripour
  5. A Generalized CES Demand System and Gains from Trade with Heterogeneous Income and Price Elasticities By Marti Mestieri
  6. Domestic value added content of India's exports: Estimates for 112 sectors, 1999-2000 to 2012-13 By C. Veeramani; Garima Dhir
  7. Exporting and performance: evidence from Greek firms By Heather D Gibson; Georgia Pavlou
  8. Productivity Gaps and Vertical Technology Spillovers from Foreign Direct Investment: Evidence from Vietnam By Bin Ni; Hayato Kato
  9. Trade Balance and Border-Adjustment Taxes: Revisiting Decades-Old Literature By Razin, Assaf
  10. Probabilistic patents, alternative damage rules and optimal trade policy By Apurva Dey; Arun Kumar Kaushik; Rupayan Pal
  11. Breaking Badly: The Currency Union Effect on Trade By Douglas L. Campbell; Aleksandr Chentsov
  12. Law of One Price, Distance, and Borders By Fernando Borraz; Leandro Zipitría
  13. Trade and Domestic Production Networks By Magne Mogstad; Emmanuel Dhyne; Ayumu Kikkawa; Felix Tintelnot
  14. The Relationship Between Greek Exports and Foreign Regional Income By Konstantinos Chisiridis; Theodore Panagiotidis
  15. Do friends follow each other? FDI network effects in Central Europe By Gabor Bekes; Marta Bisztray
  16. Exporting and Organizational Change By Caliendo, Lorenzo; Monte, Ferdinando; Rossi-Hansberg, Esteban
  17. Purchasing practices and low wages in global supply chains empirical cases from the garment industry By Starmanns, Mark.
  18. Effects of Foreign Direct Investment on Intellectual Property, Patents and R&D By Arun, Korhan; Yıldırım, Durmuş Çağrı
  19. The effect of tax harmonisation in the Southern African Development Community on Foreign Direct Investment By Michael Ade; Jannie Rossouw; Tendai Gwatidzo

  1. By: Carmen Estrades (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Manuel Flores (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República y Geneva School of Economics and Management (Suiza)); Guillermo Lezama (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: Between 2006 and 2011, in a global context of rising food prices, many countries applied price-isolating policies, among them export restrictions. As countries are not obliged to notify WTO about the imposition of export restrictions, there is not good information about the measures applied. We fill this void by building a comprehensive database on export restrictions applied in the agricultural sector worldwide between 2005 and 2014. Using the Export Restriction in Agriculture (ERA) database, we assess the effects of export restrictions on agricultural trade and global food prices in 2005-2013. To do so, we estimate a disaggregated gravity model of trade. Clear evidence of export restrictions affecting world prices is limited to a handful of sectors, and weak evidence suggests that it may exist in some other sectors. We also find weak evidence of an impact of import promoting policies on agricultural prices. These results highlights the idea that export restrictions should be addressed at the multilateral level, but negotiations on export restrictions should not be disassociated from talks on other price-insulating policies.
    Keywords: export restrictions, export taxes, export bans, agricultural prices, gravity model
    JEL: F14 Q17 F13 C33 Q18
    Date: 2017–05
  2. By: Hu, Cui; Parsley, David; Tan, Yong
    Abstract: This paper explores the impact of exchange rate fluctuations on exported product quality. Existing studies of quality upgrading stress the link between home country depreciation and increased access to export markets. Our focus in this study is on the complimentary effect of an import currency appreciation (i.e., the domestic currency appreciates relative to the sourcing country's currency). Our main finding is that firms upgrade their export quality in response to an import currency appreciation. We first develop a partial equilibrium model to reveal the mechanism: an import currency appreciation that makes imported intermediates cheaper allows firms to switch to higher quality intermediates, which in turn, increase export quality. Using Chinese Customs data during 2000-2006, we find that an import appreciation increases both import, and export quality. Furthermore, export quality increases more for less productive firms, and for firms exporting to developed countries.
