nep-int New Economics Papers
on International Trade
Issue of 2017‒10‒08
fourteen papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Adapting to within-country export barriers: Evidence from the Japan 2011 Tsunami By Masashige Hamano; Wessel N. Vermeulen
  2. Brexit and the Future of Globalization? By John Van Reenen
  3. Trade effects of ASEAN-plus-China and -Japan free trade agreements by production stage and industry By Taguchi, Hiroyuki; Nishi, Emiko, Darcy
  4. Agriculture or Industry: Rice or Garments: Ex-post and Ex- Ante Analysis of Pakistan’s falling Competitiveness in Its Main Export Items By Mamoon, Dawood
  5. Global Trade Flows: Revisiting the Exchange Rate Elasticities By Matthieu Bussière; Guillaume Gaulier; Walter Steingress
  6. Brexit: The Economics of International Disintegration By Sampson, Thomas
  7. Words vs. actions: International variation in the propensity to fulfil investment pledges in China By Abigail S. Hornstein
  8. Competition and Gains from Trade: A Quantitative Analysis of China Between 1995 and 2004 By Hsu, Wen-Tai; Lu, Yi; Wu, Guiying Laura
  9. Optimal International Agreement and Restriction on Domestic Efficiency By Lee, Gea M.
  10. Instrumental Variables and Causal Mechanisms: Unpacking the Effect of Trade on Workers and Voters By Gold, Robert; Dippel, Christian; Heblich, Stephan; Pinto, Rodrigo
  11. Dynamic Openness and Finance in Africa By Simplice Asongu; Jules R. Minkoua N
  12. The impact of oil-market shocks on stock returns in major oil-exporting countries: A Markov-switching approach By Basher, Syed Abul; Haug, Alfred A.; Sadorsky, Perry
  13. Cross-Border Acquisitions and Employee-Engagement By Liang, Hao; Renneboog, Luc; Vansteenkiste, Cara
  14. On the Effects of the BRICS on World Economic Growth By Bosupeng, Mpho

  1. By: Masashige Hamano (Waseda University); Wessel N. Vermeulen (Newcastle University London)
    Abstract: How do exports respond to changes in domestic trade costs? In particular how strongly are exports from one port affected by changes in the cost of exporting at neighbouring ports? To answer these questions we extend the standard trade model with heterogeneous firms to have a multiple port structure where exporting is subject to port specific local transportation costs and port specific fixed export costs as well as international bilateral trade costs. We derive a gravity equation with multiple ports and show that gravity distortion due to firm heterogeneity is conditional on port comparative advantage and resulting substitution of export across differentiated ports. We present evidence of the substitution effect using the 2011 Great East Japan Earthquake and following tsunami. This event allows us to measure the response of trade on ports not directly affected by the disaster. We detect a substitution effect for aggregate trade as well as differentiation at the sectoral level and by destination.
    Keywords: firm heterogeneity, extensive margins, transportation costs, fixed costs
    JEL: F14 O18 R1
  2. By: John Van Reenen
    Abstract: Alongside the victory of Donald Trump in the 2016 US elections, Britain's vote to leave the European Union ("Brexit") in June 2016 reflects a global upsurge in populism. I find that under all plausible scenarios Brexit will make the average UK household poorer than the alternative of remaining in the European Union. The welfare loss is larger if the UK leaves the Single Market (a "hard Brexit) and larger still (6% to 9% of GDP) when the dynamic effects of productivity losses are factored in. This damage hits the poor as much as the rich and is unlikely to be offset by new trade deals which cannot replicate the sustained reduction in non-tariff barriers that the Single Market has engineered.
    Keywords: brexit, globalization, populism
    JEL: D92 E22 D8 C23
    Date: 2017–09
  3. By: Taguchi, Hiroyuki; Nishi, Emiko, Darcy
    Abstract: This article examines the trade creation and diversion effects of ASEAN-Plus-China (ACFTA) and -Japan (AJFTA) free trade agreements with focuses on production stage and machinery industry by estimating the gravity trade model for the recent two decades between 1993 and 2015. The purpose for focusing on the trade flows by production stages (final goods and intermediate goods) and by industries (machinery and non-machinery) is to uncover the effects of ACFTA and AJFTA on the expanding international production networks in East Asia. The main findings are summarized as follows. First, regarding industry total, the trade creation effects of ACFTA and AJFTA are identified not in intermediate goods but in final goods. It might come from the larger tariff gaps between the Most Favored Nation (MFN) rates and the preferential rate for ASEAN in final goods than in intermediate goods, reflecting the structure of “tariff escalation”. Comparing the effects of ACFTA and AJFTA, the larger trade creation effects are found in ACFTA than in AJFTA, probably due to the larger tariff gaps with the higher MFN rates in China. As for machinery industry, the trade creation effects are verified on ACFTA probably due to the large tariff gaps with the still-existing high MFN in China, while no trade creation effects are found because of no tariff gaps with almost zero MFN rates in Japan.