    Keywords: Import currency Appreciation, Quality Upgrade, Import Quality, Export Quality
    JEL: F10 F12 F13
    Date: 2017–07–31
  3. By: Emily Lydgate (UK Trade Policy Observatory, University of Sussex); L Alan Winters (UK Trade Policy Observatory, University of Sussex)
    Abstract: WTO rules prohibit Free Trade Areas (FTAs) that provide tariff-free access or services liberalisation in only one or a few sectors. In this sense, a narrow, sectoral approach to concluding an FTA between the EU and the UK would contravene WTO law. However, assuming the EU and the UK were able to agree a substantially broad tariff-free FTA, WTO rules would not prevent them from moving further to maintain the bulk of the benefits of the Customs Union and the Single Market in a few key sectors. They could establish customs union-like conditions by coordinating external tariffs in some sectors and agreeing on relaxed Rules of Origin (RoOs) administered lightly and Single Market-like access could be approximated through sectoral Mutual Recognition Agreements. Such an approach would enable continued deep integration, whose desirability has been signalled on both sides. It would fall short of current market access levels even in the selected sectors and, in the case of tariff coordination, re-create some of the limits to an independent trade policy that Brexit aimed to remove. If the trade-off were deemed desirable, however, the approach could be reconciled with WTO rules including the ‘Most Favoured Nation’ requirement that equal treatment be awarded to all WTO Member States.
    Keywords: Free Trade Agreements; WTO; Brexit; European Union
    JEL: F15 F13
    Date: 2017–07
  4. By: Mostafa Beshkar (Indiana University); Ahmad Lashkaripour (Indiana University)
    Abstract: We characterize the optimal trade tax/subsidy schedule in generalequilibrium multiple-sector gravity models and find that: ( i ) The optimal tariffs are uniform across sectors, despite sectoral variations in trade elasticities, transport costs and demand characteristics; ( ii ) The optimal export subsidy for a sector is increasing in that sector’s trade elasticity. Moreover, trade policies are interdependent: ( iii ) Import tariffs across sectors are complementary and ( iv ) Import policy is only an imperfect substitute for export policy. These policy interdependencies play an important role in the optimal design of trade agreements and provide a novel perspective on the WTO’s ban on export subsidies. Fitting our model to trade data, we show that these policy interdependencies are also quantitatively significant. Finally, ( v ) non-revenue trade barriers (such as import bans) could be optimal in a subset of sectors.
    Date: 2017–04
  5. By: Marti Mestieri (Northwestern University)
    Abstract: Micro-level studies robustly document heterogeneity in price and income elasticity of goods produced by different industries or firms. How- ever, this heterogeneity is absent from most theories of aggregate and macro- level phenomena. In this paper, we provide a flexible yet tractable general-equilibrium framework for the study of heterogeneity in price and income elasticity across goods. We first show that a broad class of demand systems that either focus on price or income elasticity heterogeneity implicitly impose strong restrictions on the correlation between income and price elasticities across goods. We show that data on trade flows does not support such correlations for import demand. We provide a generalization of the standard CES preferences that flexibly allows for general patterns of correlations between income and price elasticity. As an application of our demand system, we embed it in a Ricardian model of international trade and show it implies intuitive corrections to the standard results for the welfare gains from trade. These corrections stem from the fact that the gains from access to new varieties strongly hinge on the price and income elasticity composition of the traded goods. Empirically, we show that these compositional effects result in substantially higher welfare gains from trade in rich relative to poor countries.
    Date: 2017
  6. By: C. Veeramani (Indira Gandhi Institute of Development Research); Garima Dhir (Indira Gandhi Institute of Development Research)
    Abstract: Using Input-Output (IO) analysis, this study provides the time series estimates of domestic value added (DVA) content of India's merchandise and services exports for the period 1999-2000 to 2012-13 and for 112 sectors. The study makes use of the official input-output tables (IOTs) for the benchmark years 1998-99, 2003-04, 2007-08 as well as the recently published Supply Use Tables (SUTs) for the years 2011-12 and 2012-13. The IOTs and SUTs, compiled by the CSO, do not distinguish imported inputs from domestic inputs. Using a proportionality assumption we separate domestic and imported inputs. Further, for the intervening years (i.e., the years for which IOTs and SUTs are not available), we construct the domestic use tables by making use of detailed production and trade data from various official sources. This enables us to make use of year-specific domestic use tables in our estimation. The estimates show that the DVA content of India's exports increased from US$46 billion in 1999-00 to US$ 295 billion in 2012-13, with a growth rate of 17.7 per annum. The ratio of DVA to gross exports steadily declined from 0.86 in 1999-00 to 0.65 in 2012-13. The decline in the ratio of DVA to gross exports has been particularly sharp for manufacturing sectors, suggesting that Indian industries have become more integrated with the global production networks (GPNs) and value chains, especially since the second half of the 2000s. Backward linkages, particularly from manufacturing to agriculture and services, have become an important source of export related DVA in the country. An implication is that the industries which are less export oriented are not necessarily protected from negative external shocks. Finally, using an econometric analysis, we show that greater participation in GPNs, as captured by the share of DVA in gross exports of a sector, leads to higher absolute values of gross exports and DVA.
    Keywords: Exports, Domestic Value Added, India, Global Production Networks, Input Output
    JEL: C67 F14 F15
    Date: 2017–07
  7. By: Heather D Gibson (Bank of Greece); Georgia Pavlou (Bank of Greece)
    Abstract: This paper explores differences in performance between firms that export and those that do not. With only a few exceptions, exporters have characteristics which suggest “better” performance than non-exporters, controlling for observed and unobserved heterogeneity. This paper aims to provide evidence on the differences between exporters and non-exporters in terms of labour productivity and profitability across time, different sectors of economic activity and different size groups, using data from exporting and non-exporting firms incorporated in Greece for the period 2006-2014. The results suggest that the exporter productivity premium is around 14% for the whole sample, pointing to a significant productivity advantage for exporting firms which is even stronger in certain sectors of economic activity. There is also evidence in favour of higher productivity growth for always-exporting firms and starters, while there is a negative, though insignificant, effect for stoppers.
    Keywords: export premia; labour productivity; Greece; firm performance
    JEL: F14
    Date: 2017–06
  8. By: Bin Ni (Faculty of Business Administration,Toyo University); Hayato Kato (Faculty of Economics, Keio University)
    Abstract: Developing countries are eager to attract foreign direct investment (FDI) to gain positive technology spillovers for their local firms. However, which type of foreign firm is desirable for a host country looking for beneficial spillovers? At first sight, foreign firms with higher productivity may seem of more benefit by transferring their advanced knowledge; however, their technological and managerial knowledge may be too advanced for local firms to learn. To address this question, we use firm-level panel data from Vietnam to investigate whether foreign Asian investors in downstream sectors affect the productivity of local Vietnamese firms in upstream sectors according to the foreign firms' differing productivity levels. Using the method of endogenous structural breaks, we divide Asian investors into low, middle, and high productivity groups.The results suggest that the middle group has the strongest and most significant positive impact on local suppliers' productivity.
    Keywords: Technology spillover, Productivity gap, Firm-level data, Vietnam
    JEL: D22 F21
    Date: 2017–07–15
  9. By: Razin, Assaf
    Abstract: The relationship between the trade balance and tariffs puzzled economists for many decades. Prompted by current events, I revisit some of the old literature.
    JEL: F3
    Date: 2017–07
  10. By: Apurva Dey (Indira Gandhi Institute of Development Research); Arun Kumar Kaushik (O.P. Jindal Global University); Rupayan Pal (Indira Gandhi Institute of Development Research)
    Abstract: This paper analyzes interdependencies between optimal trade policy and preferred' liability doctrine to assess infringement damages, when intellectual property rights are probabilistic, in a model of import competition between a foreign patentee and a domestic infringer. It shows two reversal results. First, a regime switch from protectionism to free trade reverses stakeholders' preferences over liability doctrines. In the free trade regime both the infringer and consumers prefer the `unjust enrichment' rule, while the patentee prefers the `lost profit' rule, over any convex combination of these two liability doctrines. In contrast, in the regime of trade policy intervention, the importing country's government prefers the `lost profit' rule, which best protects interests of the infringer at the expense of both consumers and the patentee. Second, the optimal trade policy changes from an import tariff under the `lost profit' rule to import subsidization under the `unjust enrichment' rule, unless the patent is weak.