    Keywords: ASEAN-plus-China and –Japan free trade agreement, Production stage, Machinery industry, trade creation and diversion effects
    JEL: F13 F14 O53
    Date: 2017–09
  4. By: Mamoon, Dawood
    Abstract: The paper undertakes an evolutionary analysis of Pakistan’s national competitiveness with special reference to exports from 1950-2010. The analysis suggests that post 1980s trade liberalization, some visible improvements can be seen in production efficiencies in Pakistan but they were not translated into improved agriculture or industry competitiveness. The major export items like garments and rice have seen a steady decline in value over the years.
    Keywords: Trade, Competitiveness, Agriculture, Industry
    JEL: F1 F15
    Date: 2017–10–05
  5. By: Matthieu Bussière; Guillaume Gaulier; Walter Steingress
    Abstract: This paper contributes to the debate on the magnitude of exchange rate elasticities by providing a set of price and quantity elasticities for 51 advanced and emerging-market economies. Specifically, for each of these countries we report the elasticity of trade prices and trade quantities on both the export and on the import sides, as well as the reaction of the trade balance. To that end, we use a large unified database of highly disaggregated bilateral trade flows, covering 5,000 products and more than 160 trading partners. We present a range of estimates using not only standard regression techniques but also generated regressors that aim to address key omitted variable biases, particularly relating to unobserved marginal costs and competitor prices in the importing market. Our results show that quantity elasticities are significantly below one, pass-through is incomplete and export prices react significantly to exchange rate changes. Despite low quantity elasticities, the trade balance reacts positively to a depreciation in all countries because export and import prices adjust. Overall, our findings suggest that changes in the exchange rate can play an important role in addressing global trade imbalances.
    Keywords: Exchange rates, Inflation and prices, International topics
    JEL: C51 F14 F31 F33 F41
    Date: 2017
  6. By: Sampson, Thomas
    Abstract: This paper reviews the literature on the likely economic consequences of Brexit and considers the lessons of the Brexit vote for the future of European and global integration. Brexit will make the United Kingdom poorer because it will lead to new barriers to trade and migration between the United Kingdom and the European Union. Plausible estimates put the costs to the United Kingdom at between 1 and 10 percent of income per capita. Other European Union countries will also suffer economically, but their estimated losses are much smaller. Support for Brexit came from a coalition of less-educated, older, less economically successful and more socially conservative voters. Why these voters rejected the European Union is poorly understood, but will play an important role in determining whether Brexit proves to be merely a diversion on the path to greater international integration or a sign that globalization has reached its limits.
    Keywords: Brexit; European Union; Globalization; quantitative trade models; Trade agreements
    JEL: F1 F5
    Date: 2017–09
  7. By: Abigail S. Hornstein (Department of Economics, Wesleyan University)
    Abstract: We examine whether companies from certain countries are more likely to fulfil investment pledges. Using data on contracted and utilized FDI in China, we find that firms fulfil an average of 59% of their pledges within two years. The propensity to fulfil pledges is lower for firms from countries with greater uncertainty avoidance, power distance, and egalitarianism; higher if the source country is more traditional; and is unaffected by popular attitudes towards China. Prior literature has found that these cultural characteristics are associated with higher levels of utilized FDI. We extend this to show that announcements of planned corporate activity may be more reliable for firms from countries with certain cultures.
    Keywords: Foreign direct investment (FDI), China, Culture, Institutions, Policy
    JEL: F21 F23 G18 G31 Z13
    Date: 2017–07
  8. By: Hsu, Wen-Tai (School of Economics, Singapore Management University); Lu, Yi (National Singapore of Singapore); Wu, Guiying Laura (Nanyang Techonological University)
    Abstract: This paper provides a quantitative analysis of gains from trade for China over the period of 1995-2004, which was when China's openness drastically improved. We decompose gains from trade in two ways. First, we disentangle pro-competitive effects from a traditional Ricardian effect. Second, we separate the effect due to tariff reductions from that due to reductions in non-tariff trade costs. Our quantitative analysis shows that the pro-competitive effects account for 25.4% of the total welfare gains from trade, whereas the allocative efficiency alone accounts for 22.3%. We also find that tariff reductions account for about 31.6% of reductions of overall trade costs, whereas the associated relative contribution to overall gains is slightly larger at 39.6%. In our multi-sector analysis, we find that when a sectoral markup is higher in 1995, there tends to be a larger reduction in the respective sectoral trade cost between 1995 and 2004, a tendency that is generally welfare improving. One methodological advantage of this paper's quantitative framework is that its application is not constrained by industrial or product classifications, and so it can be applied to countries of any size.