    Keywords: Probabilistic intellectual property rights; Infringement; Damage rules; Import competition; Trade policy
    JEL: O34 L13 K40 F13
    Date: 2017–05
  11. By: Douglas L. Campbell (New Economic School (NES)); Aleksandr Chentsov (New Economic School)
    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
  12. By: Fernando Borraz (Banco Central del Uruguay y Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Leandro Zipitría (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República y Universidad de San Andrés)
    Abstract: We propose a decomposition of the border effect in international trade by controlling for differences in competition in local markets. An extension of the Hotelling (1929) model shows that the availability of local substitutes increases price dispersion and biases the estimation of the border effect. We test these predictions using detailed price database at the supermarket level for Uruguay. This stylized setting makes it possible to control for other potential explanations of the border effect (i.e., exchange rates, taxes, or transport costs). We find that for those goods without local competitors the border estimation increases substantially, while for those goods that do have local competitors the effect of border is negligible. As the literature suggests, results should be even larger for different countries than for different cities. The methodology developed in the paper allows a finer explanation for understanding the relevance of borders in price dispersion.
    Keywords: border effect, price dispersion, competition.
    JEL: F14 F15 L13
    Date: 2017–02
  13. By: Magne Mogstad (University of Chicago); Emmanuel Dhyne (National Bank of Belgium); Ayumu Kikkawa (University of Chicago); Felix Tintelnot (University of Chicago)
    Abstract: In this paper we study how international trade affects firm efficiency and real wages in Belgium. Both in our theory and observed data firms trade with each other and external shocks transmit along the firm-to-firm production network. We first document the transmission of external trade shocks in reduced-form equations based on an exogenous network structure. We then develop and estimate a model of firm-to-firm trade, external trade, and endogenous network formation.
    Date: 2017
  14. By: Konstantinos Chisiridis; Theodore Panagiotidis
    Abstract: This paper assesses the effect of foreign economic activity on Greek exports based on both static and dynamic analysis. We employ data from 1990:I to 2016:IV and quantify the long-run foreign income elasticity of Greek exports. We establish a cointegration relationship and find that the aggregate foreign income elasticity of Greek exports is 1.72 and the price elasticity is negative. We reveal that economic growth in Germany, Italy and Turkey has the greatest impact on Greek exports and the corresponding elasticities are found to be 0.75, 0.72 and 0.65. The rest of the European countries are also found to be significant for the growth of the Greek exports. Finally, the dynamic analysis shows a positive interaction between real income growth in Germany, Italy, the rest of Europe and Greek export growth in the short-run horizon.
    Date: 2017–07
  15. By: Gabor Bekes (Institute of Economics Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Central European University and CEPR); Marta Bisztray (Institute of Economics Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: A great deal of multinationals receive a bundle of hidden or cash subsidizes upon investing in a foreign country. Policymakers often argue that a subsidy today will help locate friends of the investor later on. Using extensive data on FDI investments, we analyze such patterns. In particular, we investigate if co-location is more frequent among connected firms such as members of business groups as well as firms sharing similar background. Focusing on investments into Central and Eastern European countries we find evidence of co-location pattern of connected firms.
    Keywords: Foreign direct investment, agglomeration, location choice, network effects, business groups
    JEL: F23 R3
    Date: 2017–06
  16. By: Caliendo, Lorenzo; Monte, Ferdinando; Rossi-Hansberg, Esteban
    Abstract: We study the effect of exporting on the organization of production within firms. Using French employer-employee matched data together with data on a firm's exporting activity, we find that firms that enter the export market and expand substantially reorganize by adding layers of management, hiring more and paying, on average, lower wages to workers in all pre-existing layers. In contrast, firms that enter the export market and expand little do not reorganize and pay higher average wages in all pre-existing layers. We then present some evidence that these effects are causal using pre-sample variation in the destination composition of exports, in conjunction with real exchange rate variation across countries. Our results are consistent with a growing literature using occupations to study the internal structure of firms and how their organization responds to opportunities in export markets.