    Date: 2016–05–07
  9. By: Lee, Gea M. (School of Economics, Singapore Management University)
    Abstract: The WTO's strict treatment of domestic subsidies has not been well received in the existing literature. An essential reason is that the consequent restriction on domestic efficiency is hardly compatible with the existing theory of government intervention under which the primary objective of using domestic subsidies, domestic efficiency, is not sacrificed for another objective. We develop a trade-agreement model in which the magnitude of a legitimate domestic subsidy with which to address a production externality is private information. We find that an optimal agreement substantially restricts domestic efficiency for the international objective of expanding market access.
    Keywords: Optimal Agreement; Restriction on Domestic Efficiency; Market-Access Preservation Rule; GATT/WTO Subsidy Rules
    JEL: F13
    Date: 2016–01–01
  10. By: Gold, Robert; Dippel, Christian; Heblich, Stephan; Pinto, Rodrigo
    Abstract: We identify how German voters responded to the labor market turmoil caused by increasing trade with low-wage manufacturing countries. We first establish that import competition increased voters’ support for only extreme (right) parties. We then decompose this populist ‘total effect’ of trade on voting into a ‘mediated effect’ running through labor market adjustments and an independent ‘direct effect’. Our Causal Mediation Analysis reveals that direct and indirect effect work in opposite directions.
    JEL: C36 D72 F16
    Date: 2017
  11. By: Simplice Asongu (Yaoundé/Cameroon); Jules R. Minkoua N (Buea, Cameroon)
    Abstract: This study assesses dynamics of openness and finance in Africa by integrating financial development dynamics of depth, activity and size in the assessment of how financial, trade, institutional, political and other openness policies (of second generation structural and institutional reforms) have affected financial development. The empirical evidence is based on Generalized Method of Moments with data from 28 African countries for the period 1996-2010. The following findings are established. (i) While the de jure (KAOPEN) indicator of financial openness improves financial depth, the de facto (FDI) measurement decreases it, with the effect of the latter measure positive on financial size. (ii) Whereas trade openness improves financial depth, its effect on financial activity and size is negative. (iii) Institutional openness has a positive effect on financial dynamics of depth and activity, while its effect on financial size is negative. (iv) Political openness and economic freedom are detrimental to financial depth and activity. Justifications for these nexuses are discussed.
    Keywords: Banking; Trade; Institutions; Politics; Africa
    JEL: E50 G20 O16 O17 O55
    Date: 2017–01
  12. By: Basher, Syed Abul; Haug, Alfred A.; Sadorsky, Perry
    Abstract: The impact that oil shocks have on stock prices in oil exporting countries has implications for both domestic and international investors. We derive the shocks driving oil prices from a fully-identified structural model of the oil market. We study their nonlinear relationship with stock market returns in major oil-exporting countries in a multi-factor Markov-switching framework. Flow oil-demand shocks have a statistically significant impact on stock returns in Canada, Norway, Russia, Kuwait, Saudi Arabia, and the UAE. Idiosyncratic oil-market shocks affect stock returns in Norway, Russia, Kuwait, Saudi Arabia and UAE. Speculative oil shocks impact stock returns in Canada, Russia, Kuwait and the UAE. Flow oil-supply shocks matter for the UK, Kuwait, and UAE. Mexico is the only country where stock returns are unaffected by oil shocks. These results shed important light on investor sentiment toward the relationship between oil shocks and stock markets in oil exporting countries.
    Keywords: Markov-switching; oil-exporting countries; oil-market shocks; stock returns
    JEL: E44 G15 Q43
    Date: 2017–09–28
  13. By: Liang, Hao (Tilburg University, Center For Economic Research); Renneboog, Luc (Tilburg University, Center For Economic Research); Vansteenkiste, Cara (Tilburg University, Center For Economic Research)
    Abstract: We provide novel evidence that a firm’s engagement in employee-related issues explains part of the value difference between its domestic and cross-border takeovers. An acquirer’s investment in employee relations is positively related to the firm’s performance when acquiring domestically, but labor-related frictions reverse this effect when acquiring a foreign target. The results cannot be explained by country-level labor regulation but are consistent with the notion that labor-related frictions exist that prohibit firms from efficiently transforming monetary incentives in higher shareholder value when acquiring a foreign target firm.
    Keywords: employee-engagement; labor protection; Monetary incentives; Cross-Border Mergers and Acquisitions
    JEL: G34 M14 J24
    Date: 2017
  14. By: Bosupeng, Mpho
    Abstract: The purpose of this empirical study is to examine the potential effects of the BRICS on other economies’ economic growth over the period 1960-2013. This investigation deploys the Saikkonen and Lu ̈tkepohl cointegration methodology to validate long run relations between Brazil and China’s economic growth and other nation’s output growth. The study further uses the Toda and Yamamoto approach to Granger causality to examine long run causal links between the BRICS economic growth. The results show that all countries exhibit long run relations with China and Brazil’s economic growth. In addition, the results prove that Brazil’s economic growth is induced by South Africa, China and India’s economic growth.
    Keywords: economic growth; BRICS; developing economies; economic integration.
    JEL: F02
    Date: 2017

This nep-int issue is ©2017 by Luca Salvatici. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.