    Keywords: exports; firm organization
    JEL: D22 F16 J24 J31 L23
    Date: 2017–07
  17. By: Starmanns, Mark.
    Abstract: This paper attempts to explain why brands and retailers do not implement better wages on a larger scale. It analyses the hurdles buyers face when trying to implement higher wages in their supply chains, and assesses how they try to raise wages. It particularly examines how lead firms' purchasing practices affect wages, and how they improve working conditions in their supply chains. The three main research questions are: 1. What root causes do low wages in the supply chain have? 2. How do buyers try to raise wages in their supply chain? 3. How do purchasing practices enable suppliers to implement, or prevent them from implementing higher wages and decent working conditions? The paper has an empirical focus. It examines 14 brands and retailers, most of which are small and medium enterprises (SME), and most of which have a policy to implement a 'living wage' at their supply factories.
    Keywords: low wages, clothing industry, value chains, purchasing, case study
    Date: 2017
  18. By: Arun, Korhan; Yıldırım, Durmuş Çağrı
    Abstract: As innovative firms have considerable competitive advantage; more foreign direct investment (FDI) research has been related to the innovation. The primary aim of this study is to explore how intra-regional economies interact with host countries’ innovative performance, and how they are affected by FDI. Azerbaijan, Georgia and Turkey, located in the South Caucasus region, are selected as examples. Numbers of patent applications, R&D expenditure (% of GDP), and intellectual property payments are chosen as factors indicative of innovation. While this research tries to explore whether these three countries, connected by large trades, can act as a clustered group; Panel cointegration and Panel OLS models are used for analysis. The results show that FDI is an important variable affecting the level of innovation in the panel analysis. Nevertheless, individual relationships with FDI vary, and cointegration analysis shows heterogeneity. That is, foreign direct investment could play a central role in increasing the level of innovation for Azerbaijan and Georgia, but it is not an important determinant of Turkey's economic innovation level. Countries should realize that when their economies are becoming stronger, FDI is not a useful tool for escalating innovation, rather they should be in clusters that can leverage innovation.
    Keywords: Foreign Direct Investment (FDI), Innovation, Panel Data Analysis, Panel OLS, Azerbaijan, Turkey, Georgia
    JEL: F21 O32 O34
    Date: 2017–06
  19. By: Michael Ade; Jannie Rossouw; Tendai Gwatidzo
    Abstract: This paper investigates the effect of tax harmonisation on foreign direct investment (FDI) in the Southern African Development Community (SADC) region. Findings of a first attempt to investigate the linkage between taxation (tax rates and policy) and FDI (in all 15 countries), using an eclectic panel data modeling approach from 1990-2010 are presented. A new value added tax (VAT) harmonisation variable is introduced (in addition to a corporate income tax (CIT) harmonisation variable) via a tax policy harmonisation measure (TPHM) in the panel empirical investigation, complemented by a sensitivity analysis (using the extreme-bound analysis (EBA) technique) on the impact of taxation on FDI inflows to the SADC. The investigation shows that when errors in the regressors (for instance contemporaneous correlation, heteroskedasticity, cross-sectional dependence, endogeneity) are controlled for, tax harmonisation (amongst other contributing factors) does indeed have a significant causal relationship with FDI in the SADC. The study generally provides empirical evidence to support the argument for effectively using taxation towards higher FDI inflows in the region. Policy considerations towards improved tax harmonisation emanating from the paper include the need for individual SADC governments to promote national tax policies aimed at supporting regional tax harmonisation objectives, through strengthening existing tax agreements and treaties. This is necessary to reduce disparity in tax rates (including the definition of tax bases), improve existing level of tax co-movement, mitigate tax leakages and promote FDI inflows.
    Keywords: SADC, FDI and Tax Policy Harmonisation, Panel data, Cross-sectional dependence, Sensitivity analysis
    JEL: E60 F15 F21 H25 H27
    Date: 2017–07

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